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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2018
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-32565
RiceBran Technologies
(Exact name of registrant as specified in its Charter)
California
(State of Incorporation)
1330 Lake Robbins Drive, Suite 250
The Woodlands, TX
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (281) 675-2421
87-0673375
(I.R.S. Employer Identification No.)
77380
(Zip Code)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [X] 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth 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 [X]
Smaller reporting company [X]
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 if the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended).
YES [ ] NO [X]
As of June 30, 2018, the aggregate market value of our common stock held by non-affiliates was $36,839,005.
As of March 31, 2019, there were 33,023,658 shares of common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Definitive Proxy Statement for its annual meeting of shareholders, which Definitive Proxy Statement will be filed with the
Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2018, are incorporated by reference into Part III of this Annual
Report on Form 10-K.
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FORM 10-K
INDEX
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements that involve substantial risks and uncertainties. These forward-
looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our
beliefs and our assumptions. Words such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “plans,” “projects,” “will,”
“may” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements are not guarantees of future performance and concern matters that could subsequently
differ materially from those described in the forward-looking statements. Future events and actual results could differ materially from
those discussed in this Annual Report. These risks and uncertainties include those described in “Risk Factors” and elsewhere in this
Annual Report. Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect
events or circumstances that may arise after the date of this Annual Report. We do not endorse any projections regarding future
performance that may be made by third parties.
Unless the context requires otherwise, references to “we,” “us,” “our” and the “Company” refer to RiceBran Technologies, and its
consolidated subsidiaries.
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PART I
ITEM 1. BUSINESS
Overview
Our Company
We are an 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 raw rice bran, an underutilized by-product of the rice milling industry.
We apply our proprietary and patented technologies and intellectual properties to convert raw rice bran into numerous high value
products including:
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stabilized rice bran or SRB, and
derivative products including:
o RiBalance, a complete rice bran nutritional package derived from further processing of SRB;
o RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance;
o RiFiber, a protein and fiber rich insoluble derivative of RiBalance; and
o our family of ProRyza products, which includes derivatives composed of protein and protein/fiber blends.
We manufacture and distribute SRB (for food and animal nutrition customers) and derivative products with an emphasis on utilization
of our proprietary and patented food ingredients. We process raw rice bran into various high quality, value-added constituents and
finished products. Over the past decade, we have developed and optimized our proprietary processes to support the production of
healthy, natural, and non-genetically modified ingredients that are free of all major allergens for use in meats, baked goods, cereals,
coatings, health foods, high-end animal nutrition, and animal health products. Our target markets are food and animal nutrition
manufacturers, wholesalers and retailers, both domestically and internationally.
We incorporated under the laws of the State of California in 2000. From July 2003 until October 2012, our corporate name was
“NutraCea.” In October 2012, we changed our name to RiceBran Technologies. As of December 31, 2018, our corporate headquarters
is located in Texas. Over the past several years, we have acquired and divested of certain investments:
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2018 – Acquired Golden Ridge Rice Mills, LLC., a Wynne, Arkansas based company now operating as Golden Ridge Rice
Mills, Inc. (Golden Ridge) which operates a rice mill in Wynne, Arkansas,
2017 – Divested of our majority interest in Nutra S.A. LLC (Nutra SA). Nutra SA’s only operating subsidiary was Industria
Riograndens De Oleos Vegetais Ltda. (Irgovel), which operates a rice bran oil refining plant in Pelotas, Brazil.
2017 – Divested of Healthy Natural, Inc. (HN), which had a formulating, blending and co-packaging facility in Irving, Texas,
where we manufactured blended and/or packaged functional food products for the nutrition and functional food markets.
2016 – Entered into a strategic supply partnership with the Thailand-based Narula Group of companies to add organic jasmine
rice bran and organic red rice bran, as well as other organic products, to our portfolio of products.
2014 – Acquired H&N Distribution Inc., an Irving, Texas based company which operated as Healthy Natural, Inc. (HN).
2008 – Through our subsidiary Nutra S.A. LLC (Nutra SA), we initially acquired 100% ownership of Irgovel. In 2011, we
sold a minority interest in Nutra SA to AF Bran Holdings-NL LLC and AF Bran Holding LLC.
We source SRB at four locations: two leased raw rice bran stabilization facilities located within supplier-owned rice mills in Arbuckle
and West Sacramento, California, one company-owned rice bran stabilization facility in Mermentau, Louisiana and now our first
company-owned rice mill, Golden Ridge, in Wynne, Arkansas, the largest rice producing state in the United States. We produce our
process-patented Stage II products at our Dillon, Montana facility, including: RiSolubles, a highly nutritious, carbohydrate and lipid
rich fraction of SRB; RiFiber, a fiber rich derivative of SRB; RiBalance, a complete rice bran nutritional package derived from further
processed SRB, and our ProRyza family of products including, protein- and protein/fiber-based products. “Stage II” refers to the
products produced using our patented process technology operated at our Dillon, Montana facility. We operate proprietary processing
equipment and process-patented technology for the stabilization and further processing of rice bran into finished products.
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Rice Mill
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On November 28, 2018 we completed our acquisition of the assets and operations of the Golden Ridge Rice Mills, LLC’s rice milling
and bran stabilization facility in Wynne, Arkansas. Golden Ridge is a recently constructed rice milling facility that encompasses nearly
32 acres and specializes in #1 and #2 Grade U.S. premium long and medium white rice milled to United States Department of Agriculture
(USDA) standards. Golden Ridge also produces brown rice, brewers rice, and brokens. These are all synergistic ingredients for our
target customers which should enable our sales team to deepen customer relationships in addition to leveraging Golden Ridge customers
to our products. Golden Ridge gives us a substantial presence in Arkansas, where more U.S. rice is produced and processed than any
other rice-producing state, and provides a source of SRB that is closer to many of our customers in the Midwest and Eastern U.S., with
active and attractive freight lanes.
