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 | ||
| | | OTC Markets (Pinks) |
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 1, 2024, there were
Index
Form 10-Q
| PART I. FINANCIAL INFORMATION | Page | |
| Item 1. |
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| Condensed Consolidated Balance Sheets as of March 31, 2024, and December 31, 2023 (audited) |
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| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 |
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| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. OTHER INFORMATION | ||
| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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| 20 | ||
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, 2023. 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.
PART I. FINANCIAL INFORMATION
RiceBran Technologies
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
| (Unaudited) March 31, | December 31, | ||||||||
| 2024 | 2023 | ||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | $ | |||||||
| Accounts receivable, net of allowance for credit losses of $ and $ | |||||||||
| Inventories | |||||||||
| Other current assets | |||||||||
| Current assets held for sale | |||||||||
| Total current assets | |||||||||
| Property and equipment, net | |||||||||
| Intangible assets | |||||||||
| Long-term assets held for sale | |||||||||
| Total assets | $ | $ | |||||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | $ | |||||||
| Commodities payable | |||||||||
| Accrued salary, wages and benefits | |||||||||
| Accrued legal | |||||||||
| Accrued expenses | |||||||||
| Due under factoring agreement | |||||||||
| Due under insurance premium finance agreements | |||||||||
| Finance lease liabilities, current portion | |||||||||
| Current portion of long-term debt | |||||||||
| Current liabilities held for sale | |||||||||
| Total current liabilities | |||||||||
| Finance lease liabilities, less current portion | |||||||||
| Long-term debt, net of unamortized discount | |||||||||
| Long-term liabilities held for sale | |||||||||
| Total liabilities | |||||||||
| Commitments and contingencies | |||||||||
| Shareholders' deficit: | |||||||||
| 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' deficit | ( | ) | ( | ) | |||||
| Total liabilities and shareholders' deficit | $ | $ | |||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) (in thousands, except share and per share amounts)
| Three Months Ended March 31, |
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| 2024 |
2023 |
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| Revenues |
$ | $ | ||||||
| Cost of goods sold |
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| Gross profit |
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| Selling, general and administrative expenses |
||||||||
| Loss from continuing operations before other income (expenses) |
( |
) | ( |
) | ||||
| Interest expense |
( |
) | ( |
) | ||||
| Interest income |
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| Change in fair value of derivative warrant liability |
( |
) | ||||||
| Other income |
||||||||
| Other expense |
( |
) | ( |
) | ||||
| Loss from continuing operations before income taxes |
( |
) | ( |
) | ||||
| Income taxes |
( |
) | ||||||
| Loss from continuing operations |
( |
) | ( |
) | ||||
| Loss from discontinued operations |
( |
) | ( |
) | ||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Basic and diluted net loss per common share: |
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| Continuing operations |
$ | ( |
) | $ | ( |
) | ||
| Discontinued operations |
$ | ( |
) | $ | ( |
) | ||
| $ | ( |
) | $ | ( |
) | |||
| Weighted average number of shares outstanding: |
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| Basic |
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| Diluted | ||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flow from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Stock and share-based compensation | ||||||||
| Change in fair value of derivative warrant liability | ||||||||
| Other | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Commodities payable | ( | ) | ||||||
| Other | ( | ) | ||||||
| Net cash (used in) provided by operating activities of continuing operations | ( | ) | ||||||
| Net cash used in operating activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities of discontinued operations | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Advances on factoring agreement | ||||||||
| Payments on factoring agreement | ( | ) | ( | ) | ||||
| Advances of bank line of credit | ||||||||
| Advances on insurance premium finance agreements | ||||||||
| Payments on insurance premium finance agreements | ( | ) | ( | ) | ||||
| Proceeds from debt, net of issuance costs | ||||||||
| Payments of debt and finance lease liabilities | ( | ) | ||||||
| Net cash used in financing activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash used in financing activities of discontinued operations | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | $ | ( | ) | $ | ( | ) | ||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | ||||||||
| Net change in cash and cash equivalents | $ | ( | ) | $ | ( | ) | ||
| Supplemental disclosures: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| PIK interest | $ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
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, 2023, 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 period for discontinued operations to achieve consistent presentation with the current period. Such reclassifications had no impact on previously reported net loss or shareholders’ deficit. See Note 3 in the Notes to Unaudited Condensed Consolidated Statement of Operations for further discussion of our discontinued operations.
