SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number
RiceBran Technologies
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act). Yes
As of May 11, 2023, there were
Index
Form 10-Q
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Item 1. |
2 | |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
3 | |
| Condensed Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022 |
4 | ||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
5 | ||
| Notes to Unaudited Condensed Consolidated Financial Statements |
6 | ||
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. |
16 | |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
16 | |
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Item 4. |
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Item 5. |
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Item 6. |
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Cautionary Note about Forward-Looking Statements
This quarterly report on Form 10-Q contains “forward-looking statements” concerning our operations, economic performance and financial condition. 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 Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022. Forward-looking statements speak only as of the date on which they are made, and 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.
Condensed Consolidated Statements of Operations
(Unaudited) (in thousands, except share and per share amounts)
| Three Months Ended March 31, |
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| 2023 |
2022 |
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| Revenues |
$ | $ | ||||||
| Cost of goods sold |
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| Gross profit (loss) |
( |
) | ||||||
| Selling, general and administrative expenses |
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| Operating loss |
( |
) | ( |
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| Other income (expense): |
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| Interest income |
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| Interest expense |
( |
) | ( |
) | ||||
| Change in fair value of derivative warrant liability |
( |
) | ( |
) | ||||
| Other expense |
( |
) | ( |
) | ||||
| Other income |
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| Loss before income taxes |
( |
) | ( |
) | ||||
| Income tax expense |
( |
) | ||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Loss per common share: |
||||||||
| Basic |
$ | ( |
) | $ | ( |
) | ||
| Diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average number of shares outstanding: |
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| Basic |
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| Diluted |
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See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited) (in thousands, except share amounts)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ and $ | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Commodities payable | ||||||||
| Accrued salary, wages and benefits | ||||||||
| Accrued legal | ||||||||
| Accrued expenses | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Due under bank line of credit | ||||||||
| Due under factoring agreement | ||||||||
| Due under insurance premium finance agreements | ||||||||
| Finance lease liabilities, current portion | ||||||||
| Long-term debt, current portion | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Finance lease liabilities, less current portion | ||||||||
| Long-term debt, less current portion | ||||||||
| Derivative warrant liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Preferred stock, shares authorized: | ||||||||
| Series G, convertible, shares authorized, stated value $, | ||||||||
| shares, issued and outstanding | ||||||||
| Common stock, par value, shares authorized, | ||||||||
| shares and shares, issued and outstanding | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)
| Three Months Ended March 31, |
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| 2023 |
2022 |
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| Cash flow from operating activities: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
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| Depreciation |
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| Amortization |
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| Stock and share-based compensation |
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| Change in fair value of derivative warrant liability |
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| Other |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Accounts payable and accrued liabilities |
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| Commodities payable |
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| Other |
( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from insurance on involuntary conversion |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Advances on factoring agreement |
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| Payments on factoring agreement |
( |
) | ( |
) | ||||
| Advances of bankline of credit |
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| Advances on insurance premium finance agreements |
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| Payments on insurance premium finance agreements |
( |
) | ( |
) | ||||
| Proceeds from debt, net of issuance costs |
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| Payments of debt and finance lease liabilities |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net change in cash and cash equivalents |
$ | ( |
) | $ | ||||
| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
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| Net change in cash and cash equivalents |
$ | ( |
) | $ | ||||
| Supplemental disclosures: |
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| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes |
$ | $ | ||||||
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 (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, 2022, 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.
Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation with the current year. Such reclassifications had no impact on previously reported net loss or shareholders’ equity.
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.
Notably, we 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.
SRB is an additive used in human and animal foods. SRB has certain attractions compared to additives based on the by-products of other agricultural commodities, such as corn, soybeans, wheat, and yeast. Our SRB and SRB derivatives are healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients used in a variety of applications.
We produce SRB from
Segment Reporting
Given the integrated nature of the products we produce and the facilities in which we produce them, we have
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent accounting standards not yet adopted
There are no 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.
Recently adopted accounting standards.
