RiceBran Technologies - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

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 September 30, 2019

☐	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 October 31, 2019, shares of the registrant’s common stock outstanding totaled 33,194,631.

RiceBran Technologies

Index

Form 10-Q

PART I. FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	3
		Condensed Consolidated Balance Sheets as of September 30, 2019, and December 31, 2018	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
	Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	Mine Safety Disclosures	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	25
Signatures			26

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, 2018. 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.

Index

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

RiceBran Technologies

Condensed Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2019 and 2018

(Unaudited) (in thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	2019			2018			2019			2018

Revenues	$	5,300		$	3,463		$	17,883		$	10,213
Cost of goods sold		5,659			2,709			18,143			7,842
Gross profit (loss)		(359	)		754			(260	)		2,371
Selling, general and administrative expenses		3,835			2,419			10,598			8,102
Operating loss		(4,194	)		(1,665	)		(10,858	)		(5,731	)
Other income (expense):
Interest income		19			-			42			-
Interest expense		(9	)		(2	)		(40	)		(5	)
Other income		859			52			865			61
Other expense		(1	)		(12	)		(5	)		(25	)
Total other income (expense), net		868			38			862			31
Loss before income taxes		(3,326	)		(1,627	)		(9,996	)		(5,700	)
Income tax benefit		-			-			-			-
Loss from continuing operations		(3,326	)		(1,627	)		(9,996	)		(5,700	)
Loss from discontinued operations		-			-			(216	)		-
Net loss	$	(3,326	)	$	(1,627	)	$	(10,212	)	$	(5,700	)

Basic loss per common share:
Continuing operations	$	(0.10	)	$	(0.07	)	$	(0.31	)	$	(0.28	)
Discontinued operations		-			-			(0.01	)		-
Basic loss per common share	$	(0.10	)	$	(0.07	)	$	(0.32	)	$	(0.28	)

Diluted loss per common share:
Continuing operations	$	(0.10	)	$	(0.07	)	$	(0.31	)	$	(0.28	)
Discontinued operations		-			-			(0.01	)		-
Diluted loss per common share	$	(0.10	)	$	(0.07	)	$	(0.32	)	$	(0.28	)

Weighted average number of shares outstanding:
Basic		33,057,010			24,092,172			31,947,087			20,538,309
Diluted		33,057,010			24,092,172			31,947,087			20,538,309

See Notes to Unaudited Condensed Consolidated Financial Statements

Index

RiceBran Technologies

Condensed Consolidated Balance Sheets

(Unaudited) (in thousands, except share amounts)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	3,690		$	7,044
Restricted cash		-			225
Accounts receivable, net of allowance for doubtful accounts of $63 and $14		3,138			2,529
Receivable from sellers of Golden Ridge - working capital adjustment to purchase price		-			1,147
Inventories
Finished goods		680			853
Raw materials		85			3
Packaging		78			102
Other current assets		750			610
Total current assets		8,421			12,513
Property and equipment, net		19,249			15,010
Operating lease right-of-use assets		2,826			-
Goodwill		3,915			3,178
Intangible assets		942			16
Other long-term assets		26			-
Total assets	$	35,379		$	30,717

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,331		$	1,583
Commodities payable		272			2,735
Accrued salary, wages and benefits		962			933
Accrued expenses		1,033			520
Customer prepayments		-			145
Payable to purchaser of HN - working capital adjustment to purchase price		-			259
Margin loan		1,225			-
Note payable to seller of Golden Ridge		-			609
Operating lease liabilities, current portion		302			-
Finance lease liabilities, current portion		100			45
Long term debt, current portion		21			32
Total current liabilities		5,246			6,861
Operating lease liabilities, less current portion		2,737			-
Finance lease liabilities, less current portion		218			86
Long term debt, less current portion		42			59
Total liabilities		8,243			7,006
Commitments and contingencies
Shareholders' Equity:

Preferred stock, 20,000,000 shares authorized: Series G, convertible, 3,000 shares authorized, 225 shares and 405 shares, issued and outstanding		112			201
Common stock, no par value, 50,000,000 shares authorized, 33,109,222 shares and 29,098,207 shares, issued and outstanding		310,465			296,739
Accumulated deficit		(283,441	)		(273,229	)
Total shareholders' equity		27,136			23,711
Total liabilities and shareholders' equity	$	35,379		$	30,717

See Notes to Unaudited Condensed Consolidated Financial Statements

Index

RiceBran Technologies

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019 and 2018

(Unaudited) (in thousands)

	Nine Months Ended
	2019			2018
Cash flow from operating activities:
Net loss	$	(10,212	)	$	(5,700	)
Loss from discontinued operations		216			-
Loss from continuing operations		(9,996	)		(5,700	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation		1,332			499
Amortization		39			45
Stock and share-based compensation		925			650
Settlement with sellers of Golden Ridge		(849	)		-
Other		166			75
Changes in operating assets and liabilities:
Accounts receivable		(215	)		(236	)
Inventories		388			42
Accounts payable and accrued expenses		(43	)		(56	)
Commodities payable		(1,896	)		-
Other		(308	)		(17	)
Net cash used in operating activities		(10,457	)		(4,698	)
Cash flows from investing activities:
Acquisition of MGI		(3,767	)		-
Purchases of property and equipment		(3,513	)		(2,384	)
Disbursements of notes receivable		-			(400	)
Net cash used in investing activities - continuing operations		(7,280	)		(2,784	)
Net cash used in investing activities - discontinued operations		(475	)		-
Cash flows from financing activities:
Proceeds from issuance of common stock and pre-funded warrant, net of issuance costs		11,593			-
Proceeds from common stock warrant exercises		1,990			11,003
Proceeds from common stock option exercises		156			27
Proceeds from margin loan		1,225			-
Payments of debt and finance lease liabilities		(331	)		(2	)
Net cash provided by financing activities		14,633			11,028
Net change in cash and cash equivalents and restricted cash	$	(3,579	)	$	3,546

Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents	$	7,044		$	6,203
Restricted cash		225			775
Cash and cash equivalents and restricted cash, beginning of period		7,269			6,978
Cash and cash equivalents and restricted cash, end of period
Cash and cash equivalents		3,690			10,299
Restricted cash		-			225
Cash and cash equivalents and restricted cash, end of period		3,690			10,524
Net change in cash and cash equivalents and restricted cash	$	(3,579	)	$	3,546

Supplemental disclosures:
Cash paid for interest	$	40		$	3
Cash paid for income taxes	$	-		$	-

See Notes to Unaudited Condensed Consolidated Financial Statements

Index

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. All such adjustments were normal and recurring in nature.

