RIBT RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of RiceBran Technologies and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (the SEC) for reporting on Form 10-Q; therefore, they do not include all of the information and notes required by GAAP for complete financial statements. The interim financial statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented of a normal and recurring nature necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021, which included all disclosures required by generally accepted accounting principles.

The results reported in these interim financial statements are not necessarily indicative of the results to be expected for the full fiscal year, or any other future period, and have been prepared based on the realization of assets and the satisfaction of liabilities in the normal course of business. 

NOTE 2. BUSINESS

We are a specialty ingredient company focused on the development, production, and marketing of products derived from traditional and ancient small grains. We create and produce products utilizing proprietary processes to deliver improved nutrition, ease of use, and extended shelf-life, while addressing consumer demand for all natural, non-GMO and organic products. We believe our products can become valuable alternatives to traditional food ingredients.

Notably, we apply our proprietary technologies to convert raw rice bran into stabilized rice bran (SRB), and high value-added derivative products including: RiBalance, a rice bran nutritional package derived from SRB; RiSolubles, a nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluble derivative of RiBalance and ProRyza, a rice bran protein-based product; and a variety of other valuable derivatives extracted from these core products.

In granular form, SRB is a food additive used in products for human and animal consumption. We believe SRB has certain qualities that make it more attractive than additives based on the by-products of other agricultural commodities, such as corn, soybeans, wheat, and yeast. Our SRB products and SRB derivatives support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in meats, baked goods, cereals, coatings, health foods, and high-end animal nutrition. Our target customers are food and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

We manufacture and distribute SRB from four locations: two facilities located within supplier-owned rice mills in Arbuckle and West Sacramento, California; one company-owned facility in Mermentau, Louisiana; and our own rice mill in Wynne, Arkansas. At our Dillon, Montana facility, we produce SRB-based products and derivatives through proprietary processes. Our rice mill in Wynne, Arkansas also supplies grades U.S. No. 1 and No. 2 premium long and medium white rice, and our grain processing facility in East Grand Forks, Minnesota, mills a variety of traditional, and ancient, small grains. Given the integrated nature of these facilities, we have one reporting unit and one operating segment, specialty ingredients.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent accounting standards not yet adopted

The following discusses the accounting standard(s) not yet adopted that will, or are expected to, result in a significant change in practice and/or have a significant financial impact on our financial position, results of operations or cash flows.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which changes the accounting for credit losses for certain instruments, including trade receivables, from an incurred loss method to a current expected loss method. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance, and subsequent guidance related to the topic, is effective for our annual and interim periods beginning in 2023 and must be adopted on a modified retrospective approach through cumulative-effect adjustment to retained earnings as of January 1, 2023. Based on the nature of our current receivables and our credit loss history, we do not expect the adoption of the guidance to have a significant impact on our results of operations, financial position, or cash flows.

NOTE 4. CASH AND CASH EQUIVALENTS

As of March 31, 2022, we have $3.8 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements. We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

We have cash on deposit in excess of federally insured limits at a bank. We do not believe that maintaining substantially all such assets with the bank or investing in a liquid mutual fund represent material risks.

NOTE 5. ACCOUNTS RECEIVABLE AND REVENUES

Amounts billed and due from our customers are classified as accounts receivable on our consolidated balance sheets and require payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due within 30 days or less, however certain customers have terms of up to 120 days. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from customers prior to revenue recognition on a contract are contract liabilities, are classified as customer prepayments liability on our consolidated balance sheets and are typically applied to an invoice within 30 days of the prepayment. Revenues in the three months ended March 31, 2022 and 2021, include $0.1 million, or less, in unearned revenue as of the end of the prior year.

Our accounts receivable potentially subject us to significant concentrations of credit risk. Revenues and accounts receivable from significant customers (customers with revenue or accounts receivable in excess of 10% of consolidated totals) are stated below as a percent of consolidated totals.

The following table presents revenues by geographic area shipped to (in thousands).

