RiceBran Technologies - FORM 10-Q - May 5, 2020

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐
TRANSITION REPORT UNDER 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
(State or other jurisdiction of
incorporation or organization)
  
87-0673375
(I.R.S. Employer Identification No.)
1330 Lake Robbins Drive, Suite 250
The Woodlands, TX
 (Address of Principal Executive Offices)
  
77380
(Zip Code)

(281) 675-2421
(Registrant’s telephone number, including area code)
 
None
(Former name, former address and former fiscal year, if changed since last report

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 or a smaller reporting company, or an emerging 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 is a shell company (as defined in Rule l2b-2 of the Exchange Act).  Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the 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

As of April 27, 2020, shares of the registrant’s common stock outstanding totaled 40,097,517

RiceBran Technologies
Index
Form 10-Q

PART I. FINANCIAL INFORMATION
Page
 
Item 1.
3
    3
    4
    5
     6
 
Item 2.
15
 
Item 3.
16
 
Item 4.
17
PART II. OTHER INFORMATION
  
 
Item 1.
17
 
Item 1A.
17
 
Item 2.
17
 
Item 3.
17
 
Item 4.
17
 
Item 5.
17
 
Item 6.
17
19

Cautionary Note about Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue, liquidity or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services, products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.  Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words.  The forward-looking statements contained herein reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions.  Actual results may differ materially from those projected in such forward-looking statements due to a number of factors, risks and uncertainties, including the factors that may affect future results set forth in this Current Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019.  We disclaim any obligation to update any forward looking statements as a result of developments occurring after the date of this quarterly report.

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

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements.

RiceBran Technologies
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2020 and 2019
(Unaudited) (in thousands, except share and per share amounts)

   
Three Months Ended
  
   
2020
    
2019
  
             
Revenues
  
$
8,330
    
$
6,364
  
Cost of goods sold
    
8,735
      
6,021
  
Gross profit (loss)
    
(405
)
    
343
  
Selling, general and administrative expenses
    
2,550
      
3,341
  
Operating loss
    
(2,955
)
    
(2,998
)
Interest income
    
11
      
-
  
Interest expense
    
(49
)
    
(12
)
Other expense
    
(45
)
    
(1
)
Other income
    
5
      
-
  
Loss before income taxes
    
(3,033
)
    
(3,011
)
Income tax benefit
    
-
      
-
  
Loss from continuing operations
    
(3,033
)
    
(3,011
)
Loss from discontinued operations
    
-
      
(216
)
Net loss
  
$
(3,033
)
  
$
(3,227
)
                 
Basic loss per common share:
                
Continuing operations
  
$
(0.08
)
  
$
(0.10
)
Discontinued operations
    
-
      
(0.01
)
Basic loss per common share
  
$
(0.08
)
  
$
(0.11
)
                 
Diluted loss per common share:
                
Continuing operations
  
$
(0.08
)
  
$
(0.10
)
Discontinued operations
    
-
      
(0.01
)
Diluted loss per common share
  
$
(0.08
)
  
$
(0.11
)
                 
Weighted average number of shares outstanding:
                
Basic
    
39,963,155
      
29,347,318
  
Diluted
    
39,963,155
      
29,347,318
  

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies
Condensed Consolidated Balance Sheets
(Unaudited) (in thousands, except share amounts)

   
March 31,
2020
    
December 31,
2019
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
5,517
    
$
8,444
  
Accounts receivable, net of allowance for doubtful accounts of $50 and $347
    
5,106
      
3,738
  
Inventories
    
1,916
      
898
  
Other current assets
    
894
      
691
  
Total current assets
    
13,433
      
13,771
  
Property and equipment, net
    
18,769
      
19,077
  
Operating lease right-of-use assets
    
2,678
      
2,752
  
Goodwill
    
3,915
      
3,915
  
Intangible assets
    
890
      
950
  
Other long-term assets
    
-
      
27
  
Total assets
  
$
39,685
    
$
40,492
  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
Current liabilities:
                