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, 2018, 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

RiceBran Technologies is a vertically integrated ingredient company serving food, animal nutrition, and specialty markets focused on value-added processing and marketing of healthy, natural, and nutrient dense products derived from rice bran, an underutilized by-product of rice milling. We apply our proprietary technologies and intellectual properties to convert raw rice bran into high value products including stabilized rice bran (SRB), 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 since November 2018, our first company-owned rice mill in Wynne, Arkansas, Golden Ridge Rice Mills, Inc. At our Dillon, Montana facility, we produce SRB based products and derivatives that have been further refined through our proprietary processes. Our Golden Ridge 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 MGI Grain Processing, LLC, 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

Accounting Guidance Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance, ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changed 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, and cash flows.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Recently Adopted Accounting Guidance

In February 2016, the FASB issued guidance which changed the accounting for leases, ASU 2016-02, Leases. Under prior GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease depended primarily on the lease’s classification as a finance or operating lease. For both types of leases, we recognized a right-of-use asset and a lease liability. For finance leases, we recognized amortization of the right-of-use asset separately from interest expense on the lease liability. On January 1, 2019, we adopted the guidance, and subsequent guidance related to the topic in ASU 2018-11, using the modified retrospective method. Upon completing our implementation assessment of the guidance, we concluded that no adjustment was required to our retained earnings as of January 1, 2019. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, and therefore did not reassess (i) whether any expired or existing contracts are, or contain, leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lease options to extend, or terminate, a lease, or to purchase the underlying asset. We have no land easements. For all asset classes, we elected to (i) not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less and (ii) not separate nonlease components from lease components, and we have accounted for combined lease and nonlease components as a single lease component. As of January 1, 2019, we recorded operating lease right-of-use assets of $3.0 million and operating lease liabilities of $3.3 million, with the difference being a reduction to existing liabilities. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, other than finance leases, which are now separately classified and are no longer classified as long-term debt. Additional disclosures required by the guidance are presented within the “Leases” policy disclosure below and Note 11.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions are measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. The guidance did not change the way we recognize expense for director awards. Adoption of the standard only impacted the recognition of expense, on a prospective basis, for one vendor’s awards which were subject to performance conditions. Adoption of the guidance did not have a material impact on our financial statements for the three or nine months ended September 30, 2019. Additional disclosures required by the guidance are presented within the “Share-Based Compensation” policy disclosure below.

Reclassifications

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

Leases – The following summarizes our leases accounting policy effective January 1, 2019:

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 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 credit quality.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Share-Based Compensation – The following summarizes our share-based compensation accounting policy effective January 1, 2019:

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, share-based compensation is measured based on the fair value of the award 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 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.

NOTE 4. ACQUISITIONS

Golden Ridge

In November 2018, we acquired substantially all of the assets comprising the business of Golden Ridge Rice Mills, LLC, now conducting business as Golden Ridge Rice Mills, Inc. (Golden Ridge). The primary activity of the business is the operation of a rice mill in Wynne, Arkansas. We acquired the business as part of our strategy to vertically integrate in order to leverage our proprietary technologies for producing SRB and derivative products. The acquisition has been accounted for as a business combination. The results of Golden Ridge’s operations are included in our consolidated financial statements beginning November 28, 2018.

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

The purchase price for Golden Ridge was subject to adjustment if the estimated working capital with respect to the assets purchased and the liabilities assumed at the time of closing was different than the actual closing working capital, as defined in the purchase agreement. We revised our preliminary estimate of the working capital adjustment as indicated in the table below.The following table summarizes the purchase price allocation as of closing and as revised (in thousands, except share and per share amounts).

	Estimated at Acquisition and as of December 31, 2018			Adjustments			Estimated as of September 30, 2019
1,666,667 shares of common stock, at fair value of $3.00 per share at closing	$	5,000		$	-		$	5,000
Golden Ridge financial liabilities paid for the seller		2,661			-			2,661
Cash		250			-			250
Note payable to seller		609			-			609
Working capital adjustment to purchase price		(1,147	)		584			(563	)
Total fair value of consideration transferred		7,373			584			7,957

Cash		409			(63	)		346
Accounts receivable		1,587			87			1,674
Inventories		103			-			103
Property and equipment		5,092			-			5,092
Accounts payable		(222	)		110			(112	)
Commodities payable		(2,559	)		432			(2,127	)
Accrued liabilities		(12	)		12			-
Lease liabilities		(104	)		-			(104	)
Equipment notes payable		(99	)		6			(93	)
Net recognized amounts of identifiable assets acquired and liabilities assumed		4,195			584			4,779
Goodwill	$	3,178		$	-		$	3,178

The 1,666,667 shares issued at closing of our purchase of Golden Ridge included 380,952 shares that were deposited in an escrow account to be used to satisfy any indemnification obligations of the seller that may arise. As of December 31, 2018, the 380,952 shares remained in escrow. In July 2019, we reached an agreement to settle the $0.6 million working capital adjustment receivable and other claims with the sellers of Golden Ridge. As a result, (i) 340,000 shares of common stock held in the escrow account ($1.0 million fair value as of Nov. 28, 2018) were returned to us and retired (ii) the remaining $0.4 million in debt we owed to a seller was cancelled and (iii) certain open grain purchase contracts with entities related to a seller were terminated. We recorded a gain on the noncash settlement of $0.8 million in the third quarter of 2019, which is included in other income. In connection with the settlement, 40,952 shares of common stock will be disbursed upon terms of the settlement.