NOTE 2. GOING CONCERN AND MANAGEMENT’S PLAN
The Company has incurred losses and generated negative cash flows from operations since its inception. As of March 31, 2024, the Company had an accumulated deficit of $
Our history of operating losses and negative operating cash flows from continuing operations raises substantial doubt about our ability to continue as a going concern within one year from the date of this filing. Due to these historical losses and negative cash flows, management has considered various strategic alternatives. Specifically, we recently completed a refinancing in December 2023, as further described below.
On December 1, 2023, an entity owned by Cable Car Capital LLC, Funicular Funds, LP (Funicular), purchased $
Related to this financing, Funicular was also granted warrants to purchase up to
With the proceeds of this financing, the Company repaid its $
On January 25, 2024, the Company sold Golden Ridge for $
The Company also believes additional cash can be secured through other debt or structured equity financing, if necessary. However, there can be no assurance that equity or debt financing will be available to the Company should it need it or, if available, that the terms will be satisfactory to the Company and not dilutive to existing shareholders. The Company’s failure to raise capital as and when needed could have significant negative consequences for its business, financial condition, and results of consolidated operations.
NOTE 3. DISCONTINUED OPERATIONS
We continuously assess the composition of our portfolio to ensure it is aligned with our strategic objectives and positioned to maximize return to our shareholders.
Golden Ridge Rice Mills, Inc. Business
On January 25, 2024, we completed the sale of our assets related to the Golden Ridge Rice Mills, Inc. business (GRR Business) for $
As summarized in the following table (in thousands), the net carrying value of the GRR Business assets and liabilities assumed as of the date of sale were $
| Property and equipment | $ | |||
| Prepaid expenses | ||||
| Deposits | ||||
| Inventories | ||||
| Total assets | ||||
| Capital lease liabilities | ||||
| Total liabilities | ||||
| Net assets sold | $ |
We determined that the disposal met the criteria for presentation as discontinued operations in the first quarter of 2024. Accordingly, the GRR Business results are presented as discontinued operations in our unaudited condensed consolidated statements of operations and are excluded from continuing operations for all periods presented. In addition, the GRR Business assets and liabilities are classified as held for sale in our condensed consolidated balance sheet as of December 31, 2023.
The following table summarizes the major line items included in loss from discontinued operations related to the GRR Business and divestiture (in thousands).
| March 31 | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ( | ) | ( | ) | ||||
| Selling, general and administrative expenses | ( | ) | ||||||
| Interest expense | ( | ) | ||||||
| Other expenses | ( | ) | ||||||
| Loss from operations of discontinued operations | ( | ) | ( | ) | ||||
| Loss on sale | ( | ) | ||||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||
| Depreciation included in cost of goods sold | $ | $ | ||||||
| Capital expenditures | $ | $ | ||||||
The following table summarizes the major line items included in cash flows from discontinued operations related to the GRR Business and divestiture (in thousands).
| March 31 | |||||||||
| 2024 | 2023 | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | |||
| Net cash provided by (used in) investing activities | ( | ) | |||||||
| Net cash used in financing activities | ( | ) | |||||||
| Net cash provided by (used in) discontinued operations | $ | $ | ( | ) | |||||
The following table summarizes the carrying amounts of major classes of GRR Business assets and liabilities classified as held for sale as of December 31, 2023 (in thousands).
| Property and equipment | $ | |||
| Prepaid expenses | ||||
| Deposits | ||||
| Inventories | ||||
| Total assets | ||||
| Capital lease liabilities | ||||
| Total liabilities | ||||
| Net assets sold | $ |
Stabilized Rice Bran Business
On June 23, 2023, we completed the sale of our assets related to the stabilized rice bran (SRB Business) for $
The proceeds, net of expenses, of $
In consideration of the Lender’s (as defined below) consent to the sale and release of securities interests and liens on SRB Business assets, we paid a portion of the amount outstanding on our mortgage promissory note, not exclusively related to the SRB Business, from proceeds of the sale. In addition, we paid liabilities for accumulated paid time off to the employees of the SRB Business. The following table summarizes the distribution of proceeds (in thousands).
| Purchase price | $ | |||
| Expenses as of June 30, 2023 | ( | ) | ||
| Net proceeds | $ | |||
| Repayment of mortgage promissory note | $ | |||
| Payment of paid time off liabilities | ||||
| $ |
The following table summarizes the carrying amounts of the SRB Business as of June 23, 2023, the date of sale (in thousands).
| Inventories | $ | |||
| Other current assets | ||||
| Property and equipment | ||||
| Operating lease right of use assets | ||||
| Total assets | ||||
| Accrued expenses | ||||
| Operating lease liabilities | ||||
| Finance lease liabilities | ||||
| Long-term debt | ||||
| Total liabilities | ||||
| Net assets sold | $ |
The buyer of the SRB Business did not acquire accounts receivable generated by the operation of the SRB Business assets and generally did not assume any accounts payable or accrued expenses related to the operation of the SRB Business through the June 23, 2023, date of sale.