Accounts payable
  
$
1,146
    
$
833
  
Commodities payable
    
1,937
      
829
  
Accrued salary, wages and benefits
    
1,051
      
877
  
Accrued expenses
    
690
      
884
  
Customer prepayments
    
-
      
12
  
Operating lease liabilities, current portion
    
316
      
309
  
Due under insurance premium finance agreements
    
314
      
116
  
Finance lease liabilities, current portion
    
102
      
101
  
Due under factoring agreement
    
2,306
      
1,823
  
Long-term debt, current portion
    
29
      
28
  
Total current liabilities
    
7,891
      
5,812
  
Operating lease liabilities, less current portion
    
2,543
      
2,674
  
Finance lease liabilities, less current portion
    
164
      
190
  
Long-term debt, less current portion
    
65
      
73
  
Total liabilities
    
10,663
      
8,749
  
Commitments and contingencies
                
Shareholders' equity:
                
Preferred stock, 20,000,000 shares authorized: Series G, convertible, 3,000 shares authorized, stated value $225, 225 shares, issued and outstanding
    
112
      
112
  
Common stock, no par value, 50,000,000 shares authorized, 40,092,197 shares and 40,074,483 shares, issued and outstanding
    
319,123
      
318,811
  
Accumulated deficit
    
(290,213
)
    
(287,180
)
Total shareholders' equity
    
29,022
      
31,743
  
Total liabilities and shareholders' equity
  
$
39,685
    
$
40,492
  

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2020 and 2019
(Unaudited) (in thousands)

   
Three Months Ended
  
   
2020
    
2019
  
Cash flow from operating activities:
            
Net loss
  
$
(3,033
)
  
$
(3,227
)
Loss from discontinued operations
    
-
      
216
  
Loss from continuing operations
    
(3,033
)
    
(3,011
)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities
                
Depreciation
    
579
      
408
  
Amortization
    
59
      
2
  
Stock and share-based compensation
    
312
      
392
  
Other
    
(79
)
    
(48
)
Changes in operating assets and liabilities, net of impact of acquisitions:
                
Accounts receivable
    
(1,315
)
    
(1,244
)
Inventories
    
(1,018
)
    
(149
)
Accounts payable and accrued expenses
    
231
      
(294
)
Commodities payable
    
1,108
      
(1,818
)
Other
    
(178
)
    
(359
)
Net cash used in operating activities
    
(3,334
)
    
(6,121
)
Cash flows from investing activities:
                
Purchases of property and equipment
    
(221
)
    
(1,160
)
Net cash used in investing activities
    
(221
)
    
(1,160
)
Cash flows from financing activities:
                
Payments on factoring agreement
    
(6,995
)
    
-
  
Advances on factoring agreement
    
7,455
      
-
  
Advances on insurance premium finance agreements
    
344
      
272
  
Payments on insurance premium finance agreements
    
(144
)
    
(112
)
Payments of debt and finance lease liabilities
    
(32
)
    
(278
)
Proceeds from issuance of common stock and pre-funded warrant, net of issuance costs
    
-
      
11,593
  
Proceeds from common stock warrant exercises
    
-
      
1,980
  
Proceeds from common stock option exercises
    
-
      
60
  
Net cash provided by financing activities
    
628
      
13,515
  
Net change in cash and cash equivalents and restricted cash
  
$
(2,927
)
  
$
6,234
  
                 
Cash and cash equivalents and restricted cash, beginning of period
                
Cash and cash equivalents
  
$
8,444
    
$
7,044
  
Restricted cash
    
-
      
225
  
Cash and cash equivalents and restricted cash, beginning of period
    
8,444
      
7,269
  
Cash and cash equivalents and restricted cash, end of period
                
Cash and cash equivalents
    
5,517
      
13,278
  
Restricted cash
    
-
      
225
  
Cash and cash equivalents and restricted cash, end of period
    
5,517
      
13,503
  
Net change in cash and cash equivalents and restricted cash
  
$
(2,927
)
  
$
6,234
  
                 
Supplemental disclosures:
                
Cash paid for interest
  
$
26
    
$
12
  
Cash paid for income taxes
  
$
-
    
$
-
  

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

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

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019, which included all disclosures required by generally accepted accounting principles.