The fair value of trade receivables for Golden Ridge at November 28, 2018 was $1.6 million, which was $0.1 million less than the value of gross trade receivables. Goodwill was primarily attributed to intangible assets that do not qualify for separate recognition and synergies generated by Golden Ridge’s integration with our other operations. Between December 31, 2018 and June 30, 2019, information was discovered requiring adjustments to the opening balance sheet of Golden Ridge. The adjustments resulted primarily from an overstatement of the opening balances of commodities payable and accounts payable at December 31, 2018. These balances were adjusted in the June 30, 2019 financial statements. The impact of the adjustments to our prior period financial statements is not considered significant. No additional adjustments were made during the three months ended Septmeber 30, 2019.

Our revenues for the three and nine months ended September 30, 2019, include $1.1 million and $5.6 million related to the acquired business. Our net loss for the three and nine months ended September 30, 2019, includes $0.3 million and $1.7 million related to the acquired business. After making a reasonable effort, we were unable to determine the underlying information required to prepare pro forma information for the three and nine months ended September 30, 2018, as if the Golden Ridge acquisition had occurred January 1, 2018.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

MGI

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 Process, Inc. (MGI) for an aggregate purchase price of $3.8 million. The purchase price included $0.3 million deposited in an escrow account at closing which was subsequently released to the sellers in June 2019. MGI owns and operates a grain mill and processing facility in East Grand Forks, Minnesota. We acquired MGI as part of our strategy to expand our product portfolio. The acquisition has been accounted for as a business combination. The results of MGI’s operations are included in our consolidated financial statements beginning April 4, 2019.

The purchase price for MGI is subject to adjustment if the estimated closing working capital with respect to the assets purchased and the liabilities assumed is different than the actual closing working capital, as defined in the purchase agreement. The seller of MGI paid a working capital adjustment of $28 thousand in September 2019.The following table summarizes the preliminary purchase price allocation, the consideration transferred to acquire MGI and the amounts of identified assets acquired and liabilities assumed (in thousands).

	Estimated at June 30, 2019			Adjustments			Estimated at September 30, 2019
Cash	$	3,795					$	3,795
Working capital adjustment to purchase price		(38	)		10			(28	)
Total fair value of consideration transferred		3,757			10			3,767
Accounts receivable		591						591
Inventories		149						149
Deposits and other current assets		4			(2	)		2
Property and equipment		1,560						1,560
Customer relationship		930						930
Other finite-lived intangible assets		35						35
Accounts payable		(219	)					(219	)
Finance lease liabilities		(18	)		-			(18	)
Net recognized amounts of identifiable assets acquired and liabilities assumed		3,032			(2	)		3,030
Goodwill	$	725		$	12		$	737

As of September 30, 2019, our appraiser had not yet finalized certain fair value calculations and the purchase price allocation is subject to change pending final management review of the calculations. The fair value of trade receivables at April 4, 2019, equaled the gross amount of trade receivables. The fair value of the customer relationship intangible is estimated using an income approach based on expected future cash flows. Preliminarily, we are amortizing the customer relationship intangible on a straight-line basis over fifteen years. Goodwill primarily was attributed to intangible assets that do not qualify for separate recognition and synergies generated by MGI when combined with our existing operations. The $0.7 million allocated to goodwill is deductible for tax purposes over the next fifteen years.

Our revenues for the three and nine months ended September 30, 2019, include $0.6 and $1.3 million related to the acquired MGI business. Our net loss for the three and nine months ended September 30, 2019, includes $0.1 million of net loss from the acquired MGI business.

The following table provides unaudited pro forma information for the periods presented as if the MGI acquisition had occurred January 1, 2018 (in thousands, except share and per share amounts).

	Three Months Ended						Nine Months Ended
	2019			2018			2019			2018
Revenues	$	5,300		$	4,110		$	19,083		$	12,360
Loss from continuing operations	$	(3,326	)	$	(1,568	)	$	(9,865	)	$	(5,497	)
Loss per share - continuing operations	$	(0.09	)	$	(0.07	)	$	(0.31	)	$	(0.27	)
Weighted average number of common shares outstanding - basic and diluted		33,057,010			24,092,172			31,947,087			20,538,309

No adjustments have been made in the proforma for synergies that are resulting or planned from the 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.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 5. DISCONTINUED OPERATIONS AND RESTRICTED CASH

In July 2017, we completed the sale of the assets of Healthy Natural (HN) for $18.3 million in cash and recognized a gain on sale of $8.2 million, net of $4.7 million in taxes. 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 $8.2 million net gain on sale recognized in 2017 was based on an estimated working capital adjustment of $0.3 million, which was disputed. Our consolidated balance sheets included a liability for the settlement of the working capital adjustment of $0.3 million as of December 31, 2018. During the three months ended March 31, 2019, we finalized the adjustment with the purchaser of HN, and increased the estimated working capital adjustment from $0.3 million to $0.5 million. We paid the $0.5 million liability in July 2019. 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 nine months ended September 30, 2019, net of zero tax benefit.

Restricted cash on our consolidated balance sheets as of December 31, 2018, related to the $0.2 million balance in an escrow account established at the time of the sale for settlement of the working capital adjustment. The amounts in escrow were released and used to settle a portion of the liability for the working capital adjustment in July 2019.

NOTE 6. CASH AND CASH EQUIVALENTS

As of September 30, 2019, we had $2.0 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 7. CONCENTRATION OF RISK

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of trade accounts receivable. We perform ongoing credit evaluations on the financial condition of our customers and generally do not require collateral.

Revenues and accounts receivable from significant customers (customers with revenue or accounts receivable in excess of 10% of any consolidated totals) are stated below as a percent of consolidated totals.

		A		B			C
% of Revenues, three months ended September 30, 2019		10	%	13	%		11	%
% of Revenues, three months ended September 30, 2018	NA			19	%		17	%

% of Revenues, nine months ended September 30, 2019		14	%	11	%		10	%
% of Revenues, nine months ended September 30, 2018	NA			27	%		22	%

% of Accounts Receivable, as of September 30, 2019		18	%	15	%		9	%
% of Accounts Receivable, as of December 31, 2018		16	%	13	%	NA

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

	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
United States	$	5,046	$	3,132	$	16,959	$	9,244
Other countries		254		331		924		969
Revenues	$	5,300	$	3,463	$	17,883	$	10,213

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents revenues by product line (in thousands).