The physical manufacturing nature of the process is very similar to our other locations. All of our locations have similar standard
operating procedures that are required of all food ingredient manufacturers to meet Good Manufacturing Practice (GMP) standards and
Safe Quality Food (SQF) certifications. Golden Ridge not only sells rice, but also sells rice bran, husk byproducts, and a mix of both
used for animal nutrition. Golden Ridge, like our existing businesses, is subject to the exact same regulatory rules that we already adhere
to. It also obtains the same plant certifications and associated audits as our other locations. Strategically, the acquisition of Golden
Ridge is an extension of our existing business model that provides considerable room for expansion to increase our SRB production
capacity as well as to house additional product development capacity to further expand our portfolio.
Our Products
We believe our greatest market opportunities are in the food ingredient and animal nutrition markets. Nutritionally balanced, minimally
processed, clean-label food and animal feed ingredients are in high demand and we are strategically positioned to take advantage of this
growing and sustainable market opportunity as discussed below in “Our Growth Strategy.”
Food Ingredients
Our SRB and derivative products are nutritional and beneficial food products that contain a unique combination of oil, protein,
carbohydrates, vitamins, minerals, fibers, and antioxidants that enhance the nutritional value of popular consumer products. Foods that
are ideally suited for the addition of our SRB to their products include processed meats, cereals, snacks, beverages, baked goods,
breading, and batters.
In 2008, we received USDA Food Safety and Inspection Service (FSIS) approval to market rice bran as an ingredient to be used as a
filler in comminuted meat products, such as meat and poultry sausages that contain binders, nugget-shaped patties, meatballs, meatloaf
and meat and poultry patties. Our products replace ingredients like soy protein isolate, soy protein concentrate, modified food starch,
pea protein and mustard flour at a significantly reduced cost. With strong application benefits such as reduced cost per unit, increased
product yield and reduced purge, we believe our SRB has a significant market opportunity in the comminuted meat market both inside
and outside of the United States.
Animal Nutrition
Our SRB is marketed as a feed ingredient in the United States and international animal nutrition markets, and we will continue to pursue
sales opportunities with attractive margins in those markets. SRB is used as an equine feed ingredient and has been shown to provide
health benefits. Show and performance horses represent the premium end of the equine market and are a key target for our animal
nutrition products. We are also now pursuing numerous opportunities in the markets for companion animal products.
About Rice Bran
Rice is the staple food for over half of the world’s population, especially in some of the world’s most populous countries. Asia accounts
for roughly 90% of global rice production and China is the world’s number one rice producer. Globally, the United States ranks 11th
in rice production with approximately 2% of the global total.
When harvested from the field, individual rice kernels are stored in common receiving locations such as farm silos for future delivery
to grain dryers or area rice mills. At this stage, large quantities of individual rice kernels are collectively called “paddy rice,” or “rough”
rice. In this form, the rice kernel is fully enveloped by the rice hull, which serves as a protective cover, shielding the inner rice kernel
from damage.
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After storage and drying, if necessary, paddy rice is cleaned of foreign material (scalping, de-stoning and aspiration) just before it enters
the first stage of milling, or paddy husking. In the paddy husker, the hull is removed from rough rice by differential speed rubber rollers.
Loosened hulls are carried off by aspiration. After husking, a paddy separator uses a reciprocating motion to separate normal brown
rice kernels (caryopsis) from unhusked kernels which are returned to the paddy husker.
In the second stage of milling, the outer brown layers of bran are removed from the inner white starch endosperm by an abrasive or
frictional milling process which produces a milled, white rice kernel. After milling, white rice is typically sorted by size to remove
broken pieces of rice kernels from whole kernels, as well as color sorting to remove discolored kernels. Additional stages may be
required (per customer specifications) to polish the white rice to a smooth surface.
Raw rice bran collected from the milling process is composed of rice germ and several sub-layers (pericarp, testa, nucellus and aleurone)
surrounding the white starchy endosperm. Commercial rice bran makes up approximately 10% of rough rice by weight. Rice germ, an
especially nutrient rich material, makes up approximately 10% of commercial rice bran by weight.
As brown rice is milled into white rice, the oils present in raw rice bran come into contact with native lipase enzymes that are naturally
present in the rice kernel. These lipase enzymes initiate a rapid enzymatic hydrolysis of the oil, converting oils (triglycerides) into
monoglycerides, diglycerides and free fatty acids (FFA). As the FFA content builds in raw rice bran, the bran becomes unpalatable and
off flavors (rancidity) develop. If left unchecked, enzymatic degradation at normal room temperatures can increase the FFA levels to
5-8% within 24 hours and can continue at a rate of approximately 4-5% per day thereafter. Enzymatic degradation is the most serious
form of degradation of raw rice bran. Rice bran stabilization is the process of carefully deactivating native enzymes to prevent the
increase of FFA otherwise caused by lipase enzyme activity. Proper stabilization is critical in the preservation of the nutritional value
of the bran, an important nutrient source that is largely used as animal feed or otherwise wasted.