We determined that the disposal met the criteria for presentation as discontinued operations in the second quarter of 2023. Accordingly, SRB Business results are presented as discontinued operations in our unaudited condensed consolidated statements of operations and are excluded from continuing operations for the three months ended March 31, 2023. The operations of the SRB Business are included in our results for the three months ended March 31, 2023. The following two tables represent activity as of March 31, 2023.
The following table summarizes the major line items included in loss from discontinued operations related to the SRB Business and divestiture (in thousands).
| March 31, 2023 | ||||
| Revenues | $ | |||
| Cost of goods sold | ( | ) | ||
| Selling, general and administrative expenses | ( | ) | ||
| Interest expense | ( | ) | ||
| Loss from operations of discontinued operations | ( | ) | ||
| Gain (loss) on sale | ||||
| Loss from discontinued operations | $ | ( | ) | |
| Depreciation included in cost of goods sold | $ | |||
| Capital expenditures | $ | |||
The following table summarizes the major line items included in cash flows from discontinued operations related to the SRB Business and divestiture (in thousands).
| March 31 | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | $ | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ||||||
| Net cash used in financing activities | ||||||||
| Net cash used in discontinued operations | ( | ) | ||||||
NOTE 4. ACCOUNTS RECEIVABLE AND REVENUES
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 | ||||||||||
| % of revenue, three months ended March 31, 2024 | % | % | % | |||||||||
| % of revenue, three months ended March 31, 2023 | % | % | % | |||||||||
| % of accounts receivable, as of March 31, 2024 | % | % | % | |||||||||
| % of accounts receivable, as of December 31, 2023 | % | % | % | |||||||||
The following table presents disaggregated revenues (in thousands).
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Barley and Oats | ||||||||
| Feed and Other | ||||||||
| Revenues | $ | $ | ||||||
NOTE 5. INVENTORIES
The following table details the components of inventories (in thousands).
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Packaging | ||||||||
| Inventories | $ | $ | ||||||
NOTE 6. PROPERTY AND EQUIPMENT
The following table details the components of property and equipment (amounts in thousands).
| March 31, | December 31, | Estimated Useful Lives | |||||||||
| 2024 | 2023 | (in years) | |||||||||
| Land | $ | $ | |||||||||
| Plant | - | ||||||||||
| Computer and software | - | ||||||||||
| Machinery and equipment | - | ||||||||||
| Property and equipment, cost | |||||||||||
| Less accumulated depreciation | |||||||||||
| Property and equipment, net | $ | $ | |||||||||
NOTE 7. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands).
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
| Estimated Useful Life | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Trademarks | ||||||||||||||||||||||||||||
| Non-compete agreement | ||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
The customer relationship intangible is amortizing over the
As of March 31, 2024, the weighted-average remaining amortization period for intangibles is
| 2024 (remaining 9 months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total amortization | $ |
NOTE 8. LEASES
The components of lease expense and cash flows from leases (in thousands) follow.
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Finance lease cost: | ||||||||
| 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: | ||||||||
| Fixed lease cost | ||||||||
| Variable lease cost | ||||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Financing cash flows from finance leases | $ | $ | ||||||
As of March 31, 2024 and 2023, variable lease payments do not depend on a rate or index. As of March 31, 2024, property and equipment, net, includes $
As of March 31, 2024, 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, 2024, follows.
| Finance Leases | |||||
| 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, 2024, follow (in thousands).
| Finance | ||||
| Leases | ||||
| 2024 (remaining nine months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payments | ||||
| 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, 2024, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through September 1, 2024, at an interest rate of
Long-term debt consists of the following (in thousands).