	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Food	$	3,573	$	1,926	$	12,685	$	5,657
Animal nutrition		1,727		1,537		5,198		4,556
Revenues	$	5,300	$	3,463	$	17,883	$	10,213

Purchases from certain significant vendors are stated below as a percent of total purchases.

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Vendor 1		6	%		12	%		4	%		12	%
Vendor 2		3	%		12	%		3	%		9	%
Others		91	%		76	%		93	%		79	%
Total		100	%		100	%		100	%		100	%

NOTE 8. PROPERTY

Property, plant and equipment consist of the following (in thousands).

	September 30 2019		December 31 2018		Estimated Useful Lives
Land	$	730	$	585
Furniture and fixtures		476		430	5-10 years
Plant		9,654		8,613	20-40 years, or life of lease
Computer and software		1,317		1,295	3-5 years
Leasehold improvements		2,019		681	4-15 years, or life of lease
Machinery and equipment		16,485		13,528	5-15 years
Property and equipment, cost		30,681		25,132
Less accumulated depreciation		11,432		10,122
Property and equipment, net	$	19,249	$	15,010

Included in accounts payable at September 30, 2019, is $0.4 million related to amounts payable for capital expansion project additions. During the three and nine months ended September 30, 2019, we financed the purchase of $0.2 million of property with finance leases. Property and equipment includes assets which have not yet been placed in service totaling $1.7 million at September 30, 2019, and $2.2 million at December 31, 2018.

NOTE 9. GOODWILL AND INTANGIBLES

A summary of goodwill activity follows for the three and nine months ended September 30, 2019 and 2018 (in thousands).

	Three Months Ended				Nine Months Ended
	2019		2018		2019		2018
Goodwill, beginning of period	$	3,903	$	-	$	3,178	$	-
MGI acquistion		12		-		737		-
Goodwill, end of period	$	3,915	$	-	$	3,915	$	-

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Intangible assets consisted of the following at the dates indicated below (in thousands).

	September 30, 2019								December 31, 2018
	Estimated Useful Life		Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer Relationships		15	$	930	$	31	$	899	$	-	$	-	$	-
Trademarks		10		13		1		12		-		-		-
Non-compete agreement		5		22		2		20		-		-		-
Other		17		32		21		11		32		16		16
Total intangible assets			$	997	$	55	$	942	$	32	$	16	$	16

The intangible assets acquired from MGI in 2019 are described further in Note 4.

NOTE 10. DEBT

The margin loan outstanding as of September 30, 2019, was a demand loan collateralized by the investment in the money market fund described in Note 6. It was borrowed under a line of credit which allows us to borrow an amount and at a rate determined at the discretion of the lender. We repaid the $1.2 million borrowing outstanding at September 30, 2019, in October 2019.

The note payable to the seller of Golden Ridge, bore interest at an annual rate of 6.8%. Interest was payable monthly. We paid $0.3 million of principal on the note in January 2019. The remaining principal of $0.4 million was payable upon maturity of the note in November 2019. The seller cancelled the note payable in July 2019 in partial settlement of the working capital adjustment receivable from the seller described further in Note 4.

Long-term debt consists of equipment notes which expire in 2022. Obligations under these notes were initially recorded in November 2018 when we assumed the debt in connection with our acquisition of Golden Ridge. The debt was initially recorded at the present value of future payments, using a rate of 4.8%, which was determined to approximate market rates for similar debt with similar maturities as of the acquisition date.

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 facility fee upon inception of the agreement of 0.5% on the facility. We will 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 monthly.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11. LEASES

The components of lease expense and cash flows from leases for the three and nine months ended September 30, 2019, follows (amounts in thousands).

	September 30, 2019
	Three Months Ended		Nine Months Ended
Finance lease cost:
Amortization of right-of use assets, included in cost of goods sold	$	19	$	50
Interest on lease liabilities		5		10
Operating lease cost, included in selling, general and administrative expenses:
Fixed leases cost		131		392
Variable lease cost		35		99
Short-term lease cost, included in cost of goods sold		13		29
Total lease cost	$	203	$	580

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	5	$	10
Operating cash flows from operating leases	$	131	$	392
Financing cash flows from finance leases	$	23	$	54

As of September 30, 2019, variable lease payments do not depend on a rate or index. As of September 30, 2019, property and equipment, net, includes $0.3 million of finance lease right-of-use-assets, with an original cost of $0.4 million.

As of September 30, 2019, 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, 2019, follows.

	Operating Leases			Finance Leases
Remaining leases terms (in years)		0.5-13.4			1.3-4.8
Weighted average remaining lease terms (in years)		7.9			3.5
Discount rates		4.9%-9.0	%		4.3%-7.3	%
Weighted average discount rate		7.6	%		5.8	%

As of September 30, 2019, operating leases have maturities extending through 2032. Maturities of lease liabilities as of September 30, 2019, follows (in thousands).

	Operating Leases			Finance Leases
2019 (three months ended December 31, 2019)	$	114		$	33
2020		525			115
2021		536			91
2022		548			68
2023		528			38
Thereafter		1,897			11
Total lease payments		4,148			356
Amounts representing interest		(1,109	)		(38	)
Present value of lease obligations	$	3,039		$	318

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Future annual minimum operating lease payments and finance lease maturities as of December 31, 2018, prepared in accordance with the guidance in effect prior to adoption of ASU 2016-02, follow (in thousands).

	Operating Leases		Finance Leases
2019	$	519	$	51
2020		525		51
2021		536		33
2022		548		5
2023		528		-
Thereafter		1,897		-
Total minimum lease payments	$	4,553	$	140
Amounts representing interest				(9	)
Present value of minimum payments			$	131

NOTE 12. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

On March 8, 2019, we issued and sold 3,046,668 shares of common stock for $3.00 per share and a prefunded warrant (the 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. We determined the Prefunded Warrant qualified for equity accounting. The net proceeds from the offering of $11.6 million, after deducting commissions and other cash offering expenses of $0.5 million, are recorded in equity. We determined the exercise price of the warrant was nominal and, as such, have considered the 1,003,344 shares underlying the warrant to be outstanding effective March 8, 2019, for the purposes of calculating basic EPS.

