10-Q 1 form10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 001-36245
RiceBran Technologies
(Exact Name of Registrant as Specified in its Charter)

California
 
87-0673375
(State or other jurisdiction of incorporation or organization)
   (I.R.S. Employer Identification No.)

1330 Lake Robbins Drive, Suite 250
 
77380
The Woodlands, TX
 
(Zip Code)
 (Address of Principal Executive Offices)
 

(281) 675-2421
(Registrant’s telephone number, including area code)
 
None
(Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
     
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act).  Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, no par value per share
 
RIBT
 
The NASDAQ Capital Market

As of July 31, 2019, shares of the registrant’s common stock outstanding totaled 34,246,714.



RiceBran Technologies
Index
Form 10-Q

PART I. FINANCIAL INFORMATION
Page
 
Item 1.
3
    3
    4
    5
    6
 
Item 2.
21
 
Item 3.
23
 
Item 4.
23
PART II. OTHER INFORMATION
 
 
Item 1.
24
 
Item 1A.
24
 
Item 2.
24
 
Item 3.
24
 
Item 4.
24
 
Item 5.
24
 
Item 6.
25
26

Cautionary Note about Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue, liquidity or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services, products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.  Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words.  The forward-looking statements contained herein reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions.  Actual results may differ materially from those projected in such forward-looking statements due to a number of factors, risks and uncertainties, including the factors that may affect future results set forth in this Current Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018.  We disclaim any obligation to update any forward looking statements as a result of developments occurring after the date of this quarterly report.

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

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements.

RiceBran Technologies
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2019 and 2018
(Unaudited) (in thousands, except share and per share amounts)

   
Three Months Ended
   
Six Months Ended
 
   
2019
   
2018
   
2019
   
2018
 
                         
Revenues
 
$
6,219
   
$
3,198
   
$
12,583
   
$
6,750
 
Cost of goods sold
   
6,463
     
2,535
     
12,484
     
5,133
 
Gross profit (loss)
   
(244
)
   
663
     
99
     
1,617
 
Selling, general and administrative expenses
   
3,422
     
2,830
     
6,763
     
5,683
 
Operating loss
   
(3,666
)
   
(2,167
)
   
(6,664
)
   
(4,066
)
Other income (expense):
                               
Interest income
   
23
     
-
     
23
     
-
 
Interest expense
   
(19
)
   
(2
)
   
(31
)
   
(3
)
Other income
   
6
     
9
     
6
     
9
 
Other expense
   
(3
)
   
-
     
(4
)
   
(13
)
Total other income (expense), net
   
7
     
7
     
(6
)
   
(7
)
Loss before income taxes
   
(3,659
)
   
(2,160
)
   
(6,670
)
   
(4,073
)
Income tax benefit
   
-
     
-
     
-
     
-
 
Loss from continuing operations
   
(3,659
)
   
(2,160
)
   
(6,670
)
   
(4,073
)
Loss from discontinued operations
   
-
     
-
     
(216
)
   
-
 
Net loss
 
$
(3,659
)
 
$
(2,160
)
 
$
(6,886
)
 
$
(4,073
)
                                 
Basic loss per common share:
                               
Continuing operations
 
$
(0.11
)
 
$
(0.11
)
 
$
(0.21
)
 
$
(0.22
)
Discontinued operations
   
-
     
-
     
(0.01
)
   
-
 
Basic loss per common share
 
$
(0.11
)
 
$
(0.11
)
 
$
(0.22
)
 
$
(0.22
)
                                 
Diluted loss per common share:
                               
Continuing operations
 
$
(0.11
)
 
$
(0.11
)
 
$
(0.21
)
 
$
(0.22
)
Discontinued operations
   
-
     
-
     
(0.01
)
   
-
 
Diluted loss per common share
 
$
(0.11
)
 
$
(0.11
)
 
$
(0.22
)
 
$
(0.22
)
                                 
Weighted average number of shares outstanding:
         
Basic
   
33,204,332
     
20,366,451
     
31,382,927
     
18,731,925
 
Diluted
   
33,204,332
     
20,366,451
     
31,382,927
     
18,731,925
 

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies
Condensed Consolidated Balance Sheets
(Unaudited) (in thousands, except share amounts)

   
June 30,
2019
   
December 31,
2018
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
7,189
   
$
7,044
 
Restricted cash
   
225
     
225
 
Accounts receivable, net of allowance for doubtful accounts of $71 and $14
   
3,954
     
2,529
 
Receivable from sellers of Golden Ridge - working capital adjustments to purchase price
   
563
     
1,147
 
Receivable from seller of MGI - working capital adjustments to purchase price
   
36
     
-
 
Inventories
               
Finished goods
   
1,133
     
856
 
Packaging
   
111
     
102
 
Other current assets
   
854
     
610
 
Total current assets
   
14,065
     
12,513
 
Property and equipment, net
   
18,794
     
15,010
 
Operating lease right-of-use assets
   
2,896
     
-
 
Goodwill
   
3,903
     
3,178
 
Intangible assets
   
961
     
16
 
Other long-term assets
   
26
     
-
 
Total assets
 
$
40,645
   
$
30,717
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable
 
$
1,633
   
$
1,583
 
Commodities payable
   
1,534
     
2,735
 
Accrued salary, wages and benefits
   
828
     
933
 
Accrued expenses
   
1,108
     
520
 
Customer prepayments
   
39
     
145
 
Payable to purchaser of HN - working capital adjustment to purchase price
   
475
     
259
 
Note payable to seller of Golden Ridge
   
358
     
609
 
Operating lease liabilities, current portion
   
295
     
-
 
Finance lease liabilities, current portion
   
93
     
45
 
Long term debt, current portion
   
21
     
32
 
Total current liabilities
   
6,384
     
6,861
 
Operating lease liabilities, less current portion
   
2,799
     
-
 
Finance lease liabilities, less current portion
   
216
     
86
 
Long term debt, less current portion
   
48
     
59
 
Total liabilities
   
9,447
     
7,006
 
Commitments and contingencies
               
Shareholders' Equity:
               