In June 2016, the Financial Accounting Standards Board 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. We adopted the guidance, and subsequent guidance related to the topic, effective January 1, 2023. Adoption of the standard had no significant impact on our results of operations, financial position, or cash flows as of January 1, 2023. Our provision for doubtful accounts, recoveries of doubtful accounts and accounts receivable charge-offs were immaterial in all periods presented.
NOTE 4. CASH AND CASH EQUIVALENTS
As of March 31, 2023, we have $
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
Revenues in the three months ended March 31, 2023 and 2022, include $
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.
| Customer | ||||||||||||||||||||
| A | B | C | D | E | ||||||||||||||||
| % of revenue, three months ended March 31, 2023 | % | % | % | % | % | |||||||||||||||
| % of revenue, three months ended March 31, 2022 | % | % | % | % | % | |||||||||||||||
| % of accounts receivable, as of March 31, 2023 | % | % | % | % | % | |||||||||||||||
| % of accounts receivable, as of December 31, 2022 | % | % | % | % | % | |||||||||||||||
The following table presents revenues by geographic area shipped to (in thousands).
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Other countries | ||||||||
| Revenues | $ | $ | ||||||
NOTE 6. INVENTORIES
The following table details the components of inventories (in thousands).
| March 31, |
December 31, |
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| 2023 |
2022 |
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| Finished goods |
$ | $ | ||||||
| Raw materials |
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| Packaging |
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| Inventories |
$ | $ | ||||||
NOTE 7. PROPERTY AND EQUIPMENT
The following table details the components of property and equipment (amounts in thousands).
| March 31, | December 31, | ||||||||
| 2023 | 2022 | Estimated Useful Lives (years) | |||||||
| Land | $ | $ | |||||||
| Furniture and fixtures | - | ||||||||
| Plant | 20-40, or life of lease | ||||||||
| Computer and software | - | ||||||||
| Leasehold improvements | 4-15, or life of lease | ||||||||
| Machinery and equipment | - | ||||||||
| Property and equipment, cost | |||||||||
| Less accumulated depreciation | |||||||||
| Property and equipment, net | $ | $ | |||||||
Amounts payable for property and equipment included in accounts payable and accrued liabilities totaled $
NOTE 8. LEASES
The components of lease expense and cash flows from leases (in thousands) follow.
| Three Months Ended March 31, |
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| 2023 |
2022 |
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| Finance lease cost: |
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| Amortization of right-of use assets, included in cost of goods sold |
$ | $ | ||||||
| Interest on lease liabilities |
||||||||
| Operating lease cost, included in selling, general and administrative expenses: |
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| Fixed lease cost |
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| Variable lease cost |
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| Short-term lease cost |
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| Total lease cost |
$ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: |
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| Operating cash flows from finance leases |
$ | $ | ||||||
| Operating cash flows from operating leases |
$ | $ | ||||||
| Financing cash flows from finance leases |
$ | $ | ||||||
As of March 31, 2023, variable lease payments do not depend on a rate or index. As of March 31, 2023, property and equipment, net, includes $
As of March 31, 2023, 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 March 31, 2023, follows.
| Operating Leases |
Finance Leases |
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| Remaining leases terms (in years) |
- | - | ||||||
| Weighted average remaining lease terms (in years) |
||||||||
| Discount rates |
- | - | ||||||
| Weighted average discount rate |
% | |||||||
Maturities of lease liabilities as of March 31, 2023, follow (in thousands).
| Operating |
Finance |
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| Leases |
Leases |
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| 2023 (nine months ended December 31, 2023) |
$ | $ | ||||||
| 2024 |
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| 2025 |
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| 2026 |
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| 2027 |
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| Thereafter |
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| Total lease payments |
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| Amounts representing interest |
( |
) | ( |
) | ||||
| Present value of lease obligations |
$ | $ | ||||||
NOTE 9. DEBT
We finance certain amounts owed for annual insurance premiums under financing agreements. As of March 31, 2023, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through November 30, 2023, at an interest rate of
We borrow under a factoring agreement with a lender (the Lender), which provides a $
The Lender also advanced us $
Additional information related to our factoring obligation (exclusive of the Over-advance) follows.
