RiceBran Technologies - Quarter Report: 2021 September (Form 10-Q)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

RiceBran Technologies

Condensed Consolidated Statements of Operations

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

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited) (in thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies

Condensed Consolidated Balance Sheets

(Unaudited) (in thousands, except share amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies

Condensed Consolidated Statements of Cash Flows

(Unaudited) (in thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of RiceBran Technologies and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission (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

Recent accounting standards not yet adopted

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

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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

Recently adopted accounting standards

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

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.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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%.

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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).

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

A summary of restricted stock unit ("RSU") activity follows.

The shares of common stock subject to the RSUs granted in 2021 vest within two years of grant. The 2021 RSU grants are not subject to any market conditions and were valued using the market price of our common stock on the date of grant.

As of September 30, 2021, issuance of 1,180,843 shares of common stock subject to certain RSUs, 836,803 of which are vested, is deferred to the date the holder is no longer providing service to RiceBran Technologies.

In the three months ended September 30, 2021, we issued 1,500,000 shares of common stock to a warrant holder upon the cashless exercise of 1,500,427 shares underlying the Prefunded Warrant. As of September 30, 2021, the Prefunded Warrant is outstanding and exercisable as to 807,638 underlying shares of common stock.

In the three months ended June 30, 2021, we issued 177,936 shares of common stock to a warrant holder upon the cash exercise of a warrant with an exercise price of $0.96 per share.

In the three months ended March 31, 2021, warrants for the purchase of up to 25,000 shares of common stock ($5.25 per share exercise price) expired.

In October 2021, we issued 807,498 shares of common stock to a warrant holder upon the cashless exercise of the remaining 807,638 shares underlying the Prefunded Warrant.

NOTE 11. INCOME TAXES

Our tax expense for the three and nine months ended  September 30, 2021 and 2020, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss as no tax benefits were recorded for tax losses generated in the U.S. As of September 30, 2021, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards. We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not more likely than not to occur.

NOTE 12. LOSS PER SHARE (EPS)

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

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

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

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

No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three and nine months ended September 30, 2021 and 2020, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding during the three and nine months ended September 30, 2021 and 2020, included our outstanding convertible preferred stock, options, warrants, nonvested restricted stock units and nonvested stock. Those potentially dilutive securities still outstanding could potentially dilute EPS in the future.

NOTE 13. FAIR VALUE MEASUREMENTS

The fair value of cash and cash equivalents, restricted cash, accounts and other receivables and accounts payable approximates their carrying value due to shorter maturities. As of September 30, 2021, the fair values of our operating lease liabilities were approximately $0.3 million higher than their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements). As of September 30, 2021, the fair values of our debt and finance lease liabilities approximated their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements).

The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis for both the three and nine months ended September 30, 2021 (in thousands):

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 14. COMMITMENTS AND CONTINGENCIES

PPP Audit Contingency

As discussed in Note 9, the outstanding principal and related accrued interest on our PPP loan were completely forgiven in January 2021. The SBA may audit any PPP loan at its discretion through January 2027, six years after the date the SBA forgave the loan. The SBA may review any or all of the following when auditing a PPP loan: whether the borrower qualified for the PPP loan, whether the PPP loan amount was appropriately calculated and the proceeds used for allowable purposes, and whether the loan forgiveness amount was appropriately determined. We could be deemed ineligible for the PPP loan received in 2020 upon audit by the SBA. We believe the SBA’s stated intention is to focus its reviews on borrowers with loans greater than $2 million, thereby mitigating our future risk of an audit. The SBA continues to develop and issue new and updated guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program.

Employment Contracts and Severance Payments

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

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

Legal Matters

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

NOTE 15. RELATED PARTY TRANSACTIONS

Our director, Ari Gendason, is an employee and senior vice president and chief investment officer of Continental Grain Company ("CGC"). As of the date of this filing, CGC owns approximately 21.2% of our outstanding common stock. We have agreed that in connection with each annual or special meeting of our shareholders at which members of our board of directors are to be elected, or any written consent of our shareholders pursuant to which members of the board of directors are to be elected, CGC shall have the right to designate one nominee to our board of directors.

NOTE 16. FAILURE TO COMPLY WITH NASDAQ LISTING REQUIREMENTS

On September 15, 2021, we received a notification letter from The Nasdaq Stock Market LLC (Nasdaq) indicating that we have failed to comply with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(a)(2) requires that companies listed on the Nasdaq Capital Market maintain a minimum bid price of $1.00. To regain compliance with this listing rule, the closing bid price of our common stock has to be at least $1.00 for a period of Nasdaq's discretion, of at least 10, but not to exceed 20, consecutive business days. In accordance with Nasdaq Marketplace Rules and 5810(c)(3)(A), we have a period of 180 calendar days from the date of notification, or until March 14, 2022, to regain compliance with the minimum bid price requirement. We may be eligible for an additional 180-day compliance period if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement. We are committed to taking actions that would enable us to regain compliance, including, if necessary, completing a reverse split of our common stock to increase its share price above the $1.00 minimum bid price.

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

Results of Operations

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

Revenue was $6.9 million in the third quarter of 2021, up $1.7 million from $5.2 million in the third quarter of 2020. This 34% year-over-year increase was underpinned by strong year-over-year increases in revenues from Golden Ridge, our Arkansas-based rice mill. Year-over-year revenue growth for the quarter was negatively impacted by logistical challenges in our core-SRB operations and unplanned downtime at MGI, our Minnesota-based oats and barley mill.