               
Preferred stock, 20,000,000 shares authorized: Series G, convertible, 3,000 shares authorized, 225 shares and 405 shares, issued and outstanding
   
112
     
201
 
Common stock, no par value, 50,000,000 shares authorized, 34,246,714 shares and 29,098,207 shares, issued and outstanding
   
311,201
     
296,739
 
Accumulated deficit
   
(280,115
)
   
(273,229
)
Total shareholders' equity
   
31,198
     
23,711
 
Total liabilities and shareholders' equity
 
$
40,645
   
$
30,717
 

See Notes to Unaudited Condensed Consolidated Financial Statements

RiceBran Technologies
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2019 and 2018
(Unaudited) (in thousands)

   
Six Months Ended
 
   
2019
   
2018
 
Cash flow from operating activities:
           
Net loss
 
$
(6,886
)
 
$
(4,073
)
Loss from discontinued operations
   
216
     
-
 
Loss from continuing operations
   
(6,670
)
   
(4,073
)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities
               
Depreciation and amortization
   
873
     
371
 
Stock and share-based compensation
   
643
     
491
 
Other
   
(2
)
   
95
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(774
)
   
(136
)
Inventories
   
(5
)
   
165
 
Accounts payable and accrued expenses
   
(68
)
   
148
 
Commodities payable
   
(768
)
   
-
 
Other
   
(398
)
   
(26
)
Net cash used in operating activities
   
(7,169
)
   
(2,965
)
Cash flows from investing activities:
               
Acquisition of MGI
   
(3,795
)
   
-
 
Purchases of property and equipment
   
(2,319
)
   
(1,809
)
Net cash used in investing activities
   
(6,114
)
   
(1,809
)
Cash flows from financing activities:
               
Proceeds from issuance of common stock and pre-funded warrant, net of issuance costs
   
11,593
     
-
 
Proceeds from common stock warrant exercises
   
1,990
     
5,683
 
Proceeds from common stock option exercises
   
147
     
-
 
Payments of debt and finance lease liabilities
   
(302
)
   
(2
)
Net cash provided by financing activities
   
13,428
     
5,681
 
Net change in cash and cash equivalents and restricted cash
 
$
145
   
$
907
 
                 
Cash and cash equivalents and restricted cash, beginning of period
               
Cash and cash equivalents
 
$
7,044
   
$
6,203
 
Restricted cash
   
225
     
775
 
Cash and cash equivalents and restricted cash, beginning of period
   
7,269
     
6,978
 
Cash and cash equivalents and restricted cash, end of period
               
Cash and cash equivalents
   
7,189
     
7,660
 
Restricted cash
   
225
     
225
 
Cash and cash equivalents and restricted cash, end of period
   
7,414
     
7,885
 
Net change in cash and cash equivalents and restricted cash
 
$
145
   
$
907
 
                 
Supplemental disclosures:
               
Cash paid for interest
 
$
43
   
$
3
 
Cash paid for income taxes
 
$
-
   
$
-
 

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 (SEC) for reporting on Form 10-Q; therefore, they do not include all of the information and notes required by GAAP for complete financial statements.  The interim financial statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented. All such adjustments were normal and recurring in nature.

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2018, which included all disclosures required by generally accepted accounting principles.

The results reported in these interim financial statements are not necessarily indicative of the results to be expected for the full fiscal year, or any other future period, and have been prepared based on the realization of assets and the satisfaction of liabilities in the normal course of business.

NOTE 2. BUSINESS

RiceBran Technologies is a vertically integrated ingredient company serving food, animal nutrition, and specialty markets focused on value-added processing and marketing of healthy, natural, and nutrient dense products derived from rice bran, an underutilized by-product of rice milling.  We apply our proprietary technologies and intellectual properties to convert raw rice bran into high value products including stabilized rice bran (SRB), RiBalance, a rice bran nutritional package derived from SRB; RiSolubles, a nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluble derivative of RiBalance, and ProRyza, a rice bran protein-based product, and a variety of other valuable derivatives extracted from these core products.