| Three Months Ended March 31, | ||||||||
| 2023 |
2022 |
|||||||
| Average borrowings outstanding (in thousands) |
$ | $ | ||||||
| Amortization of debt issuance costs (in thousands) |
$ | $ | ||||||
| Fees paid, as a percentage of average oustanding borrowings |
% | % | ||||||
| Interest paid, as a percentage of average outstanding borrowings |
% | % | ||||||
As of March 31, 2023, we had $
Long-term debt consists of the following (in thousands).
| March 31, |
December 31, |
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| 2023 |
2022 |
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| Mortgage promissory note - Originally dated July 2020 and modified in January 2023. As modified, interest accrues at an annual rate which is the greater of 7.0% above the Lender's prime rate (15.0% at March 31, 2023) and 10.3%. Payable in monthly installments through January 2025. Face amount $2.5 million. Secured by certain real property in Wynne, Arkansas. |
$ | $ | ||||||
| Equipment note - Dated May 2021. Original principal $46. Due in monthly installments through June 2025. Interest accrues at the effective discount rate of 3.6% per year. |
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| Equipment note - Dated December 2019. Original principal $40. Due in monthly installments through December 2024. Interest accrues at the effective discount rate of 9.3% per year. |
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| Progress payment agreement - Dated August 2022. Original principal $37. Interest was payable monthly at the rate of 25.2% per year until obligation was transferred to a finance lease in February 2023. |
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| Total long-term debt, net |
$ | $ | ||||||
In January 2023, we entered into agreements with the Lender to effect a modification of the terms of the mortgage promissory note. This modification involved us entering into a new mortgage promissory note in the principal amount of $
Future principal maturities of long-term debt outstanding as of March 31, 2023, follow (in thousands).
| 2023 (nine months ended December 31, 2023) |
$ | |||
| 2024 |
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| 2025 |
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| Principal maturities |
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| Debt issuance costs |
( |
) | ||
| Total long term debt, net |
$ |
NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS
A summary of equity activity for the three months ended March 31, 2023 and 2022, follows (in thousands, except share amounts).
| Shares |
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| Preferred |
Preferred |
Common |
Accumulated |
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| Series G |
Common |
Stock |
Stock |
Deficit |
Equity |
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| Balance, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Common stock awards under equity incentive plans |
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| Stock units issued to vendor |
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| Common stock issued to vendor |
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| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||
| Balance, March 31, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Shares |
||||||||||||||||||||||||
| Preferred |
Preferred |
Common |
Accumulated |
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| Series G |
Common |
Stock |
Stock |
Deficit |
Equity |
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| Balance, December 31, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Common stock awards under equity incentive plans |
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| Common stock issued to vendor |
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| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||
| Balance, March 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||
Share-based compensation by type of award for the three months ended March 31, 2023, follows (in thousands).
| Stock options |
$ | |||
| Restricted stock units |
||||
| Compensation expense related to common stock awards issued under equity incentive plan |
$ |
We have outstanding (i) restricted stock units issued under the 2014 Plan (RSUs) to employees and directors and (ii) other restricted stock units held by a service provider (SUs). Each RSU and SU represents a contingent right to receive one share of common stock. Summaries of nonvested and vested restricted stock unit activity follow.
| RSUs | SUs | |||||||||||||||||||||||||||||||
| Number of Units | Unrecognized Compensation (in thousands) | Average Grant Date Fair Value per share | Weighted Average Expense Period (Years) | Numer of Units | Unrecognized Compensation (in thousands) | Average Grant Date Fair Value per share | Weighted Average Expense Period (Years) | |||||||||||||||||||||||||
| Nonvested at December 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Granted | - | - | ||||||||||||||||||||||||||||||
| Forfeited | ( | ) | ( | ) | - | |||||||||||||||||||||||||||
| Vested with service | ( | ) | - | - | ( | ) | - | - | - | |||||||||||||||||||||||
| Expensed | - | ( | ) | NA | - | - | ( | ) | - | - | ||||||||||||||||||||||
| Nonvested at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Number of RSUs | ||||
| Vested at December 31, 2022 | ||||
| Vested with service | ||||
| Issued at vesting | ( | ) | ||
| Vested at March 31, 2023 | ||||
As of March 31, 2023, issuance of
In April 2023,
NOTE 11. INCOME TAXES
Our tax expense for the three months ended March 31, 2023 and 2022, differs from the tax expense computed by applying the U.S. statutory tax rate to loss before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of March 31, 2023, 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)
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 restricted stock units that vest solely on the basis of a service condition using the treasury stock method. We calculate the dilutive effects of outstanding preferred stock using the if-converted method.