Gross loss was $0.3 million in the third quarter of 2021, a $0.5 million improvement from a gross loss of $0.8 million in the third quarter of 2020. The year-over-year improvement in gross loss was driven by improvements in profitability at Golden Ridge and our Dillon, Montana SRB derivative facility. Gross profits in the quarter were negatively impacted by higher raw material and freight costs, as well as losses at MGI due to unplanned downtime. 

Selling, general and administrative (SG&A) expenses were $1.8 million in the third quarter of 2021 and approximately equal to $1.8 million in the third quarter of 2020. Due to reduced gross losses, SG&A remaining flat, and the absence of $0.1 million in impairments present in last year’s results, operating losses were $2.1 million in the third quarter of 2021, down from $2.7 million in the third quarter of 2020.

Interest expense in the second quarter of 2021 was approximately $0.1 million, which was in-line with $0.1 million in the third quarter of 2020. Due to the reduction in operating losses, net losses in the third quarter of 2021 were $2.2 million, or $0.05 per share, compared to $2.8 million, or $0.07 per share, in the third quarter of 2020. 

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

Revenue was $23.1 million in the first nine months of 2021, up $3.7 million, from $19.4 million in the first nine months of 2020. This 19% increase year-over-year was due to sales growth for all businesses. Sales of SRB and SRB derivatives grew over 11% in the first nine months of 2021 due to 45% growth in SRB derivative sales, while both MGI and Golden Ridge generated double-digit growth in revenue in the first nine months of 2021 from the first nine months of 2020.

Gross profit was $0.5 million in the first nine months of 2021, compared to a gross loss of $2.4 million in the first nine months of 2020. The $2.9 million increase in gross profit reflected improved profitability for all businesses, with a notable reduction in gross losses for Golden Ridge. The transition to gross profit in the first nine months of 2021 was also supported by the increase in sales of higher-margin SRB derivatives sales compared to the first nine months of 2020.

SG&A expenses were $5.5 million in the first nine months of 2021, compared to $6.6 million in the first nine months of 2020, a decrease of $1.1 million. This reduction was achieved through cuts in corporate support headcount and outside professional services, supported by process improvement and modest investments in technical support infrastructure. As a result of higher gross profits and lower SG&A, operating losses were $4.9 million in the first nine months of 2021, down from $9.5 million in the first nine months of 2020.

Interest expense in the first nine months of 2021 was $0.4 million compared to $0.2 million in the first nine months of 2020 due to higher average borrowings in the 2021 period. In January 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration (SBA) Paycheck Protection Program (PPP) loan (see Notes 9 and 14 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the loan).

Net loss in the first nine months of 2021 was $3.5 million, or $0.08 per share, compared to net losses of $9.8 million, or $0.24 per share, in the first nine months of 2020. The year-over-year reduction in net losses was a result of lower operating losses and the nonrecurring gain on extinguishment of debt in the first nine months of 2021 compared to the first nine months of 2020.

COVID-19 Assessment

The COVID-19 pandemic is a worldwide health crisis that is adversely affecting the business and financial markets of many countries. The pandemic could adversely affect the demand for our products, and it poses the risk that we, or our customers, suppliers, and other business partners may be disrupted or prevented from conducting business for an uncertain period of time. The extent to which this would impact our financial results is unknown as it is dependent on future developments, which are highly uncertain. As such, it is difficult to estimate the exact magnitude of the COVID-19 pandemic on our business.

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

Liquidity and Capital Resources

We had $6.2 million in cash and equivalents as of September 30, 2021, an increase of $0.9 million from $5.3 million on December 31, 2020. During the first nine months of 2021, we used $2.0 million of cash to fund our operating loss. We used $0.5 million in cash for investing activities which consisted of $1.2 million in capital expenditures, primarily for the purchase and installation of capital equipment at our Arkansas and Minnesota facilities, offset by $0.6 million in proceeds received from an insurance company for hurricane damaged sustained to our Lake Charles facility in 2020. The operating and investing uses of cash were offset by $3.5 million in cash generated from financing activities, where proceeds from sales of common stock and warrants more than offset principal payments on our premium finance agreements, long-term debt and leases.

On March 30, 2020, we entered into a sales agreement with respect to an at-the-market ("ATM") 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. We are currently prohibited from making sales pursuant to the ATM until 180 days after the closing date of the September 2021 offering. In April 2020, we were approved for a $1.8 million SBA PPP loan as discussed further in Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements. In the third quarter of 2021, we raised $0.5 million, net of $0.1 million of stock issuance costs, from the sale of shares under our ATM program and $2.8 million, net of offering costs, from the September 2021 offering, and the $1.8 million PPP loan that was completely forgiven in the first quarter of 2021 all contributed to reducing total long-term debt to $1.5 million at September 30, 2021, compared to $3.7 million at December 31, 2020. As of the date of this filing, management believes we have sufficient capital reserves to fund the operations of the business through the Company’s expected transition to profitability or positive cash flow and with our expected future ability to obtain debt or raise equity capital, we will be able to obtain sufficient cash to operate our business in both the short and long-term.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than operating leases with original terms of less than a year and 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 Estimates

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. As of September 30, 2021, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2020 Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are not required to provide the information otherwise required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

We evaluated, with the participation of our executive chairman, 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 executive chairman and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, 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

During the quarter ended September 30, 2021, we issued the securities described below without registration under the Securities Act of 1933, as amended (the "Securities Act"). The description below does not include issuances that were disclosed previously on Current Reports on Form 8-K. Unless otherwise indicated below, the securities were issued pursuant to the private placement exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended. All issuances below were made without any public solicitation, to a limited number of sophisticated persons and were acquired for investment purposes only.

On September 30, 2021, we issued 6,000 shares of common stock to a service provider, that is not a natural person, as compensation for service provided. The shares were valued at an aggregate of $5,460.

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:

SIGNATURES

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