In granular form, SRB is a food additive used in the production of finished goods for both human and animal consumption. We believe SRB has certain inherent qualities that make it more attractive for this purpose than food additives based on the by-products of other agricultural commodities.  Our SRB and refined SRB products and derivatives support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in meats, baked goods, cereals, coatings, health foods, and high-end animal nutrition. Our target customers are natural food, food and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

We manufacture and distribute SRB in various granulations from four locations: two leased facilities located within supplier-owned rice mills in Arbuckle and West Sacramento, California; one company-owned facility in Mermentau, Louisiana, and since November 2018, our first company-owned rice mill in Wynne, Arkansas, Golden Ridge Rice Mills, Inc.  At our Dillon, Montana facility, we produce SRB based products and derivatives that have been further refined through our proprietary process.  Our Golden Ridge rice mill in Wynne, Arkansas also supplies grades U.S. No. 1 and No. 2 premium long and medium white rice. In April 2019, we purchased MGI Grain Processing, LLC, a grain processing facility in East Grand Forks, Minnesota, to enhance the variety of grains which we can offer to the market and to the customers of our Golden Ridge rice milling operation.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Guidance

None

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Recently Adopted Accounting Standards

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

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

Reclassifications

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

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

We lease certain buildings, land and corporate office space under operating leases with monthly or annual rent payments.  We lease certain machinery and equipment under finance leases with monthly rent payments.  We determine if an arrangement is a lease at inception.  Operating lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as operating lease liabilities in our consolidated balance sheets.  Finance lease assets are included in property and equipment, net, and the related liabilities are included as finance lease liabilities in our consolidated balance sheets.

We recognize right-of-use assets and lease liabilities based on the present value of the future minimum lease payments over the lease term, beginning at the commencement date, for leases exceeding a year.  Minimum lease payments include the fixed lease components of the lease and any variable rate payments that depend on an index, initially measured using the index at the lease commencement date.  Lease terms may include options to renew when it is reasonably certain that we will exercise that option.  We combined lease and nonlease components and account for them as a single lease component.  Certain leases contain rent escalation clauses, rent holidays, capital improvement funding or other lease concessions.

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease.  When we cannot readily determine the discount rate implicit in a lease, we utilize our incremental borrowing rate, the rate of interest that we would incur to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.  To estimate the incremental borrowing rate we reference a market yield curve consistent with our credit quality.

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

We recognize operating lease expense related to the minimum lease payments on a straight-line basis over the lease term.  For finance leases, we recognize amortization expense related to the minimum lease payments on a straight-line basis over the lease term while interest expense is recognized using the effective interest method.  Expense related to variable lease payments that do not depend on a rate or index and short-term rentals, on leases with terms less than a year, are expensed as incurred.

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

Share-based compensation expense for stock options granted to employees is calculated at the grant date using the Black-Scholes-Merton valuation model based on awards ultimately expected to vest and expensed on a straight-line basis over the service period of the grant.   We recognize forfeitures as they occur.  The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management’s judgment regarding market factors and trends.  We will use alternative valuation models if grants have characteristics that cannot be reasonably estimated using the Black-Scholes-Merton model.

For awards of nonvested stock, share-based compensation is measured based on the fair value of the award on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide service in exchange for the reward.  Compensation expense related to service-based awards are recognized on a straight-line basis over the requisite service period for the entire award.

For restricted stock units with market conditions, share-based compensation is measured based on the fair value of the award on the date of grant using a binomial simulation model and expense is recognized over the derived service period determined by the simulation.  The binomial simulation model requires us to estimate key assumptions such as stock volatility, risk-free interest rates and dividend yields based on both historical information and management’s judgment regarding market factors and trends.

Share-based compensation for awards to non-employees is calculated as of the grant date, taking into consideration the probability of satisfaction of performance conditions, in a manner consistent with awards to employees.  The expense associated with share-based awards for services are recognized over the term of service.  In the event services are terminated early or we require no specific future performance, the entire amount is expensed.  The expense associated with share-based awards made in exchange for goods is generally attributed to expense in the same manner as if the vendor had been paid in cash.

NOTE 4. ACQUISITIONS

Golden Ridge

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

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The purchase price for Golden Ridge was subject to adjustment if the estimated working capital with respect to the assets purchased and the liabilities assumed at the time of closing was different than the actual closing working capital, as defined in the purchase agreement.  We revised our preliminary estimate of the working capital adjustment as indicated in the table below.  We have not yet finalized the adjustment with the seller of Golden Ridge.  The final adjustment may differ from the estimate.  The following table summarizes the purchase price allocation as of closing and as revised (in thousands, except share and per share amounts).

   
Estimated at
Acquisition
as of
December 31, 2018
   
Adjustments
   
Estimated as of
June 30, 2019
 
                   
1,666,667 shares of common stock, at fair value of $3.00 per share at closing
 
$
5,000
   
$
-
   
$
5,000
 
Golden Ridge financial liabilities paid for the seller
   
2,661
     
-
     
2,661
 
Cash
   
250
     
-
     
250
 
Note payable to seller
   
609
     
-
     
609
 
Working capital adjustment to purchase price, receivable from sellers
   
(1,147
)
   
584
     
(563
)
Total fair value of consideration transferred
   
7,373
     
584
     
7,957
 
                         
Cash
   
409
     
(63
)
   
346
 
Accounts receivable
   
1,587
     
87
     
1,674
 
Inventories
   
103
     
-
     
103
 
Property and equipment
   
5,092
     
-
     
5,092
 
Accounts payable
   
(222
)
   
110
     
(112
)
Commodities payable
   
(2,559
)
   
432
     
(2,127
)
Accrued liabilities
   
(12
)
   
12
     
-
 
Lease liabilities
   
(104
)
   
-
     
(104
)
Equipment notes payable
   
(99
)
   
6
     
(93
)
Net recognized amounts of identifiable assets acquired and liabilities assumed
   
4,195
     
584
     
4,779
 
Goodwill
 
$
3,178
   
$
-
   
$
3,178
 

The 1,666,667 shares issued at closing of our purchase of Golden Ridge included 380,952 shares that were deposited in an escrow account to be used to satisfy any indemnification obligations of the seller that may arise.  As of June 30, 2019, and December 31, 2018, the 380,952 shares remained in escrow. In July 2019, as a result of settlement of the working capital adjustment receivable and other claims with the sellers of Golden Ridge, (i) 340,000 shares of common stock held in the escrow account was returned to us, and (ii) the remaining $0.4 million in debt we owed to a seller was cancelled.