Reconciliations of the numerators and denominators in the EPS computations follow.
| Three Months Ended March 31, |
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| 2023 |
2022 |
|||||||
| NUMERATOR (in thousands): |
||||||||
| Basic and diluted - net loss |
$ | ( |
) | $ | ( |
) | ||
| DENOMINATOR: |
||||||||
| Weighted average number of shares of shares of common stock outstanding |
||||||||
| Weighted average number of shares of common stock underlying vested restricted stock units |
||||||||
| Basic and diluted EPS - weighted average number of shares outstanding |
||||||||
No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three months ended March 31, 2023 and 2022, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding at March 31, 2023, included our outstanding convertible preferred stock, options, warrants and nonvested restricted stock units.
NOTE 13. FAIR VALUE MEASUREMENTS
The fair value of cash and cash equivalents, accounts receivable, accounts payable. commodities payable and short-term debt approximates their carrying value due to shorter maturities. As of March 31, 2023, the fair value of our operating lease liabilities was approximately $
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):
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Total liabilities at fair value as of March 31, 2023 - Derivative warrant liability |
$ | $ | $ | $ | ||||||||||||
| Total liabilities at fair value as of December 31, 2022 - Derivative warrant liability |
$ | $ | $ | $ | ||||||||||||
The following tables summarize the changes in level 3 items measured at fair value on a recurring basis for the three months ended March 31, 2023, (in thousands):
| Fair Value as of Beginning of Period |
Total Unrealized |
Issuance of New Instruments |
Net |
Fair Value, at End of Period |
Change in Unrealized Gains (Losses) on Instruments Still Held |
|||||||||||||||||||
| Three Months Ended March 31, 2023: |
||||||||||||||||||||||||
| Derivative warrant liability |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
| Total Level 3 fair value |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
| Three Months Ended March 31, 2022: |
||||||||||||||||||||||||
| Derivative warrant liability |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
| Total Level 3 fair value |
$ | $ | ( |
) | $ | $ | $ | $ | ( |
) | ||||||||||||||
The derivative warrant liability relates to a warrant issued in September 2021 for the purchase of up to
| March 31, 2023 |
December 31, 2022 |
|||||||
| Assumed exercise price |
$ | $ | ||||||
| Assumed volatility |
% | % | ||||||
| Assumed risk free interest rate |
% | % | ||||||
| Expected life of options (in years) |
||||||||
| Expected dividends |
||||||||
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 March 31, 2023, a $
NOTE 14. COMMITMENTS AND CONTINGENCIES
Employment Contracts and Severance Payments
In the normal course of business, we periodically enter into employment agreements which incorporate indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be reasonably estimated, we maintain insurance coverage, which we believe will effectively mitigate our obligations under these indemnification provisions. No amounts have been recorded in our financial statements with respect to any obligations under such agreements.
We have employment contracts with certain officers and key management that include provisions for potential severance payments in the event of without-cause terminations or terminations under certain circumstances after a change in control. In addition, vesting of outstanding nonvested equity grants would accelerate following a change in control.
Legal Matters
From time to time, we are involved in litigation incidental to the conduct of our business. These matters may relate to employment and labor claims, patent and intellectual property claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations. We expense defense as incurred. Defense costs, when incurred, are included in selling, general and administrative expense.
In January 2023, we received $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Revenues of $9.3 million in the first quarter of 2023 decreased $1.3 million, or 12.2%, compared to the first quarter of 2022. This year-over-year net decrease included a decrease in value-added derivative SRB revenues and a decrease in MGI milling revenues, offset by an increase in Golden Ridge milling revenues. Lower value-added derivative SRB revenues were largely the result of increased competition following a new market entrant. MGI milling revenues declined due to the final completion and integration of its capital expansion project in the first quarter of 2023.