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

NOTE 2. BUSINESS

We are a specialty ingredient company focused on producing value-added processing and marketing of healthy, natural and nutrient dense products derived from rice and other small grains, and the by-products created in the milling of these grains. Notably, we apply our proprietary technologies to convert raw rice bran into stabilized rice bran (SRB), and high value 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 the production of products for both human and animal consumption. We believe SRB has certain inherent qualities that make it more attractive for this purpose than food additives based on the by-products of other agricultural commodities, such as corn and soybeans.  Our SRB and refined SRB products and 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 natural food, food and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

We manufacture and distribute SRB in various granulations from four locations: two leased facilities located within supplier-owned rice mills in Arbuckle and West Sacramento, California; one company-owned facility in Mermentau, Louisiana; and our company-owned rice mill in Wynne, Arkansas.  At our Dillon, Montana facility, we produce SRB based products and derivatives that have been further refined through our proprietary processes.  Our rice mill in Wynne, Arkansas also supplies grades U.S. No. 1 and No. 2 premium long and medium white rice.  In April 2019, we purchased a grain processing facility in East Grand Forks, Minnesota, to expand the variety of grains which we can offer to the market.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 us.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

In December 2019, the FASB issued guidance ASU No. 2019-12 - Income Taxes (Topic 740: Simplifying the Accounting for Income Taxes which, among other things, removed an exception in the guidance to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as discontinued operations.  We early adopted the guidance effective January 1, 2020.  Adoption of the guidance had no impact on our results of operations, financial position, or cash flows.

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

NOTE 4. ACQUISITION

On April 4, 2019, we acquired substantially all of the assets comprising the business of MGI Grain Processing, LLC, a Minnesota limited liability company, now conducting business as MGI Grain Incorporated (MGI). The results of MGI’s operations are included in our consolidated financial statements beginning April 4, 2019.  The following table provides unaudited pro forma information for the three months ended March 31, 2019, as if the MGI acquisition had occurred January 1, 2019.

Revenues (in thousands)
  
$
7,506
  
Loss from continuing operations (in thousands)
  
$
(2,736
)
Loss per share - continuing operations
  
$
(0.09
)
Weighted average number of common shares outstanding - basic and diluted
    
29,347,318
  

No adjustments have been made in the pro forma information for synergies that are resulting or planned from the MGI acquisition.  The unaudited proforma information is not indicative of the results that may have been achieved had the companies been combined as of January 1, 2018, or of our future operating results.

NOTE 5. CASH AND CASH EQUIVALENTS

As of March 31, 2020, we have $4.0 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 6. 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 the three months ended March 31, 2020, include less than $0.1 million in unearned revenue as of December 31, 2019.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

    D

% of revenue, three months ended March 31, 2020
    
8
%
    
17
%
    
8
%
    
2
%
% of revenue, three months ended March 31, 2019
    
10
%
    
18
%
    
10
%
    
-
%
                                 
% of accounts receivable, as of March 31, 2020
    
9
%
    
25
%
    
13
%
    
4
%
% of accounts receivable, as of December 31, 2019
    
10
%
    
31
%
    
-
%
    
10
%

In all periods presented, less than 10% of our revenues related to shipments to locations outside of the U.S.  The following table presents revenues by product line (in thousands).

   
Three Months Ended March 31,
  
   
2020
    
2019
  
Food
  
$
6,192
    
$
4,747
  
Animal nutrition
    
2,138
      
1,617
  
Revenues
  
$
8,330
    
$
6,364
  

NOTE 7. INVENTORIES

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

   
March 31,
2020
    
December 31,
2019
  
Finished goods
  
$
1,763
    
$
698
  
Raw materials
    
20
      
90
  
Packaging
    
133
      
110
  
Inventories
  
$
1,916
    
$
898
  

NOTE 8. LEASES

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

   
Three Months Ended March 31,
  
   
2020
    
2019
  
Finance lease cost:
            
Amortization of right-of use assets, included in cost of goods sold
  
$
21
    
$
4
  
Interest on lease liabilities
    
4
      
2
  
Operating lease cost, included in selling, general and administrative expenses:
                