Historically, there have been a number of attempts to develop rice bran stabilization techniques, including the use of chemicals,
microwave heating or variations of existing extrusion technology. Many of these approaches have had limited success in part because
they have produced rice bran with limited shelf life or with significant degradation of nutrients.
Our Technologies
Our Proprietary Rice Bran Stabilization Technology
Our stabilization process uses proprietary innovations to create a combination of temperature, pressure and other conditions necessary
to thoroughly deactivate enzymes without significantly damaging the structure or nutrient content of raw rice bran. This means that
higher value compounds in bran, such as oils, proteins and phytonutrients are left undamaged and are available for utilization. Our
process does not use chemicals to stabilize raw rice bran.
Our stabilizers are designed to be installed adjacent to, on the premises of or in near proximity to any conventional rice mill so that
freshly milled raw rice bran can be quickly delivered to our proprietary stabilizers. Process logic controllers maintain exact process
conditions within the prescribed pressure/temperature regime. In case of power failure or interruption of the flow of fresh bran into the
system, the electronic control system is designed to purge the equipment of materials in process and resume production only after proper
operating conditions are re-established.
SRB leaving our system is then discharged onto cooling units specifically designed to control air pressure and humidity. Cooled SRB
can be loaded into bulk hopper trucks for large volume customers or sent by pneumatic conveyor to a bagging unit for packaging into
various size bags or 2,000-pound sacks.
Each stabilization module can process approximately 2,000 pounds of bran per hour and has a capacity of over 7,200 tons per year.
Stabilization production capacity can be doubled, tripled or further multiplied by installing additional units sharing a common conveyor
and stage system, which we believe can handle the output of the world’s largest rice mills. We have also developed and tested a smaller
production unit, with a maximum production capacity of 600 pounds per hour, for installation in locations where rice mills are
substantially smaller than those in the United States.
Additional patented and proprietary processes involve enzyme treatment of SRB to produce fractions enriched in one or more
macronutrients, including proteins, fibers, lipids and micronutrients such as vitamins, minerals and phytosterols, among others. In these
processes SRB in an aqueous slurry, is treated with one or more enzymes, centrifugally separated and the fractions dried on drum driers,
spray driers or other drying systems.
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Our Stabilization Process
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Rice bran is free of all major allergens and is a valuable source of protein with a balanced amino acid profile for food ingredient products
and is rich in healthy oil, vitamins, antioxidants, dietary fiber and other nutrients. The approximate composition and caloric content of
our SRB is as follows:
18-23%
Fat (oil)
Protein
12-16%
Total Dietary Fiber 20-30%
Moisture
Ash
Calories
4-8%
6-14%
3.2 kcal/gram
Rice bran contains approximately 18-23% oil, which has a favorable fatty acid composition and excellent heat stability.
Intellectual Property
We hold eight U.S. patents relating to the production or use of rice bran and rice bran derivatives. In addition to the issued U.S. patents,
we have been issued fourteen foreign patents covering the subject areas. We intend to apply for additional patents in the future as new
products, treatments and uses are developed.
Our stabilization and processing activities are an adaptation and refinement of standard food processing technology applied to rice bran.
We have chosen to treat certain of our methods and processes as a trade secret and not to pursue process or process equipment patents
on the original processes. However, as we develop improvements, we intend to periodically review whether we should seek patent
protection for them. We believe that certain unique products, and their biological effects, resulting from our SRB may be patentable in
the future. We also hold a number of U.S. registered trademarks and trade names and have applied for additional marks.
We continue to support internal as well as external R&D efforts that improve on existing technologies or lead to the development of
new technologies relating to rice bran processing and applications.
Our Growth Strategy
We are pursuing a simple growth strategy based on a few key initiatives. Management, working closely with our Board, is focused on
growing our markets and business, generating positive adjusted EBITDA (earnings before depreciation, interest, taxes, amortization and
share-based compensation to employees and directors), improving our financial condition, and maximizing shareholder value. The
following points summarize our growth strategy:
1.
Building a stronger pipeline of sales and growth from existing and new customers: During much of 2018 we
repositioned and strengthened our sales team to take advantage of customer types and geographic reach. We continue to
add expertise in companion animal, snacks and bakery, protein, and fiber areas to complement our existing selling strengths
in equine and lifestyle markets.
The global and domestic markets are strong and rapidly expanding for minimally processed plant-based ingredients that
provide dense and balanced nutrition in addition to evidence-based functionalities while also being free of all major allergens
and being non-GMO. The regulatory requirements to add front-of-label warnings on food items and increasing demand
from consumers for foods that list fewer and less processed ingredients is driving food companies to replace standard food
ingredients with cleaner ingredients, such as stabilized rice bran. We anticipate further incorporation of our food ingredients
by major consumer packaged goods food companies as more food companies adopt rice bran as a standard clean label food
ingredient. This trend is not limited to food ingredients, as we are finding similar transition to clean ingredients among high-
end animal nutrition companies. We believe this positions us well to pursue these growth opportunities.
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2.
3.
4.
Concurrently working to strengthen our bran supply, with a particular focus on expanding in the Delta region of the
U.S.: We continue to meet with numerous participants in the U.S. rice milling industry to expand our footprint with
additional bran supplies. We are focused on building a stronger presence in the Delta region of the U.S. rice industry,
particularly in Arkansas and Louisiana, which typically account for near 70% of the U.S. rice harvest (nearly 50% in
Arkansas alone). As such, we acquired Golden Ridge in Wynne, Arkansas in November 2018. We believe that Golden
Ridge’s operations will add meaningful sales and EBITDA in 2019 with significant room for expansion of SRB production.
