0001063537 RiceBran Technologies false --12-31 FY 2021 18 9 20,000,000 20,000,000 3,000 3,000 150 225 150 150 225 225 0 0 150,000,000 150,000,000 51,589,674 51,589,674 45,238,087 4 2 1 1 1 0.1 5 10 20 40 3 5 4 15 5 15 0 6.2 2.6 7.7 4.9 2 7.00 7.00 10.3 10.3 32 32 2.5 2.5 1.00 1.00 46 3.6 40 40 9.3 9.3 4.8 4.8 3 4 1.00 1.00 1.99 2.00 2.99 3.00 3.99 4.00 4.99 5.00 74.00 62 1.6 6.3 1.4 2 2 65 5 65 2 December 31, 2022 December 31, 2037 January 1, 2022 December 31, 2041 1 We issued 54,629 shares of common stock upon the cashless exercise of the warrants in 2020. Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. As of December 31, 2021, warrant holders may elect to exercise cashless warrants for 3,484,675 shares of common stock at an exercise price of $0.96 per share and 2,307,696 shares of common stock at an exercise price of $1.00 per share. If we register for resale the shares subject to warrants, the holders of some of the warrants may no longer have the right to elect a cashless exercise. If we fail to maintain a registration statement for the resale of shares under certain other warrants, the shares under those warrants may again become exercisable using a cashless exercise feature. In December 2020, after modification, shares subject to the modified RSUs referred to above totaled 620,000 and vest as to 50% of the shares in December 2021 and as to the remainder of the shares in December 2022. We are recognizing the total of (i) the remaining unrecognized compensation on the awards as of the modification date and (ii) the increase in fair value of the RSUs as a result of the modification, over the remaining two-year vesting period of the RSUs. Represents the following. 2021 2020 Vested when granted 386,403 386,403 Vested upon completion of service conditions, common stock issued at vesting 572,500 - Vested upon completion of service, common stock issuance deferred 450,400 - Outstanding at December 31 1,409,303 386,403 Represents Warrant A and is classified as a liability in our consolidated balance sheets. The $1.00 per share exercise price as of December 31, 2021, 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. The shares of common stock subject to the RSUs granted in 2021 and 2020, were vested when granted or vest within two years of grant. These RSU grants were not subject to any market conditions and were valued using the market price of our common stock on the date of grant. Prior to being modified in 2020, the shares of common stock subject to the RSUs granted in 2019 vested based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days, subject to a minimum service period in certain grants, and expired on the fifth anniversary of each grant. In December 2020, we modified RSUs for a total of 227,062 shares of common stock. Prior to modification, the shares subject to the RSUs vested based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days. Subject to a minimum service period, as described in the next sentence, the RSU shares vested as to (i) 22,706 shares on the date the vesting price equals or exceeds $5.00 per share, (ii) 68,119 shares on the date the vesting price equals or exceeds $10.00 per share and (iii) 136,237 shares on the date the vesting price equals or exceeds $15.00 per share. Vesting on the RSU shares would have occurred the later of the one-year anniversary of the grant and the date the shares reach the vesting price indicated in the preceding sentence. The RSUs expire on the fifth anniversary of each grant at dates ranging from October 2023 to August 2024. The options granted vest and become exercisable in annual or monthly installments ending three or four years from the date of grant. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

☒      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

 

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

 

Commission File Number 001-36245

 

RiceBran Technologies

(Exact name of registrant as specified in its Charter)

California

87-0673375

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

25420 Kuykendahl Rd., Suite B300

Tomball, TX

77375

(Address of Principal Executive Offices)

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (281) 675-2421

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading symbol

 

Name of each exchange on which registered

Common Stock, no par value per share

 

RIBT

 

The NASDAQ Capital Market

 

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company  ☒

     

 Emerging growth company ☐

       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). YES ☐ NO ☒

 

As of June 30, 2021, the aggregate market value of our common stock held by non-affiliates was approximately $38.1 million calculated by using the closing price of the common stock on such date on NASDAQ Capital Market of $0.83 per share.

 

As of March 17, 2022, there were 51,814,425 shares of common stock outstanding.

 

Documents incorporated by reference: Portions of the registrant’s Definitive Proxy Statement for its annual meeting of shareholders, which Definitive Proxy Statement will be filed with the Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 

FORM 10-K

 

INDEX

 

PART I

Page

 

Item 1.

Business

4

 

Item 1A.

Risk Factors

9

 

Item 1B.

Unresolved Staff Comments

16

 

Item 2.

Properties

17

 

Item 3.

Legal Proceedings

17

 

Item 4.

Mine Safety Disclosures

17

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

 

Item 6.

Reserved

18

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

21

 

Item 8.

Financial Statements and Supplementary Data

21

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

46

 

Item 9A.

Controls and Procedures

46

 

Item 9B.

Other Information

47

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

47

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

47

 

Item 11.

Executive Compensation

47

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

47

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

47

 

Item 14.

Principal Accountant Fees and Services

47

PART IV

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

47

Signatures

    51

 

 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K includes forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such asbelieves,” “anticipates,” “expects,” “estimates,” “intends,” “plans,” “projects,” “will,” “mayand similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements. Future events and actual results could differ materially from those discussed in this Annual Report. These risks and uncertainties include those described inRisk Factorsand elsewhere in this Annual Report. Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Annual Report. We do not endorse any projections regarding future performance that may be made by third parties.

 

Unless the context requires otherwise, references to “we,” “us,” “our” and the “Company” refer to RiceBran Technologies, and its consolidated subsidiaries.

 

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

Our Company

 

We are a specialty ingredient company that utilizes proprietary stabilization and separation technologies, supported by specialty milling processes, to deliver critical nutritional and functional ingredients derived from rice and other small and ancient grains for the food, nutraceutical, companion animal and equine feed categories. We are focused on milling rice and other small and ancient grains and producing, processing, and marketing value-added healthy, natural and nutrient dense products derived from these grains. Notably, we are a market leader in North America in converting raw rice bran into stabilized rice bran (SRB) and high value SRB derivative products including:

 

 

RiBalance, a complete rice bran nutritional package derived from further processing SRB;

 

RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance;

 

RiFiber, a protein and fiber rich insoluble derivative of RiBalance; and

 

our family of ProRyza products, which includes derivatives composed of protein and protein/fiber blends.

 

Over the past decade, we have developed our products by optimizing our proprietary processes to support the production of healthy, natural, and non-genetically modified ingredients that are hypoallergenic and gluten free for use in baked goods, cereals, coatings, health foods, high-end animal nutrition, and animal health products. Our existing and target customers are food and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

 

We incorporated under the laws of the State of California in 2000. From July 2003 until October 2012, our corporate name was “NutraCea.” In October 2012, we changed our name to RiceBran Technologies. In 2018, we moved our corporate headquarters to Texas. Over the past several years, we have acquired and divested of certain businesses:

 

 

2019 – Acquired MGI Grain Processing, LLC., an East Grand Forks, Minnesota based company now operating as MGI Grain, Incorporated (MGI) which operates a grain mill and processing facility in East Grand Forks, Minnesota,

 

2018 – Acquired Golden Ridge Rice Mills, LLC, a Wynne, Arkansas based company now operating as Golden Ridge Rice Mills, Inc. (Golden Ridge) which operates a rice mill in Wynne, Arkansas,

 

We currently source SRB at four locations: two raw rice bran stabilization facilities located within supplier-owned rice mills in Arbuckle and West Sacramento, California, one company-owned rice bran stabilization facility in Mermentau, Louisiana, and our wholly-owned rice mill, Golden Ridge, in Wynne, Arkansas. “Stage II” refers to the products produced using proprietary processing equipment and technology for further processing of SRB into finished products. We produce our Stage II products including: RiSolubles, RiFiber, RiBalance, and our family of ProRyza products at our Dillon, Montana facility.

 

Rice Mill

 

On November 28, 2018 we acquired Golden Ridge Rice Mills, LLC, a recently constructed rice milling and bran stabilization facility on nearly 32 acres in Wynne, Arkansas. Golden Ridge provides us with a presence in the largest rice-producing state and a cost-efficient source of SRB that is close to many of our customers in the Midwest and Eastern U.S. Golden Ridge specializes in producing #1 and #2 Grade U.S. premium long and medium white rice milled to United States Department of Agriculture (USDA) standards, as well as brown rice, brewers rice, and brokens. We believe these products offer synergies to our core SRB business and should enable our sales team to deepen our relationship with our customers. Golden Ridge adheres to standard operating procedures and passed all the prerequisite audits required to meet Good Manufacturing Practice (GMP) standards and Safe Quality Food (SQF) certifications.

 

 

Barley and Oats Mill

 

On April 4, 2019, we acquired MGI Grain Processing, LLC’s grain milling and processing facility in East Grand Forks, Minnesota which specializes in processing barley, oats, and mustard. MGI provides us with a milling presence in a key production region in the U.S. and a complimentary portfolio of barley and oat ingredients, as well as other ancient grains. This creates synergy with our rice and rice bran products as they are purchased by substantially the same buyers as our rice products. MGI’s facility is an American Institute of Baking (AIB) certified barley pearling facility, Hazard Analysis Critical Control Point (HACCP) and SQF certified.

 

Our Products

 

We believe our greatest market opportunities are in the food ingredient and animal nutrition markets. Nutritionally balanced, minimally processed, gluten free, non-GMO and clean-label food and animal feed ingredients are in high demand, and we are strategically positioned to take advantage of this growing and sustainable market opportunity as discussed below in “Our Growth Strategy.”

 

Food Ingredients

 

Our SRB and SRB derivative products are nutritional and beneficial food products that contain a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that enhance the nutritional value of popular consumer products. Our products replace ingredients like soy protein isolate, soy protein concentrate, modified food starch, pea protein, mustard flour and yeast at a significantly reduced cost. Foods that are ideally suited for the addition of our SRB to their products include processed meats, cereals, snacks, beverages, baked goods, breading, and batters.

 

Animal Nutrition

 

Our SRB is marketed as a feed ingredient in the United States and international animal nutrition markets, and we will continue to pursue sales opportunities with attractive margins in those markets. SRB is currently used as an equine feed ingredient as it has been shown to provide health benefits for show and performance horses. We believe that there are also numerous market opportunities for utilizing SRB in the production of food for companion animals. We have multiple engagements with customers in the companion animal market, and we are aggressively pursuing other opportunities.

 

About Rice Bran

 

Rice is the staple food for over half of the world’s population, especially in some of the world’s most populous countries. Asia accounts for roughly 90% of global rice production and China is the world’s number one rice producer. Globally, the United States ranks 11th in rice production with approximately 2% of the global total.

 

When harvested from the field, individual rice kernels are stored in common receiving locations such as farm silos for future delivery to grain dryers or area rice mills. At this stage, large quantities of individual rice kernels are collectively called “paddy rice,” or “rough” rice. In this form, the rice kernel is fully enveloped by the rice hull, which serves as a protective cover, shielding the inner rice kernel from damage.

 

After storage and drying, paddy rice is cleaned of foreign material (scalping, de-stoning and aspiration) before it enters the first stage of milling, or paddy husking. In the paddy husker, the hull is removed from rough rice by differential speed rubber rollers. Loosened hulls are carried off by aspiration. After husking, a paddy separator uses a reciprocating motion to separate normal brown rice kernels (caryopsis) from unhusked kernels which are returned to the paddy husker.

 

Once husked, the outer brown layers of bran are removed from the inner white starch endosperm by an abrasive or frictional milling process which produces a milled, white rice kernel. After milling, white rice is typically sorted by size to remove broken pieces of rice kernels from whole kernels, as well as color sorting to remove discolored kernels. Further processing may be required (per customer specifications) to polish the white rice to a smooth surface.

 

Raw rice bran collected from the milling process is composed of rice germ and several sub-layers (pericarp, testa, nucellus and aleurone) surrounding the white starchy endosperm. Commercial rice bran makes up approximately 10% of rough rice by weight. Rice germ, an especially nutrient rich material, makes up approximately 10% of commercial rice bran by weight.

 

As brown rice is milled into white rice, the oils present in raw rice bran come into contact with native lipase enzymes that are naturally present in the rice kernel. These lipase enzymes initiate a rapid enzymatic hydrolysis of the oil, converting oils (triglycerides) into monoglycerides, diglycerides and free fatty acids (FFA). As the FFA content builds in raw rice bran, the bran becomes unpalatable and off flavors (rancidity) develop.

 

 

If left unchecked, enzymatic degradation at normal room temperatures can increase the FFA levels to 5-8% within 24 hours and can continue at a rate of approximately 4-5% per day thereafter. Enzymatic degradation is the most serious form of degradation of raw rice bran. Rice bran stabilization is the process of carefully deactivating native enzymes to prevent the increase of FFA otherwise caused by lipase enzyme activity. Proper stabilization is critical in the preservation of the nutritional value of the bran.

 

Historically, there have been a number of attempts to develop rice bran stabilization techniques, including the use of chemicals, microwave heating or variations of existing extrusion technology. Many of these approaches have had limited success in part because they have produced rice bran with limited shelf life or with significant degradation of nutrients.

 

Our Technologies

 

Our Proprietary Rice Bran Stabilization Technology

 

Our stabilization process uses proprietary processes to create a combination of temperature, pressure and other conditions necessary to thoroughly deactivate enzymes without significantly damaging the structure or nutrient content of the raw rice bran. This means that higher value compounds in bran, such as oils, proteins and phytonutrients are left undamaged and are available for utilization. Our process does not use chemicals to stabilize raw rice bran.

 

We install our stabilizers in close proximity to a rice mill so that freshly milled raw rice bran can be delivered quickly. Process logic controllers maintain exact process conditions within the prescribed pressure/temperature regime. In case of power failure or interruption of the flow of fresh bran into the system, the electronic control system is designed to purge the equipment of materials in process and resume production only after proper operating conditions are re-established.

 

Once stabilized, SRB leaving our system is then discharged onto cooling units specifically designed to control air pressure and humidity. Once cooled, SRB can be loaded into bulk hopper trucks for large volume customers or sent by pneumatic conveyor to a bagging unit for packaging into various size bags or 2,000-pound sacks.