Fixed leases cost
    
130
      
130
  
Variable lease cost
    
15
      
32
  
Short-term lease cost
    
3
      
9
  
Total lease cost
  
$
173
    
$
177
  
                 
Cash paid for amounts included in the measurement of lease liabilities:
                
Operating cash flows from finance leases
  
$
4
    
$
2
  
Operating cash flows from operating leases
  
$
130
    
$
130
  
Financing cash flows from finance leases
  
$
26
    
$
11
  

As of March 31, 2020, variable lease payments do not depend on a rate or index.  As of March 31, 2020, property and equipment, net, includes $0.3 million of finance lease right-of-use-assets, with an original cost of $0.4 million.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

As of March 31, 2020, we do not believe it is certain that we will exercise any renewal options.  The remaining terms of our leases and the discount rates used in the calculation of the fair value of our leases as of March 31, 2020, follows.

   
Operating
Leases
    
Finance
Leases
  
Remaining leases terms (in years)
    
3.6-12.9
      
0.8-4.3
  
Weighted average remaining lease terms (in years)
    
7.5
      
3.1
  
Discount rates
    
6.3%-9.0
%
    
4.3%-6.0
%
Weighted average discount rate
    
7.6
%
    
5.8
%

Maturities of lease liabilities as of March 31, 2020, follows (in thousands).

   
Operating
Leases
    
Finance
Leases
  
2020 (nine months ended December 31, 2020)
    
346
      
85
  
2021
    
536
      
91
  
2022
    
548
      
68
  
2023
    
528
      
38
  
2024
    
428
      
11
  
Thereafter
    
1,469
      
-
  
Total lease payments
    
3,855
      
293
  
Amounts representing interest
    
(996
)
    
(27
)
Present value of lease obligations
  
$
2,859
    
$
266
  

NOTE 9. DEBT

In the three months ended March 31, 2020, we financed amounts owed for annual insurance premiums under financing agreements, due in monthly installments of principal and interest though November 2020, at interest rates of 4.7% to 5.5% 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 has an initial two-year term and automatically renews for successive annual periods, unless proper termination notice is given.  We paid a $0.2 million facility fee upon inception of the agreement which is amortizing to interest expense on a straight-line basis over two years.  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.  During the three months ended March 31, 2020, we expensed $0.1 million of interest and fees under the agreement, fees incurred averaged 3.9% (exclusive of deferred cost amortization) and interest averaged 1.7% of the amounts outstanding under the facility.  During the three months ended March 31, 2020, outstanding borrowings under the agreement averaged $1.1 million per day.  Amortization of debt issuance costs in the three months ended March 31, 2020, was less than $0.1 million.  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).

   
March 31,
2020
    
December 31,
2019
  
Borrowings outstanding
  
$
2,449
    
$
1,989
  
Debt issuance costs, net
    
(143
)
    
(166
)
Due under factoring agreement
  
$
2,306
    
$
1,823
  

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

   
March 31,
2020
    
December 31,
2019
  

           
Equipment notes - Initially recorded in November 2018, in the acquisition of Golden Ridge, at the present value of future payments using a discount rate of 4.8%, which we determined approximated the market rate for similar debt with similar maturities as of the date of acquisition.  Payable in monthly installments.
            
Expire at dates ranging through 2022.
  
$
56
    
$
62
  
Equipment note - Dated December 2019.  Due in monthly installments through December 2024.
                
Interest accrues at the effective discount rate of 9.3%.
    
38
      
39
  
Total long term debt
  
$
94
    
$
101
  

NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

A summary of equity activity for the three months ended March 31, 2020 and March 31, 2019, follows (in thousands, except share amounts).