Gross loss was $0.3 million in the first quarter of 2023, compared to a gross profit of $0.5 million in the first quarter of 2022. The $0.8 million decrease in gross profit was primarily due to the impact of the year-over-year decline in value-added derivative SRB revenues.
Selling, general and administrative expenses were $1.7 million in the first quarter of 2023, consistent with the first quarter of 2022.
Operating losses were $2.0 million in the first quarter of 2023, up from $1.2 million in the first quarter of 2022, due to the decrease in gross profits discussed above.
Other income (expense), net, decreased $0.3 million from the first quarter of 2022 to the first quarter of 2023 primarily due to the receipt of $0.3 million in restitution payments from a former employee, which had been ordered by a federal court in 2012.
As a result of higher operating losses being offset by lower other expense, net, net loss in the first quarter of 2023 was $2.0 million, or $0.31 per share, compared to $1.5 million, or $0.29 per share, in the first quarter of 2022.
Liquidity, Going Concern and Capital Resources
We had $3.4 million in cash and equivalents as of March 31, 2023, a decline of $0.5 million from December 31, 2022. Cash used in operating activities in 2023 was $0.1 million in the first quarter of 2023 compared to cash provided by operations of $0.2 million in 2022, driven by the $0.5 million increase in net losses offset by the $0.3 million restitution payment received in the first quarter of 2023. Cash used in investing activities in 2022 was $0.2 million, which consisted of capital expenditures. Cash used in financing activities in 2023 was $0.2 million, which included a $0.3 million reduction in borrowing on our factoring.
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 our available cash and cash equivalents as of March 31, 2023, expected improvement in profitability of our milling business, and our ability to procure additional capital if needed through a variety of sources, most notably through the disposition, or borrowing against, one of our owned facilities.
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 a September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023. Under the terms of the securities purchase agreement related to the October 2022 offerings, we are generally prohibited from entering into an agreement to effect an offering of our common stock or common stock equivalents until May 20, 2023, or a variable rate transaction, as defined in the agreement, until October 20, 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 Securities Exchange Act of 1934, as amended (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 March 31, 2023, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2022 Annual Report on Form 10-K.
We evaluated, with the participation of our executive chairman, and interim 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 interim 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.
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.
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, 2022, 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 March 31, 2023, we issued the securities described below without registration under the Securities Act of 1933, as amended. The description below does not include issuances that we 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 March 31, 2023, we issued 600 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 $444.
On March 2, 2023, we issued 6,132 shares of common stock to a service provider, that is not a natural person, upon vesting of stock units that were purchased by the service provider using the performance-based compensation for services that was earned by the service provider pursuant to a performance compensation agreement. The shares were valued at an aggregate of $4,568.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
None
The following exhibits are attached hereto and filed herewith:
| Incorporated by Reference |
||||||||||||
| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit Number |
Filing/Effective Date |
Filed Here-with |
||||||
| 10.1 |
Mortgage Agreement and Amendment for Purchase and Sale with Republic Business Credit, LLC |
8-K |
001-36245 |
10.18 |
January 19, 2023 |
|||||||
| 31.1 |
X |
|||||||||||
| 31.2 |
X |
|||||||||||
| 32.1 |
X |
|||||||||||
| 101.INS (1) |
Inline XBRL Instance Document |
X |
||||||||||
| 101.SCH (1) |
Inline XBRL Taxonomy Extension Schema Document |
X |
||||||||||
| 101.CAL (1) |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
X |
||||||||||
| 101.DEF (1) |
Inline XBRL Taxonomy Extension Calculation Definition Linkbase Document |
X |
||||||||||
| 101.LAB (1) |
Inline XBRL Taxonomy Extension Calculation Label Linkbase Document |
X |
||||||||||
| 101.PRE (1) |
Inline XBRL Taxonomy Extension Calculation Presentation Linkbase Document |
X |
||||||||||
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|||||||||||
| (1) |
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: May 11, 2023 |
||
| /s/ Peter G. Bradley |
||
| Peter G. Bradley |
||
| Director and Executive Chairman |
||
| /s/ William J. Keneally | |||
| William J. Keneally | |||
| Interim Chief Financial Officer | |||