The fair value of trade receivables for Golden Ridge at November 28, 2018 was $1.6 million, which was $0.1 million less than the value of gross trade receivables.  Goodwill was primarily attributed to intangible assets that do not qualify for separate recognition and synergies generated by Golden Ridge’s integration with our other operations.  Between December 31, 2018 and June 30, 2019, information was discovered requiring adjustments to the opening balance sheet of Golden Ridge.  The adjustments resulted primarily from an overstatement of the opening balances of commodities payable and accounts payable at December 31, 2018.  These balances were adjusted in the June 30, 2019 financial statements. The impact of the adjustments to prior period financial statements is not considered significant.

Our revenues for the three and six months ended June 30, 2019, include $1.7 million and $4.5 million related to the acquired business.  Our net income for the three and six months ended June 30, 2019, includes $1.0 million and $1.4 million of net loss related to the acquired business.  After making a reasonable effort, we were unable to determine the underlying information required to prepare pro forma information for the three and six months ended June 30, 2018, as if the acquisition had occurred January 1, 2018.

MGI

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

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The purchase price for MGI is subject to adjustment if the estimated closing working capital with respect to the assets purchased and the liabilities assumed is different than the actual closing working capital, as defined in the purchase agreement.  We have not yet finalized the adjustment with the seller of MGI.  The final adjustment may differ from the estimate.  The following table summarizes the preliminary purchase price allocation, the consideration transferred to acquire MGI, and the amounts of identified assets acquired and liabilities assumed, based on the estimated fair value as of the April 4, 2019, acquisition date (in thousands).

Cash
 
$
3,795
 
Working capital adjustment to purchase price, receivable from seller
    (38)
 
Total fair value of consideration transferred
   
3,757
 
         
Accounts receivable
   
591
 
Inventories
   
149
 
Deposits and other current assets
   
4
 
Property and equipment
   
1,560
 
Customer relationship
   
930
 
Other finite-lived intangible assets
   
35
 
Accounts payable
   
(219
)
Finance lease liabilities
   
(18
)
Net recognized amounts of identifiable assets acquired and liabilities assumed
    3,032
 
Goodwill
 
$
725
 

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

Our revenues for the three and six months ended June 30, 2019, include $0.7 million related to the acquired business.  Our net income for the three and six months ended June 30, 2019, includes less than $0.1 million of net income related to the acquired business.

NOTE 5. DISCONTINUED OPERATIONS AND RESTRICTED CASH

In July 2017, we completed the sale of the assets of Healthy Natural (HN) for $18.3 million in cash and recognized a gain on sale of $8.2 million, net of $4.7 million in taxes.  The selling price was subject to adjustment if the estimated closing working capital with respect to the assets sold and the liabilities assumed was different than the actual closing working capital for those assets and liabilities.  The $8.2 million net gain on sale recognized in 2017 was based on an estimated working capital adjustment of $0.3 million, which was disputed.  During the three months ended March 31, 2019, we finalized the adjustment with the purchaser of HN, and the estimated working capital adjustment increased from $0.3 million to $0.5 million.  The adjustment to lower the gain on the sale of HN as a result of the change in the estimated working capital adjustment is recorded in discontinued operations in the three and six months ended June 30, 2019, net of zero tax benefit.  Our consolidated balances sheets include a liability for the settlement of the working capital adjustment of $0.5 million as of June 30, 2019, and $0.3 million as of December 31, 2018.  The liability was paid in July 2019.

Restricted cash on our consolidated balance sheets as of June 30, 2019, and December 31, 2018, relates to the $0.2 million balance in an escrow account established at the time of the sale for settlement of the working capital adjustment.  The amounts in escrow were released and used to settle a portion of the liability for the working capital adjustment in July 2019.

NOTE 6. CASH AND CASH EQUIVALENTS

As of June 30, 2019, we had $3.5 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements.  We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

