NOTE 1. BASIS OF PRESENTATION

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

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020, which included all disclosures required by generally accepted accounting principles.

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

NOTE 2. BUSINESS

We are a specialty ingredient company focused on the development, production, and marketing of products derived from traditional and ancient small grains. We create and produce products utilizing proprietary processes to deliver improved nutrition, ease of use, and extended shelf-life, while addressing consumer demand for all natural, non-GMO and organic products. We believe our products are 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; as well as a variety of other valuable derivatives extracted from these core products.

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

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

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 4. CASH AND CASH EQUIVALENTS

As of September 30, 2021, we have $4.5 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements. We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

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

NOTE 5. ACCOUNTS RECEIVABLE AND REVENUES

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

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

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

NOTE 6. INVENTORIES

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

NOTE 7. PROPERTY AND EQUIPMENT

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

Amounts payable for property and equipment included in accounts payable of $0.1 million at September 30, 2021, and $0.3 million at December 31, 2020. Assets which had not yet been placed in service, included in property and equipment, totaled $0.8 million at September 30, 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 currently expect insurance recoveries will cover our asset loss to the extent it exceeds our $0.1 million deductible under our insurance policy. In September 2020, we received an advance on the insurance settlement of $0.3 million and we accrued a receivable for the additional $0.7 million of expected insurance proceeds related to our asset loss. The resulting $0.1 million net loss on involuntary conversion of assets was included in selling, general and administrative expenses in our consolidated financial statements in the third quarter of 2020. During the three and nine months ended September 30, 2021, we received $0.4 million and $0.6 million of proceeds from the insurer. The insurance proceeds receivable included in other current assets on our consolidated balance sheet was $0.1 million at September 30, 2021, and $0.7 million as of December 31, 2020. The final settlement with the insurer on this matter will likely differ from the total proceeds we have estimated as of September 30, 2021. We accrue estimated insurance proceeds receivable when the proceeds are estimable and probable of collection. Given the nature of recoveries of lost profits under business interruption insurance we have not accrued insurance proceeds receivable for any potential recoveries of lost profits.

NOTE 8. LEASES

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

As of September 30, 2021, variable lease payments do not depend on a rate or index. As of September 30, 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 less than $0.1 million of property and equipment in noncash finance lease transactions.

As of September 30, 2021, 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 September 30, 2021, follows.

Maturities of lease liabilities as of September 30, 2021, follows (in thousands).

NOTE 9. DEBT

We finance certain amounts owed for annual insurance premiums under financing agreements. As of September 30, 2021, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through February 2022, at an average 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 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. The lender has the right to demand repayment of the advances at any time. The lender has a security interest in personal property assets. In October 2021, the initial two-year term expired. As no written notice of cancellation was submitted by the Company, the term was automatically extended for a successive period of one year.

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

Additional information related to our factoring obligation follows.

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

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.

In July 2020, we entered into a mortgage agreement with a lender pursuant to a promissory note. In September 2020, we borrowed $1.0 million on the note and, in October 2020, we borrowed the remaining $1.0 million available on the note. Interest on this note accrues at an annual rate which is the greater of 11.0% above the lender’s prime rate and 14.3%. In addition, we incurred a facility fee equal to 1.0% of the amount of each advance under the promissory note. The principal amount of the note must be repaid in monthly installments ending in June 2022. The note is secured by certain real property and personal property assets located in Wynne, Arkansas. As of September 30, 2021, the note bore interest at an annual rate of 14.3%.

Future principal maturities of long-term debt outstanding as of September 30, 2021, follow (in thousands).

NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

A summary of equity activity follows (in thousands, except share amounts).

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Share-based compensation under equity incentive plans, by type of award follows (in thousands).

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 (the "Warrant"), 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 the Warrant 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 has 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, the other Warrant did not qualify for equity accounting because the holder may elect cash settlement of this warrant in the event of a change of control. Therefore, we must carry the Warrant as a liability at fair value in our consolidated balance sheets. We estimated the fair value of the Warrant using the Black-Scholes methodology. The Warrant will be valued using the Black-Scholes model each reporting period and the resultant change in fair value 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 the Warrant, in an amount equal the $0.6 million estimated fair value of the Warrant as of September 13, 2021, with the remainder of the proceeds recorded in equity. We determined the exercise price of the Prefunded Warrant is nominal and, as such, have 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.

Under the terms of the securities purchase agreement related to the September 2021 offering, we are prohibited from making sales pursuant to the at-the-market ("ATM") issuance sales agreement with B. Riley FBR, Inc., as sales agent (discussed in the next paragraph), or from entering into any agreement to effect a variable rate transaction until March 12, 2022. We are also prohibited from entering into an agreement to effect any at-the-market issuance involving a variable rate transaction until September 13, 2023.

During the three months ended September 30, 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 sales of $0.5 million are recorded in equity, net of $0.1 million of stock issuance costs. We entered into the at-the-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, in March 2020. The issuances and sales of our common stock under the agreement are made pursuant to our effective “shelf” registration statement on Form S-3.

In the three months ended September 30, 2021, we issued to an employee 38,978 shares of common stock (average $0.75 grant date fair value per share) which were vested at issuance. In the three months ended June 30, 2021, we issued to an employee 29,643 shares of common stock (average $1.09 grant date fair value per share) which were vested at issuance. In the three months ended March 31, 2021, we issued to an employee 29,943 shares of common stock (average $0.94 grant date fair value per share) which were vested at issuance.

In the three months ended September 30, 2021, holders forfeited options for the purchase of up to 1,834 shares of common stock (average $1.23 per share exercise price, average 8.5-year remaining life). In the three months ended June 30, 2021, holders forfeited options for the purchase of up to 8,216 shares of common stock (average $1.90 per share exercise price, average 8.5-year remaining life). In the three months ended March 31, 2021, holders forfeited options for the purchase of up to 18,905 shares of common stock (average $11.54 per share exercise price, average 7.5-year remaining life).