 

Each of our stabilizers can process approximately 2,000 pounds of bran per hour and has a capacity to produce over 7,200 tons of SRB per year. Stabilization production capacity can be doubled, tripled or further multiplied by installing additional units sharing a common conveyor and stage system. We have also developed and tested a smaller production unit, with a maximum production capacity of 600 pounds per hour, for installation in locations where rice mills are substantially smaller than those in the United States.

 

Additional proprietary processes involve enzyme treatment of SRB to produce fractions enriched in one or more macronutrients, including proteins, fibers, lipids and micronutrients such as vitamins, minerals and phytosterols, among others. In these processes, SRB is put into an aqueous slurry, where it is treated with one or more enzymes, centrifugally separated and the fractions are dried on drum driers, spray driers or other drying systems.

 

SRB Attributes

 

Rice bran is free of all major allergens and is a valuable source of protein with a balanced amino acid profile for food ingredient products and is rich in healthy oil, vitamins, antioxidants, dietary fiber and other nutrients. The approximate composition and caloric content of our SRB is as follows:

 

Fat (oil) 18-23%
Protein 12-16%
Total Dietary Fiber  20-30%
Moisture 4-8%
Ash  6-14%
Calories 3.2 kcal/gram

 

Because SRB contains approximately 18-23% oil, it has a favorable fatty acid composition and excellent heat stability which makes it an attractive ingredient for a wide variety of applications.

 

 

Intellectual Property

 

Our stabilization and processing activities are an adaptation and refinement of standard food processing technology applied to rice bran. We have chosen to treat our methods and processes as a trade secret and not to pursue process or process equipment patents on the original processes. As we develop improvements, we intend to periodically review whether we should seek patent protection for them. We believe that certain unique products, and their biological effects, resulting from our SRB may be patentable in the future. We also hold a number of U.S. registered trademarks and trade names and have applied for additional marks.

 

We continue to support internal as well as external R&D efforts that improve on existing technologies or lead to the development of new technologies relating to rice bran processing and applications.

 

Our Growth Strategy

 

We are pursuing a simple growth strategy based on a few key initiatives to grow our markets and business, improving our financial condition, and maximizing shareholder value. The following points summarize our growth strategy:

 

1.

Product Line Expansion: 

 

 

Continued Expansion of SRB Derivatives – Ri-Solubles; in both conventional and organic forms, is a premium product in our portfolio which we believe offers significant upside potential, and we are focused on expanding production and sales. Ri-Fiber is an excellent source of dietary fiber that can provide organoleptic improvements in a range of supplement products, and potentially an excellent feedstock for further processing to isolate nutritional and functional components. Both products are produced at our Dillon, MT manufacturing facility which we optimized in 2021 to expand production capacity.

 

 

New Stabilized Rice Bran (SRB) Formats – In early 2021, we introduced a variant of SRB with guaranteed low microbial levels, which eliminated the need for further heat processing prior to human consumption. SRB can be used as an excipient and flow agent in tablets, capsules, and nutritional powders. We believe this new low microbial SRB will provide access to new applications particularly in the supplement category as it will allow for the replacement of chemically derived ingredients enabling natural and non-GMO claims to be made on finished consumer products. We are also working on other processes to alter the taste profile of SRB, which we believe could expand the applications for SRB and significantly enhance our addressable market.

 

 

Value-Added Blending Capabilities – We currently have the capability to deliver SRB in various levels of granularity, which allows our customers flexibility in how they use our products in their own applications. We hope to enhance the values of our core products further by adding the capability to combine them with other ingredients in order to deliver improved nutrition, functionality, and organoleptic properties. Other ingredient components will be sourced from both domestic and international supply partners and likely to include plant-based protein and carbohydrates. Combinations of rice ingredients and other grains from MGI and third-party sources will also be pursued.

 

2.

Further Organic Expansion: While we currently have several organic product lines, notably an organic version of our rice bran derivative products and certain organic milled grain products, we believe there is a significant opportunity to further expand our organic product offering. In 2021, we significantly expanded our access to organic feedstock through enhanced supplier agreements and increased our ability to process this feedstock through optimization of our Dillon, MT facility. We also expanded both the number of organic SKUs and the overall volume of organic feedstock processed at our MGI Grain facility, and we are continuing to review the opportunity to convert Golden Ridge rice mill, such that it can mill organic rice and produce organic SRB. 

 

3.

Sales Initiative Expansion: We have restructured and established three business groups each headed by a senior sales executive who will be responsible for the commercial strategy and execution of the business groups across all product lines.

 

 

Value-Add – This group will build on our existing business in the supplement and wellness categories by expanding market penetration, introducing new products and blending capabilities, and developing partnerships with third-party developers and manufacturers to be able to deliver near-finished solutions to supplement brands and manufacturers. In 2021, we announced a partnership with AIDP, one of the leading distributors in this market, which we expect to accelerate market penetration.

 

 

Core-SRB – The key focus of this group is to expand the current business in processed foods, companion animal and equine feeds, including developing product line extensions and enhanced application, and the optimum go-to-market structure for these categories. In 2021, we made significant strides in increasing our presence in companion animal markets through a combination of increased sales to existing customers and new customer wins.

 

 

Milling – The key focus of this group is to improve the operating performance of our Golden Ridge rice mill and MGI Grain operations through enhanced management and the adoption of shared services and best practices. In 2021, this enabled strong growth and improved profitability for both businesses as both facilities benefited from significant enhancement in operating KPIs and a shift in both facilities to a more specialty focused customer base.

 

4.

Supply Chain Expansion: Partnership with key rice mills in California and Louisiana will remain a cornerstone of our stabilized rice bran manufacturing strategy. We remain committed to expanding these partnerships by driving incremental volume, efficiency improvements, and expanding the core product opportunity. We will seek to implement long-term supply agreements with our suppliers with the objective of driving profit growth for both ourselves and our partners. We may also pursue partnerships with international producers, particularly in Asia. This could create opportunities for accessing new products based on new rice varieties and differentiated process technologies these partners possess.

 

 

The global and domestic markets are strong and rapidly expanding for minimally processed plant-based ingredients that provide dense and balanced nutrition in addition to evidence-based functionalities while also being non-GMO, gluten free and free of all major allergens. The regulatory requirements to add front-of-label warnings on food items and increasing demand from consumers for foods that list fewer and less processed ingredients is driving food companies to replace standard food ingredients with cleaner ingredients, such as SRB. We anticipate further incorporation of our food ingredients by major consumer packaged goods food companies as more food companies adopt rice bran as a standard clean label food ingredient. This trend is not limited to food ingredients, as we are finding similar transition to clean ingredients among high-end animal nutrition companies.

 

Our Customers

 

We use internal sales staff, outside independent sales representatives and third-party distributors to market our portfolio of products to customers domestically and internationally. In 2021 and 2020, three customers accounted for 32% and 26% of our revenues, respectively. We continue to focus efforts on diversification of our customer base to mitigate the concentration of customers.

 

Government Regulations

 

Our operations are subject to federal, foreign, state and local government laws and regulations, including those relating to zoning, workplace safety and accommodations for the disabled, and our relationships with our employees are subject to regulations, including minimum wage requirements, anti-discrimination laws, overtime and working conditions and citizenship requirements.

 

In both our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints exist at the federal, state and local levels in the United States, and at all levels of government in foreign jurisdictions, including regulations pertaining to the formulation, manufacturing, packaging, labeling, distribution, sale and storage of our products. In addition, we are subject to regulations regarding product claims and advertising.

 

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by one or more federal agencies, primarily the Food & Drug Administration (FDA), the Federal Trade Commission (FTC) and the USDA. Our activities are also regulated by various governmental agencies for the states and localities in which our products are manufactured and sold, as well as by governmental agencies in certain countries outside the United States. Among other matters, regulation by the FDA and FTC is concerned with product safety and claims made with respect to a product’s ability to provide health-related benefits. Specifically, the FDA, under the Federal Food, Drug and Cosmetic Act (FDCA), regulates the formulation, manufacturing, packaging, labeling, distribution and sale of food and food ingredients. The FTC regulates the advertising of these products.

 

Federal agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing warning letters and cease-and-desist orders, requiring corrective labeling or advertising, requiring consumer redress such as requiring that a company offer to repurchase products previously sold, seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution. In addition, certain state agencies have similar authority. These federal and state agencies have in the past used these remedies in regulating participants in the food and food ingredient industries, including the imposition of civil penalties.

 

The FDA Food Safety Modernization Act (FSMA), enacted January 4, 2011, amended the FDCA to significantly enhance the FDA’s authority over various aspects of food regulation. The FSMA granted the FDA mandatory recall authority when the FDA determines there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause serious adverse health consequences or death to humans or animals. One of the more significant changes under FSMA is the requirement of hazard analysis and risk-based preventive controls (HARPC) for all human and animal food processing facilities. We are committed to FSMA compliance and are SQF certified at all our facilities.

 

Any substance that is intentionally added to food is a food additive and is subject to premarket review and approval by the FDA, unless the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use, or unless the use of the substance is otherwise excluded from the definition of a food additive. When an additive is proposed for use in a meat, its safety, technical function and conditions of use must also be evaluated by the USDA. Because the USDA retains jurisdiction over meat products and food ingredients intended for use in meats, the use of our SRB meat enhancers is regulated by this agency. SRB has USDA approval for use in certain meat products.

 

Animal feed ingredients are regulated by the FDA at the federal level and by the individual states. Our SRB is defined for animal use as heat stabilized rice bran for use as a feed ingredient.

 

 

Our Competition

 

There are a number of companies that have invested significant resources to develop technologies for stabilizing and processing rice bran and who market rice bran products into multiple markets around the world. We believe that we have proprietary technologies and processes for stabilizing rice bran and, as such, have developed significant brand recognition in the animal feed and food ingredient product sectors both domestically and internationally. Together with our decades of application technology know-how and proprietary processing methods, we believe that we have a competitive advantage over other suppliers with respect to producing SRB.

 

We are aware of several new producers of rice-based animal nutrition and food ingredient products in the United States, Europe and Asia. We believe that our major competitors include producers of isolated soy protein, wheat bran and oat bran, particularly in the food ingredients market segment. We compete with other companies that offer products incorporating SRB as well as companies that offer other food ingredients. Many consumers may consider such products to be a replacement for the products we manufacture and distribute.

 

Human Capital

 

We employ a skilled workforce within a broad range of functions. As of December 31, 2021, we had 101 employees. All our employees are located throughout the United States to serve our business operations. From year to year, we experience normal variable labor fluctuation at our production facilities.

 

We attract and retain our workforce through a dynamic and inclusive culture by providing a safe work environment, flexible work arrangements, and competitive pay and benefits, including access to personal health advocates offering independent guidance.

 

We believe that we have positive relationships with our employees and have deployed programs that advance employee engagement, communication, and feedback. None of our employees are covered by collective bargaining agreements.

 

Available Information

 

We maintain an Internet website at the following address: www.ricebrantech.com. We make available on or through our Internet website certain reports and amendments to those reports that we file with the Securities and Exchange Commission (SEC) in accordance with the Securities Exchange Act of 1934 (Exchange Act). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and the reports of beneficial ownership. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The contents of our website are not incorporated by reference in this report on Form 10-K and shall not be deemed “filed” under the Exchange Act.

 

ITEM 1A. RISK FACTORS

 

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock. Investors or potential investors in our stock should carefully consider the risks described below.

 

RISK FACTORS

 

Risks Relating to Our Business

 

We have not yet achieved annual positive cash flows.

 

Our net cash used in operating activities of continuing operations was $4.2 million in 2021 and $7.9 million in 2020. We may not be able to achieve revenue growth, profitability or positive cash flow, on either a quarterly or annual basis, and that profitability, if achieved, may not be sustained. If we are unable to achieve or sustain profitability, we may not be financially viable in the future and may have to curtail, suspend, or cease operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives such as pursuing dissolution and liquidation, seeking to merge with another company, selling all or substantially all of our assets or raising additional capital through equity or debt financings.

 

We have generated significant losses since our inception in 2000, and losses in the future could cause the trading price of our stock to decline or have a material adverse effect on our financial condition, cash flow, and ability to pay our debts as they become due.

 

Since we began operations in 2000, we have incurred an accumulated deficit in excess of $307.9 million. We may not be able to achieve profitability or maintain profitable operations if achieved. If our losses continue, our liquidity may continue to be severely impaired, our stock price may fall and our shareholders may lose all or a significant portion of their investment. If we are not able to attain profitability in the near future our financial condition could deteriorate further which could have a material adverse impact on our business and prospects and result in a significant or complete loss of shareholder investment. Further, we may be unable to pay our debt obligations as they become due, which include obligations to secured creditors.

 

 

We may need to raise additional funds through debt or equity financings in the future to achieve our business objectives and to satisfy our cash obligations, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.

 

We may need to raise additional funds through debt or equity financings in order to complete our ultimate business objectives. We also may choose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working capital, strengthen our financial position or to make acquisitions. Our board of directors has the ability, without seeking shareholder approval, to issue convertible debt and additional shares of common stock or preferred stock that is convertible into common stock for such consideration as the board of directors may consider sufficient, which may be at a discount to the market price. Any sales of additional equity or convertible debt securities could result in dilution of the equity interests of our existing shareholders, which could be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various preferential rights over the holders of our common stock, including repayment of their investment, and possibly additional amounts, before any payments could be made to holders of our common stock in connection with an acquisition of us. Such preferred shares, if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights and the value of our common stock. Also, new investors may require that we and certain of our shareholders enter into voting arrangements that give them additional voting control or representation on our board of directors. We have a limited number of authorized and unissued (and unreserved) shares, which limits our ability to raise additional funds through such debt or equity financings. Our shareholders would need to approve any increase in the number of authorized shares. In the event that we determine that such an increase is desirable, it is possible our shareholders will not approve the increase.

 

Our outstanding debt is subject to terms that may adversely affect our operations and financial condition.