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

10

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 7. CONCENTRATION OF RISK

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

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

   
Customer
 
     
A

   
B

    C

% of Revenues, three months ended June 30, 2019
   
14
%
   
10
%
   
9
%
% of Revenues, three months ended June 30, 2018
   
-
%
   
15
%
   
16
%
                         
% of Revenues, six months ended June 30, 2019
   
16
%
   
10
%
   
9
%
% of Revenues, six months ended June 30, 2018
   
-
%
   
18
%
   
13
%
                         
% of Accounts Receivable, as of June 30, 2019
   
24
%
   
8
%
   
11
%
% of Accounts Receivable, as of December 31, 2018
   
16
%
   
13
%
   
-
%

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

   
Three Months Ended June 30
   
Six Months Ended June 30
 
   
2019
   
2018
   
2019
   
2018
 
United States
 
$
5,847
   
$
2,945
   
$
11,913
   
$
6,112
 
Other countries
   
372
     
253
     
670
     
638
 
Revenues
 
$
6,219
   
$
3,198
   
$
12,583
   
$
6,750
 

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

   
Three Months Ended June 30
   
Six Months Ended June 30
 
   
2019
   
2018
   
2019
   
2018
 
Food
 
$
4,365
   
$
1,863
   
$
9,112
   
$
3,731
 
Animal nutrition
   
1,854
     
1,335
     
3,471
     
3,019
 
Revenues
 
$
6,219
   
$
3,198
   
$
12,583
   
$
6,750
 

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

   
% of Total Purchases
Three Months Ended June 30
   
% of Total Purchases
Six Months Ended June 30
 
   
2019
   
2018
   
2019
   
2018
 
Vendor 1
   
6
%
   
11
%
   
6
%
   
12
%
Others
   
94
%
   
89
%
   
94
%
   
88
%
Total
   
100
%
   
100
%
   
100
%
   
100
%

11

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8. PROPERTY

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

   
June 30
2019
   
December 31
2018
 
Estimated Useful Lives
Land
 
$
730
   
$
585
   
Furniture and fixtures
   
474
     
430
 
5-7 years
Plant
   
9,494
     
8,613
 
20-30 years, or life of lease
Computer and software
   
1,301
     
1,295
 
3-5 years
Leasehold improvements
   
677
     
681
 
4-7 years or life of lease
Machinery and equipment
   
17,079
     
13,528
 
5-10 years
Property and equipment, cost
   
29,755
     
25,132
   
Less accumulated depreciation
   
10,961
     
10,122
   
Property and equipment, net
 
$
18,794
   
$
15,010
   

Included in accounts payable at June 30, 2019, is $0.7 million related to amounts payable for capital expansion project additions.  During the three and six months ended June 30, 2019, we financed the purchase of $0.2 million of property with finance leases. Property and equipment includes construction in process that has not yet been placed in service totalling $4.5 million and $2.2 million at June 30, 2019 and December 31, 2018, respectively.

NOTE 9. GOODWILL AND INTANGIBLES

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

   
Three Months Ended
   
Six Months Ended
 
   
2019
   
2018
   
2019
   
2018
 
Goodwill, beginning of period
 
$
3,178
   
$
-
   
$
3,178
   
$
-
 
MGI acquistion
   
725
     
-
     
725
     
-
 
Goodwill, end of period
 
$
3,903
   
$
-
   
$
3,903
   
$
-
 

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

   
June 30, 2019
 
   
Esitmated
Remaining
Useful
Life
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Carrying
Value
 
Customer Lists
   
15
   
$
930
   
$
(15
)
 
$
915
 
Patents
   
2
     
1,698
     
(1,686
)
   
12
 
Trademarks
   
10
     
13
     
-
     
13
 
Non-Compete Agreement
   
5
     
22
     
(1
)
   
21
 
Total intangible assets
         
$
2,663
   
$
(1,702
)
 
$
961
 

   
December 31, 2018
 
   
Esitmated
Remaining
Useful
Life
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Carrying
Value
 
Customer Lists
   
1
   
$
2,724
     
(2,723
)
 
$
1
 
Patents
   
2
     
1,698
     
(1,683
)
   
15
 
Total intangible assets
         
$
4,422
     
(4,406
)
 
$
16
 

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

12

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 10. DEBT

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

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

NOTE 11. LEASES

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

   
Three Months
Ended
June 30, 2019
   
Six Months
Ended
June 30, 2019
 
Finance lease cost:
           
Amortization of right-of use assets, included in cost of goods sold
 
$
14
   
$
18
 
Interest on lease liabilities
   
2
     
4
 
Operating lease cost, included in selling, general and administrative expenses:
               
Fixed leases cost
   
131
     
261
 
Variable lease cost
   
32
     
64
 
Short-term lease cost
   
7
     
16
 
Total lease cost
 
$
186
   
$
363
 
                 
Cash paid for amounts included in the measurement of lease liabilities:
               
Operating cash flows from finance leases
 
$
3
   
$
5
 
Operating cash flows from operating leases
 
$
131
   
$
261
 
Financing cash flows from finance leases
 
$
20
   
$
31
 

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

As of June 30, 2019, we do not believe it is certain that we will exercise any renewal options.  The remaining terms of our leases and the discount rates used in the calculation of the fair value of our leases as of June 30, 2019, follows.

   
Operating
Leases
   
Finance
Leases
 
Remaining leases terms (in years)
   
0.8-13.6
     
1.6-4.8
 
Weighted average remaining lease terms (in years)
   
8.2
     
3.5
 
Discount rates
   
4.9%-9.0
%
   
4.3%-7.3
%
Weighted average discount rate
   
7.6
%
   
6.9
%

13

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

   
Operating
Leases
   
Finance
Leases
 
2019 (six months ended December 31, 2019)
 
$
228
   
$
55
 
2020
   
525
     
110
 
2021
   
536
     
85
 
2022
   
548
     
55
 
2023
   
528
     
30
 
Thereafter
   
1,897
     
7
 
Total lease payments
   
4,262
     
342
 
Amounts representing interest
   
(1,168
)
   