We expect this mill to be an important component of our SRB supply in the Arkansas region. Building a stronger presence
in the Delta will also provide us with logistical benefits to serve our customers located east of the Rocky Mountains. We
intend to invest in strategic initiatives, including a significant expansion of the production capacity and construction of a
world-class bran room capable of producing new, innovative, and technology-driven SRB products at Golden Ridge. We
also remain committed to building a strong presence in California, which typically accounts for over 20% of the U.S. rice
harvest.
Driving operational efficiencies and cost and expense reductions: We are focused on improving our operational
efficiencies while driving cost and expense reductions. Accounting cost absorption has been an historical issue for us, and
we hope to improve absorption by driving greater volumes through our existing facilities, which should reduce our costs per
unit of production. We have made considerable efforts to lower costs and expenses as well in areas related to headcount,
salaries and wages, travel and entertainment, and shop supply purchases.
Consolidation of our operating footprint: We are focused on building our market presence in the Delta (Arkansas and
Louisiana) in addition to our traditional focus in the Sacramento Valley region of California. We recently occupied a 59,800
square foot distribution, processing, and office facility in West Sacramento, CA. This facility provides us with a food grade
building that will help us better meet our customer needs. We transitioned to a new corporate office in The Woodlands,
Texas, during the second quarter of 2018. The Woodlands is located near Houston-Bush Intercontinental Airport, one of
the most active airports in the U.S., and is a suburb of Houston, one of the fastest growing SMAs in the U.S. The Woodlands
is about a 2 to 3-hour drive from our existing facilities in Mermentau and Lake Charles, Louisiana, and provides us flights
of 75 minutes or less to reach most of the key rice milling areas of the Delta states. The large corporate population – the
Houston SMA is habited by 54 Fortune 1000 companies – provides us a large pool of possible employees versed in public
company needs. In addition, both regions allow us to partner with an established scientific and university community at and
around institutions like University of California-Davis and Texas A&M.
5.
New product development: We are focused on extending our proprietary product and process technologies, finding new
products and processes, and working to define new niches for existing products. We believe the acquisition of Golden Ridge
will provide us with a platform to develop new products derived from SRB to expand growth opportunities.
Our Customers
We use internal sales staff, outside independent sales representatives and third-party distributors to market our portfolio of products to
customers domestically and internationally. In 2018 and 2017, three customers accounted for 35% and 39% of our revenues,
respectively. We continue to focus efforts on diversification of our customer base in an attempt to mitigate the concentration of
customers.
Our Strategic Alliances
In February 2016, we entered into an exclusive supply and cooperation agreement with a Thailand-based entity (Youji) granting us the
exclusive worldwide, supply and distribution rights, with certain exclusions, for their organic rice bran. In addition, as part of the
agreement, we have agreed to lease two of our proprietary stabilization extruders to Youji for stabilization purposes at one of their rice
mills.
Government Regulations
Our operations are subject to federal, foreign, state and local government laws and regulations, including those relating to zoning,
workplace safety and accommodations for the disabled and our relationships with our employees are subject to regulations, including
minimum wage requirements, anti-discrimination laws, overtime and working conditions and citizenship requirements.
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In both our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative
determinations, court decisions and similar constraints. Such laws, regulations and other constraints exist at the federal, state and local
levels in the United States, and at all levels of government in foreign jurisdictions, including regulations pertaining to the formulation,
manufacturing, packaging, labeling, distribution, sale and storage of our products. In addition, we are subject to regulations regarding
product claims and advertising.
The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by one
or more federal agencies, primarily the Food & Drug Administration (FDA), the Federal Trade Commission (FTC) and the USDA. Our
activities are also regulated by various governmental agencies for the states and localities in which our products are manufactured and
sold, as well as by governmental agencies in certain countries outside the United States, in which our products are manufactured and
sold. Among other matters, regulation by the FDA and FTC is concerned with product safety and claims made with respect to a product’s
ability to provide health-related benefits. Specifically, the FDA, under the Federal Food, Drug and Cosmetic Act (FDCA), regulates the
formulation, manufacturing, packaging, labeling, distribution and sale of food and food ingredients. The FTC regulates the advertising
of these products.
Federal agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including
initiating investigations, issuing warning letters and cease-and-desist orders, requiring corrective labeling or advertising, requiring
consumer redress such as requiring that a company offer to repurchase products previously sold, seeking injunctive relief or product
seizures, imposing civil penalties or commencing criminal prosecution. In addition, certain state agencies have similar authority. These
federal and state agencies have in the past used these remedies in regulating participants in the food and food ingredient industries,
including the imposition of civil penalties.
The FDA Food Safety Modernization Act (FSMA), enacted January 4, 2011, amended the FDCA to significantly enhance the FDA’s
authority over various aspects of food regulation. The FSMA granted the FDA mandatory recall authority when the FDA determines
there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause serious
adverse health consequences or death to humans or animals. One of the more significant changes under FSMA is the requirement of
hazard analysis and risk-based preventive controls (HARPC) for all human and animal food processing facilities. We are committed to
FSMA compliance and completed our SQF certification for each of our facilities.
Any substance that is intentionally added to food is a food additive and is subject to premarket review and approval by the FDA, unless
the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its
intended use, or unless the use of the substance is otherwise excluded from the definition of a food additive. When an additive is
proposed for use in a meat, its safety, technical function and conditions of use must also be evaluated by the USDA. Because the USDA
retains jurisdiction over meat products and food ingredients intended for use in meats, the use of our SRB meat enhancers is regulated
by this agency. SRB has USDA approval for use in certain meat products.