   
Shares
                          
   
Preferred
Series G
    
Common
    
Preferred
Stock
    
Common
Stock
    
Accumulated
Deficit
    
Equity
  
Balance, December 31, 2019
    
225
      
40,074,483
    
$
112
    
$
318,811
    
$
(287,180
)
  
$
31,743
  
Common stock awards under equity incentive plans
    
-
      
17,534
      
-
      
312
      
-
      
312
  
Net loss
    
-
      
-
      
-
      
-
      
(3,033
)
    
(3,033
)
Balance, March 31, 2020
    
225
      
40,092,017
    
$
112
    
$
319,123
    
$
(290,213
)
  
$
29,022
  

   
Shares
                          
   
Preferred
Series G
    
Common
    
Preferred
Stock
    
Common
Stock
    
Accumulated
Deficit
    
Equity
  
Balance, December 31, 2018
    
405
      
29,098,207
    
$
201
    
$
296,739
    
$
(273,229
)
  
$
23,711
  
Proceeds from sale of common stock and prefunded warrant, net of costs
    
-
      
3,046,668
      
-
      
11,593
      
-
      
11,593
  
Common stock awards under equity incentive plans
    
-
      
36,881
      
-
      
364
      
-
      
364
  
Exercise of common stock warrants
    
-
      
600,000
      
-
      
1,980
      
-
      
1,980
  
Conversion of preferred stock into common stock
    
(180
)
    
170,818
      
(89
)
    
89
      
-
      
-
  
Exercise of common stock options
    
-
      
77,078
      
-
      
60
      
-
      
60
  
Other
    
-
      
-
      
-
      
28
      
-
      
28
  
Net loss
    
-
      
-
      
-
      
-
      
(3,227
)
    
(3,227
)
Balance, March 31, 2019
    
225
      
33,029,652
    
$
112
    
$
310,853
    
$
(276,456
)
  
$
34,509
  

On March 30, 2020, we entered into an at market issuance sales agreement with respect to an at-the-market offering program, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $6.0 million through B. Riley FBR, Inc, as sales agent.  The issuance and sale, if any, of our common stock under the agreement will be made pursuant to our effective “shelf” registration statement on Form S-3.  We have deferred $0.1 million of legal expenses and other costs related to the offering which are included in other current assets in our consolidated balance sheets.

Share-based compensation by type of award for the three months ended March 31, 2020, follows (in thousands).

Common stock, vested at issuance and nonvested at issuance
  
$
105
  
Stock options
    
85
  
Restricted stock units
    
122
  
Compensation expense related to common stock awards issued under equity incentive plan
  
$
312
  

10
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

In the three months ended March 31, 2020, we issued 17,534 shares of common stock, vested at issuance, to a consultant at a grant date fair value of $1.11 per share and recognized $0.1 million of expense for shares of common stock vesting during the period.

Stock options granted in the three months ended March 31, 2020, each vest and become exercisable in annual installments ending four years from the date of grant and were valued using methods and assumptions comparable to those for our 2019 stock option grants.  Stock option activity for the three months ended March 31, 2020, follows.

   
Shares
Under
Options
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Grant
Date Fair
Value
    
Weighted
Average
Remaining
Contractual
Life (Years)
  
Outstanding at December 31, 2019
    
996,009
    
$
3.23
            
8.1
  
Granted
    
653,004
      
1.22
    
$
0.73
      
10.0
  
Forfeited
    
(125,173
)
    
4.74
              
7.2
  
Outstanding at December 31
    
1,523,840
    
$
2.24
              
8.8
  

Restricted stock unit (RSU) activity for the three months ended March 31, 2020, follows.

   
RSU Shares
Issued to
Employees
    
Unrecognized
Stock
Compensation
(in thousands)
    
Weighted
Average
Expense
Period (Years)
  
Nonvested at December 31, 2019
    
1,148,062
    
$
377
      
1.4
  
Cancelled
    
(625,000
)
    
-
          
Forfeited (1)
    
(175,000
)
    
(142
)
        
Expensed (2)
    
-
      
(122
)
        
Nonvested at March 31, 2020 (3)
    
348,062
    
$
113
      
1.2
  


(1)
We reversed $0.1 million of expense recognized prior to January 1, 2020 on forfeited RSU shares.

(2)
We expensed $0.1 million related to recognition of the unrecognized compensation associated with the cancelled RSU shares.