(33
)
Present value of lease obligations
 
$
3,094
   
$
309
 

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

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

NOTE 12. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

On March 8, 2019, we issued and sold 3,046,668 shares of common stock for $3.00 per share and a pre-funded warrant (the Prefunded Warrant) exercisable into 1,003,344 shares of common stock for $2.99 per share, in a private placement.  The Pre-Funded Warrant had an exercise price of $0.01 per share and was immediately exercisable; however, we had to obtain approval from our shareholders before the holder could exercise the Pre-Funded Warrant to the extent such exercise would result in the holder owning in excess of 19.99% of our common shares outstanding.  The holder exercised the entire Pre-Funded Warrant automatically when our shareholders approved the exercise in June 2019.  We determined the Pre-Funded Warrant qualified for equity accounting.  The net proceeds from the offering of $11.6 million, after deducting commissions and other cash offering expenses of $0.5 million, are recorded in equity.  We determined the exercise price of the warrant was nominal and, as such, have considered the 1,003,344 shares underlying the warrant to be outstanding effective March 8, 2019, for the purposes of calculating basic EPS.

14

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

   
Shares
                   
   
Preferred
Series G
   
Common
   
Preferred
Stock
   
Common
Stock
   
Accumulated
Deficit
   
Equity
 
Balance, December 31, 2018
   
405
     
29,098,207
   
$
201
   
$
296,739
   
$
(273,229
)
 
$
23,711
 
Sale of common stock and Pre-Funded warrant, net of costs
   
-
     
3,046,668
     
-
     
11,593
     
-
     
11,593
 
Common stock awards under equity incentive plans
   
-
     
36,881
     
-
     
364
     
-
     
364
 
Exercise of common stock warrants
   
-
     
600,000
     
-
     
1,980
     
-
     
1,980
 
Conversion of preferred stock into common stock
   
(180
)
   
170,818
     
(89
)
   
89
     
-
     
-
 
Exercise of common stock options
   
-
     
77,078
     
-
     
60
     
-
     
60
 
Other
   
-
     
-
     
-
     
28
     
-
     
28
 
Net loss
   
-
     
-
     
-
     
-
     
(3,227
)
   
(3,227
)
Balance, March 31, 2019
   
225
     
33,029,652
     
112
     
310,853
     
(276,456
)
   
34,509
 
Exercise of Prefunded Warrant
   
-
     
1,003,344
     
-
     
10
     
-
     
10
 
Common stock awards under equity incentive plans
   
-
     
134,984
     
-
     
219
     
-
     
219
 
Exercise of common stock options
   
-
     
78,734
     
-
     
87
     
-
     
87
 
Other
   
-
     
-
     
-
     
32
     
-
     
32
 
Net loss
   
-
     
-
     
-
     
-
     
(3,659
)
   
(3,659
)
Balance, June 30, 2019
   
225
     
34,246,714
   
$
112
   
$
311,201
   
$
(280,115
)
 
$
31,198
 

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

15

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Options

Stock option activity for the six months ended June 30, 2019 and 2018, follows.

       
2019
   
2018
 
       
Shares
Under
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant
Date Fair
Value
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares
Under
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Grant
Date Fair
Value
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding, January 1
       
950,727
   
$
3.06
           
8.5
     
639,658
   
$
8.83
           
7.2
 
Granted
 
(1
)
 
188,662
     
3.25
   
$
2.05
     
10.0
     
278,873
     
1.42
   
$
0.97
     
10.0
 
Cash exercised
       
(77,078
)
   
0.78
             
7.7
     
-
   
NA
           
NA
 
Forfeited
       
(25,548
)
   
5.66
             
5.3
     
(2,047
)
   
5.02
             
8.1
 
Outstanding, March 31
       
1,036,763
     
3.20
             
8.6
     
916,484
     
2.45
             
8.7
 
Granted
       
98,221
     
3.04
   
$
1.84
     
10.0
     
-
   
NA
   
NA
   
NA
 
Cash exercised
 
(2
)
 
(78,734
)
   
1.10
             
8.2
     
-
   
NA
           
NA
 
Forfeited
       
(133,016
)
   
2.92
             
0.3
     
(23,964
)
   
1.21
             
8.5
 
Outstanding, June 30
       
923,234
   
$
3.40
             
8.4
     
892,520
   
$
2.49
             
8.4
 


(1)
The options granted vest and become exercisable in annual or monthly installments ending four months from the date of grant.

(2)
Includes options for 31,955 shares of common stock at a weighted average exercise price of $1.16 per share for which we accelerated vesting upon termination of employment for an employee in June of 2019. We expensed $0.1 million of incremental expense upon acceleration of vesting.

16

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Restricted Stock Units

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

    2019    
2018
 
   
RSU Shares
Issued to
Employees
   
Unrecognized
Stock
Compensation
(in thousands)
   
Weighted
Average
Expense
Period
(Years)
   
RSU Shares
Issued to
Employees
   
Unrecognized
Stock
Compensation
(in thousands)
   
Weighted
Average
Expense
Period
(Years)
 
Nonvested at January 1
   
1,215,000
   
$
683
     
2.3
     
1,175,000
   
$
161
     
3.0
 
Cancelled
   
-
     
-
             
(705,000
)
   
(31
)
       
Expensed
   
-
     
(77
)
                   
(11
)
       
Nonvested at March 31
   
1,215,000
     
606
     
2.0
     
470,000
     
119
     
2.8
 
Granted
   
132,062
     
107
     
2.3
     
-
     
-
         
Forfeited
   
(250,000
)
   
