RiceBran Technologies - Quarter Report: 2022 June (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 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, 2021, 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 can become 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; and a variety of other valuable derivatives extracted from these core products.

In granular form, SRB is a food additive used in products for human and animal consumption. We believe SRB has certain qualities that make it more attractive than additives based on the by-products of other agricultural commodities, such as 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 (Golden Ridge) 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 (MGI) 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.

NOTE 4. CASH AND CASH EQUIVALENTS

As of June 30, 2022, we have $2.7 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 receivable on our consolidated balance sheets and require payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due within 30 days or less, however certain customers have terms of up to 120 days. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from customers prior to revenue recognition on a contract are contract liabilities, are classified as customer prepayments liability on our consolidated balance sheets and are typically applied to an invoice within 30 days of the prepayment. Revenues in the three and six months ended June 30, 2022 and 2021, include $0.1 million, or less, in unearned revenue as of the end of the prior year.

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).

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 6. 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 totaled $0.1 million at June 30, 2022, and $0.2 million at December 31, 2021. Assets which had not yet been placed in service, included in property and equipment, totaled $0.8 million at June 30, 2022, and $0.9 million at December 31, 2021.

NOTE 7. LEASES

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

As of June 30, 2022, variable lease payments do not depend on a rate or index. As of June 30, 2022, and December 31, 2021, property and equipment, net, includes $0.3 million and $0.2 million of finance lease right-of-use-assets, with an original cost of $0.5 million. During the three months and six months ended June 30, 2022, we financed the purchase of $0.1 million of property and equipment in noncash finance lease transactions. During the three months and six months ended June 30, 2021, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

As of June 30, 2022, 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 our lease liabilities as of June 30, 2022, follows.

Maturities of lease liabilities as of June 30, 2022, follows (in thousands).

NOTE 8. DEBT

We finance certain amounts owed for annual insurance premiums under financing agreements. As of June 30, 2022, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through March 2023, at interest rates of 3.5% to 3.9% per year.

We borrow under a factoring agreement with a lender, which provides a $7.0 million credit facility. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility had an initial two-year term and automatically renews for successive annual periods, unless proper termination notice is given. The facility term has automatically extended to October 2022. We paid a $0.2 million facility fee upon inception of the agreement which amortized to interest expense on a straight-line basis over the two years ending in October 2021. 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.

Additional information related to our factoring obligation follows.

As of June 30, 2022, we had $1.8 million outstanding under a line of credit with a bank. The borrowing is secured by our cash on deposit with the bank and bears interest at prime (4.8% at June 30, 2022). There are no stipulated repayment terms for the line as long as we maintain sufficient cash collateral. Our borrowings under the line of credit averaged $0.1 million in the three months ended June 30, 2022, and less than $0.1 million for the six months ended June 30, 2022.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

Future principal maturities of long-term debt outstanding as of June 30, 2022, follow (in thousands).

NOTE 9. 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 by type of award follows (in thousands).

In the three months ended June 30, 2022, holders forfeited options for the purchase of up to 44,547 shares of common stock (average $2.14 per share exercise price, average 6.8 years remaining life). In the three months ended March 31, 2022, holders forfeited options for the purchase of up to 9,703 shares of common stock (average $1.85 per share exercise price, average 7.7 years remaining life).

In the three months ended March 31, 2022, warrants for the purchase of up to 6,142,980 shares of common stock ($0.96 per share exercise price) expired.

Summaries of nonvested and vested restricted stock unit (RSU) activity follow.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Each RSU represents a contingent right to receive one share of common stock. The RSUs granted in the first three months of 2022 vest within two years of the grant. As of June 30, 2022, issuance of 725,213 shares of common stock subject to the vested RSUs is deferred to the date the holder is no longer providing service to our company.

In April 2022, we modified 114,680 RSUs held by resigning directors such that the awards vested on the date of their termination of service. Prior to the modification, the unvested RSUs would have been forfeited on the date of the resignations. As a result of the modifications, we adjusted cumulative expense on the RSUs to equal the fair value of the awards on the date of the April 28, 2022, modification ($0.52 per unit), in accordance with applicable accounting guidance.

In the three months ended June 30, 2022, we issued a total of 483,879 shares of common stock pursuant to the terms of vested RSUs, which included the114,680 modified RSUs discussed in the preceding paragraph. Issuance of the shares of common stock subject to these RSUs was deferred to the date the holder was no longer providing service to our company. In the three months ended March 31, 2022, we issued a total of 224,751 shares of common stock upon the vesting of RSUs.

On July 14, 2022, shareholders approved a 6,000,000 share increase in the number of shares of common stock authorized for issuance under our Amended and Restated 2014 Equity Incentive Plan (2014 Plan). On July 14, 2022, we granted RSUs with a total grant date fair value of $1.4 million ($0.38 per unit). The grants are listed below.

As of the date of this filing, 2,645,122 shares of common stock remain available for issuance under the 2014 Plan

NOTE 10. INCOME TAXES

Our tax expense for the three and six months ended June 30, 2022 and 2021, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of June 30, 2022, 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 11. LOSS PER SHARE (EPS)

We calculate basic EPS 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.

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

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Reconciliations of the numerators and denominators in the EPS computations follow.

No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three and six months ended June 30, 2022 and 2021, 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, 2022 and 2021, included our outstanding convertible preferred stock, options, warrants and nonvested RSUs.