 

We entered into a factoring agreement in October 2019. The factoring agreement provides for a $7.0 million credit facility which we may draw upon to the extent we have qualifying accounts receivable as defined in the agreement. The lender has the right to demand repayment of advances under the facility at any time, and amounts owed under the agreement are secured by our personal property assets. If the lender demands repayment and we fail to make such repayment, or if we cause or permit any other event of default as defined in the agreement or fail to comply with covenants set forth in the agreement (including restrictions on incurring other debt under unsecured loans), we would be subject to additional expenses or possible foreclosure on our assets that secure our obligations under the agreement. Such results could have a material adverse effect on our operations and financial condition.

 

We received $1.8 million on an SBA Payroll Protection Program (PPP) loan in April 2020 as provided for in the Coronavirus Aid, Relief and Economic Security Act (CARES), enacted into U.S. law in March 2020. The outstanding principal and related accrued interest on our PPP loan were completely forgiven 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.

 

As of December 31, 2021, we have $2.5 million outstanding on a mortgage promissory note. The note is secured by certain real property and personal property assets of Golden Ridge Rice Mills, Inc. If we fail to make repayment, we would be subject to additional expenses or possible foreclosure on the assets that secure our obligations under the agreement. Such results could have a material adverse effect on our operations and financial condition.

 

If we are unable to maintain effective internal control over financial reporting, investors could lose confidence in our consolidated financial statements and our Company, which could have a material adverse effect on our business and our stock price.

 

We are required to maintain adequate internal control over financial reporting and to evaluate the effectiveness of our internal controls in accordance with the framework established by Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission. If we fail to maintain effective internal controls in the future, this could result in a material misstatement of our consolidated financial statements that would not be prevented or detected on a timely basis, which could cause investors to lose confidence in our financial information or cause the trading price of our common stock to decline.

 

 

There are significant market risks associated with our business.

 

We have formulated our business plan and strategies based on certain assumptions regarding the size of the rice, rice bran, barley and oat markets, our anticipated share of these markets, the estimated price and acceptance of our products and other factors. These assumptions are based on our best estimates; however, our assessments may not prove to be correct. Any future success may depend upon factors including changes in governmental regulation, increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs including costs of rice bran, production, supplies, personnel, equipment, and reduced margins caused by competitive pressures. Many of these factors are beyond our control.

 

We may face difficulties integrating businesses we acquire.

 

As part of our strategy, we may review opportunities to buy other businesses or technologies, such as the acquisition of Golden Ridge that was completed in 2018, and the acquisition of MGI Grain that was completed in 2019, that would complement our current products, expand the breadth of our markets or enhance technical capabilities, or that may otherwise offer growth opportunities. Such acquisitions involve numerous risks, including, but not limited to:

 

 

problems combining the purchased operations, technologies or products;

 

unanticipated costs;

 

diversion of management’s attention from our core business;

 

adverse effects on existing business relationships with suppliers and customers;

 

risks associated with entering markets in which we have no or limited prior experience; and

 

potential loss of key employees of purchased organizations.

 

We depend on a limited number of customers and their ability to meet their obligations.

 

In 2021, three customers accounted for 32% of revenues and the top ten customers accounted for 58% of revenues. As of December 31, 2021, the customers with the highest ten balances accounted for 61% of accounts receivable.

 

We are dependent upon the continued growth, viability and financial stability of our customers. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenues. Consolidation among our customers may reduce our number of customers or result in a concentration of credit risk with respect to outstanding accounts receivable. We consider the financial strength of our customers, the remoteness of the possible risk that a default event will occur, the potential benefits to our future growth and development, possible actions to reduce the likelihood of a default event, and the benefits from the transaction, before entering into a large credit limit with a customer. Although we analyze these factors, the ultimate collection of the obligation from the customer may not occur. Although we continue to expand our customer base in an attempt to mitigate the concentration of credit risk, writing off of an accounts receivable balance could have an adverse effect on our results of operations. Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents and trade receivables. Historically, we have not experienced any loss of our cash and cash equivalents, but we have experienced losses to our trade receivables. A significant reduction in sales to any of our significant customers could have a material adverse effect on our results of operations.

 

We may encounter difficulties in maintaining relationships with distributors and customers while enforcing our credit policies.

 

We define credit risk as the risk of loss from obligors or counterparty default. Our credit risks arise from both distributors and customers. Many of these risks and uncertainties are beyond our control. Our ability to forecast future trends and spot shifts in consumer patterns or behavior even before they occur are vital for success in today’s economy. In managing risk, our objective is to protect our profitability, but also to protect, to the extent we can, our ongoing relationships with our distributors and customers. However, as part of our credit risk policies, we occasionally must, among other things, cancel, reduce credit limits and place cash-only requirements for certain questionable accounts. These credit risk policies may negatively impact our relationships with our distributors and customers, which could adversely affect our results of operations.

 

We rely upon a limited number of product offerings.

 

The majority of the products that we have sold through December 31, 2021, has been based on SRB. A decline in the market demand for our SRB or the products of other companies utilizing our SRB products would have a significant adverse impact on us. Since the acquisition of Golden Ridge, we have also milled and sold finished rice. A decline in the market demand for finished rice or the by-products of rice milling could have a significant adverse impact on us.

 

 

Our ability to generate sales is dependent upon our ability to continue our ongoing marketing efforts to raise awareness of our products and benefits of rice bran products generally.

 

We are dependent on our ability to market products to animal food producers, food manufacturers, mass merchandisers, health food retailers and to other companies for use in their products. We must increase the level of awareness and benefits of rice bran products to be used in food and food ingredients in general and our products in particular. We will be required to devote substantial management and financial resources to these marketing and advertising efforts and such efforts may not be successful.

 

Our ability to adapt to sudden increases in demand for our product is limited by an adequate supply of raw rice bran and our ability to find additional facilities for production.

 

Many of our current products depend on our proprietary technology using raw rice bran, which is a by-product from milling paddy rice to white rice. Our ability to manufacture SRB is currently limited to the production capability of our equipment located at our two suppliers’ rice mills in California, our own plant located adjacent to our supplier in Mermentau, Louisiana and our rice mill in Wynne, Arkansas. At these facilities and our value-added product plant in Dillon, Montana, we currently are capable of producing enough finished products to meet current demand. If demand for our products were to increase dramatically in the future, we would need additional production capacity, which may take time and may expose us to additional long-term operating costs.

 

We may not be able to continue to secure adequate sources of raw rice bran to meet our future demand. Since rice bran has a limited shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year.

 

Adverse economic, weather, or other conditions may impact our supply and the price of rice, raw rice bran, stabilized rice bran, barley, and oats. We are not always able to immediately pass cost increases to our customers and any increase in the cost of our rice and rice coproducts, SRB products, and oat and barley products could have an adverse effect on our results of operations.

 

If economic or weather conditions, for example drought conditions in California or flooding in Arkansas and Louisiana, adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase. Drought or excessive moisture can have similar impacts on the timing and number of acres planted to barley and oats in Minnesota, North Dakota, and Manitoba as well. We are not always able to immediately pass cost increases to our customers. Therefore, cost increases could have an adverse effect on our results of operations.

 

We face competition from other companies that produce bran, grains and other alternative ingredients with similar benefits as our rice brans.

 

Competition in our targeted industries, including food ingredients, animal feed supplements and companion pet food ingredients is vigorous, with a large number of businesses engaged in the various industries. Many of our competitors have established reputations for successfully developing and marketing their products, including products that incorporate bran from other cereal grains and other alternative ingredients that are widely recognized as providing similar benefits as rice bran. In addition, many of our competitors have greater financial, managerial and technical resources than we do. If we are not successful in competing in these markets, we may not be able to attain our business objectives.

 

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad and our failure to comply with these laws, regulations and constraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results.

 

In both the U.S. and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions. We are subject to regulation by one or more federal agencies including the U.S. Food and Drug Administration (FDA), the U.S. Federal Trade Commission and the U.S. Department of Agriculture (USDA), state and local authorities and foreign governmental agencies. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues. Our failure to comply with these current and new regulations could lead to the imposition of significant penalties or claims, limit the production or marketing of any non-compliant products or advertising and could negatively impact our business.

 

 

Our warehousing and manufacturing facilities are subject to risks that may negatively affect our business and operations.

 

Our ability to make, store, and move our products is important to our success. Disruption to our manufacturing capabilities or to our storage capabilities, due to damage to our facilities or equipment, inability or delay in replacing parts or equipment, weather, natural disaster, fire, terrorism, pandemic, or other factors, could impair our ability to manufacture or distribute our products. If we fail to mitigate the possible impact of such events, or effectively manage them if they occur, they could adversely affect our business and results of operations. Such events could also require additional resources to restore our supply chain.

 

Our facilities are subject to laws and regulations administered by the FDA, USDA, the Occupational Safety and Health Administration, and other federal, state, and local governmental agencies relating to the production, storage, distribution, quality, and safety of food products and the health and safety of our employees. Our failure to comply with such laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. Changes in such laws or regulations that impose additional requirements on us could increase the cost of operating our facilities, causing our results of operations to be adversely affected.

 

The novel coronavirus (COVID-19) pandemic has adversely affected the global economy and the ultimate impact on our business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

 

The COVID-19 pandemic has adversely affected the business and financial markets of many countries, disrupted global supply chains, and created significant volatility in the financial markets. In addition, the pandemic has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in communities. With widespread availability of vaccines, the U.S. Centers for Disease Control and Prevention has revised its guidance, travel restrictions have started to lift and businesses have reopened. However, the COVID-19 pandemic continues to evolve and the extent to which our business and results of operations are impacted will depend on various factors beyond our control, such as duration, severity and sustained geographic resurgence of the virus, the emergence of new variants, and the success of actions to contain the virus and its variants or treat its impact. The pandemic could adversely affect the demand for our products, and it poses the risk that we, or our customers, suppliers, and other business partners may be disrupted or prevented from conducting business for an uncertain period of time. The extent to which this would impact our financial results is unknown as it is dependent on future developments, which are highly uncertain and cannot be predicted. As such, it is difficult to estimate the exact magnitude of the COVID-19 pandemic on our business.

 

We have not had, and we do not expect, any of our facilities to be closed subject to government-mandated closures, and we have informed our customers that we anticipate operating throughout the COVID-19 outbreak. Disruption in the supply chain of raw materials used to produce our products, as a result of the COVID-19 outbreak, has not caused us to close any of our facilities, and to date, our employees have been reporting to work, either remotely or in-person without any material change in attendance or productivity. However, we cannot ensure that the COVID-19 outbreak will not cause disruptions to our business in the future.

 

We may be subject to product liability claims and product recalls.

 

We sell food and nutritional products for animal and human consumption, which involves risks such as product contamination or spoilage, product tampering and other adulteration of food products. We may be subject to liability if the consumption of any of our products causes injury, illness or death. We maintain a product liability policy for $5.0 million per year in the aggregate. In addition, we may voluntarily recall products in the event of contamination or damage. A significant product liability judgment or a widespread product recall may cause a material adverse effect on our financial condition. Even if a product liability claim is unsuccessful, there may be negative publicity surrounding any assertion that our products caused illness or injury which could adversely affect our reputation with existing and potential customers.

 

Many of the risks of our business have only limited insurance coverage and many of our business risks are uninsurable.

 

Our business operations are subject to potential product liability, environmental, fire, employee, manufacturing, shipping and other risks. Although we have insurance to cover some of these risks, the amount of this insurance is limited and includes numerous exceptions and limitations to coverage. In the event we were to suffer a significant uninsured claim, our financial condition would be materially and adversely affected.

 

Our success depends in part on our ability to obtain, enforce and protect our licenses and other intellectual property rights for our products and technology.

 

Our success is dependent upon our ability to protect and enforce the trade secrets and trademarks that we have and to develop and obtain new patents and trademarks for future processes, machinery, compounds and products that we develop. The process of seeking patent protection may be long and expensive, and patents might not be issued or not be broad enough in scope. We may not be able to protect our technology adequately, and our competition may be able to develop similar technology that does not infringe or encroach upon any of our rights.

 

 

There currently are no claims or lawsuits pending or threatened against us regarding possible infringement claims, but infringement claims by third parties, or claims for indemnification resulting from infringement claims, could be asserted in the future or that such assertions, if proven to be accurate, could have a material adverse effect on our business, financial condition and results of operations. In the future, litigation may be necessary to protect our trade secrets or know-how or to defend against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any litigation could result in substantial cost and diversion of our efforts and other resources, which could have a material adverse effect on our financial condition and results of operations. Adverse determinations in any litigation could result in the loss of our proprietary rights, subjecting us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our systems, any of which could have a material adverse effect on our financial condition and results of operations. A license under a third party’s intellectual property rights might not be available to us on reasonable terms, if at all.

 

We are dependent on key employees.

 

Our success depends upon the efforts of our top management team and certain other key employees, including the efforts of our executive chairman, chief financial officer, and the other members of the senior leadership team. Although we have written employment agreements with these employees, such individuals could die, become disabled, retire, or resign. In addition, our success is dependent upon our ability to attract and retain key management persons for positions relating to the marketing and distribution of our products. We may not be able to recruit and employ such executives at times and on terms acceptable to us. Also, volatility, lack of positive performance in our stock price and changes in our overall compensation program, including our equity incentive program, may adversely affect our ability to retain such key employees.

 

Our officers and directors have limited liability and have indemnification rights.

 

Our articles of incorporation and bylaws provide that we may indemnify our officers and directors against losses sustained or liabilities incurred which arise from any transaction in that officer’s or director’s respective managerial capacity, unless that officer or director violates a duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or derived an improper benefit from the transaction.

 

Risks Relating to Our Stock

 

Our stock price is volatile.