(155
)
           
(130,000
)
   
(30
)
       
Expensed
   
-
     
(66
)
           
-
     
(11
)
       
Nonvested at June 30
   
1,097,062
   
$
492
     
1.9
     
340,000
   
$
78
     
2.5
 

As of June 30, 2019, we have outstanding RSUs covering a total of 1,097,062 shares of our common stock.  The shares subject to the RSUs vest based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days.  Subject to a minimum service period in certain grants, as described in the next sentence, the RSU shares vest as to (i) 109,706 shares on the date the vesting price equals or exceeds $5.00 per share (ii) 329,119 shares the date the vesting price equals or exceeds $10.00 per share and (ii) 658,237 shares the date the vesting price equals or exceeds $15.00 per share.  In certain RSUs, vesting occurs the later of the one-year anniversary of the grant and the date the shares reach the vesting price indicated in the preceding sentence.  The RSUs expire on the fifth anniversary of each grant.

Nonvested Stock

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

      2019    
2018
 
      
Shares
Granted
   
Weighted
Average
Grant
Date Fair
Value Per
Share
   
Fair Value
   
Unrecognized
Stock
Compensation
   
Shares
Granted
   
Weighted
Average
Grant
Date Fair
Value Per
Share
   
Fair Value
   
Unrecognized
Stock
Compensation
 
                   
(1
)
   
(2
)
               
(1
)
   
(2
)
Nonvested at January 1
     
193,965
   
$
1.84
   
$
582
   
$
173
     
384,744
   
$
0.94
   
$
569
   
$
176
 
Granted
     
-
   
NA
   
NA
             
-
   
NA
   
NA
         
Vested
     
-
   

NA    
NA
             
-
   
NA
   
NA
         
Nonvested March 31
     
193,965
     
1.84
     
722
     
81
     
384,744
     
0.94
     
315
     
80
 
Granted to directors
     
118,111
     
2.86
     
338
             
208,875
     
1.78
     
372
         
Granted to consultants
     
16,873
     
2.86
     
48
             
-
   

NA    

NA          
Vested
     
(193,965
)
   
1.84
     
566
             
(384,744
)
   
0.94
     
686
         
Nonvested at June 30
  (3)
   
134,984
   
$
2.86
   
$
393
   
$
374
     
208,875
   
$
1.78
   
$
451
   
$
360
 


(1)
Represents pre-tax fair value, based on our closing stock prices, which would have been received by the holders of the stock had all such holders sold their underlying shares on the date indicated, the dates of grant or the dates of vesting, as applicable.
 
(2)
As of June30, 2019 and June 30, 2018, unrecognized compensation is amortizing over a remaining period of 1 year.
 
(3)
Excludes 830,104 shares, issued to a supplier, nonvested and unearned as of June 30, 2019.  In February 2016, we issued 950,000 shares of common stock to that supplier.  The shares are being held in escrow until earned (as defined in our agreement) by the supplier at a fixed price of $2.80 per share.  Cumulatively, as of June 30, 2019, 119,896 shares have been released from escrow.  We intend to recall any shares remaining in escrow, after the related supply agreement terminates in August 2019.  Any recalled shares will be cancelled.  During the three months ended June 30, 2019 and March 31, 2019, we released from escrow and expensed the value of 11,492 and 9,148 shares earned by a vendor, at $2.92 per share, the fair value of the shares on January 1, 2019, when we adopted ASU 2018-07.  During the three months ended June 30, 2018 and March 31, 2018, we released from escrow and expensed the value of 10,660 shares ($2.16 per share) and 9,842 ($1.57 per share) shares earned by that vendor.  The shares released from escrow in 2018 were valued at the fair value of the shares when earned, under the guidance for nonemployee awards in effect in 2018, prior to our adoption of ASU 2018-07.

17

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Warrants

Warrant activity, excluding activity related to the Pre-Funded Warrant, for the six months ended June 30, 2019 and 2018, follows.

   
2019
   
2018
 
   
Shares
Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares
Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
     
(1)

                             
Outstanding, January 1
   
10,252,714
   
$
2.25
     
2.3
     
21,157,273
   
$
2.30
     
3.4
 
Issued (2)
   
-
   
NA
   
NA
     
315,000
     
4.73
     
2.4
 
Cash exercised
   
(600,000
)
   
3.30
     
-
     
(1,827,999
)
   
0.96
     
4.1
 
Expired
   
(950,614
)
   
5.25
     
-
     
-
   
NA
   
NA
 
Outstanding, March 31
   
8,702,100
     
1.85
     
2.4
     
19,644,274
     
2.47
     
3.0
 
Cash exercised
   
-
   
NA
   
NA
     
(4,092,077
)
   
0.96
     
3.7
 
Expired
   
(989,875
)
   
5.60
     
-
     
(6,000
)
   
16.80
     
-
 
Outstanding, June 30
   
7,712,225
   
$
1.37
     
2.4
     
15,546,197
   
$
2.86
     
2.5
 


(1)
Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature.  As of June 30, 2019, warrant holders may elect to exercise cashless warrants for 3,774,344 shares of common stock at an exercise price of $0.96 per share and 384,536 shares of common stock at an average exercise price of $5.25 per share.  If we register for resale the shares subject to warrants, the holders of some of the warrants may no longer have the right to elect a cashless exercise.  If we fail to maintain a registration statement for the resale of shares under certain other warrants, the shares under those warrants may again become exercisable using a cashless exercise feature.

