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

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, 2020. We disclaim any obligation to update any forward looking statements as a result of developments occurring after the date of this quarterly report.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

RiceBran Technologies

Condensed Consolidated Statements of Operations

(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

NOTE 1. BASIS OF PRESENTATION

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

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 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

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

In June 2016, the 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.

NOTE 4. CASH AND CASH EQUIVALENTS

As of June 30, 2021, we have $2.4 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements. We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

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

NOTE 5. ACCOUNTS RECEIVABLE AND REVENUES

Amounts billed and due from our customers are classified as accounts receivables on our consolidated balance sheets and require payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due within 30 days or less, however certain customers have terms of up to 120 days. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from customers prior to revenue recognition on a contract are contract liabilities, are classified as customer prepayments liability on our consolidated balance sheets and are typically applied to an invoice within 30 days of the prepayment.

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

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

NOTE 6. INVENTORIES

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

NOTE 7. PROPERTY AND EQUIPMENT

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

Amounts payable for property and equipment included in accounts payable of $0.1 million at June 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 $0.9 million at June 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 months ended June 30, 2021, we received $0.3 million of proceeds from the insurer. The insurance proceeds receivable included in other current assets on our consolidated balance sheet was $0.5 million at June 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 June 30, 2021. We accrue estimated insurance proceeds receivable when the proceeds are estimable and probable of collection. Given the nature of recoveries of lost profits under business interruption insurance we have not accrued insurance proceeds receivable for any potential recoveries of lost profits.

NOTE 8. LEASES

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

As of June 30, 2021, variable lease payments do not depend on a rate or index. As of June 30, 2021, property and equipment, net, includes $0.3 million of finance lease right-of-use-assets, with an original cost of $0.4 million. During 2021, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

As of June 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 June 30, 2021, follows.

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

NOTE 9. DEBT

We finance certain amounts owed for annual insurance premiums under financing agreements. As of June 30, 2021, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through February 2022, at an average interest rate of 3.7 % per year.

In October 2019, we entered into a factoring agreement which provides for a $7.0 million credit facility with a lender. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility has an initial two-year term and automatically renews for successive annual periods, unless proper termination notice is given. We paid a $0.2 million facility fee upon inception of the agreement which is amortizing to interest expense on a straight-line basis over two years. We incur recurring fees under the agreement, including a funding fee of 0.5% above the prime rate, in no event to be less than 5.5%, on any advances and a service fee on average net funds borrowed. The lender has the right to demand repayment of the advances at any time. The lender has a security interest in personal property assets.

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 ("CARES"), 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 June 30, 2021, the note bore interest at an annual rate of 14.3%.

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

NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

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

Share-based compensation by type of award follows (in thousands).

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 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, 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). 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).

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

In the three months ended June 30, 2021, a warrant holder cash exercised a warrant for the purchase of 177,936 shares of common stock ($0.96 per share exercise price).

NOTE 11. INCOME TAXES

Our tax expense for the three and six months ended  June 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 June 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.

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 six months ended June 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 six months ended June 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 June 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 June 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).

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 23.4% 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.

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

Results of Operations

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

Revenue was $7.6 million in the second quarter of 2021, up $1.7 million from $5.9 million in the second quarter of 2020. This 28% year-over-year increase was supported by growth in all areas of our businesses, with notable strength in SRB derivatives, and  50%-plus year-over-year increases in revenues from Golden Ridge, our Arkansas-based rice mill, and MGI, our Minnesota-based oats and barley mill.

Gross profit was $0.2 million in the second quarter of 2021, a $1.4 million improvement from a gross loss of $1.2 million in the second quarter of 2020. The year-over-year improvement in gross profit was driven by improvements in profitability for every facility, compared to the second quarter of 2020, with notable improvements at Golden Ridge and our Dillon, Montana SRB derivative facility.

Selling, general and administrative ("SG&A") expenses were $1.9 million in the second quarter of 2021, compared to $2.3 million in the second quarter of 2020, a decrease of $0.4 million. This reduction was achieved through cuts in corporate support headcount and outside professional services. As a result of higher gross profits and lower SG&A, operating losses were $1.8 million in the second quarter of 2021, down from $3.8 million in the second quarter of 2020.

Interest expense in the second quarter of 2021 was over $0.1 million compared to under $0.1 million in the second quarter of 2020 due to higher average borrowings in the comparable 2021 period.

Net loss in the second quarter of 2021 was $1.9 million, or $0.04 per share, compared to $3.9 million, or $0.10 per share, in the second quarter of 2020. The year-over-year reduction in net losses was a result of lower operating losses in the second quarter of 2020.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

Revenue was $16.2 million in the first half of 2021, up $1.9 million from $14.3 million in the first half of 2020. This 14% year-over-year increase was due to sales growth for all of our businesses. Notably, sales of SRB and SRB derivatives grew over 20% in the first half of 2021 due to a doubling of SRB derivative sales, MGI experiencing double-digit growth in revenue, and Golden Ridge revenue growing modestly in the first half of 2021 from the first half of 2020, despite significant weather-related downtime in February 2021.

Gross profit was $0.8 million in the first half of 2021, compared to a gross loss of $1.6 million in the first half of 2020. The $2.5 million increase in gross profit was primarily attributable to an increase in commodity margins, higher milling yields and growth in hourly throughput from our Arkansas rice mill. The transition to gross profit in the first half of 2021 was also supported by the increase in sales of higher-margin SRB derivatives sales compared to the first half of 2020.

SG&A expenses were $3.7 million in the first half of 2021, compared to $4.9 million in the first half of 2020, a decrease of $1.2 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 $2.9 million in the first half of 2021, down from $6.8 million in the first half of 2020.

Interest expense in the first half of 2021 was $0.2 million compared to $0.1 million in the first half 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 half of 2021 was $1.3 million, or $0.03 per share, compared to net losses of $7.0 million, or $0.17 per share, in the first half 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 second half of 2021 compared to the second half of 2021.

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 $4.0 million in cash and equivalents as of June 30, 2021, a decrease of $1.3 million from $5.3 million on December 31, 2020. During the first half of 2021, we used $1.4 million of cash to fund our operating loss. Cash used for investing activities consisted of $0.5 million in capital expenditures, primarily for the purchase and installation of capital equipment at our Arkansas and Minnesota facilities, offset by 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 $0.4 million in cash generated from financing activities, where increases in borrowings under premium finance agreements and the proceeds from a warrant exercise 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. In April 2020, we were approved for a $1.8 million SBA Payroll Protection Program loan as discussed further in Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements. In the first half of 2021, we did not raise any funds from the sale of shares under our ATM program, and the $1.8 million SBA Payment Protection Program loan was completely forgiven, which contributed to reducing total long-term debt to $1.6 million at June 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 June 30, 2021, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2021 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

Not applicable

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

On June 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.

On April 28, 2021, we issued 177,936 shares of common stock to warrant holder upon the cash exercise of a warrant with an exercise price of $0.96 per share.

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 caused this report to be signed on its behalf by the undersigned thereunto duly authorized.