 

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. The market price of the common stock may continue to fluctuate in response to a number of factors, including:

 

 

fluctuations in our quarterly or annual operating results;

 

fluctuations in the cost of raw rice bran;

 

developments in our relationships with customers and suppliers;

 

our ability to obtain financing;

 

announcements of new products or product enhancements by us or our competitors;

 

announcements of technological innovations or new systems or enhancements used by us or our competitors;

 

the loss of services of one or more of our executive officers or other key employees;

 

developments in our or our competitors’ intellectual property rights;

 

adverse effects to our operating results due to the impairment of goodwill;

 

failure to meet the expectation of securities analysts or the public;

 

general economic and market conditions;

 

our ability to expand our operations, domestically and internationally;

 

the amount and timing of expenditures related to any expansion;

 

litigation involving us, our industry or both;

 

actual or anticipated changes in expectations by investors or analysts regarding our performance; and

 

price and volume fluctuations in the overall stock market from time to time.

 

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Our stock price is volatile and in prior years we have been the target of shareholder litigation. Any shareholder litigation brought against us in the future could result in substantial costs and divert our management’s attention and resources from our business.

 

 

We have significantequity overhangwhich could adversely affect the market price of our common stock and impair our ability to raise additional capital through the sale of equity securities.

 

As of March 17, 2022, 51,814,425 shares of common stock were outstanding, 3,251,652 shares of common stock were issuable upon exercise of our outstanding stock options and warrants, 142,349 shares of common stock were issuable upon conversion of preferred stock and 1,906,334 shares of common stock issuable upon vesting of restricted stock unit (exclusive of contingently granted restricted stock units). The possibility that substantial amounts of our common stock may be sold by investors or the perception that such sales could occur, often called “equity overhang,” could adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future. The issuance of the additional shares upon an increase in our authorized shares of common stock would significantly increase the amount of our common stock outstanding and the amount of the equity overhang.

 

The authorization and issuance of preferred stock may have an adverse effect on the rights of holders of our common stock.

 

Our Board, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock. Any series of preferred stock could be issued with terms, rights, preferences and restrictions that could adversely affect the rights of holders of our common stock and thereby reduce the value of our common stock. The designation and issuance of preferred stock favorable to current management or shareholders could make it more difficult to gain control of our board of directors or remove our current management and may be used to defeat hostile bids for control which might provide shareholders with premiums for their shares. We have designated and issued five series of preferred stock that no longer remain outstanding. In addition, in February 2017, we designated a seventh series of preferred stock, Series G. As of March 17, 2022, 150 shares of Series G preferred stock remain outstanding. We may issue additional series of preferred stock in the future.

 

If we fail to comply with the continuing listing standards of The NASDAQ Capital Market, our securities could be delisted, which could affect the market price of our common stock and reduce our ability to raise capital.

 

Our common stock is listed on the NASDAQ Capital Market under the symbol “RIBT”. For our common stock to continue to be listed on the NASDAQ Capital Market, we must meet the current NASDAQ Capital Market continued listing requirements, including maintaining a minimum of $2.5 million in shareholders’ equity and maintaining a minimum common stock bid price of $1.00. If we were unable to meet these requirements, including, but not limited to, requirements to obtain shareholder approval of a transaction other than a public offering involving the sale or issuance equal to 20% or more of our common stock at a price that is less than the market value of our common stock, our common stock could be delisted from the NASDAQ Capital Market.

 

On September 15, 2021, we received a notification letter from The Nasdaq Stock Market LLC indicating that we failed to comply with the minimum bid price requirement for a period of 30 consecutive days. To regain compliance with this listing requirement, the closing bid price of our common stock was required to be at least $1.00 for 10 consecutive business days within 180 calendar days from the date of the notification, or by March 14, 2022. We did not regain compliance with the minimum bid price requirement by March 14, 2022. We subsequently obtained an extension of time to regain compliance with the minimum bid price requirement by 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.

 

There can be no assurance that we will be able to maintain compliance with the continued listing requirements for Nasdaq. If we fail to maintain compliance with any such continued listing requirement, there can also be no assurance that we will be able to regain compliance with any such continued listing requirement in the future or that our common stock will not be delisted from NASDAQ Capital Market in the future.

 

If our securities were to be delisted from the NASDAQ Capital Market, our securities could continue to trade on the over-the-counter bulletin board following any delisting from the NASDAQ Capital Market, or on the Pink Sheets, as the case may be. Any such delisting of our securities could have an adverse effect on the market price of, and the efficiency of the trading market for our securities, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets.

 

 

General Risks

 

We must comply with our contractual obligations.

 

We have numerous ongoing contractual obligations under various purchase, sale, supply, production and other agreements which govern our business operations. While we seek to comply at all times with these obligations, we may not be able to comply with the terms of all contracts during all periods of time, especially if there are significant changes in market conditions or our financial condition. If we are unable to comply with our material contractual obligations, there likely would be a material adverse effect on our financial condition and results of operations.

 

Compliance with corporate governance and public disclosure regulations may result in additional expenses.

 

In order to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control - Integrated Framework”, and other regulations issued by the SEC, such as Dodd-Frank, we may need to invest substantial resources to comply with these evolving standards, and this investment would result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

 

Breaches of our information system security measures could disrupt our internal operations.

 

We are dependent upon information technology for the distribution of information internally and also to our customers and suppliers. This information technology is subject to theft, damage or interruption from a variety of sources, including but not limited to malicious computer viruses, security breaches and defects in design. Security breaches may result from employees’ failure to observe internal control protocols designed to protect the security of our network and the information on it, or solely from external intrusion despite our best efforts to protect our network and the information on it. Various measures have been implemented to manage our risks related to information system and network disruptions, but a system failure or breach of these measures could negatively impact our operations and financial results.

 

Our inability to successfully recover from a disaster or other business continuity problem could cause material financial loss, regulatory actions, reputational harm or legal liability.

 

Should we experience a local or regional disaster or other business continuity problem, such as a terrorist attack, pandemic, security breach, power loss, telecommunications failure, earthquake, hurricane or other natural or man-made disaster, our continued success will depend, in part, on the availability of key personnel, and the proper functioning of computer, telecommunication and other related systems and operations. Further, we could potentially lose customer data or experience adverse interruptions to our operations in a disaster recovery scenario, which could result in material financial loss, regulatory action, reputational harm or legal liability.

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

 

ITEM 2. PROPERTIES

 

We maintain various facilities that are used for manufacturing, warehousing, research and development, distribution and administrative functions. These facilities consist of both owned and leased properties. The following table summarizes the properties used to conduct our operations as of December 31, 2021:

 

Location

 

Status

 

Primary Use

West Sacramento, California

 

Leased

 

Warehousing

         

Mermentau, Louisiana

 

Owned

 

Manufacturing

         

Lake Charles, Louisiana

 

Building – owned

 

Warehouse

   

Land – leased

   
         

Dillon, Montana

 

Owned

 

Manufacturing

         

The Woodlands, Texas

 

Leased

 

Administrative

         

Wynne, Arkansas

 

Owned

 

Manufacturing

         
East Grand Forks, MN   Owned   Manufacturing

 

We believe that all facilities are in good operating condition, the machinery and equipment are well-maintained, the facilities are suitable for their intended purposes and they have capacities adequate for current operations. All properties are covered by insurance. Our property located in Lake Charles, Louisiana was damaged by Hurricane Laura. We expect to complete remediation of this damage by the middle of the first quarter of 2022.

 

ITEM 3. LEGAL PROCEEDINGS

 

We currently are not a party to any material litigation or other material legal proceedings. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Price Range of Common Stock

 

Our common stock is traded on the NASDAQ Capital Market under the symbol “RIBT.” Our CUSIP No. is 762831204.

 

Holders

 

As of March 17, 2022, there were 233 holders of record of our common stock.

 

Dividends

 

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

During the quarter ended December 31, 2021, we issued the securities described below without registration under the Securities Act. The description below does not include issuances that were disclosed previously on Current Reports on Form 8-K. Unless otherwise indicated below, the securities were issued pursuant to the private placement exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended. All issuances below were made without any public solicitation, to a limited number of sophisticated persons and were acquired for investment purposes only.

 

On December 31, 2021, we issued 6,000 shares of common stock to a service provider, that is not a natural person, as compensation for service provided. The shares were valued at an aggregate of $5,460.

 

Share Repurchases

 

None

 

ITEM 6. RESERVED

 

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

 

Revenues were $31.1 million in 2021, an increase of $4.9 million, or 19%, compared to $26.2 million in 2020. The increase in revenue year-over-year was due to higher revenues from all major business lines, with double-digit sales growth for our SRB derivatives, and our MGI and Golden Ridge milling businesses, offset by a low single-digit decline in revenue from our core-SRB operations. The decline in core-SRB revenue can be attributed to an unanticipated pullback in demand from a large customer in the second quarter of 2021, which continued into the second half of 2021 due to the loss of freight coverage for this customer and other customers serviced by the same production facility as a result of this disruption.

 

Gross profits were $0.4 million in 2021, compared to gross losses of $2.5 million in 2020. The transition to positive gross margin in 2021 was supported by strong growth in our higher margin SRB derivatives business and a significant year-over-year reduction in gross losses for our Golden Ridge rice mill operations. Gains in these two areas were offset in part by lower volumes and double-digit increases in raw material costs for our core-SRB business and lower profits for our MGI operations in the second half of the year, due to unplanned downtime from delays in the delivery of capital equipment repair parts.

 

SG&A was $7.1 million in 2021, a decline of $0.9 million, or 11%, compared to $8.0 million in 2020. The decline in SG&A was primarily related to a full year of lower personnel expenses, compared to six month in 2020, as we initiated our corporate restructuring in June of 2020. We were also able to reduce outside services and consultant fees and obtained productivity gains in corporate support functions. 

 

Operating losses were $10.6 million in 2021, compared to $11.3 million in 2020, and net losses were $8.9 million in 2021, compared to $11.7 million in 2020. Operating and net losses in 2021 included a $1.8 million benefit due to the forgiveness of our SBA Payroll Protection Program (PPP) loan, a $3.9 million impairment of goodwill, and a $0.4 million benefit from the change in fair value of a derivative warrant liability (discussed further in Notes 9, 7, and 13 to the accompanying consolidated financial statements, respectively). There was $0.1 million of other expense, net, in 2021, compared to other expense, net, of $0.1 million in 2020. In 2021, interest expense increased to $0.5 million from $0.3 million in 2020, as we incurred higher fees and interest expense related to an increase in average borrowings.

 

 

COVID-19 Assessment

 

The COVID-19 pandemic is a worldwide health crisis that is adversely affecting the business and financial markets of many countries, disrupting global supply chains, and creating volatility in the financial markets. The pandemic could adversely affect the demand for our products, and it poses the risk that we, or our customers, suppliers, and other business partners may be disrupted or prevented from conducting business for an uncertain period of time. The extent to which this would impact our financial results is unknown as it is dependent on future developments, which are highly uncertain and cannot be predicted. As such, it is difficult to estimate the exact magnitude of the COVID-19 pandemic on our business.

 

We have not had, and we do not expect, any of our facilities to be closed subject to government-mandated closures, and we have informed our customers that we anticipate operating throughout the COVID-19 outbreak. Disruption in the supply chain of raw materials used to produce our products, as a result of the COVID-19 outbreak, has not caused us to close any of our facilities, and to date, our employees have been reporting to work, either remotely or in-person without any material change in attendance or productivity. However, we cannot ensure that the COVID-19 outbreak will not cause disruptions to our business in the future.

 

Liquidity, Going Concern and Capital Resources

 

We used $4.2 million in operating cash during in 2021, compared to $7.9 million in 2020. The reduction in operating cash uses in 2021 was primarily attributable to lower net operating losses, with depreciation and amortization flat with 2020 levels, and overall working capital modestly negative, as higher non-cash compensation and higher accounts payable and commodities payable were more than offset by higher accounts receivable, and increases in inventories and accruals.

 

We used $0.8 million in investing cash during in 2021, compared to $0.9 million in 2020. Total capital expenditures were $1.4 million in 2021, compared with $1.2 million in capital expenditures in 2020. This increase in capital expenditures was more than offset by insurance reimbursements for the remediation of damages to our Lake Charles facility from hurricane Laura in 2020. At the end of 2021, the majority of the work to remediate our Lake Charles facility had been completed and reimbursed.

 

We raised a total of $5.6 million in financing cash in 2021, compared to $5.7 million in 2020. During the second half of 2021, we raised $3.6 million in equity funding, $2.8 million through the issuance of shares in a direct placement, $0.6 million from the sale of common shares through our ATM facility, and $0.2 million in proceeds from warrant exercises. We also received net proceeds of $1.1 million from refinancing the term-loan secured by a mortgage on our Golden Ridge rice mill in Wynne, AR. The remaining was raised from increased debt under our factoring facility.

 

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued. Factors alleviating this concern include the reduction in operating losses in 2021, $5.8 million in cash and cash equivalents as of December 31, 2021, and our ability to procure additional capital if needed through a variety of sources.

 

 

Critical Accounting Policies

 

The accompanying consolidated financial statements have been prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. The following is a description of what we consider to be our most significant critical accounting policies.

 

Inventories - Inventories are stated at the lower of cost or net realizable value, with cost determined by the first-in, first-out method. We employ a full absorption procedure using standard cost techniques for the majority of our operations. The standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs. Provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecasts, while inventory determined to be obsolete is written off immediately.

 

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in net income (loss).

 

Impairment of Long-lived Assets - We review our long-lived assets, such as property and equipment, operating lease assets, and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss is recognized based on the difference between the carrying values and estimated fair value. The estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.

 

Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we conclude that is the case, or chose to not perform the qualitative assessment, we quantify the reporting unit’s fair value. If the carrying amount of the reporting unit exceeds its fair value, we will record an impairment loss based on the difference. The impairment loss will be limited to the amount of goodwill allocated to that reporting unit. Multiple valuation techniques may be used to assess the fair value of the reporting unit. All of these techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both. After a 2021 impairment charge, discussed further in Note 7 to the accompanying consolidated financial statements, goodwill is zero.