Summaries of equity activity for the nine months ended September 30, 2019 and 2018, follow (in thousands, except share amounts).

	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
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
Exercise of Prefunded Warrant		-			1,003,344			-			10			-			10
Common stock awards under equity incentive plans		-			134,984			-			219			-			219
Exercise of common stock options		-			78,734			-			87			-			87
Other		-			-			-			32			-			32
Net loss		-			-			-			-			(3,659	)		(3,659	)
Balance, June 30, 2019		225			34,246,714			112			311,201			(280,115	)		31,198
Retirement of unvested shares		-			(830,124	)		-			-			-			-
Common stock awards under equity incentive plans		-			22,632			-			282			-			282
Exercise of common stock options		-			10,000			-			9			-			9
Retirement of shares received in settlement with the sellers of Golden Ridge		-			(340,000	)		-			(1,027	)		-			(1,027	)
Net loss		-			-			-			-			(3,326	)		(3,326	)
Balance, September 30, 2019		225			33,109,222		$	112		$	310,465		$	(283,441	)	$	27,136

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

	Shares
	Preferred Series G		Common		Preferred Stock		Common Stock		Accumulated Deficit			Equity
Balance, December 31, 2017		630		18,046,731	$	313	$	279,548	$	(265,128	)	$	14,733
Common stock awards under equity incentive plans		-		78,377		-		245		-			245
Exercise of common stock warrants		-		1,827,999		-		1,755		-			1,755
Other		-		-		-		75		-			75
Net loss		-		-		-		-		(1,913	)		(1,913	)
Balance, March 31, 2018		630		19,953,107		313		281,623		(267,041	)		14,895
Common stock awards under equity incentive plans		-		208,829		-		148		-			148
Exercise of common stock warrants		-		4,092,077		-		3,928		-			3,928
Other		-		-		-		23		-			23
Net loss		-		-		-		-		(2,160	)		(2,160	)
Balance, June 30, 2018		630		24,254,013		313		285,722		(269,201	)		16,834
Common stock awards under equity incentive plans		-		7,188		-		141		-			141
Exercise of common stock warrants		-		2,799,392		-		5,320		-			5,320
Exercise of common stock options		-		32,500		-		27		-			27
Other		-		-		-		18		-			18
Net loss		-		-		-		-		(1,627	)		(1,627	)
Balance, September 30, 2018		630		27,093,093	$	313	$	291,228	$	(270,828	)	$	20,713

Common stock issued under equity incentive plans for the nine months ended September 30, 2019 and 2018, follows.

	2019						2018
	Shares Issued		Grant Date Fair Value Per Share		Vesting Period (Years)		Shares Issued		Grant Date Fair Value Per Share		Vesting Period (Years)
Three Months Ended March 31
Directors		30,887	$	3.22		1.0		50,469	$	1.38		1.0
Consultant		5,994	$	3.48		-		27,908	$	1.42		-
		36,881						78,377
Three Months Ended June 30
Directors		118,111	$	2.86		1.0		208,829	$	1.78		1.0
Consultant		16,873	$	2.86		1.0		-	NA		NA
		134,984						208,829
Three Months Ended September 30
Directors		15,290	$	2.82		0.9		-	NA		NA
Consultant		7,342	$	2.69		-		7,188	$	2.83		-
		22,632						7,188

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Options

Stock option activity for the nine months ended September 30, 2019 and 2018, follows.

	2019									2018
	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		950,727		$	3.06				8.5		639,658		$	8.83				7.2
Granted (1)		188,662			3.25	$	2.05		10.0		278,873			1.42	$	0.97		10.0
Cash exercised		(77,078	)		0.78				7.7		-		NA				NA
Forfeited		(25,548	)		5.66				5.3		(2,047	)		5.02				8.0
Outstanding at March 31		1,036,763			3.20				8.6		916,484			2.45				8.7
Granted (1)		98,221			3.04	$	1.84		10.0		-		NA		NA		NA
Cash exercised (2)		(78,734	)		1.10				8.2		-		NA				NA
Forfeited		(133,016	)		2.92				0.3		(23,964	)		1.21				9.4
Outstanding at June 30		923,234			3.40				8.4		892,520			2.49				8.4
Granted (1)		99,000			2.53	$	1.40		10.0		-		NA		NA		NA
Cash exercised		(10,000	)		0.85				7.6		(32,500	)		0.85				8.6
Forfeited		(13,450	)		11.42				4.7		(109,854	)		1.61				8.7
Outstanding at September 30		998,784		$	3.23				8.4		750,166		$	2.69				8.1

(1)

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

(2)

Includes options for 31,955 shares of common stock at a weighted average exercise price of $1.16 per share for which we accelerated vesting upon termination of employment for an employee in June of 2019. We expensed $0.1 million of incremental expense upon acceleration of vesting.

Restricted Stock Units

Restricted stock unit (RSU) activity for the nine months ended September 30, 2019 and 2018, follows.

	2019								2018
	RSU Shares Issued to Employees			Unrecognized Stock Compensation (in thousands)			Weighted Average Expense Period (Years)		RSU Shares Issued to Employees			Unrecognized Stock Compensation (in thousands)			Weighted Average Expense Period (Years)
Nonvested at January 1		1,215,000		$	683			2.3		1,175,000		$	161			3.0
Cancelled		-			-					(705,000	)		(31	)
Expensed		-			(77	)							(11	)
Nonvested at March 31		1,215,000			606			2.0		470,000			119			2.8
Granted		132,062			107			2.3		-			-
Forfeited		(250,000	)		(155	)				(170,000	)		(30	)
Expensed		-			(66	)				-			(11	)
Nonvested at June 30		1,097,062			492			1.9		300,000			78			2.5
Granted		81,000			38			2.7		-			-
Forfeited		-			-					(130,000	)		(39	)
Expensed		-			(70	)				-			(4	)
Nonvested at September 30		1,178,062		$	460			1.7		170,000		$	35			2.3

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

As of September 30, 2019, we have outstanding RSUs covering a total of 1,178,062 shares of our common stock. 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 in certain grants, as described in the next sentence, the RSU shares vest as to (i) 117,806 shares on the date the vesting price equals or exceeds $5.00 per share (ii) 353,419 shares the date the vesting price equals or exceeds $10.00 per share and (iii) 706,837 shares the date the vesting price equals or exceeds $15.00 per share. In certain RSUs, vesting 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.