(3)
The shares subject to the RSUs vest 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 vest as to (i) 34,806 shares on the date the vesting price equals or exceeds $5.00 per share (ii) 104,419 shares the date the vesting price equals or exceeds $10.00 per share and (iii) 208,837 shares the date the vesting price equals or exceeds $15.00 per share.  Vesting on the RSU shares occurs 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 through August 2024.

In the three months ended March 31, 2020, warrants for the purchase of up to 265,000 shares of common stock ($5.25 per share exercise price) expired.

NOTE 11. INCOME TAXES

Our tax expense for the three months ended March 31, 2020 and 2019, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S.  As of March 31, 2020, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards.  We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not more likely than not to occur.

Based on an analysis of tax positions taken on income tax returns filed, we have determined no material liabilities related to uncertain income tax positions exist.  Although we believe the amounts reflected in our tax returns substantially comply with applicable U.S. federal, state, and foreign 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.

11
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES) was signed into law in the U.S.  The act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds and modifications to the net interest deduction limitations. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. Except for the impact of the loan we received under the act, see Note 18, we do not anticipate that the act will have a material impact on our financial position, results of operations or cash flows.

NOTE 12. DISCONTINUED OPERATIONS

In July 2017, we completed the sale of the assets of Healthy Natural (HN).  The selling price was subject to adjustment if the estimated closing working capital with respect to the assets sold and the liabilities assumed was different than the actual closing working capital for those assets and liabilities.  The calculation of working capital was disputed.  The net gain on sale recognized in 2017 was based on an estimated working capital adjustment.  During the three months ended March 31, 2019, the estimated working capital adjustment increased from $0.3 million to $0.5 million when we finalized the adjustment with the purchaser of HN.  The adjustment to lower the gain on the sale of HN as a result of the change in the estimated working capital adjustment is recorded in discontinued operations in the three months ended March 31, 2019, net of zero tax benefit.

NOTE 13. 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 and 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.

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

   
Three Months Ended March 31
  
   
2020
    
2019
  
NUMERATOR (in thousands):
            
Basic and diluted - loss from continuing operations
  
$
(3,033
)
  
$
(3,011
)
                 
DENOMINATOR:
                
Basic EPS - weighted average number of common shares outstanding
    
39,963,155
      
29,347,318
  
Effect of dilutive securities outstanding
    
-
      
-
  
Diluted EPS - weighted average number of shares outstanding
    
39,963,155
      
29,347,318
  
                 
Number of shares of common stock which could be purchased with weighted average outstanding securities not included in diluted EPS because effect would be antidilutive:
                
Stock options
    
1,240,460
      
1,061,926
  
Warrants
    
406,695
      
10,020,616
  
Convertible preferred stock
    
213,523
      
259,075
  
                 
Weighted average number of shares of common stock issuable upon vesting of restricted stock units
    
1,035,425
      
1,215,000
  
                 
Weighted average number of nonvested shares of common stock not included in diluted EPS because effect would be antidilutive
    
116,528
      
1,044,709
  

12
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The impacts of potentially dilutive securities outstanding at March 31, 2020 and 2019, were not included in the calculation of diluted EPS for the three months ended March 31, 2020 and 2019 because to do so would be anti-dilutive.  Those securities listed in the table above which remain outstanding, could potentially dilute EPS in the future.

NOTE 14. FAIR VALUE MEASUREMENTS

The fair value of cash and cash equivalents, restricted cash, accounts and other receivables and accounts payable approximates their carrying value due to shorter maturities.  As of March 31, 2020, the fair values of our debt, operating lease liabilities and finance lease liabilities approximated their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements).

NOTE 15. COMMITMENTS AND CONTINGENCIES

Employment Contracts and Severance Payments

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

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

Legal Matters

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

NOTE 16. 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 26.6% 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.  In March 2019, we issued and sold to CGC 666,667 shares of common stock at a purchase price of $3.00 per share and a prefunded warrant exercisable into 1,003,344 shares of common stock for $2.99 per share, in a private placement.  The prefunded warrant had an exercise price of $0.01 per share and was immediately exercisable; however, we had to obtain approval from our shareholders before the holder could exercise the prefunded warrant to the extent such exercise would result in the holder owning in excess of 19.99% of our common shares outstanding.  The holder exercised the entire prefunded warrant automatically when our shareholders approved the exercise in June 2019.