| March 31, 2024 | December 31, 2023 | |||||||
| Mortgage promissory note - Dated December 1, 2023. Original principal $ million. Interest accrues and compounds quarterly at % per year. At each quarterly interest payment date, the accrued and unpaid interest can be paid in cash or paid in-kind and has a maturity date. | ||||||||
| Accrued interest capitalized as of March 31, 2024 was $. | $ | $ | ||||||
| Equipment note - Dated May 2021. Original principal $. Due in monthly installments through . Interest accrues at the effective discount rate of % per year. | ||||||||
| Equipment note - Dated June 2023. Original principal $. Due in monthly installments through . Interest accrues at the effective discount rate of % per year. | ||||||||
| Total long-term debt, net | $ | $ | ||||||
The Funicular note
On December 1, 2023, we entered into a new secured promissory note with Funicular, guaranteed by its subsidiaries Golden Ridge Rice Mills, Inc. and MGI Grain, Incorporated (MGI) in the aggregate principal amount of $
Arkansas mortgage promissory note
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 $
Factoring facility
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, | ||||||||
| 2024 | 2023 | |||||||
| Average borrowings outstanding (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 $
Future principal maturities of long-term debt outstanding at March 31, 2024, follow (in thousands).
| 2024 (remaining nine months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Principal maturities | ||||
| 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, 2024 and 2023, follows (in thousands, except share amounts).
| Shares | ||||||||||||||||||||||||
| Preferred | Preferred | Common | Accumulated | |||||||||||||||||||||
| Series G | Common | Stock | Stock | Deficit | Deficit | |||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Common stock awards under equity incentive plans | - | |||||||||||||||||||||||
| Stock units issued to vendor | ||||||||||||||||||||||||
| Common stock issued to vendor | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Preferred | Preferred | Common | Accumulated | |||||||||||||||||||||
| Series G | Common | Stock | Stock | Deficit | Equity | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Common stock awards under equity incentive plans | - | |||||||||||||||||||||||
| Stock units issued to vendor | ||||||||||||||||||||||||
| Common stock issued to vendor | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
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, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Vested with service | ( | ) | - | - | ( | ) | - | - | - | |||||||||||||||||||||||
| Expensed | - | ( | ) | - | - | - | ( | ) | - | - | ||||||||||||||||||||||
| Nonvested at March 31, 2024 | $ | $ | - | $ | $ | - | ||||||||||||||||||||||||||
| Number of RSUs | ||||
| Vested at December 31, 2023 | ||||
| Issued at termination of service | ( | ) | ||
| Vested at March 31, 2024 | ||||
As of March 31, 2024, we do have any outstanding restricted stock units issued under the Amended and Restated 2014 Equity Incentive Plan or any other restricted stock units held by any service providers.
NOTE 11. INCOME TAXES
Our tax expense for the three months ended March 31, 2024 and 2023, 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, 2024, 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 the Company’s 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, | ||||||||
| 2024 | 2023 | |||||||
| 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, 2024 and 2023, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding at March 31, 2024, included our outstanding convertible preferred stock, options, warrants and nonvested restricted stock units.
NOTE 13. COMMITMENTS AND CONTINGENCIES
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 Continuing Operations
Revenues from continuing operations of $2.1 million in the first quarter of 2024 increased $0.2 million, or 8%, compared to the first quarter of 2023. Cost of goods sold from continuing operations was $1.7 million in the first quarter of 2024 and 2023. Gross profit from continuing operations therefore increased $0.2 million in the first quarter of 2024 compared to the first quarter of 2023.
This improvement in MGI’s financial performance was primarily due to the inefficiencies related to the capacity expansion of the mill during the first quarter of 2023 not recurring in the first quarter of 2024.
Selling, general and administrative expenses from continuing operations in the first quarter of 2024 were $1.7 million compared to $1.4 million in the first quarter of 2023. This increase was mainly due to increased legal costs related to our continuing strategic review which results in the loss from continuing operations before other income (expenses) being consistent between periods with the improved gross profit noted above.
Other expense, net, increased $0.3 million from the first quarter of 2023 to the first quarter of 2024 primarily due to the $0.1 million increase in interest expense, mainly due to the Funicular financing, and in 2023 the non-recurring receipt of $0.3 million in restitution payments from a former employee, which had been ordered by a federal court in 2012.
Loss from continuing operations in the first quarter of 2024 was $1.4 million compared to $1.2 million loss in the first quarter of 2023 as explained above.
Net loss from continuing operations per share in the first quarter of 2024 decreased to $0.15 per share from $0.18 per share in the first quarter of 2023 due to an increase in outstanding shares due to the Funicular financing.