Nonvested Stock

Summaries of nonvested stock activity for the nine months ended September 30, 2019 and 2018, follow (in thousands, except share and per share amounts).

	2019									2018
	Shares Granted			Weighted Average Grant Date Fair Value Per Share		Fair Value		Unrecog- nized Stock Comp- ensation		Shares Granted			Weighted Average Grant Date Fair Value Per Share		Fair Value		Unrecog- nized Stock Comp- ensation
							(1)		(2)							(1)		(2)
Nonvested at January 1		193,965		$	1.84	$	582	$	173		384,744		$	0.94	$	569	$	176
Granted		-		NA		NA					-		NA		NA
Vested		-		NA		NA					-		NA		NA
Nonvested at March 31		193,965			1.84		722		81		384,744			0.94		315		80
Granted to directors		118,111			2.86		338				208,875			1.78		372
Granted to consultants		16,873			2.86		48				-		NA		NA
Vested		(193,965	)		1.84		566				(384,744	)		0.94		686
Nonvested at June 30 (3)		134,984			2.86		393		374		208,875			1.78		451		360
Granted to directors		15,290			2.82		43				-		NA		NA
Vested		-		NA		NA					-		NA		NA
Nonvested at September 30		150,274		$	2.86	$	383	$	313		208,875		$	1.78	$	599	$	267

(1)

Represents pre-tax fair value, based on our closing stock prices, which would have been received by the holders of the stock had all such holders sold their underlying shares on the date indicated, the dates of grant or the dates of vesting, as applicable.

(2)

As of September 30, 2019 and 2018, unrecognized compensation is amortizing over a remaining period of 0.7 years.

(3)

Excluded 830,104 shares, issued to a supplier, nonvested and unearned as of June 30, 2019. In February 2016, we issued 950,000 shares of common stock to that supplier. The shares were being held in escrow until earned (as defined in our agreement) by the supplier at a fixed price of $2.80 per share. Cumulatively, as of September 30, 2019, 119,896 shares were released from escrow. We recalled and retired the shares remaining in escrow, after the related supply agreement terminated in August 2019. During the three months ended June 30, 2019 and March 31, 2019, we released from escrow and expensed the value of 11,492 and 9,148 shares earned by a vendor, at $2.92 per share, the fair value of the shares on January 1, 2019, when we adopted ASU 2018-07. During the three months ended June 30, 2018 and March 31, 2018, we released from escrow and expensed the value of 10,660 shares ($2.16 per share) and 9,842 ($1.57 per share) shares earned by that vendor. The shares released from escrow in 2018 were valued at the fair value of the shares when earned, under the guidance for nonemployee awards in effect in 2018, prior to our adoption of ASU 2018-07.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Warrants

Warrant activity, excluding activity related to the Prefunded Warrant, for the nine months ended September 30, 2019 and 2018, follows.

	2019							2018
	Shares Under Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Shares Under Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
		(1)
Outstanding at January 1		10,252,714		$	2.25		2.3		21,157,273		$	2.30		3.4
Issued (2)		-		NA		NA			315,000			4.73		2.4
Cash exercised		(600,000	)		3.30		-		(1,827,999	)		0.96		4.1
Expired		(950,614	)		5.25		-		-		NA		NA
Outstanding at March 31		8,702,100			1.85		2.4		19,644,274			2.47		3.0
Cash exercised		-		NA		NA			(4,092,077	)		0.96		3.7
Expired		(989,875	)		5.60		-		(6,000	)		16.80		-
Outstanding at June 30		7,712,225			1.37		2.4		15,546,197			2.86		2.5
Cash exercised		-		NA		NA			(2,660,000	)		2.00		3.0
Cashless exercised (3)		-		NA		NA			(300,000	)		1.60		1.8
Impact of modification (4):
After modification		-		NA		NA			600,000			3.30		0.6
Prior to modification		-		NA		NA			(850,000	)		5.27		1.6
Expired		-		NA		NA			(2,573	)		16.00		-
Outstanding at September 30 (5)		7,712,225		$	1.37		2.2		12,333,624		$	2.93		2.2

(1)

Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. As of September 30, 2019, warrant holders may elect to exercise cashless warrants for 3,774,344 shares of common stock at an exercise price of $0.96 per share and 384,536 shares of common stock at an average exercise price of $5.25 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.

(2)

We recognized $0.1 million of expense for these warrant issuances in the three months ended June 30, 2018.

(3)

We issued 139,392 shares of common stock upon cashless exercise of these warrants, based on the fair value at the date of exercise of $2.63 per share.

(4)

The fair value of the warrants immediately before the modification equaled the fair value of the warrants immediately after the modification and, therefore, no gain or loss was recorded.

(5)

In October 2019, warrants for the purchase of up to 94,536 shares of common stock at an exercise price of $5.27 per share expired and warrants for the purchase of up to 85,409 shares of common stock at an exercise price of $0.96 per share were cash exercised.