Animal feed ingredients are regulated by the FDA at the federal level and by the individual states. Our SRB is defined for animal use
as heat stabilized rice bran for use as a feed ingredient.
Our Competition
There are a number of companies that have invested significant resources to develop technologies for stabilizing and further processing
rice bran and who market rice bran products with varying levels of stabilization into multiple markets around the world. We believe
that we have best of breed technologies for stabilizing rice bran and, as such, have developed significant brand recognition in the animal
feed and food ingredient product sectors both domestically and internationally. Together with our decades of application technology
know-how and patented processing methods, we believe that we have a first-to-market advantage over the competition with respect to
our SRB.
We are aware of several new producers of rice-based animal nutrition and food ingredient products in the United States, Europe and
Asia. We believe that our major competitors include producers of isolated soy protein, wheat bran and oat bran, particularly in the food
ingredients market segment.
We compete with other companies that offer products incorporating SRB as well as companies that offer other food ingredients. Many
consumers may consider such products to be a replacement for the products we manufacture and distribute.
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Our Employees
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As of December 31, 2018, we had 102 employees. From year to year we experience normal variable labor fluctuation at our production
facilities. We believe relations with our employees are good. None of our employees are covered by collective bargaining agreements.
Available Information
We maintain an Internet website at the following address: www.ricebrantech.com. We make available on or through our Internet website
certain reports and amendments to those reports that we file with the Securities and Exchange Commission (SEC) in accordance with
the Securities Exchange Act of 1934 (Exchange Act). These include our annual reports on Form 10-K, our quarterly reports on Form 10-
Q, our current reports on Form 8-K and the reports of beneficial ownership. We make this information available on our website free of
charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The contents of our
website are not incorporated by reference in this report on Form 10-K and shall not be deemed “filed” under the Exchange Act.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described below, which could
adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock. Investors
or potential investors in our stock should carefully consider the risks described below.
Risks Relating to Our Business
We have not yet achieved annual positive cash flows.
RISK FACTORS
Our net cash used in operating activities of continuing operations was $5.2 million in 2018 and $5.0 million in 2017. We may not be
able to achieve revenue growth, profitability or positive cash flow, on either a quarterly or annual basis, and that profitability, if achieved,
may not be sustained. If we are unable to achieve or sustain profitability, we may not be financially viable in the future and may have
to curtail, suspend, or cease operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives
such as pursuing dissolution and liquidation, seeking to merge with another company, selling all or substantially all of our assets or
raising additional capital through equity or debt financings.
We have generated significant losses since our inception in 2000, and losses in the future could cause the trading price of our stock
to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our
cash flows.
Since we began operations in February 2000, we have incurred an accumulated deficit in excess of $273 million. We may not be able
to achieve or maintain profitable operations if achieved. If our losses continue, our liquidity may continue to be severely impaired, our
stock price may fall and our shareholders may lose all or a significant portion of their investment. If we are not able to attain profitability
in the near future our financial condition could deteriorate further which could have a material adverse impact on our business and
prospects and result in a significant or complete loss of shareholder investment. Further, we may be unable to pay our debt obligations
as they become due, which include obligations to secured creditors.
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We may need to raise additional funds through debt or equity financings in the future to achieve our business objectives and to
satisfy our cash obligations, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their
rights to the rights of new investors.
We may need to raise additional funds through debt or equity financings in order to complete our ultimate business objectives. We also
may choose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working
capital, strengthen our financial position or to make acquisitions. Our board of directors has the ability, without seeking shareholder
approval, to issue convertible debt and additional shares of common stock or preferred stock that is convertible into common stock for
such consideration as the board of directors may consider sufficient, which may be at a discount to the market price. Any sales of
additional equity or convertible debt securities would result in dilution of the equity interests of our existing shareholders, which could
be substantial. Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might
be entitled to various preferential rights over the holders of our common stock, including repayment of their investment, and possibly
additional amounts, before any payments could be made to holders of our common stock in connection with an acquisition of us. Such
preferred shares, if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights
and the value of our common stock. Also, new investors may require that we and certain of our shareholders enter into voting
arrangements that give them additional voting control or representation on our board of directors.
We have identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and
maintain effective internal control over financial reporting, investors could lose confidence in our consolidated financial
statements and our Company, which could have a material adverse effect on our business and our stock price.
In the course of preparing the financial statements for the fiscal year ended December 31, 2018, our management determined that we
have material weaknesses in our internal control over financial reporting, which relate to our accounting for significant and complex
acquisitions and equity transactions. We have concluded that these material weaknesses in our internal control over financial reporting
is primarily due to our recent relocation from Arizona to Texas which reduced our accounting personnel that have the appropriate
level of experience and technical expertise to oversee the accounting and financial reporting requirements related to significant and
complex acquisitions and equity transactions. As a result of these material weaknesses, we have initiated and will continue to
implement remediation measures including, but not limited to: hiring additional accounting staff or engaging a third party to (i) assist
us in complying with the accounting and financial reporting requirements related to significant and complex acquisitions and equity
transactions; and (ii) assist us with formalizing our business processes, accounting policies and internal control documentation,
strengthening supervisory reviews by our management, and evaluating the effectiveness of our internal controls in accordance with the
framework established by Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations
of the Treadway Commission. If we fail to fully remediate these material weaknesses or fail to maintain effective internal controls in
the future, it could result in a material misstatement of our consolidated financial statements that would not be prevented or detected
on a timely basis, which could cause investors to lose confidence in our financial information or cause the trading price of our
common stock to decline.