NOTE 12. FAIR VALUE MEASUREMENTS

The fair value of cash and cash equivalents, accounts and other receivables, accounts payable and commodities payable approximates their carrying value due to shorter maturities. As of June 30, 2022, the fair values of our operating lease liabilities were approximately $0.4 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, 2022, 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 the three and six months ended June 30, 2022 (in thousands):

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The derivative warrant liability relates to a warrant issued in September 2021, for the purchase of up to 2,307,693 shares of common stock (Warrant A), The initial $1.00 per share exercise price of Warrant A 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. Warrant A is carried in our consolidated balance sheets as derivative warrant liability because the holder may elect cash settlement of this warrant in the event of a change of control. We estimated the fair value of Warrant A as of June 30, 2022, and December 31, 2021, using the Black-Scholes value of a warrant with an exercise price of $1.00 per share. The changes in the estimated fair value of Warrant A are included in other income (loss) in our consolidated statements of operations. The assumptions used in valuing Warrant follows.

The fair value of Warrant A approximates the cash settlement the holder could elect to be paid in the event of a change in control. At June 30, 2022, a $0.10 increase in our stock price would have resulted in an approximate $0.2 million increase in the Black Scholes fair value of Warrant A.

NOTE 13. COMMITMENTS AND CONTINGENCIES

PPP Audit Contingency

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. 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. 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. We expense defense as incurred. Defense costs, when incurred, are included in selling, general and administrative expense.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 14. 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. As of the date of this filing, we have not regained compliance with the minimum bid price requirement, however, we were eligible for and obtained from Nasdaq an additional 180-day compliance period, which extends through September 12, 2022. 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. On July 14, 2022, our shareholders approved amendments to our articles of incorporation that would effect a reverse stock split, pursuant to which either five, ten, fifteen, twenty, or twenty-five outstanding shares of our common stock would be combined into one share of such stock, and to authorize our board of directors, at its discretion, to select and file one such amendment which would effect the reverse stock split at one of these five reverse split ratios on or before July 14, 2023, if deemed appropriate.

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

Results of Operations - Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Revenues of $10.2 million in the second quarter of 2022 increased $2.6 million, or 34.5%, compared to the second quarter of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to continued production issues.

Gross loss was $0.5 million in the second quarter of 2022, a $0.6 million decrease in gross profit compared to the second quarter of 2021. The decline in gross profit was attributable to lower sales and significant cost overruns for our value-added SRB derivatives business versus a year ago, with profits from our core-SRB business flat with a year ago and lower losses from Golden Ridge offset by a decline in profitability at MGI due to efforts to work around capital improvements.

Selling, general and administrative (SG&A) expenses were $1.7 million in the second quarter of 2022, a 1.6% decline from the second quarter of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance expenses.

We recognized a gain on the involuntary conversion of assets of $0.1 million in the second quarter of 2022, when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.

Due to the decline in gross profits, operating losses were $2.0 million in the second quarter of 2022, up from $1.8 million in the second quarter of 2021. In June of 2022, we recognized a $0.4 million charge for the change in the fair value of a warrant liability. As a result of higher operating losses and this charge, net loss in the second quarter of 2022 was $2.6 million, or $0.05 per share, compared to a net loss of $1.9 million, or $0.04 per share, in the second quarter of 2021.

Results of Operations – Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Revenues of $20.7 million in the first half of 2022 increased $4.6 million, or 28.2%, compared to the first half of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to production issues.

The $0.8 million decrease in gross profit in the first half of 2022 compared to the first half of 2021, was primarily attributable to lower gross profits from our value-added SRB derivative products and a modest decline in gross profits from our core-SRB business, offset by lower losses from Golden Ridge and a modest increase in gross profits at MGI.

SG&A expenses were $3.4 million in the first half of 2022, a 7.5% decline from the first half of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance expenses.

We recognized a gain on the involuntary conversion of assets of $0.1 million in the first half of 2022, when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.

Operating losses were $3.2 million in the first half of 2022, up from $2.9 million in the first half of 2021, due to lower gross profits. In the first half of 2022, we recognized a $0.6 million charge for the change in the fair value of a warrant liability, and in January 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration (SBA) Paycheck Protection Program (PPP) loan (see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the loan). As a result of higher operating losses and these charges, and the nonrecurring gain on the extinguishment of debt in the first half of 2021, net loss in the first half of 2022 was $4.1 million, or $0.08 per share, compared to a net loss of $1.3 million, or $0.03 per share, in the first 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, disrupting global supply chains, and creating volatility in the financial markets. 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 and cannot be predicted. 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 to be closed 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 ,Going Concern and Capital Resources

We had $5.1 million in cash and equivalents as of June 30, 2022, a decrease of $0.7 million from $5.8 million on March 31, 2022. During the first half of 2022, we were able to offset higher operating losses and negative working capital management with increased borrowing.

Cash used in operating activities in the first six months of 2022 was $1.7 million, up from $1.4 million in the first six months of 2021, driven principally by higher net losses. Cash used in investing activities consisted of $0.4 million in capital expenditures, primarily for the purchase and installation of capital equipment at our MGI facility offset by $0.1 million in insurance proceeds. Cash from financing activities was $1.3 million, which included the $1.8 million borrowing on a line of credit, offset in part by $0.2 million in net payments on debt and financing agreements and a $0.2 million reduction in borrowing under our factoring facility.

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements included in this Quarterly Report are issued. Factors alleviating this concern include the reduction in historical operating losses beginning in 2021, $5.1 million in cash and cash equivalents as of June 30, 2022, and our ability to procure additional capital if needed through a variety of sources.

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, which we currently have $2.8 million remaining. Under the terms of the securities purchase agreement related to the September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023.

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, inventory valuation, and long-lived asset impairment. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required by 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. As of June 30, 2022, 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.

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, 2021, 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, 2022, 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.

During the quarter ended June 30, 2022, we issued 6,000 shares of common stock to a service provider, which is not a natural person, as compensation for service provided. The shares were valued at an aggregate of $2,100.

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.