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.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Diluted EPS is computed by dividing the net income attributable to our common shareholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. The dilutive effects of outstanding options, warrants, nonvested shares 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 September 30						Nine Months Ended September 30
	2019			2018			2019			2018
NUMERATOR (in thousands):
Basic and diluted - loss from continuing operations	$	(3,326	)	$	(1,627	)	$	(9,996	)	$	(5,700	)

DENOMINATOR:
Basic EPS - weighted average number of common shares outstanding		33,057,010			24,092,172			31,947,087			20,538,309
Effect of dilutive securities outstanding		-			-			-			-
Diluted EPS - weighted average number of shares outstanding		33,057,010			24,092,172			31,947,087			20,538,309

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		969,566			790,950			1,034,218			843,910
Warrants		7,712,225			14,421,219			8,744,733			17,840,322
Convertible preferred stock		213,523			597,865			228,540			597,865
Restricted stock units		1,138,442			178,478			1,263,275			428,132

Weighted average number of nonvested shares of common stock not included in diluted EPS because effect would be antidilutive		475,567			1,079,079			848,699			1,198,913

The impacts of potentially dilutive securities outstanding at September 30, 2019 and 2018, were not included in the calculation of diluted EPS for the three and nine months ended September 30, 2019 and 2018, because to do so would be anti-dilutive. Those securities listed in the table above which were anti-dilutive for the three and nine months ended September 30, 2019 and 2018, which remain outstanding, could potentially dilute EPS in the future.

NOTE 14. INCOME TAXES

Our tax expense for the three and nine months ended September 30, 2019 and 2018, differs from the tax expense computed by applying the U.S. statutory tax rate to net losses from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of September 30, 2019, 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 our 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.

NOTE 15. FAIR VALUE MEASUREMENTS

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 are presented in our financial statements at fair value. Assets and liabilities measured at fair value on a recurring basis may include derivative warrant and conversion liabilities. Assets and liabilities measured at fair value on a non-recurring basis may include property. As of September 30, 2019, and December 31, 2018, no assets or liabilities were measured at fair value.

Index

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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.

The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities. As of September 30, 2019, the fair values of our debt and finance lease liabilities approximated their carrying values, based on the current market rates for similar debt with similar maturities. The fair value of our operating lease liabilities as of September 30, 2019, was approximately $0.3 million higher than their carrying values, based on the current market rates for similar debt with similar maturities (Level 3 measurement).

NOTE 16. 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 17. RELATED PARTY TRANSACTIONS

In March 2019, we issued and sold to Continental Grain Company (CGC) 666,667 shares of common stock and the Prefunded warrant to purchase up to 1,003,344 shares of common stock for $2.99 per share at an exercise price of $0.01 per share. CGC exercised the warrant in June 2019. Our director, Ari Gendason is a Senior Vice President and Chief Investment Officer of CGC. As of the date of this filing, CGC owned approximately 22.5% 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 18. TRANSACTIONS WITH EMPLOYEES

Wayne Wilkison, our former employee and former owner of Golden Ridge, owns various farms and a freight company with which we conduct business. Mr. Wilkison’s employment was terminated in April 2019. During the three and nine months ended September 30, 2019 we paid $0.3 million and $1.7 million to these entities. As of December 31, 2018, $1.9 million was included in commodities payable for amounts owed to these entities. The note payable to a seller of Golden Ridge, described further in Note 4, was payable to Mr. Wilkison. The purchase price working capital adjustment, described further in Note 4 was receivable from Mr. Wilkison.

Index

Item 2.

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

Results of Operations

Refer to Note 4 of the accompanying Notes to Condensed Consolidated Financial Statements for additional information on acquisitions.

	Three Months Ended September 30						Change			Nine Months Ended September 30						Change
	2019			2018			%			2019			2018			%
	(in thousands)									(in thousands)
Revenues	$	5,300		$	3,463			53.0		$	17,883		$	10,213			75.1
Cost of goods sold		5,659			2,709			(108.9	)		18,143			7,842			(131.4	)
Gross profit (loss)		(359	)		754						(260	)		2,371
Gross profit (loss) %		-6.8	%		21.8	%					-1.5	%		23.2	%

Selling, general and administrative expenses		3,835			2,419			(58.5	)		10,598			8,102			(30.8	)
Loss from operations		(4,194	)		(1,665	)		(151.9	)		(10,858	)		(5,731	)		(89.5	)
Other income (expense), net		868			38						862			31
Loss from continuing operations	$	(3,326	)	$	(1,627	)				$	(9,996	)	$	(5,700	)

Results of Operations – Three Months Ended September 30, 2019

Revenues increased $1.8 million, or 53.0%, in the third quarter of 2019, compared to the third quarter of 2018. Revenues for our core stabilized rice bran (SRB) businesses were up, 4.0%, to $3.6 million versus the comparable period a year ago. The additional revenue growth of $1.7 million came from our acquired Golden Ridge and MGI operations. We acquired Golden Ridge in November 2018 and MGI in April 2019. Within our SRB businesses, the majority of the growth in the quarter was provided by growth in animal feed product revenues with equine and companion animal product sales providing higher revenue than the comparable period of 2018.

Gross loss was $0.4 million in the third quarter of 2019, compared to a gross profit of $0.8 million in the third quarter of 2018. There were slight declines in the gross margin in SRB product lines, however the majority of this change is related to the losses incurred at the Golden Ridge facility. The loss is primarily attributable to the continuing fulfillment of a large unfavorable contract to supply medium grain rice, and downtime in September while new equipment was being installed. We entered into the unfavorable contract in late January and continued to fulfill the contract throughout the third quarter. The unfavorable contract was completed in early October 2019, and we expect gross profit margins to improve in the fourth quarter with the completion of equipment upgrades.

Selling, general and administrative (SG&A) expenses were $3.8 million in the third quarter of 2019, compared to $2.4 million in the third quarter of 2018, an increase of $1.4 million, or 58.5%. SG&A expenses increased as a result of higher professional fees, payroll and benefit accruals, and workers comp audit adjustments paid in the quarter as well as additional expenses from our acquired Golden Ridge and MGI operations..

Other income was $0.9 million in the third quarter of 2019 compared to $0.04 million reported for the third quarter of 2018. Other income in 2019 was a result of the litigation settlement with the prior owners of the Golden Ridge Mill and is discussed further in Note 4 in the accompanying Notes to Unaudited Condensed Financial Statements.