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Amounts payable for property and equipment included in accounts payable totaled less than $0.1 million at March 31, 2022, and $0.2 million at December 31, 2021. Assets which had not yet been placed in service, included in property and equipment, totaled $0.8 million at March 31, 2022, and $0.9 million at December 31, 2021.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

As of March 31, 2022, variable lease payments do not depend on a rate or index. As of March 31, 2022 and December 31, 2021, property and equipment, net, includes $0.2 million of finance lease right-of-use-assets, with an original cost of $0.5 million. During the three months ended March 31, 2022 and 2021, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

As of March 31, 2022, we do not believe it is certain that we will exercise any renewal options. The remaining terms of our leases and the discount rates used in the calculation of the fair value of our leases as of March 31, 2022, follows.

Maturities of lease liabilities as of March 31, 2022, follows (in thousands).

NOTE 9. DEBT

We finance certain amounts owed for annual insurance premiums under financing agreements. As of March 31, 2022, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through May 2022, at interest rates of 3.7% to 4.0% per year.

We borrow under a factoring agreement with a lender, which provides a $7.0 million credit facility. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility had an initial two-year term and automatically renews for successive annual periods, unless proper termination notice is given. The facility term has automatically extended to October 2022. We paid a $0.2 million facility fee upon inception of the agreement which amortized to interest expense on a straight-line basis over the two years ending in October 2021. We incur recurring fees under the agreement, including a funding fee of 0.5% above the prime rate, in no event to be less than 5.5%, on any advances and a service fee on average net funds borrowed. The lender has the right to demand repayment of the advances at any time. The lender has a security interest in personal property assets.

Additional information related to our factoring obligation follows.

Future principal maturities of long-term debt outstanding as of March 31, 2022, follow (in thousands).

In the three months ended March 31, 2022, holders forfeited options for the purchase of up to 9,703 shares of common stock (average $1.85 per share exercise price, average 7.7-year remaining life).

Restricted stock unit (RSU) activity for the three months ended March 31, 2022, follows.

The shares of common stock subject to the RSUs granted in 2022 vest within two years of the grant. As of March 31, 2022, issuance of 1,209,092 shares of common stock subject to certain RSUs, 865,052 of which are vested, is deferred to the date the holder is no longer providing service to RiceBran Technologies.

In the three months ended March 31, 2022, we issued 2,957,545 RSUs to employees that are subject to our shareholders approving an increase in the total shares of common stock authorized for issuance under the Amended and Restated 2014 Equity Incentive Plan. The shares of common stock subject to the RSUs will vest over an average of four years from the date shareholders approve the increase and are not included in the table above.

In the three months ended March 31, 2022, warrants for the purchase of up to 6,142,980 shares of common stock ($0.96 per share exercise price) expired.

On April 28, 2022, we issued a total of 348,721 shares of common stock to two resigning directors pursuant to the terms of their vested RSUs. Issuance of the shares of common stock subject to these RSUs had been deferred to the date the holder was no longer providing service to RiceBran Technologies.

NOTE 11. INCOME TAXES

Our tax expense for the three months ended  March 31, 2022 and 2021, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of March 31, 2022, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards. We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not more likely than not to occur.

NOTE 12. EARNINGS PER SHARE (EPS)

Basic EPS is calculated under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. Our outstanding convertible preferred stock are considered participating securities as the holders may participate in undistributed earnings with holders of common shares and are not obligated to share in our net losses.

Diluted EPS is computed by dividing the net income attributable to our common shareholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. The dilutive effects of outstanding options, warrants, nonvested shares of common stock and nonvested restricted stock units that vest solely on the basis of a service condition are calculated using the treasury stock method. The dilutive effects of the outstanding preferred stock are calculated using the if-converted method.

No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three months ended March 31, 2022, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding during the three months ended March 31, 2022, included our outstanding convertible preferred stock, options, warrants and nonvested RSUs. The effects of the following potentially dilutive securities, outstanding at March 31, 2021, were not included in the computation of diluted EPS for the three months ended March 31, 2021, because to do so would have been antidilutive: stock options for the purchase of 578,121 shares of our common stock and warrants for the purchase of 50,000 shares of our common stock.

NOTE 13. FAIR VALUE MEASUREMENTS

The fair value of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and commodities approximates their carrying value due to shorter maturities. As of March 31, 2022, the fair values of our debt and finance lease liabilities and operating lease liabilities approximated their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements).