 

Intangible Assets, exclusive of goodwill – Recognized intangible assets, exclusive of goodwill, are amortized over the useful lives of the assets unless that life is determined to be indefinite. All of our intangible assets, exclusive of goodwill, are finite lived. We evaluate the remaining useful life of an intangible asset each reporting period to determine whether events or circumstances may indicate that a revision to the useful life is warranted to reflect the remaining expected use of the asset. If an intangible asset’s useful life is determined to be finite, but the precise length of that life is not known, the intangible asset is amortized over our best estimate of the asset’s useful life in a manner that reflects the pattern in which the asset’s economic benefits are consumed or expected to be realized. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. Our primary intangible asset, exclusive of goodwill, is a customer relationship intangible which was recognized in the acquisition of MGI and derives its value from future cash flows expected from the customers acquired from MGI. Changes in the actual or estimated cash flows of these customers could result in a material adjustment to amortization expense, an impairment loss, or both. Estimates of future cash flows are based on many factors, including current cash flows, expected market trends and competitive influences.

 

Revenue Recognition – We account for a contract with a customer when the written contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.

 

 

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing or amount of revenue recognized.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of RiceBran Technologies

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of RiceBran Technologies and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

 

 

Long-Lived Asset and Goodwill Impairment

 

As described in Notes 6 and 7 to the financial statements, the Company’s net consolidated property and equipment and intangible assets balances were $15,444,000 and $527,000, respectively, at December 31, 2021. As further described in Note 2 to the financial statements, the Company reviews long-lived assets, including property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the caring amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset. Based on events occurring during the year ended December 31, 2021, management performed an impairment assessment to test long-lived assets for impairment. The results of this assessment indicated that estimated undiscounted future cash flows exceed the carrying amount of the assets. The Company’s impairment assessment required management to make significant estimates and assumptions related to a number of factors, including forecasts of revenue growth rates and cash flows.

 

As described in Notes 2 and 7 to the financial statements, the Company recognized a full impairment of goodwill of $3,915,000 for the year ending December 31, 2021. As further described in Note 2 to the financial statements, the Company tests goodwill for impairment at the reporting unit level on an annual basis in the fourth quarter. The Company quantifies the reporting unit’s fair value using the income approach, based on a discounted cash flow valuation model. If the carrying amount of the reporting unit exceeds its fair value, the Company records an impairment loss, limited to the amount of goodwill allocated to that reporting unit, based on the difference. As described in Note 2 to the financial statements, the Company has identified one reporting unit and one operating segment, specialty ingredients.

 

We identified the long-lived asset and goodwill impairment assessments as a critical audit matter because changes in certain significant assumptions management used in the impairment analysis, including revenue growth rates, operating margins and, for the goodwill impairment assessment, discount rates, could have a significant impact on the analysis. Auditing these assumptions involved a high degree of auditor judgment and subjectivity and increased audit effort.

 

Our audit procedures related to the Company’s long-lived asset and goodwill impairment assessments included the following, among others:

 

We obtained an understanding of the relevant controls related to the development of forecasted revenue growth rates, operating margins and, for the goodwill impairment assessment, discount rates

 

We tested the reasonableness of management’s process for determining the forecasts of revenue growth rates and operating margins

 

We tested the reasonableness of management’s process for determining the discount rates utilized in the goodwill impairment assessment

  We tested the reasonableness of management's assumptions of revenue growth rates and operating margins by comparing management's prior forecast to historical results for the Company comparing the projections for consistency to the Company's strategic plans and initiatives and comparing the projections to industry forecasts
  We tested the reasonableness of management's discount rates utilized in the goodwill impairment assessment by comparing to known costs of capital and evaluating the sensitivty of the impairment assessment to the discount rates
 

We evaluated whether the estimates of revenue growth rates and cash flows were consistent with evidence obtained in other areas of the audit

 

/s/ RSM US LLP

 

We have served as the Company's auditor since 2018.

 

Houston, Texas

March 17, 2022

 

 

 

RiceBran Technologies

Consolidated Balance Sheets

December 31, 2021 and 2020

(in thousands, except share amounts)

 

   

2021

   

2020

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 5,825     $ 5,263  

Accounts receivable, net of allowance for doubtful accounts of $18 and $9

    4,136       2,819  

Inventories

    2,444       1,878  

Other current assets

    810       1,380  

Total current assets

    13,215       11,340  

Property and equipment, net

    15,444       16,367  

Operating lease right-of-use assets

    2,127       2,452  

Intangible assets

    527       722  

Goodwill

    -       3,915  

Total assets

  $ 31,313     $ 34,796  
                 

LIABILITIES AND SHAREHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 826     $ 955  

Commodities payable

    1,702       825  

Accrued salary, wages and benefits

    787       601  

Accrued expenses

    683       536  

Operating lease liabilities, current portion

    382       344  

Due under insurance premium finance agreements

    128       126  

Due under factoring agreement

    3,379       1,785  

Finance lease liabilities, current portion

    86       82  

Long-term debt, current portion

    1,183       572  

Total current liabilities

    9,156       5,826  

Operating lease liabilities, less current portion

    1,948       2,330  

Finance lease liabilities, less current portion

    100       113  

Long-term debt, less current portion

    1,356       3,107  

Derivative warrant liabilty

    258       -  

Total liabilities

    12,818       11,376  

Commitments and contingencies

                 

Shareholders' equity:

               

Preferred stock, 20,000,000 shares authorized: Series G, convertible, 3,000 shares authorized, stated value $150 and $225150 and 225 shares, issued and outstanding

    75       112  

Common stock, no par value, 150,000,000 shares authorized, 51,589,674 shares and 45,238,087 shares, issued and outstanding

    326,279       322,218  

Accumulated deficit

    (307,859 )     (298,910 )

Total shareholders' equity

    18,495       23,420  

Total liabilities and shareholders' equity

  $ 31,313     $ 34,796  

 

See Notes to Consolidated Financial Statements

 

 

 

RiceBran Technologies

Consolidated Statements of Operations

Years Ended December 31, 2021 and 2020

(in thousands, except share and per share amounts)

 

   

2021

   

2020

 
                 

Revenues

  $ 31,131     $ 26,199  

Cost of goods sold

    30,689       28,670  

Gross profit (loss)

    442       (2,471 )

Selling, general and administrative expenses

    7,087       7,971  
Impairment of goodwill     3,915       -  

Loss on disposition and involuntary conversion of property and equipment

    6       847  

Operating loss

    (10,566 )     (11,289 )

Other income (expense):

               

Interest expense

    (463 )     (318 )

Interest income

    1       20  

Gain on extinguishmenbt of PPP Loan

    1,792       -  

Change in fair value of derivative warrant liability

    389       -  

Other income

    4       4  

Other expense

    (85 )     (128 )

Total other income (expense)

    1,638       (422 )

Loss before income taxes

    (8,928 )     (11,711 )

Income tax expense

    (21 )     (19 )

Net loss

  $ (8,949 )   $ (11,730 )
                 

Loss per common share:

               

Basic

  $ (0.19 )   $ (0.29 )

Diluted

    (0.19 )     (0.29 )
                 

Weighted average number of shares outstanding:

               

Basic

    47,738,948       41,131,782  

Diluted

    47,738,948       41,131,782  

 

See Notes to Consolidated Financial Statements

 

 

 

RiceBran Technologies

Consolidated Statements of Changes in ShareholdersEquity

Years Ended December 31, 2021 and 2020

(in thousands, except share amounts)

 

 

   

Shares

                                 
                   

Preferred

   

Common

    Accumulated            
   

Series G

   

Common

   

Stock

   

Stock

   

Deficit

   

Equity

 

Balance, January 1, 2020

    225       40,074,483     $ 112     $ 318,811     $ (287,180 )   $ 31,743  

Sales of common stock, net of costs

          4,850,489       -       2,318       -       2,318  

Common stock awards under equity incentive plans

    -       214,234       -       1,041       -       1,041  

Exercise of common stock warrants

    -       67,577       -       12       -       12  

Common stock issued to vendors

    -       31,304       -       36       -       36  

Net loss

    -       -       -       -       (11,730 )     (11,730 )

Balance, December 31, 2020

    225       45,238,087       112       322,218       (298,910 )     23,420  

Sales of common stock and common stock warrants, net of costs

    -       3,062,395       -       2,721       -       2,721  

Common stock awards under equity incentive plans

    -       708,584       -       1,114       -       1,114  

Exercise of common stock warrants

    -       2,485,434       -       171       -       171  

Common stock issued to vendors

    -       24,000       -       18       -       18  

Conversion of preferred stock into common stock

    (75 )     71,174       (37 )     37       -       -  

Net loss

    -       -       -       -       (8,949 )     (8,949 )

Balance, December 31, 2021

    150       51,589,674     $ 75     $ 326,279     $ (307,859 )   $ 18,495  

 

 

See Notes to Consolidated Financial Statements

 

 

 

RiceBran Technologies

Consolidated Statements of Cash Flows

Years Ended December 31, 2021 and 2020

(in thousands)

 

   

2021

   

2020

 

Cash flow from operating activities:

               

Net loss

  $ (8,949 )   $ (11,730 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation

    2,397       2,393  

Amortization

    195       228  

Stock and share-based compensation

    1,135       1,077  
              Impairment of goodwill     3,915       -  

Loss on disposition and involuntary conversion of property and equipment

    6       847  

Gain on extinguishment of PPP loan

    (1,792 )     -  

Change in fair value of derivative warrant liability

    (389 )     -  

Accretion of interest

    98       95  

Other

    (3 )     (84 )

Changes in operating assets and liabilities:

               

Accounts receivable

    (1,332 )     997  

Inventories

    (566 )     (980 )

Accounts payable and accrued expenses

    280       (709 )

Commodities payable

    876       (4 )

Other

    (69 )     (76 )

Net cash used in operating activities

    (4,198 )     (7,946 )

Cash flows from investing activities:

               

Purchases of property and equipment

    (1,440 )     (1,184 )

Proceeds from insurance on involuntary conversion

    639       250  

Proceeds from sale of property and equipment

    3       15  

Net cash used in investing activities - continuing operations

    (798 )     (919 )

Cash flows from financing activities:

               

Advances on factoring agreement

    31,038       27,450  

Payments on factoring agreement

    (29,519 )     (27,583 )

Advances on insurance premium finance agreements

    962       743  

Payments on insurance premium finance agreements

    (960 )     (733 )

Advances on long-term debt, net of issuance costs

    1,167       3,762  

Payments of long-term debt and finance lease liabilities

    (665 )     (285 )

Proceeds from issuances of common stock and warrants, net of issuance costs

    3,364       2,318  

Proceeds from common stock warrant exercises

    171       12  

Net cash provided by financing activities

    5,558       5,684  

Net change in cash and cash equivalents

  $ 562     $ (3,181 )
                 

Cash and cash equivalents, beginning of period

    5,263       8,444  

Cash and cash equivalents, end of period

    5,825       5,263  

Net change in cash and cash equivalents and restricted cash

  $ 562     $ (3,181 )
                 

Supplemental disclosures:

               

Cash paid for interest

  $ 354     $ 223  

Cash paid for income taxes

  $ 18     $ 7  

 

See Notes to Consolidated Financial Statements

 

 

26

RiceBran Technologies
Notes to Consolidated Financial Statements

 

 

 

NOTE 1. LIQUIDITY AND MANAGEMENTS PLAN

 

Our multi-year history of operating losses and negative operating cash flows from continuing operations raised substantial doubt about our ability to continue as a going concern before consideration of management’s plans, however after consideration of management’s plans and the factors below, we believe substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued has been alleviated. The factors that alleviated the substantial doubt are summarized below:

 

1)

Significant Cash Reserves – As of December 31, 2021, we had $5.8 million in cash and cash equivalents.

 

2)

Declining Operating Losses – During 2021, we experienced declines in both operating losses and negative operating cash flows, driven by:

 

The transition to positive gross profits in 2021 from negative gross losses, driven principally by growth in operating profits from our SRB derivative business and a reduction in operating losses from our Golden Ridge rice mill, compared to a year ago.

 

An 11% reduction in selling, general, and administrative expenses in 2021, compared to 2020, due to headcount reductions and lower expenditures from outside services and consultants.

 

3)

Access to Equity Funding – During the second half of 2021, we raised $3.6 million in equity funding, $2.8 million through the issuance of shares in a direct placement, $0.6 million from the sale of common shares through our ATM facility, and $0.2 million in proceeds from warrant exercises.

 

4)

Ability to Leverage and/or Sell Real-estate Assets – We operate three wholly-owned facilities (Mermentau LA, Dillon MT, and North Grand Forks MN) with no existing liens. Such facilities could potentially be sold or mortgaged to provide additional liquidity.

 

 

NOTE 2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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.

 

27

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Segment Reporting

 

An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. The “Segment Reporting” topic of the Financial Accounting Standard Board (FASB) accounting standards codification requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers. Given the integrated nature of these facilities, we have one reporting unit and one operating segment.

 

Recent Accounting Guidance

 

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.

 

In June 2016, the FASB issued guidance ASU No. 2016-13 Financial InstrumentsCredit 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.

 

Recently adopted accounting standards

 

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40). Among other things, the new guidance eliminates some of the conditions that must be met for equity classification of freestanding warrants under ASC 815-40-25. We adopted ASU 2020-06 effective January 1, 2021, using the modified retrospective method. Adoption of the standard had no impact on our results of operations, financial position, or cash flows.

 

In May 2021, the FASB issued ASU 2021-04, Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. Among other things, the amendments affect (i) the accounting for freestanding equity-classified written call option modifications or exchanges which remain equity classified after the modification or exchange and (ii) the recognition and measurement of earnings per share (EPS) for certain modifications or exchanges. We early adopted ASU 2021-04 effective January 1, 2021, and we will apply it prospectively to applicable transactions. Adoption of the standard had no impact on our results of operations, financial position, or cash flows.

 

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Among other things, the new guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination as if it had originated the contracts. We early adopted ASU 2021-08 effective October 1, 2021 and will apply it prospectively to business combinations. Adoption of the standard had no impact on our results of operations, financial position, or cash flows.

 

Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation – The accompanying consolidated financial statements have been prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States (GAAP). The accompanying consolidated financial statements include the accounts of RiceBran Technologies and all subsidiaries in which we have a controlling interest. All significant inter-company balances are eliminated in consolidation.