Results of Operations – Nine Months Ended September 30, 2019

Revenues increased $7.7 million in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Revenues for our core SRB businesses were up 8.0% to $11.0 million versus the comparable period a year ago, while the remainder of the growth came from our acquired Golden Ridge and MGI operations. Within our SRB business, most of the growth year-to-date was provided by growth in animal feed product revenues.

Gross loss was $0.3 million in the nine months ended September 30, 2019 compared to gross profit of $2.4 million for the nine months ended September 30, 2018. The decline in gross profit was primarily attributable to losses from Golden Ridge as a result of a large unfavorable contract to supply milled rice which we entered into in late January 2019 and downtime in the third quarter for new equipment installation. Excluding the impact of our Golden Ridge operations, gross profit for our core SRB business declined modestly year-over-year due to increases in raw bran costs and labor expenses associated with transitioning a couple of our key facilities to a longer work week.

Index

Selling, general and administrative (SG&A) expenses were $10.6 million compared to $8.1 million, an increase of $2.5 million, or 30.8%, in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. SG&A expenses increased as a result of higher professional service fees, payroll related expenses, as well as additional expenses from our acquired Golden Ridge and MGI operations.

Other income was $0.9 million for the nine months ended September 30, 2019 compared to $0.03 million for the nine months ended September 30, 2018. Other income in 2019 was a result of the litigation settlement with the prior owners of the Golden Ridge Mill which was completed in July 2019 and is discussed further in Note 4 in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

As of September 30, 2019, our cash and cash equivalents balance was $3.7 million compared to a cash and cash equivalents balance of $7.0 million as of December 31, 2018. After December 31, 2018, we (i) raised $13.6 million through (a) $11.6 million of proceeds in March 2019, net of expenses, from the sale and issuance of 3,046,668 shares of common stock at $3.00 per share and a pre-funded warrant exercisable into 1,003,344 shares of common stock at $2.99 per share and (b) $2.0 million of proceeds from warrant exercises (ii) spent $3.8 million on the acquisition of MGI and $3.5 million on capital expenditures and (iii) borrowed $1.2 million from a margin loan. We used $10.5 million in operating cash during the first nine months of 2019, compared to $4.7 million of operating cash in the first nine months of 2018. Part of the $5.8 million increase in operating use of cash between periods was the payment of approximately $1.9 million of commodities payable in the first nine months of 2019, related to a liability that we assumed in connection with the acquisition of Golden Ridge in November 2018.

We entered into a factoring agreement with a lender in October 2019, the terms of which are discussed further in Note 10 to the accompanying Notes to Unaudited Condensed Consolidated Financial Statements. Under the facility we may borrow, to the extent we have qualifying accounts receivable, up to $7.0 million. We expect the facility will provide us with additional flexibility in funding our operating cash flows for the anticipated growth at our Golden Ridge facility.

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.

For further information about other critical accounting policies, see the discussion of critical accounting policies in Note 3 of the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements

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

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Index

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 not effective as of the end of the period covered by this report due to the material weakness discussed below:

As reported in our Annual Report on Form 10-K for the year ended December 31, 2018, filed on April 2, 2019, management identified material weaknesses in our internal control over financial reporting during the period covered by this report, related to management’s review controls over significant accounting estimates and the accounting for non-routine and complex accounting transactions. Specifically, material weaknesses were identified relating to non-routine purchase accounting evaluation and related disclosures, and to our accounting for certain issuances of equity. It was further determined that management’s review controls over non-routine and complex accounting transactions were adversely affected by the relocation from Arizona to Texas, in the second quarter of 2018, that resulted in reduced employed personnel with the appropriate level of experience and technical expertise.

Changes in Internal Control over Financial Reporting

In April 2019, management initiated remediation measure related to the material weakness described above by hiring additional accounting staff, including a Chief Accounting Officer in April 2019, and a new Chief Financial Officer in June 2019, and engaging third parties to assist us (i) in complying with the accounting and financial reporting requirements related to significant and complex acquisitions and equity transactions; and (ii) with formalizing our business processes, accounting policies and internal control documentation, strengthening supervisory reviews by our management, and evaluating 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. These remediation efforts are ongoing, and management believes that significant progress has been made to resolve these issues and all material weaknesses will be addressed before we file our Annual Report on Form 10-K for the year ending December 31, 2019.

Except as noted above, 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.

On July 3, 2019, we filed a complaint in the United States District Court for the Eastern District of Arkansas against Golden Ridge Rice Mills, LLC, Wayne Wilkinson and Wendy Wilkinson, among others (the Sellers), in connection with our acquisition of Golden Ridge on November 28, 2018 pursuant to an asset purchase agreement. In our complaint, we sought, among other things, $1.7 million in damages for breach of contract relating to the calculation of net working capital under the asset purchase agreement and declaratory relief from the court to terminate certain agreements entered into by the Sellers on our behalf after the closing of the transaction. Under the terms of the asset purchase agreement, the purchase price was subject to adjustment if the estimated closing working capital with respect to the assets purchased and the liabilities assumed was different than the actual closing working capital, as defined in the asset purchase agreement.

On July 30, 2019, we entered into a settlement agreement with the Sellers and withdrew our complaint. Pursuant to the settlement agreement, (i) 340,00 shares of common stock held in an escrow account pursuant to the asset purchase agreement were returned to us, (ii) $0.4 million of debt owed by us to a seller was cancelled and (iii) certain undelivered grain purchase contracts between the parties were terminated.

Index

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, 2018, 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

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

3.1

Amendment to Bylaws, effective July 30, 2019

8-K

001-36245

3.1

August 5, 2019

31.1

Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS (1)

XBRL Instance Document

101.SCH (1)

XBRL Taxonomy Extension Schema Document

101.CAL (1)

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF (1)

XBRL Taxonomy Extension Calculation Definition Linkbase Document

101.LAB (1)

XBRL Taxonomy Extension Calculation Label Linkbase Document

101.PRE (1)

XBRL Taxonomy Extension Calculation Presentation Linkbase Document

(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.

Index

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: November 7, 2019

	/s/ Brent R. Rystrom
	Brent R. Rystrom
	Director and Chief Executive Officer

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