There are significant market risks associated with our business.
We have formulated our business plan and strategies based on certain assumptions regarding the size of the rice bran market, our
anticipated share of this market, the estimated price and acceptance of our products and other factors. These assumptions are based on
our best estimates; however, our assessments may not prove to be correct. Any future success may depend upon factors including
changes in governmental regulation, increased levels of competition, including the entry of additional competitors and increased success
by existing competitors, changes in general economic conditions, increases in operating costs including costs of rice bran, production,
supplies, personnel, equipment and reduced margins caused by competitive pressures. Many of these factors are beyond our control.
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We may face difficulties integrating businesses we acquire.
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As part of our strategy, we may review opportunities to buy other businesses or technologies, such as the acquisition of Golden Ridge
that was completed in 2018, that would complement our current products, expand the breadth of our markets or enhance technical
capabilities, or that may otherwise offer growth opportunities. Such acquisitions involve numerous risks, including, but not limited to:
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problems combining the purchased operations, technologies or products;
unanticipated costs;
diversion of management’s attention from our core business;
adverse effects on existing business relationships with suppliers and customers;
risks associated with entering markets in which we have no or limited prior experience; and
potential loss of key employees of purchased organizations.
We depend on a limited number of customers and their ability to meet their obligations.
In 2018, three customers accounted for 35% of revenues and the top ten customers accounted for 60% of revenues from continuing
operations. As of December 31, 2018, the customers with the highest ten balances accounted for 69% of accounts receivable.
We are dependent upon the continued growth, viability and financial stability of our customers. We expect to continue to depend upon
a relatively small number of customers for a significant percentage of our revenues. Consolidation among our customers may further
reduce the number of customers that generate a significant percentage of our revenues. This results in a concentration of credit risk with
respect to our outstanding accounts receivable. We consider the financial strength of our customers, the remoteness of the possible risk
that a default event will occur, the potential benefits to our future growth and development, possible actions to reduce the likelihood of
a default event and the benefits from the transaction before entering into a large credit limit with a customer. Although we analyze these
factors, the ultimate collection of the obligation from the customer may not occur. Although we continue to expand our customer base
in an attempt to mitigate the concentration of credit risk, the writing off of an accounts receivable balance could have an adverse effect
on our results of operations. Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash
equivalents and trade receivables. Historically, we have not experienced any loss of our cash and cash equivalents, but we have
experienced losses to our trade receivables. A significant reduction in sales to any of our significant customers could have a material
adverse effect on our results of operations.
We may encounter difficulties in maintaining relationships with distributors and customers while enforcing our credit policies.
We define credit risk as the risk of loss from obligors or counterparty default. Our credit risks arise from both distributors and consumers.
Many of these risks and uncertainties are beyond our control. Our ability to forecast future trends and spot shifts in consumer patterns
or behavior even before they occur are vital for success in today’s economy. In managing risk, our objective is to protect our profitability,
but also to protect, to the extent we can, our ongoing relationships with our distributors and customers. However, as part of our credit
risk policies, we occasionally must, among other things, cancel, reduce credit limits and place cash-only requirements for certain
questionable accounts. These credit risk policies may negatively impact our relationships with our distributors and customers, which
could adversely affect our results of operations.
We rely upon a limited number of product offerings.
The majority of the products that we have sold through December 31, 2018, have been based on SRB. Since the acquisition of Golden
Ridge, we have also incorporated the sale of rice to our products sold towards the end of 2018. A decline in the market demand for our
SRB or the products of other companies utilizing our SRB products would have a significant adverse impact on us.
Our ability to generate sales is dependent upon our ability to continue our ongoing marketing efforts to raise awareness of our
products and benefits of rice bran products generally.
We are dependent on our ability to market products to animal food producers, food manufacturers, mass merchandisers, health food
retailers and to other companies for use in their products. We must increase the level of awareness and benefits of rice bran products to
be used in food and food ingredients in general and our products in particular. We will be required to devote substantial management
and financial resources to these marketing and advertising efforts and such efforts may not be successful.
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Our ability to adapt to sudden increases in demand of our product is limited by an adequate supply of raw rice bran and our ability
to find additional facilities for production.
Many of our current products depend on our proprietary technology using raw rice bran, which is a by-product from milling paddy rice
to white rice. Our ability to manufacture SRB is currently limited to the production capability of our equipment located at our two
suppliers’ rice mills in California, our own plant located adjacent to our supplier in Mermentau, Louisiana and our rice mill in Wynne,
Arkansas. At these facilities and our value-added product plants in Dillon, Montana, we currently are capable of producing enough
finished products to meet current demand. If demand for our products were to increase dramatically in the future, we would need
additional production capacity, which may take time and may expose us to additional long-term operating costs.
We may not be able to continue to secure adequate sources of raw rice bran to meet our future demand. Since rice bran has a limited
shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year.
Adverse economic or weather conditions may impact our supply of raw rice bran.
If economic or weather conditions, for example drought conditions in California or flooding in Arkansas and Louisiana, adversely affect
the amount of rice planted or harvested, the cost of rice bran products that we use may increase. We are not always able to immediately
pass cost increases to our customers and any increase in the cost of SRB products could have an adverse effect on our results of
operations.
We face competition from other companies that produce bran, grains and other alternative ingredients with similar benefits as our
rice brans.