 

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

 

28

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Reclassifications – Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation with the current year. Such reclassifications had no impact on previously reported net loss or shareholders’ equity.

 

Cash and Cash Equivalents – We consider all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. In all periods presented, we maintained our cash and cash equivalents with major banks. We maintain cash in bank accounts in amounts which at times may exceed federally insured limits. At times we invest in money market funds which are also not federally insured. We have not experienced any losses on such accounts.

 

Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable represent amounts receivable on trade accounts. The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of accounts receivable. We analyze the aging of customer accounts, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts. From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of the provision for doubtful accounts. We periodically evaluate our credit policy to ensure that customers are worthy of terms and support our business plans. We generally do not require collateral.

 

Inventories – Inventories are stated at the lower of cost or net realizable value. We employ a full absorption procedure using standard cost techniques for the majority of our operations. The standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs. Provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecasts, while inventory determined to be obsolete is written off immediately.

 

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in net income (loss).

 

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss is recognized based on the difference between the carrying value and estimated fair value. The estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any indicated deficiency charged to operations in the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.

 

Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we conclude that is the case, or chose to not perform the qualitative assessment, we quantify the reporting unit’s fair value. If the carrying amount of the reporting unit exceeds its fair value, we record an impairment loss based on the difference. The impairment loss will be limited to the amount of goodwill allocated to that reporting unit. Multiple valuation techniques may be used to assess the fair value of the reporting unit. All of these techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both. After a 2021 impairment charge, discussed further in Note 7, goodwill is zero as of December 31, 2021.

 

29

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Intangible Assets, Exclusive of Goodwill – Recognized intangible assets, exclusive of goodwill, are amortized over the useful lives of the assets unless that life is determined to be indefinite. All of our intangible assets, exclusive of goodwill, are finite lived. We evaluate the remaining useful life of an intangible asset each reporting period to determine whether events or circumstances may indicate that a revision to the useful life is warranted to reflect the remaining expected use of the asset. If an intangible asset’s useful life is determined to be finite, but the precise length of that life is not known, the intangible asset is amortized over our best estimate of the asset’s useful life in a manner that reflects the pattern in which the asset’s economic benefits are consumed or expected to be realized. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. Our primary intangible asset, exclusive of goodwill, is a customer relationship intangible which derives its value from future cash flows expected from the acquired customers. Changes in the actual or estimated future cash flows of these customers could result in a material adjustment to amortization expense, an impairment loss, or both. Estimates of future cash flows are based on many factors, including current cash flows, expected market trends and competitive influences.

 

Leases – We lease certain buildings, land and corporate office space under operating leases with monthly or annual rent payments. We lease certain machinery and equipment under finance leases with monthly rent payments. We determine if an arrangement is a lease at inception. Operating lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as operating lease liabilities in our consolidated balance sheets. Finance lease right-of-use assets are included in property and equipment, net, and the related liabilities are included as finance lease liabilities in our consolidated balance sheets.

 

We recognize right-of-use assets and lease liabilities based on the present value of the future minimum lease payments over the lease term, beginning at the commencement date, for leases exceeding a year. Minimum lease payments include the fixed lease components of the lease and any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Lease terms may include options to renew when it is reasonably certain that we will exercise that option. We combine lease and nonlease components and account for them as a single lease component. Certain leases contain rent escalation clauses, rent holidays, capital improvement funding or other lease concessions.

 

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease. When we cannot readily determine the discount rate implicit in a lease, we utilize our incremental borrowing rate, the rate of interest that we would incur to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. To estimate the incremental borrowing rate, we reference a market yield curve consistent with our assessment of our credit quality.

 

We recognize operating lease expense related to the minimum lease payments on a straight-line basis over the lease term. For finance leases, we recognize amortization expense related to the minimum lease payments on a straight-line basis over the lease term while interest expense is recognized using the effective interest method. Expense related to variable lease payments that do not depend on a rate or index and short-term rentals, on leases with terms less than a year, are expensed as incurred.

 

Revenue Recognition – We account for a contract with a customer when the written contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.

 

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing or amount of revenue recognized.

 

30

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Incremental costs of obtaining a revenue contract are capitalized and amortized on a straight-line basis over the expected customer relationship period if we expect to recover those costs. As a practical expedient, we expense costs to obtain a contract as incurred if the amortization period would have been a year or less. Typically, costs to incur revenue contracts are not significant.

 

Selling, General and Administrative Expenses – Selling, general and administrative expenses include salaries and wages, bonuses and incentives, share-based compensation expense, employee-related expenses, facility-related expenses, marketing and advertising expense, depreciation of non-operating property and equipment, professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other operating expenses.

 

Research and Development – Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses. External expenses consist of costs associated with product development. All such costs are charged to expense in the period they are incurred.

 

Share-Based Compensation –Share-based compensation expense for stock options granted to employees is calculated at the grant date using the Black-Scholes-Merton valuation model based on awards ultimately expected to vest and expensed on a straight-line basis over the service period of the grant. We recognize forfeitures as they occur. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management’s judgment regarding market factors and trends. We will use alternative valuation models if grants have characteristics that cannot be reasonably estimated using the Black-Scholes-Merton model.

 

For awards of nonvested stock to employees, share-based compensation is measured based on the fair value of the stock on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide service in exchange for the reward. Compensation expense related to service-based awards are recognized on a straight-line basis over the requisite service period for the entire award.

 

For restricted stock units issued to employees with market conditions, share-based compensation is measured based on the fair value of the award on the date of grant using a binomial simulation model and expense is recognized over the derived service period determined by the simulation. The binomial simulation model requires us to estimate key assumptions such as stock volatility, risk-free interest rates and dividend yields based on both historical information and management’s judgment regarding market factors and trends.

 

Share-based compensation for awards to nonemployees is calculated as of the grant date, taking into consideration the probability of satisfaction of performance conditions, in a manner consistent with awards to employees. The expense associated with share-based awards for service is recognized over the term of service. In the event services are terminated early or we require no specific future performance, the entire amount is expensed. The expense associated with share-based awards made in exchange for goods is generally attributed to expense in the same manner as if the vendor had been paid in cash.

 

Income Taxes – We account for income taxes by recording a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for financial reporting and tax purposes during the year.

 

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards. A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is more likely than not that the related tax benefits will not be realized. The realization of deferred tax assets can be affected by, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, our experience with utilizing operating losses and tax credit carryforwards by jurisdiction, and tax planning alternatives that may be available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that may be different from current estimates of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities may result in income tax benefits being recognized in the period when it is determined that the liabilities are no longer necessary.

 

We recognize interest and penalties related to uncertain tax positions, if any, in selling, general and administrative expenses.

 

Derivative Warrant Liability – We have an outstanding warrant agreement that provides for cash settlement of the warrant in certain circumstances. We account for this warrant as a liability instrument. This warrant is carried at fair value as a derivative warrant liability in our consolidated balance sheets at the end of each reporting period, and any resultant changes in fair value are recorded in the consolidated statements of operations in other income (expense) as change in fair value of derivative warrant liability.

 

31

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Fair Value – Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Certain assets and liabilities may be presented in the financial statements at fair value. Assets and liabilities measured at fair value on a non-recurring basis may include property and equipment.

 

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

 

 

Level 1 – inputs include quoted prices for identical instruments and are the most observable.

 

Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

 

Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

 

 

NOTE 3. CASH AND CASH EQUIVALENTS

 

As of December 31, 2021, we had $4.3 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 4. ACCOUNTS RECEIVABLE AND REVENUES

 

Amounts billed and due from our customers are classified as accounts receivables 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 2021 and 2020 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.

 

   

Customer

 
   

A

   

B

   

C

 

% of revenue, 2021

    5 %     11 %     12 %

% of revenue, 2020

    10 %     11 %     2 %
                         

% of accounts receivable, as of December 31, 2021

    7 %     8 %     15 %

% of accounts receivable, as of December 31, 2020

    17 %     1 %     10 %

 

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

 

   

2021

   

2020

 

United States

  $ 29,637     $ 24,790  

Other countries

    1,494       1,409  

Revenues

  $ 31,131     $ 26,199  

 

32

RiceBran Technologies
Notes to Consolidated Financial Statements
 
 

NOTE 5. INVENTORIES

 

The following table details the components of inventories (in thousands).

 

   

December 31

 
   

2021

   

2020

 

Finished goods

  $ 1,679     $ 1,512  

Raw materials

    599       236  

Packaging

    166       130  

Inventories

  $ 2,444     $ 1,878  

 

 

NOTE 6. PROPERTY AND EQUIPMENT

 

The following table details the components of property and equipment (amounts in thousands).

 

   

December 31

         
   

2021

   

2020

   

Estimated Useful Lives (Years)

Land

  $ 730     $ 730          

Furniture and fixtures

    265       276     5 -

10

Plant

    10,457       9,377     20 -

40 or life of lease

Computer and software

    452       1,060     3 -

5

Leasehold improvements

    1,828       1,880     4 -

15 or life of lease

Machinery and equipment

    15,115       16,402     5 -

15

Property and equipment, cost

    28,847       29,725          

Less accumulated depreciation

    13,403       13,358          

Property and equipment, net

  $ 15,444     $ 16,367          

 

Amounts payable for property and equipment included in accounts payable totaled $0.2 million at December 31, 2021, and $0.3 million at December 31, 2020. Assets which had not yet been placed in service, included in property and equipment, totaled $0.9 million at December 31, 2021, and $0.6 million at December 31, 2020.

 

Involuntary Conversion

 

In 2020, we wrote down assets, consisting primarily of a building, machinery and equipment, in the amount of $0.9 million and incurred other costs of $0.1 million as a result of hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property. Operations at this facility have been shut down since September 2020, while this facility is being repaired. We expected insurance recoveries to cover our asset loss to the extent it exceeded our $0.1 million deductible under our insurance policy. The resulting $0.1 million loss on involuntary conversion of assets was included in selling, general and administrative expenses in our consolidated financial statements in 2020. As of December 31, 2021, we have received $0.9 million of proceeds from the insurer. The insurance proceeds receivable included in other current assets on our consolidated balance sheet was zero at December 31, 2021, and $0.7 million as of December 31, 2020. We accrue estimated insurance proceeds receivable when the proceeds are estimable and probable of collection. We do not expect any recovery of lost profits under business interruption insurance. We finalized our insurance claim in the first quarter of 2022. We received $0.1 million in proceeds from the insurer in the first quarter of 2022 and expect any adjustment to our loss on involuntary conversion in 2022 to be less than $0.1 million.

 

33

RiceBran Technologies
Notes to Consolidated Financial Statements
 
 

NOTE 7. INTANGIBLE ASSETS AND GOODWILL

 

Intangible assets, excluding goodwill, consist of the following (in thousands).

 

   

December 31, 2021

   

December 31, 2020

 
   

Estimated

Useful Life

   

Gross
Carrying
Value

   

Accumulated
Amortization

   

Net
Carrying
Value

   

Gross
Carrying
Value

   

Accumulated
Amortization

   

Net
Carrying
Value

 

Customer relationships

    15     $ 930     $ 423     $ 507     $ 930     $ 236     $ 694  

Trademarks

    10       13       3       10       13       2       11  

Non-compete agreement

    5       22       12       10       22       8       14  

Other

    17       -       -       -       32       29       3  

Total intangible assets

          $ 965     $ 438     $ 527     $ 997     $ 275     $ 722  

 

The customer relationship intangible is amortizing over the 15-year period of expected future economic benefit, in proportion to the discounted expected future cash flows used to estimate the value of the intangible at acquisition in 2019. It is amortizing at a more rapid rate in the earlier periods than in later periods. Other finite-lived intangible assets are amortizing on a straight-line basis.

 

As of December 31, 2021, the weighted-average remaining amortization period for intangibles other than goodwill is 11.7 years and future intangible amortization is expected to total the following (in thousands):

 

2022

  $ 147  

2023

    111  

2024

    80  

2025

    58  

2026

    42  

Thereafter

    89  

Total amortization

  $ 527  

 

 

A summary of goodwill activity follows (in thousands).

 

   

2021

   

2020

 

Goodwill, January 1

  $ 3,915     $ 3,915  

Impairment of goodwill

    (3,915 )     -  
Goodwill, December 31   $ -     $ 3,915  

 

 

We performed our annual impairment testing of goodwill as of December 31, 2021. We estimated the fair value of our company by a discounted cash flow method, reconciled to our market capitalization.  We determined the fair value of our equity, based on our market capitalization, was substantially below our carrying value. As a result, in the fourth quarter of 2021, we recorded a non-cash, non-tax deductible impairment charge equal to the entire amount of our goodwill, $3.9 million.

 

 

NOTE 8. LEASES

 

The components of lease expense and cash flows from leases (in thousands) follow.

 

   

2021

   

2020

 

Finance lease cost:

               

Amortization of right-of use assets, included in cost of goods sold

  $ 89     $ 62  

Interest on lease liabilities

    11       14  

Operating lease cost, included in selling, general and administrative expenses:

               

Fixed leases cost

    515       517  

Variable lease cost

    149       127  

Short-term lease cost

    61       9  

Total lease cost

  $ 825     $ 729  
                 

Cash paid for amounts included in the measurement of lease liabilities:

               

Operating cash flows from finance leases

  $ 11     $ 14  

Operating cash flows from operating leases

  $ 515     $ 517  

Financing cash flows from finance leases

  $ 96     $ 101  

 

As of December 31, 2021, variable lease payments do not depend on a rate or index. As of 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 2021, we financed the purchase of $0.1 million of property and equipment in noncash finance lease transactions. During 2020, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

 

34

RiceBran Technologies
Notes to Consolidated Financial Statements
 

As of December 31, 2021, we do not believe it is certain that we will exercise any lease 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 December 31, 2021, follows.

 

   

Operating

Leases

   

Finance

Leases

 

Remaining leases terms (in years)

    1.8 - 11.2       0.4 - 4.8  

Weighted average remaining lease terms (in years)

        6.2           2.6  

Discount rates

    6.3% - 9.0%       2.8% - 7.3%  

Weighted average discount rate

        7.7%           4.9%  

 

As of December 31, 2021, operating leases have maturities extending through 2032. Maturities of lease liabilities as of December 31, 2021, follows (in thousands).