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis for the three months ended March 31, 2022 (in thousands):

The derivative warrant liability relates to a warrant issued in September 2021 for the purchase of up to 2,307,693 shares of common stock (Warrant A), The initial $1.00 per share exercise price of Warrant A is subject to adjustment in September 2022, and again in September 2023, if 110% of the 5-day volume weighted average price of our common stock is less than the then-current exercise price. Warrant A is carried in our consolidated balance sheets as derivative warrant liability because the holder may elect cash settlement of this warrant in the event of a change of control. We estimated the fair value of Warrant A as of March 31, 2022 and December 31, 2021, using the Black-Scholes value of a warrant with an exercise price of $1.00 per share. The changes in the estimated fair value of Warrant A are included in other income (loss) in our consolidated statements of operations. The assumptions used in valuing Warrant follows.

The fair value of Warrant A approximates the cash settlement the holder could elect to be paid in the event of a change in control. At March 31, 2022, a $0.10 increase in our stock price would have resulted in an approximate $151 thousand increase in the Black Scholes fair value of Warrant A.

NOTE 14. COMMITMENTS AND CONTINGENCIES

PPP Audit Contingency

In April 2020, we received $1.8 million on a Small Business Administration (SBA) Payroll Protection Program (PPP) loan as provided for in the Coronavirus Aid, Relief and Economic Security Act (CARES), enacted into U.S. law in March 2020. Under certain conditions, the loan and accrued interest were forgivable, if the loan proceeds were used for maintaining workforce levels. The loan proceeds were used for maintaining workforce levels and the entire loan, and related accrued interest, was forgiven, in its entirety in January 2021. The SBA may audit any PPP loan at its discretion through January 2027, six years after the date the SBA forgave the loan. The SBA may review any or all of the following when auditing a PPP loan: whether the borrower qualified for the PPP loan, whether the PPP loan amount was appropriately calculated and the proceeds used for allowable purposes, and whether the loan forgiveness amount was appropriately determined. We could be deemed ineligible for the PPP loan received in 2020 upon audit by the SBA. We believe the SBA’s stated intention is to focus its reviews on borrowers with loans greater than $2 million, thereby mitigating our future risk of an audit. The SBA continues to develop and issue new and updated guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Employment Contracts and Severance Payments

In the normal course of business, we periodically enter into employment agreements which incorporate indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be reasonably estimated, we maintain insurance coverage, which we believe will effectively mitigate our obligations under these indemnification provisions. No amounts have been recorded in our financial statements with respect to any obligations under such agreements.

We have employment contracts with certain officers and key management that include provisions for potential severance payments in the event of without-cause terminations or terminations under certain circumstances after a change in control. In addition, vesting of outstanding nonvested equity grants would accelerate following a change in control.

Legal Matters

From time to time, we are involved in litigation incidental to the conduct of our business. These matters may relate to employment and labor claims, patent and intellectual property claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations. Defense costs are expensed as incurred and are included in professional fees.

NOTE 15. RELATED PARTY TRANSACTIONS

Our former director, Ari Gendason, is an employee and senior vice president and chief investment officer of Continental Grain Company (CGC). As of the date of this filing, CGC owns approximately 17.7% of our outstanding common stock. We have agreed that in connection with each annual or special meeting of our shareholders at which members of our board of directors are to be elected, or any written consent of our shareholders pursuant to which members of the board of directors are to be elected, CGC shall have the right to designate one nominee to our board of directors. CGC permanently waived this right effective April 28, 2022.

NOTE 16. FAILURE TO COMPLY WITH NASDAQ LISTING REQUIREMENTS

On September 15, 2021, we received a notification letter from The Nasdaq Stock Market LLC (Nasdaq) indicating that we have failed to comply with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(a)(2) requires that companies listed on the Nasdaq Capital Market maintain a minimum bid price of $1.00. To regain compliance with this listing rule, the closing bid price of our common stock has to be at least $1.00 for a period of Nasdaq's discretion, of at least 10, but not to exceed 20, consecutive business days. As of the date of this filing, we have not regained compliance with the minimum bid price requirement, however, we obtained from Nasdaq an additional 180-day compliance period, which extends through September 12, 2022. We are committed to taking actions that would enable us to regain compliance, including, if necessary, completing a reverse split of our common stock to increase its share price above the $1.00 minimum bid price.