Competition in our targeted industries, including food ingredients, animal feed supplements and companion pet food ingredients is
vigorous, with a large number of businesses engaged in the various industries. Many of our competitors have established reputations
for successfully developing and marketing their products, including products that incorporate bran from other cereal grains and other
alternative ingredients that are widely recognized as providing similar benefits as rice bran. In addition, many of our competitors have
greater financial, managerial and technical resources than we do. If we are not successful in competing in these markets, we may not
be able to attain our business objectives.
We must comply with our contractual obligations.
We have numerous ongoing contractual obligations under various purchase, sale, supply, production and other agreements which govern
our business operations. While we seek to comply at all times with these obligations, we may not be able to comply with the terms of
all contracts during all periods of time, especially if there are significant changes in market conditions or our financial condition. If we
are unable to comply with our material contractual obligations, there likely would be a material adverse effect on our financial condition
and results of operations.
We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints
both domestically and abroad and our failure to comply with these laws, regulations and constraints could lead to the imposition of
significant penalties or claims, which could harm our financial condition and operating results.
In both the U.S. and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, sale and storage of our products
are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such
laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government
in foreign jurisdictions. We are subject to regulation by one or more federal agencies including the U.S. Food and Drug Administration,
the U.S. Federal Trade Commission and the U.S. Department of Agriculture, state and local authorities and foreign governmental
agencies. In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant
compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant
loss of sales revenues. Our failure to comply with these current and new regulations could lead to the imposition of significant penalties
or claims, limit the production or marketing of any non-compliant products or advertising and could negatively impact our business.
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Change in U.S. tax law in December 2017 could potentially impact the measurement of our financial condition and operating results.
On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the Tax
Cuts and Jobs Act or TCJA). The Tax Act reduces the U.S. federal corporate tax rate to a maximum of 21 percent. The application of
this rate reduction to the ending deferred tax assets and deferred tax liabilities impacted our expense for income taxes by $7.1 million
which was fully offset by a corresponding change to our valuation allowance in 2017. We have completed the analysis of the Tax Act
subject to Staff Accounting Bulletin No. 118 (SAB 118) and finalized the measurement of our tax balances in 2018. The Tax Act
contains several base broadening provisions that became effective on January 1, 2018, that we do not expect to have a material impact
on current year or future earnings.
We may be subject to product liability claims and product recalls.
We sell food and nutritional products for animal and human consumption, which involves risks such as product contamination or
spoilage, product tampering and other adulteration of food products. We may be subject to liability if the consumption of any of our
products causes injury, illness or death. We maintain a product liability policy for $5.0 million per year in the aggregate. In addition,
we may voluntarily recall products in the event of contamination or damage. A significant product liability judgment or a widespread
product recall may cause a material adverse effect on our financial condition. Even if a product liability claim is unsuccessful, there
may be negative publicity surrounding any assertion that our products caused illness or injury which could adversely affect our reputation
with existing and potential customers.
Many of the risks of our business have only limited insurance coverage and many of our business risks are uninsurable.
Our business operations are subject to potential product liability, environmental, fire, employee, manufacturing, shipping and other risks.
Although we have insurance to cover some of these risks, the amount of this insurance is limited and includes numerous exceptions and
limitations to coverage. In the event we were to suffer a significant uninsured claim, our financial condition would be materially and
adversely affected.
Our success depends in part on our ability to obtain, enforce and protect our patents, licenses and other intellectual property rights
for our products and technology.
Our success is dependent upon our ability to protect and enforce the patents, trade secrets and trademarks that we have and to develop
and obtain new patents and trademarks for future processes, machinery, compounds and products that we develop. The process of
seeking patent protection may be long and expensive, and patents might not be issued or not be broad enough in scope. We may not be
able to protect our technology adequately, and our competition may be able to develop similar technology that does not infringe or
encroach upon any of our rights.
There currently are no claims or lawsuits pending or threatened against us regarding possible infringement claims, but infringement
claims by third parties, or claims for indemnification resulting from infringement claims, could be asserted in the future or that such
assertions, if proven to be accurate, could have a material adverse effect on our business, financial condition and results of operations.
In the future, litigation may be necessary to enforce our patents, to protect our trade secrets or know-how or to defend against claimed
infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any litigation could result
in substantial cost and diversion of our efforts and other resources, which could have a material adverse effect on our financial condition
and results of operations. Adverse determinations in any litigation could result in the loss of our proprietary rights, subjecting us to
significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our
systems, any of which could have a material adverse effect on our financial condition and results of operations. A license under a third
party’s intellectual property rights might not be available to us on reasonable terms, if at all.
We are dependent on key employees.
Our success depends upon the efforts of our top management team and certain other key employees, including the efforts of our chief
executive officer and chief financial officer. Although we have written employment agreements with these employees, such individuals
could die, become disabled or resign. In addition, our success is dependent upon our ability to attract and retain key management persons
for positions relating to the marketing and distribution of our products. We may not be able to recruit and employ such executives at
times and on terms acceptable to us. Also, volatility, lack of positive performance in our stock price and changes in our overall
compensation program, including our equity incentive program, may adversely affect our ability to retain such key employees.
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Compliance with corporate governance and public disclosure regulations may result in additional expenses.
In order to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the framework
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control - Integrated
Framework (the 2013 COSO Framework), and other regulations issued by the SEC, such as Dodd-Frank, we may need to invest
substantial resources to comply with these evolving standards, and this investment would result in increased general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Our officers and directors have limited liability and have indemnification rights.