 

   

Operating

   

Finance

 
   

Leases

   

Leases

 

2022

  $ 548     $ 93  

2023

    528       63  

2024

    429       23  

2025

    439       9  

2026

    451       7  

Thereafter

    578       -  

Total lease payments

    2,973       195  

Amounts representing interest

    (643 )     (9 )

Present value of lease obligations

  $ 2,330     $ 186  

 

 

NOTE 9. DEBT

 

We finance certain amounts owed for annual insurance premiums under financing agreements. As of December 31, 2021, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through February 2022, at an interest rate of 3.7% per year.

 

In October 2019, we entered into a factoring agreement which provides for a $7.0 million credit facility with a lender. 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 was 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.

 

Due under factoring agreement consists of the following (in thousands).

 

   

December 31,

 
   

2021

   

2020

 

Borrowings outstanding

  $ 3,379     $ 1,860  

Debt issuance costs, net

    -       (75 )

Due under factoring agreement

  $ 3,379     $ 1,785  

 

Additional information related to our factoring obligation follows.

 

   

2021

   

2020

 

Average borrowings outstanding (in thousands)

  $ 1,622     $ 1,713  

Amortization of debt issuance costs (in thousands)

  $ 75     $ 91  

Fees paid, as a percentage of average oustanding borrowings

    6.2 %     7.3 %

Interest paid, as a percentage of average outstanding borrowings

    6.4 %     6.4 %

 

35

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Long-term debt consists of the following (in thousands).

 

   

December 31,

 
   

2021

   

2020

 

Mortgage promissory note - Originally dated in July 2020 and modified in December 2021. As modified, interest accrues at an annual rate which is the greater of 7.0% above the lender's prime rate and 10.3% (10.3% at December 31, 2021) payable in monthly installments through December 2023. Net of $32 debt issuance costs at December 31, 2021. Face amount $2.5 million. Interest accrued at the effective discount rate 11.5%.

  $ 2,469     $ 1,817  

Payroll Protection Program note - Dated April 2020. Interest accrued at an annual rate of 1.0%. Forgiven in January 2021.

    -       1,792  

Equipment note - Dated May 2021. Original principal $46. Due in monthly installments through June 2025. Interest accrues at the effective discount rate of 3.6% per year.

    33       -  

Equipment note - Dated December 2019. Original principal $40. Due in monthly installments through December 2024. Interest accrues at the effective discount rate of 9.3% per year.

    26       33  

Equipment notes - Initially recorded in November 2018, in an acquisition, at the present value of future payments using a discount rate of 4.8% per year. Due in monthly installments through August 2022.

    11       37  

Total long term debt, net

  $ 2,539     $ 3,679  

 

In December 2021, we entered into agreements with our lender to effect a modification of the terms of our mortgage promissory note. We entered into a new mortgage promissory note in the principal amount of $2.5 million, with terms as indicated in the table above. We received $1.2 million in cash from the lender and the lender applied the remainder of the principal to the $1.3 million principal and interest then outstanding under our old promissory note. We recognized no gain or loss with the modification. At modification, the carrying amount of the new note equaled the total of (i) the $1.3 million carrying amount of the old note prior to modification (ii) the $1.2 million advanced by the lender at modification and (iii) the debt issuance costs associated with the modification. Under the terms of the original note, (i) interest accrued at an annual rate which was the greater of 11.0% above the 1ender’s prime rate and 14.3% and (ii) principal and interest were payable in monthly installments through May 2022 and a final payment of $1.0 million was due in June 2022. The note is secured by certain real property and personal property assets located in Wynne, Arkansas.

 

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, 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. As of December 31 2020, payments on the PPP loan were deferred under the terms of the program. Interest accrued at an annual rate of 1.0%. 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. As discussed further in Note 14, our compliance with the loan program is subject to potential audit by the SBA.

 

Future principal maturities of long-term debt outstanding at December 31, 2021, follow (in thousands).

 

2022

  $ 1,215  

2023

    1,332  

2024

    19  

2025

    5  

Principal maturities

    2,571  

Debt issuance costs

    (32 )

Total long term debt, net

  $ 2,539  

 

 

NOTE 10. EQUITY, SHARE-BASED COMPENSATION, WARRANTS AND SECURITIES OFFERINGS

 

In June 2020, our shareholders approved, and we filed an amendment to our articles of incorporation, increasing our authorized shares of common stock from 50,000,000 to 150,000,000.

 

Preferred Stock

 

Our board of directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock. We previously designated and issued six series of preferred stock of which no shares remain outstanding. In addition, we designated and issued a seventh series of preferred stock, Series G, of which 150 shares remain outstanding as of December 31, 2021.

 

36

RiceBran Technologies
Notes to Consolidated Financial Statements
 

The Series G preferred stock is non-voting and may be converted into shares of our common stock at the holders’ election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 948.9915 shares of common stock. The Series G preferred stock is entitled to receive dividends if we pay dividends on our common stock, in which case the holders of the preferred stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is issuable upon conversion of the Series G preferred stock. If we are liquidated or dissolved, the holders of Series G preferred stock are entitled to receive, before any amounts are paid in respect of our common stock, an amount per share of preferred stock equal to $1,000, plus any accrued but unpaid dividends thereon.

 

Securities Offerings

 

In September 2021, we issued and sold 2,307,500 shares of common stock, a warrant for the purchase of up to 2,307,693 shares (Warrant A), and a prefunded warrant (the Prefunded Warrant) for the purchase of up to 2,307,855 shares of common stock pursuant to our effective “shelf” registration statement on Form S-3. 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. The Prefunded Warrant, which was exercised in full in 2021, had an exercise price of $0.0001 (net of the $0.6499 per share prefunded). We determined that the Prefunded Warrant qualified for equity accounting, however, Warrant A did not qualify for equity accounting because the holder may elect cash settlement of this warrant in the event of a change of control. As a result, we carry Warrant A as a liability at fair value in our consolidated balance sheets and the change in fair value of this warrant is recorded in our consolidated statements of operations. The net proceeds from the offering of $2.8 million, after deducting commissions and other cash offering expenses of $0.2 million were allocated to derivative warrant liability, in an amount equal to the $0.6 million estimated fair value of Warrant A as of September 13, 2021, with the remainder of the proceeds recorded in equity. We determined the exercise price of the Prefunded Warrant was nominal and, as such, considered the 2,307,855 shares initially underlying the Prefunded Warrant to be outstanding effective September 13, 2021, for the purposes of calculating basic earnings per share (EPS). We intend to use the net proceeds from the September 2021 offering for general corporate purposes, which may include funding capital expenditures and working capital and repaying indebtedness.

 

On March 30, 2020, we entered into an at market issuance (ATM) sales agreement with respect to an at-the-market offering program through B. Riley FBR, Inc, as sales agent. The issuances and sales of our common stock under the ATM sales agreement are made pursuant to our effective “shelf” registration statement on Form S-3. During 2021, we issued and sold 754,895 shares of common stock under an at market issuance sales agreement, at an average price of $0.80 per share. Proceeds from those 2021 sales of $0.5 million are recorded in equity, net of $0.1 million of stock issuance costs. During 2020, we issued and sold 4,850,489 shares of common stock under the agreement, at an average price of $0.53 per share. Proceeds from those 2020 sales are recorded in equity, net of $0.2 million of stock issuance costs. Under the terms of the securities purchase agreement related to the September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023.

 

Equity Incentive Plan

 

Our board of directors adopted our 2014 Equity Incentive Plan (2014 Plan) in August 2014, after the plan was approved by shareholders. The total shares of common stock authorized for issuance under the 2014 Plan is 6,300,000 shares. Under the terms of the plan, we may grant stock options, shares of common stock and share-based awards to officers, directors, employees or consultants providing services on such terms as are determined by the board of directors. Our board of directors administers the plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients. The stock options granted under the plan have terms of up to 10 years. As of December 31, 2021, awards for the purchase of 5,813,021 shares of common stock have been granted and remain outstanding (common stock options, common stock and restricted stock units) and 486,979 shares of common stock are reserved for future grants under the 2014 Plan. As of December 31, 2021, we have outstanding restricted stock unit awards for 1,000,000 shares of common stock, the vesting of which, as amended, is subject to our shareholders approving an increase in the total shares of common stock authorized for issuance under the plan on or before December 15, 2022.

 

37

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Share-based compensation expenses related to employees and directors are included in selling, general and administrative expenses. Share-based compensation by type of award follows (in thousands).

 

   

2021

   

2020

 

Common stock

  $ 108     $ 308  

Stock options

    140       148  

Restricted stock units

    866       585  

Compensation expense related to common stock awards issued under equity incentive plan

  $ 1,114     $ 1,041  

 

Information regarding common stock issued under the equity incentive plan follows, including shares issued upon vesting of restricted stock units. All shares of common stock issued in 2021 or 2020 were vested as of the date issued.

 

   

2021

   

2020

 
   

Shares

Issued

   

Weighted

Average
Grant
Date Fair

Value Per

Share

   

Shares

Issued

   

Weighted

Average
Grant
Date Fair

Value Per

Share

 

Directors

    136,084     $ 0.80       83,306     $ 0.53  

Employees

    572,500       0.55       71,011       0.85  

Consultants

    -               59,917       0.71  
      708,584               214,234        

 

The shares of common stock issued to employees in 2021 were issued upon vesting of restricted stock units with a grant date fair value of $0.55 per share.

 

Options

 

Stock option activity follows.

 

   

2021

   

2020

 
   

Shares

Under

Options

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant

Date Fair

Value

   

Weighted

Average

Remaining

Contractual

Life (Years)

   

Shares

Under

Options

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Grant

Date Fair

Value

   

Weighted

Average

Remaining

Contractual

Life (Years)

 

Outstanding at January 1

    675,026     $ 2.24               7.9       996,009     $ 3.23               8.1  

Granted

    -       -       NA       -       653,004       1.22     $ 0.73       10.0  

Forfeited

    (31,067 )     8.40               7.4       (973,987 )     2.56               8.1  

Outstanding at December 31

    643,959     $ 1.95               6.9       675,026     $ 2.24               7.9  

 

The options granted in 2020 vest and become exercisable in annual or monthly installments ending three or four years from the date of grant.

 

38

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Information related to outstanding and exercisable stock options as of December 31, 2021, follows.

 

   

Outstanding

   

Exercisable

 

Range of Exercise Prices

 

Shares Underlying Options

   

Weighted Average Exercise Price

   

Weighted Average Remaining Contractual Life (Years)

   

Shares Underlying Options

   

Weighted Average Exercise Price

   

Weighted Average Remaining Contractual Life (Years)

 

less than $1.00

    78,000     $ 0.85       5.3       78,000     $ 0.85       5.3  

$1.00 to $1.99

    333,811       1.26       7.7       115,983       1.32       7.2  

$2.00 to $2.99

    116,750       2.79       7.3       72,687       2.82       7.1  

$3.00 to $3.99

    89,875       3.34       6.3       60,256       3.36       5.9  

$4.00 to $4.99

    23,104       4.43       2.6       23,094       4.43       2.6  

$5.00 to $16.00

    2,419       16.00       0.8       2,419       16.00       0.8  
      643,959     $ 1.95       6.9       352,439     $ 2.18       6.2  

 

As of December 31, 2021, outstanding stock options had an intrinsic value of zero, the weighted average remaining vesting period of options outstanding was 1.7 years and unrecognized option compensation cost was $0.2 million. As of December 31, 2020, exercisable options had an intrinsic value of zero. The following are the assumptions used in valuing stock option grants:

 

   

2020

 

Assumed volatility

    60% - 69%  
   

(62% weighted average)

 

Assumed risk free interest rate

    1.3% - 1.7%  
   

(1.6% weighted average)

 

Average expected life of options (in years)

    5.9 - 7.0  
   

(6.3 weighted average)

 

Expected dividends

      -    

 

Restricted Stock Units

 

Restricted stock unit (RSU) activity follows.

 

   

2021

   

2020

 
   

RSU Shares

Issued

   

Unrecognized

Stock

Compensation

(in thousands)

   

Weighted

Average

Expense

Period

(Years)

   

RSU Shares

Issued

   

Unrecognized

Stock

Compensation

(in thousands)

   

Weighted

Average

Expense

Period

(Years)

 

Nonvested at January 1

    1,495,400     $ 730       1.4       1,148,062     $ 377       1. 4  

Granted (1)

    824,689       796       1.0       1,261,803       828       0.9  

Modified

    -       -               -       -          

Before modification (2)

    -       -               (227,062 )     (22 )        

After modification (3)

    -       -               620,000       353       2.0  

Vested (4)

    (1,051,149 )     -               (386,403 )     -          

Cancelled

    -       -               (625,000 )     -          

Forfeited (5)

    (2,907 )     (3 )             (296,000 )     (221 )        

Expensed

    -       (865 )             -       (585 )        

Nonvested at December 31

    1,266,033     $ 658       0.9       1,495,400     $ 730       1.4  

 

 

(1)

The shares of common stock subject to the RSUs granted in 2021 and 2020, were vested when granted or vest within two years of grant. These RSU grants were not subject to any market conditions and were valued using the market price of our common stock on the date of grant. Prior to being modified in 2020, the shares of common stock subject to the RSUs granted in 2019 vested based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days, subject to a minimum service period in certain grants, and expired on the fifth anniversary of each grant.

 

(2)

In December 2020, we modified RSUs for a total of 227,062 shares of common stock. Prior to modification, the shares subject to the RSUs vested based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days. Subject to a minimum service period, as described in the next sentence, the RSU shares vested as to (i) 22,706 shares on the date the vesting price equals or exceeds $5.00 per share, (ii) 68,119 shares on the date the vesting price equals or exceeds $10.00 per share and (iii) 136,237 shares on the date the vesting price equals or exceeds $15.00 per share. Vesting on the RSU shares would have occurred the later of the one-year anniversary of the grant and the date the shares reach the vesting price indicated in the preceding sentence. The RSUs expire on the fifth anniversary of each grant at dates ranging from October 2023 to August 2024.