Liquidity, Going Concern and Capital Resources
The Company has incurred losses and generated negative cash flows from operations since its inception. As of March 31, 2024, the Company had an accumulated deficit of $335.1 million, shareholders’ deficit of $4.7 million and cash and cash equivalents of $0.4 million. In our continuing operations, we used $1.4 million in operating cash during the first quarter of 2024, compared to $0.5 million of operating cash provided by in 2023. We also provided $0.1 million of capital expenditures in the first quarter of 2024, compared to $0.2 million funded in the first quarter of 2023. These capital expenditures relate primarily to equipment at our MGI facility.
Our history of operating losses and negative operating cash flows from continuing operations raises substantial doubt about our ability to continue as a going concern within one year from the date of this filing. Due to these historical losses and negative cash flows, management has considered various strategic alternatives. Specifically, we recently completed a refinancing in December 2023, as further described below.
On December 1, 2023, Funicular, purchased $0.4 million of shares of common stock of the Company and lent the Company $4.1 million.
Related to this financing, Funicular was also granted warrants to purchase up to 5.0 million shares of common stock of the Company. If Funicular exercised all its warrants, it would own 49.8% of the Company. The Company also exchanged existing warrants with other investors to purchase an aggregate 2.2 million shares of common stock of the Company for an aggregate of approximately 0.6 million shares of common stock of the Company and new warrants to purchase 1.2 million shares of common stock of the Company.
With the proceeds of this financing, the Company repaid its $1.5 million mortgage note and will use the remaining balance to fund its current and future general working capital and operating, investing, and financing cash flow needs.
On January 25, 2024, the Company sold Golden Ridge for $2.2 million. As a result of the sale, the Company has streamlined its business and balance sheet, eliminating unprofitable operations.
The Company also believes additional cash can be secured through other debt or structured equity financing, if necessary. However, there can be no assurance that equity or debt financing will be available to the Company should it need it or, if available, that the terms will be satisfactory to the Company and not dilutive to existing shareholders. The Company’s failure to raise capital as and when needed could have significant negative consequences for its business, financial condition, and results of consolidated operations.
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 GAAP. 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
In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Improvement to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. These requirements are not expected to have an impact on our results of operations, financial position, or cash flows and will expand income tax disclosures.
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, 2024, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2023 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 not effective as of the end of the period covered by this report due to the material weakness discussed below.
As reported in our Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 1, 2024, management identified the following material weaknesses in our internal control over financial reporting during the period covered by this report, related to management’s review controls over the documentation and review of the required dual approval for the posting of journal entries and the processing and review of inventory costing.
The Company had consistent turnover within the accounting department in 2023, which led to not sustaining a sufficient number of qualified personnel to maintain the proper controls over financial reporting. This led to an overstatement in inventory due to the incorrect entry of purchase order quantities, which was detected by the Company’s independent auditors.
Changes in Internal Control over Financial Reporting
In April 2024, management initiated remediation measures including, but not limited to, hiring additional accounting staff or engaging third parties to assist us with complying with the accounting and reporting requirements under U.S. GAAP and SEC reporting standards and to implement the appropriate internal controls and the necessary customization of the Company’s accounting system to provide the documentation for the required dual approval for the posting of journal entries.
Except as noted above, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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, 2023, 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, 2024, 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 January 24, 2024, we issued 106,667 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 $13,867.
On March 31, 2024, 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 $138.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
The following exhibits are attached hereto and filed herewith:
| Incorporated by Reference |
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| Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit Number |
Filing/Effective Date |
Filed Here with |
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| 31.1 |
X |
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| 31.2 |
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| 32.1 |
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| 101.INS (1) |
Inline XBRL Instance Document |
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| 101.SCH (1) |
Inline XBRL Taxonomy Extension Schema Document |
X |
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| 101.CAL (1) |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF (1) |
Inline XBRL Taxonomy Extension Calculation Definition Linkbase Document |
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| 101.LAB (1) |
Inline XBRL Taxonomy Extension Calculation Label Linkbase Document |
X |
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| 101.PRE (1) |
Inline XBRL Taxonomy Extension Calculation Presentation Linkbase Document |
X |
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| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| (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 13, 2024
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/s/ Eric Tompkins |
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Eric Tompkins |
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| Director and Executive Chairman | ||
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/s/ William J. Keneally |
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William J. Keneally |
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Interim Chief Financial Officer |
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