NOTE 17.  TRANSACTIONS WITH EMPLOYEES

During the three months ended March 31, 2019, we paid $1.4 million to entities owned by our former employee, Wayne Wilkison.  As of March 31, 2020, and December 31, 2019, no amounts were owed to these entities.

13
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 18.  SUBSEQUENT EVENTS

In April 2020, we were approved for a $1.8 million SBA Payroll Protection Program loan as provided for in CARES.  Under certain conditions, the loan and accrued interest are forgivable after eight weeks as long as we use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains payroll levels. The amount of loan forgiveness will be reduced if we terminate employees or reduce salaries during the eight-week period.  The unforgiven portion of the loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.  We intend to use the proceeds for purposes consistent with the program.  While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure that we will be eligible for forgiveness of the loan, in whole or in part.

14
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Unless otherwise noted, amounts and percentages for all periods discussed below reflect the results of operations and financial condition from our continuing operations.

Revenues increased $2.0 million, or 31%, in the first quarter of 2020 compared to the first quarter of 2019.  The increase in revenue year-over-year was due to higher revenues from Golden Ridge Rice Mills (Golden Ridge) and MGI Grain Incorporated (MGI).  MGI was acquired in April 2019 and, therefore, our revenues included no MGI revenue in the first quarter of 2019.  By type, animal feed product revenues increased 32%, while food product revenues increased 30% year-over-year, primarily due to higher sales of finished rice from Golden Ridge and increased buying from our existing customer base.

We experienced a gross loss of $0.4 million in the first quarter of 2020, compared to a gross profit of $0.3 million in the first quarter of 2019.  The decline in gross profit was primarily attributable to higher losses from Golden Ridge due to sub-par milling yields in the first part of the first quarter of 2020, and an unfavorable spread on certain contracts which were delayed in fulfillment due to holdups in completing our debottlenecking project in the prior quarter.  This decline was offset in part by a higher gross profit from our core SRB operations due to favorable trends in product mix as well as deferred operating costs in inventory as we grow our inventory base for this business.

Selling, general and administrative (SG&A) expenses were $2.6 million in the first quarter of 2020, compared to $3.3 million in the first quarter of 2019, a decrease of $0.8 million.  The decline in SG&A expense was primarily related to the absence of approximately $0.3 million in costs associated with our acquisition of Golden Ridge in the comparable period a year ago, lower legal and outside accounting fees, as well the initial benefits from initiatives to reduce overall SG&A costs.

Other expense increased $0.1 million in the first quarter of 2020 compared to the first quarter of 2019.  This increase was primarily due to higher interest expense on the outstanding balance of our factoring facility, a new facility entered in to in the fourth quarter of 2019.

COVID-19 Assessment

The United States is experiencing an outbreak of a novel coronavirus (COVID-19), which has been declared a "pandemic" by the World Health Organization.  The COVID-19 pandemic has become a worldwide health crisis that is adversely affecting the economies and financial markets of many countries, which we expect may adversely affect the supply of the raw materials we use and the demand for the products we produce.  This pandemic also poses the risk that we, or our customers, suppliers and other business partners, may be disrupted or prevented from conducting business activities for certain periods of time, the durations of which are uncertain, and that we could see volatility in the price of the raw materials we use, or the demand for the products we produce. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which we operate, which is highly uncertain. As such, we are currently not able to estimate the exact magnitude of the impact of such developments on our business.

In April, we applied for, and received, a $1.8 million SBA Paycheck Protection Program loan as discussed further in Note 18 of the Notes to Unaudited Condensed Consolidated Financial Statements.  The funds from this loan will enable us to maintain our current workforce during any economic disruptions to our business as a result of the COVID-19 outbreak.  We currently do not expect any of our facilities to be subject to government-mandated closures as a result of the COVID-19 outbreak, and we have informed our customers that at this time we anticipate operating throughout the COVID-19 outbreak.  To date, the COVID-19 outbreak has not yet caused any material disruption in the supply of raw materials used in our products or in the distribution of our products, and our employees have been reporting to work, either remotely or in-person, without any material changes in attendance or productivity.