 

(3)

In December 2020, after modification, shares subject to the modified RSUs referred to above totaled 620,000 and vest as to 50% of the shares in December 2021 and as to the remainder of the shares in December 2022. We are recognizing the total of (i) the remaining unrecognized compensation on the awards as of the modification date and (ii) the increase in fair value of the RSUs as a result of the modification, over the remaining two-year vesting period of the RSUs.

 

39

RiceBran Technologies
Notes to Consolidated Financial Statements
 
 

(4)

Represents the following.

 

   

2021

   

2020

 

Vested when granted

    386,403       386,403  

Vested upon completion of service conditions, common stock issued at vesting

    572,500       -  

Vested upon completion of service, common stock issuance deferred

    450,400       -  

Outstanding at December 31

    1,409,303       386,403  

 

 

(5)

In 2021 and 2020, we reversed expense recognized in prior periods on forfeited RSU shares in the amounts indicated in the unrecognized stock compensation column.

 

As of December 31, 2021, 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 addition, as of December 31, 2021, we have outstanding RSUs for 1,000,000 shares of common stock, the vesting of which is subject to our shareholders approving an increase in the total shares of common stock authorized for issuance under the 2014 Plan. The impacts of these RSUs are excluded from the table above as the RSUs are considered contingently issued.

 

Warrants

 

Prefunded Warrant was cashless exercised in its entirety in 2021 and we issued 2,307,498 shares of common stock upon the cashless exercise. Warrant activity, excluding activity related to the Prefunded Warrant, follows.

 

   

2021

   

2020

 
   

Shares

Under

Warrants

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Life (Years)

   

Shares

Under

Warrants

   

Weighted

Average

Exercis

e Price

   

Weighted

Average

Remaining

Contractual

Life (Years)

 

Outstanding at January 1

    6,645,916     $ 0.98       1.1       7,532,280     $ 1.32       1.9  

Granted (1)

    2,307,693       1.00       5.0       -    

 

NA    

 

NA  

Cash exercised

    (177,936 )     0.96       0.8       (12,948 )     0.96       -  

Cashless exercised (2)

    -    

 

NA    

 

NA       (215,740 )     0.96       -  

Expired

    (25,000 )     5.25       -       (657,676 )     5.25       -  

Outstanding at December 31 (2)

    8,750,673     $ 0.98       1.4       6,645,916     $ 0.98       1.1  

 

 

(1)

Represents Warrant A and is classified as a liability in our consolidated balance sheets. The $1.00 per share exercise price as of December 31, 2021, 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.

 

(2)

We issued 54,629 shares of common stock upon the cashless exercise of the warrants in 2020.

 

(3)

Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. As of December 31, 2021, warrant holders may elect to exercise cashless warrants for 3,484,675 shares of common stock at an exercise price of $0.96 per share and 2,307,696 shares of common stock at an exercise price of $1.00 per share. If we register for resale the shares subject to warrants, the holders of some of the warrants may no longer have the right to elect a cashless exercise. If we fail to maintain a registration statement for the resale of shares under certain other warrants, the shares under those warrants may again become exercisable using a cashless exercise feature.

 

40

RiceBran Technologies
Notes to Consolidated Financial Statements
 

As of December 31, 2021, all outstanding warrants were exercisable. The following table summarizes information related to exercisable and outstanding warrants as of December 31, 2021.

 

Range of

Exercise

Prices

   

Shares

Under

Warrants

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Life (Years)

 
$ 0.96       6,392,980     $ 0.96       0.1  
$ 1.00 (1)     2,307,693       1.00       4.7  
$ 2.00       50,000       2.00       1.1  
          8,750,673     $ 0.98       1.4  

 

 

(1)

Represents Warrant A and is classified as a liability in our consolidated balance sheets because the holder may elect cash settlement of this warrant in the event of a change of control. The $1.00 per share exercise price as of December 31, 2021, is subject to adjustment 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.

 

In February 2022, warrants for the purchase of up to 6,142,980 shares of common stock with an exercise price of $0.96 per share, expired.

 

In the period from January 1, 2022 to March 17, 2022, we:

 

 

issued RSUs under the 2014 Plan to employees covering a total of 370,000 shares of our common stock. The shares subject to the RSUs vest over two years beginning March 2023,

 

awarded 1,898,781 RSUs to employees that are subject to our shareholders approving an increase in the total shares of common stock authorized for issuance under the 2014 Plan,

 

issued 224,751 shares of common stock upon the vesting of RSUs with an average grant date fair value of $0.91 per share.


 

 

 

 

NOTE 11. INCOME TAXES

 

Deferred tax asset (liability) is comprised of the following (in thousands):

 

   

December 31

 
   

2021

   

2020

 

Net operating loss carryforwards

  $ 13,385     $ 11,473  

Stock options and warrants

    832       576  

Property and equipment

    16       50  

Intangible assets

    950       (9 )

Capitalized expenses

    105       85  

Other

    64       135  

Operating right-of-use lease assets

    (566 )     (652 )

Operating right-of-use lease liabilities

    670       763  

Net deferred tax assets

    15,456       12,421  

Less: Valuation allowance

    (15,456 )     (12,421 )

Deferred tax asset (liability)

  $ -     $ -  

 

 

We have determined it is more likely than not that our deferred tax assets will not be realized. Accordingly, we have provided a valuation allowance for deferred tax assets.

 

The following table summarizes the change in the valuation allowance (in thousands):

 

   

2021

   

2020

 

Vaulation allowances, beginning of year

  $ 12,421     $ 8,687  

Net operating loss and other temporary differences

    2,926       3,039  

Expiration of net operating losses and limitations

    -       (20 )

Adjustment to deferred taxes

    67       (51 )

Impact of state tax rate change

    42       746  

Other adjusments

    -       20  

Valuation allowance, end of year

  $ 15,456     $ 12,421  

 

41

RiceBran Technologies
Notes to Consolidated Financial Statements
 

As of December 31, 2021, net operating loss (NOL) carryforwards for U.S. federal tax purposes totaled $50.1 million. NOLs generated after December 31, 2017, do not expire. Federal NOLs of $9.9 million expire at various dates from 2022 through 2037 and the remainder do not expire. NOL carryforwards for state tax purposes totaled $59.5 million at December 31, 2021, and expire at various dates from 2022 through 2041.

 

Our ability to utilize previously accumulated NOL carryforwards is subject to substantial annual limitations due to the changes in ownership provisions of the Internal Revenue Code (IRC) of 1986, as amended, and similar state regulations. Prior to 2020, we experienced several ownership changes as defined in IRC Section 382(g). In general, the annual limitation is equal to the value of our stock immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month in which the ownership change occurred. Any unused annual limitation may generally be carried over to later years until the NOL carryforwards expire. Accordingly, we have reduced our NOL in the table above to reflect these limitations.

 

We are subject to taxation in the U.S. federal jurisdiction and various state and local jurisdictions. We record liabilities for income tax contingencies based on our best estimate of the underlying exposures. We are open for audit by the IRS for years after 2017 and, generally, by U.S. state tax jurisdictions after 2016.

 

Reconciliations between the amounts computed by applying the U.S. federal statutory tax rate to loss before income taxes, and income tax expense (benefit) follows (in thousands):

 

   

2021

   

2020

 

Income tax benefit at federal statutory rate

  $ (1,875 )   $ (2,459 )

Increase (decrease) resulting from:

               

State tax benefit, net of federal tax effect

    (605 )     (623 )

Effect of change in state tax rate

    (42 )     (746 )

Change in valuation allowance

    3,035       3,734  

Expirations of net operating losses and application of IRC 382 limitation

    -       20  

PPP loan forgiveness, nontaxable

    (376 )     -  

Change in fair value of derivative warrant liability, nontaxable

    (81 )     -  

Other nondeductible expenses

    32       -  

Adjustments to deferreds

    (67 )     51  

Other

    -       42  

Income tax expense

  $ 21     $ 19  

 

Based on an analysis of tax positions taken on income tax returns filed, we determined no material liabilities related to uncertain income tax positions existed as of December 31, 2021 or 2020. Although we believe the amounts reflected in our tax returns substantially comply with applicable U.S. federal, state and local tax regulations, the respective taxing authorities may take contrary positions based on their interpretation of the law. A tax position successfully challenged by a taxing authority could result in an adjustment to our provision or benefit for income taxes in the period in which a final determination is made.

 

 

NOTE 12. INCOME (LOSS) 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 RiceBran Technologies 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.

 

42

RiceBran Technologies
Notes to Consolidated Financial Statements
 

Below are reconciliations of the numerators and denominators in the EPS computations.

 

   

2021

   

2020

 

NUMERATOR (in thousands):

               

Basic and diluted - net loss

  $ (8,949 )   $ (11,730 )
                 

DENOMINATOR:

               

Weighted average number of shares of shares of common stock outstanding

    47,105,673       41,019,802  

Weighted average number of shares of common stock underlying vested restricted stock units

    633,275       111,980  

Basic EPS - weighted average number of shares outstanding

    47,738,948       41,131,782  

Effect of dilutive securities outstanding

    -       -  

Diluted EPS - weighted average number of shares outstanding

    47,738,948       41,131,782  

 

No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for 2021 and 2020, because to do so would be anti-dilutive as a result of our net loss. Potentially dilutive securities outstanding during 2021 and 2020 included our outstanding convertible preferred stock, options, warrants, nonvested restricted stock units. Those potentially dilutive securities, further described in Note 10, could potentially dilute EPS in the future.

 

 

NOTE 13. FAIR VALUE MEASUREMENT

 

The fair value of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable, commodities payable and short-term debt approximated their carrying value due to shorter maturities. As of December 31, 2021, the fair value of our operating lease liabilities was approximately $0.2 million lower than their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements). As of December 31, 2021, the fair values of our long-term debt and finance 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 fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 

Derivative warrant liability

  $ -     $ -     $ 258     $ 258  

Total liabilities at fair value

  $ -     $ -     $ 258     $ 258  

 

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis for 2021 (in thousands):

 

   

Fair Value

as of

Beginning of

Period

   

Total
Realized

and

Unrealized
Gains
(Losses)

   

Issuance of

New

Instruments

   

Net
Transfers
(Into) Out of
Level 3

   

Fair Value,

at End of

Period

   

Change in

Unrealized

Gains

(Losses) on

Instruments

Still Held

 

Derivative warrant liability

  $ -     $ -     $ 647     $ -     $ 258     $ (389 )

Total Level 3 fair value

  $ -     $ -     $ 647     $ -     $ 258     $ (389 )

 

43

RiceBran Technologies
Notes to Consolidated Financial Statements
 

The derivative warrant liability relates to Warrant A, discussed further in Note 10. Warrant A is carried in our consolidated balance sheet 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 December 31, 2021, and at issuance, 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 following are the assumptions used in valuing Warrant A.

 

   

December 31, 2021

   

September 30, 2021

 

Assumed volatility

    69.5 %     71.0 %

Assumed risk free interest rate

    0.8 %     0.4 %

Expected life of options (in years)

    4.8       5.0  

Expected dividends

    -       -  

 

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 December 31, 2021, a $0.10 increase in our stock price would have resulted in an approximate $130 thousand increase in the Black Scholes fair value of Warrant A.

 

 

NOTE 14. COMMITMENTS AND CONTINGENCIES

 

PPP Audit Contingency

 

As discussed in Note 9, the outstanding principal and related accrued interest on our PPP loan were completely forgiven 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.

 

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. Defense costs are expensed as incurred and are included in professional fees. 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 and other proceedings had or are expected to have a material effect on our financial position or results of operations in 2021 and 2020, except for a contract dispute settled in 2020. During 2020, we recognized $0.8 million in cost of goods sold related to the resolution of that contract dispute.

 

44

RiceBran Technologies
Notes to Consolidated Financial Statements
 
 

NOTE 15. RELATED PARTY TRANSACTIONS

 

Our 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 20.6% 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.

 

 

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 had to be at least $1.00 for a period of Nasdaq discretion, of at least 10, but not to exceed 20, consecutive business days. As of the date of this filing, we had not regained compliance with the minimum bid price requirement, however, we were eligible for and 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. 

 
45

 

PART II

(continued)

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as such term is defined in Rule 13a and Rule15d-15(e)) under the Exchange Act was performed as of December 31, 2021, under the supervision and with the participation of our current management, including our current Executive Chairman, Chief Financial Officer, and Chief Accounting Officer. Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Executive Chairman and Chief Financial Officer to allow timely decisions regarding required disclosures.

 

Based on this evaluation, our Executive Chairman and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

Management Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (Exchange Act) and for the assessment of the effectiveness of internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

 

  (i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 (ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii)

provide reasonable assurance regarding prevention, or timely detection, of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision and with the participation of current management, including our current Executive Chairman, Chief Financial Officer, and Chief Accounting Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth in the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control - Integrated Framework (the 2013 Framework).” Based on this analysis, our management concluded that as of December 31, 2021, our internal control over financial reporting was effective based upon the criteria set forth by the 2013 Framework.

 

 

ITEM 9B. OTHER INFORMATION

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by Item 10 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by Item 11 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The information required by Item 12 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by Item 13 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by Item 14 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

See Exhibit Index attached hereto.

The Financial Statements are included under Item 8.

 

 

EXHIBIT INDEX

 

        Incorporated by Reference    

Exhibit

Number

  Exhibit Description   Form   File No.  

Exhibit

Number

  Filing/Effective Date  

Filed

Herewith

                         

3.01.01

 

Restated and Amended Articles of Incorporation filed with the Secretary of State of California on December 13, 2001

 

10-KSB

 

000-32565

 

3.3

 

April 16, 2002

   

3.01.02

 

Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of California on August 4, 2003

 

SB-2

 

333-129839

 

3.01.1

 

November 21, 2005

   

3.01.03

 

Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of California on October 31, 2003

 

10-QSB

 

000-32565

 

3.4