(2)
We recognized $0.1 million of expense for these warrant issuances in the three months ended June 30, 2018.

NOTE 13. LOSS PER SHARE (EPS)

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

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

18

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

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

   
Three Months Ended June 30
   
Six Months Ended June 30
 
   
2019
   
2018
   
2019
   
2018
 
NUMERATOR (in thousands):
                       
Basic and diluted - loss from continuing operations
 
$
(3,659
)
 
$
(2,160
)
 
$
(6,670
)
 
$
(4,073
)
                                 
DENOMINATOR:
                               
Basic EPS - weighted average number of common shares outstanding
   
33,204,332
     
20,366,451
     
31,382,927
     
18,731,925
 
Effect of dilutive securities outstanding
   
-
     
-
     
-
     
-
 
Diluted EPS - weighted average number of shares outstanding
   
33,204,332
     
20,366,451
     
31,382,927
     
18,731,925
 
                                 
Number of shares of common stock which could be purchased with weighted average outstanding securities not included in diluted EPS because effect would be antidilutive:
                               
Stock options
   
1,071,163
     
894,223
     
1,066,545
     
870,390
 
Warrants
   
8,501,359
     
17,986,767
     
9,260,988
     
19,549,874
 
Convertible preferred stock
   
236,173
     
597,865
     
236,173
     
597,865
 
Restricted stock units
   
1,265,785
     
470,000
     
1,325,692
     
560,084
 
                                 
Weighted average number of nonvested share of common stock not included in diluted EPS because effect would be antidilutive
   
1,028,481
     
1,245,018
     
1,036,545
     
1,259,001
 

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

NOTE 14. INCOME TAXES

Our tax expense for the three and six months ended June 30, 2019 and 2018, differs from the tax expense computed by applying the U.S. statutory tax rate to net losses from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S.  As of June 30, 2019, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards.  We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not “more likely than not”  to occur.

Based on our analysis of tax positions taken on income tax returns filed, we have determined no material liabilities related to uncertain income tax positions exist.  Although we believe the amounts reflected in our tax returns substantially comply with applicable U.S. federal, state, and foreign tax regulations, the respective taxing authorities may take contrary positions based on their interpretation of the law.  A tax position successfully challenged by a taxing authority could result in an adjustment to our provision or benefit for income taxes in the period in which a final determination is made.

NOTE 15. FAIR VALUE MEASUREMENTS

Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Certain assets and liabilities are presented in our financial statements at fair value.  Assets and liabilities measured at fair value on a recurring basis include derivative warrant and conversion liabilities.  As of June 30, 2019, and December 31, 2018, no assets and liabilities were measured at fair value.  Assets and liabilities measured at fair value on a non-recurring basis may include property.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:


Level 1 – inputs include quoted prices for identical instruments and are the most observable.

Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

19

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 

Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

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

NOTE 16. COMMITMENTS AND CONTINGENCIES

Employment Contracts and Severance Payments

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

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

Legal Matters

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

NOTE 17. RELATED PARTY TRANSACTIONS

In March 2019, we issued and sold to Continental Grain Company (CGC) 666,667 shares of common stock and a pre-funded warrant to purchase up to 1,003,344 shares of common stock for $2.99 per share at an exercise price of $0.01 per share.  CGC exercised the warrant in June 2019.  Our director, Ari Gendason is a senior vice president and chief investment officer of CGC.  As of the date of this filing, CGC owned approximately 21% of our outstanding common stock.  We have agreed that in connection with each annual or special meeting of our shareholders at which members of our board of directors are to be elected, or any written consent of our shareholders pursuant to which members of the board of directors are to be elected, CGC shall have the right to designate one nominee to our board of directors.

NOTE 18.  TRANSACTIONS WITH EMPLOYEES

Wayne Wilkison, our former employee and former owner of Golden Ridge, owns various farms and a freight company with which we conduct business.  Mr. Wilkison’s employment was terminated in April 2019.  During the six months ended June 30, 2019, and three months ended March 31, 2019, we paid $1.4 million to these entities.  As of June 30, 2019 and December 31, 2018, $0.4 million and $1.9 million, respectively, was included in commodities payable for amounts owed to these entities.  The note payable to a seller of Golden Ridge, described further in Note 4, is payable to Mr. Wilkison.  The purchase price working capital adjustment, described further in Note 4 is receivable from Mr. Wilkison.

20

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

Results of Operations

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

   
Three Months Ended June 30
    
Change
%
    
Six Months Ended June 30
    
Change
%
  
   
2019
   
2018
   
2019
   
2018
 
   
(in thousands)
         
(in thousands)
       
Revenues
 
$
6,219
   
$
3,198
     
94.5
   
$
12,583
   
$
6,750
     
86.4
 
Cost of goods sold
   
6,463
     
2,535
     
(155.0
)
   
12,484
     
5,133
     
(143.2
)
Gross profit (loss)
   
(244
)
   
663
     
(136.8
)
   
99
     
1,617
     
(93.9
)
Gross profit (loss) %
   
-3.9
%
   
20.7
%
           
0.8
%
   
24.0
%
       
                                                 
Selling, general and administrative expenses
   
3,422
     
2,830
     
(20.9
)
   
6,763