15
Liquidity and Capital Resources

We used $3.3 million in operating cash during the 2020 first quarter.  We used $1.0 million of operating cash in the first quarter of 2020 to increase our inventories in anticipation of a seasonal shut down of our Louisiana facilities in the second quarter.  We also had a $1.3 million increase in accounts receivable associated with growth in revenues at Golden Ridge.  These two items were partially offset by a $1.1 million increase in commodities payable due to the timing of associated sourcing contracts for Golden Ridge.  We funded $0.2 million of capital expenditures in the first quarter of 2020, and we expect this amount to increase in subsequent quarters as improved weather permits certain projects to be completed at Golden Ridge and MGI.  We funded our working capital needs in the first quarter of 2020, primarily with (i) a reduction in our cash reserves, (ii) net borrowings on our factoring facility, and (iii) by entering into a finance agreement for our annual insurance premiums.

On March 30, 2020, we entered into an at market issuance sales agreement with respect to an at-the-market offering program, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $6.0 million.  In April 2020, we were approved for a $1.8 million SBA Payroll Protection Program loan as discussed further in Note 18 of the Notes to Unaudited Condensed Consolidated Financial Statements.  Management believes the COVID-19 outbreak had created general market uncertainty, which may currently limit the company’s ability to seek external sources of funding for investment initiatives and/or general operations.  However, with the $1.8 million in funds provided by the SBA Payment Protection Program loan, as of the date of this filing, management believes we have sufficient capital reserves and borrowing capacity to maintain our workforce and fund the operations of the business through the remainder of our current fiscal year.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements.  On an ongoing basis, we evaluate the estimates, including, but not limited to, those related to revenue recognition.  We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments.  Actual results could differ from those estimates.

Recent Accounting Pronouncements

See Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Not applicable

16
Item 4.
Controls and Procedures 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures.

We evaluated, with the participation of our chief executive officer, and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings

We are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business.  While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows.  We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.

Item 1A.
Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition, liquidity or future results.  The risks described in our Annual Report on Form 10-K are not the only risks facing our company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.
Defaults upon Senior Securities

None

Item 4.
Mine Safety Disclosures

None

Item 5.
Other Information

None

Item 6.
Exhibits

17
The following exhibits are attached hereto and filed herewith:

       
Incorporated by Reference
    
Exhibit
Number
  
Exhibit Description
  
Form
  
File No.
  
Exhibit
Number
  
Filing/Effective
Date
  
Filed
Here-
with
 
At Market Issuance Sales Agreement with B Riley FBR, Inc.
  
8-K
  
001-36245
  
10.1
  
March 30, 2020
    
 
Employment Agreement with Todd T. Mitchell dated May 28, 2019
  




 
May 16, 2019
  
X
 
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                  
X
 
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
                  
X
 
Certification by CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
                  
X
101.INS (1)
  
XBRL Instance Document
                  
X
101.SCH (1)
  
XBRL Taxonomy Extension Schema Document
                  
X
101.CAL (1)
  
XBRL Taxonomy Extension Calculation Linkbase Document
                  
X
101.DEF (1)
  
XBRL Taxonomy Extension Calculation Definition Linkbase Document
                  
X
101.LAB (1)
  
XBRL Taxonomy Extension Calculation Label Linkbase Document
                  
X
101.PRE (1)
  
XBRL Taxonomy Extension Calculation Presentation Linkbase Document
                  
X


(1)
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

(2)
Indicates a management contract or compensatory plan, contract or arrangement.

18
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:  May 5, 2020
    
     
 
/s/ Brent R. Rystrom
  
 
Brent R. Rystrom
  
 
Director and Chief Executive Officer

 
/s/ Todd T. Mitchell
  
 
Todd T. Mitchell
  
 
Chief Financial Officer


19

RiceBran Technologies Reports