Our articles of incorporation and bylaws provide that we may indemnify our officers and directors against losses sustained or liabilities
incurred which arise from any transaction in that officer’s or director’s respective managerial capacity, unless that officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an
improper dividend or derived an improper benefit from the transaction.
Risks Relating to Our Stock
Our stock price is volatile.
The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future.
The market price of the common stock may continue to fluctuate in response to a number of factors, including:
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fluctuations in our quarterly or annual operating results;
fluctuations in the cost of raw rice bran;
developments in our relationships with customers and suppliers;
our ability to obtain financing;
announcements of new products or product enhancements by us or our competitors;
announcements of technological innovations or new systems or enhancements used by us or our competitors;
the loss of services of one or more of our executive officers or other key employees;
developments in our or our competitors’ intellectual property rights;
adverse effects to our operating results due to the impairment of goodwill;
failure to meet the expectation of securities analysts’ or the public;
general economic and market conditions;
our ability to expand our operations, domestically and internationally;
the amount and timing of expenditures related to any expansion;
litigation involving us, our industry or both;
actual or anticipated changes in expectations by investors or analysts regarding our performance; and
price and volume fluctuations in the overall stock market from time to time.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been
brought against that company. Our stock price is volatile and we have been the target of shareholder litigation. Any shareholder
litigation brought against us in the future could result in substantial costs and divert our management’s attention and resources from our
business.
We have significant “equity overhang” which could adversely affect the market price of our common stock and impair our ability to
raise additional capital through the sale of equity securities.
As of March 31, 2019, 33,023,658 shares of common stock were outstanding (including 1,044,709 shares of nonvested stock),
10,767,255 shares of common stock were issuable upon exercise of our outstanding stock options and warrants, 213,524 shares of
common stock were issuable upon conversion of preferred stock and 1,215,000 shares of common stock issuable upon vesting of
restricted stock units. The possibility that substantial amounts of our common stock may be sold by investors or the perception that
such sales could occur, often called “equity overhang,” could adversely affect the market price of our common stock and could impair
our ability to raise additional capital through the sale of equity securities in the future. The issuance of the additional shares upon an
increase in our authorized shares of common stock would significantly increase the amount of our common stock outstanding and the
amount of the equity overhang.
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The authorization and issuance of preferred stock may have an adverse effect on the rights of holders of our common stock.
Our Board, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and
restrictions and issue shares of preferred stock. Any series of preferred stock could be issued with terms, rights, preferences and
restrictions that could adversely affect the rights of holders of our common stock and thereby reduce the value of our common stock.
The designation and issuance of preferred stock favorable to current management or shareholders could make it more difficult to gain
control of our board of directors or remove our current management and may be used to defeat hostile bids for control which might
provide shareholders with premiums for their shares. We have designated and issued five series of preferred stock that no longer remain
outstanding. In addition, in February 2017, we designated a seventh series of preferred stock, Series G. As of March 31, 2019, 225
shares of Series G preferred stock remain outstanding. We may issue additional series of preferred stock in the future.
If we fail to comply with the continuing listing standards of The NASDAQ Capital Market, our securities could be delisted.
Our common stock is listed on the NASDAQ Capital Market under the symbol “RIBT”. For our common stock to continue to be listed
on the NASDAQ Capital Market, we must meet the current NASDAQ Capital Market continued listing requirements, including
maintaining a minimum of $2.5 million in shareholders’ equity and maintaining a minimum common stock bid price of $1.00. If we
were unable to meet these requirements, including, but not limited to, requirements to obtain shareholder approval of a transaction other
than a public offering involving the sale or issuance equal to 20% or more of our common stock at a price that is less than the market
value of our common stock, our common stock could be delisted from the NASDAQ Capital Market. If our securities were to be delisted
from the NASDAQ Capital Market, our securities could continue to trade on the over-the-counter bulletin board following any delisting
from the NASDAQ Capital Market, or on the Pink Sheets, as the case may be. Any such delisting of our securities could have an adverse
effect on the market price of, and the efficiency of the trading market for our securities, not only in terms of the number of shares that
can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities
analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect
on our ability to raise capital in the public or private equity markets.
There can be no assurance that we will continue to meet these continued listing requirements or other Nasdaq compliance standards in
the future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We maintain various facilities that are used for manufacturing, warehousing, research and development, distribution and administrative
functions. These facilities consist of both owned and leased properties. The following table summarizes the properties used to conduct
our operations as of March 31, 2019:
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Location
Primary Use
Status
West Sacramento, California
Leased
Warehousing
Mermentau, Louisiana
Owned
Manufacturing
Lake Charles, Louisiana
Building – owned
Land – leased
Warehouse
Dillon, Montana
The Woodlands, Texas
Wynne, Arkansas
Owned
Leased
Owned
Manufacturing
Administrative, corporate office
Manufacturing
Our corporate headquarters is located in The Woodlands, Texas, where we lease approximately 5,380 square feet of administrative
office space.
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We believe that all facilities are in good operating condition, the machinery and equipment are well-maintained, the facilities are suitable
for their intended purposes and they have capacities adequate for current operations. The properties are covered by insurance but
insurance for the properties located in Louisiana is subject to high deductibles and limitations on damages due to tropical storms.
ITEM 3. LEGAL PROCEEDINGS
We currently are not a party to any material litigation or other material legal proceedings. From time to time, we may be subject to legal
proceedings and claims in the ordinary course of business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock is traded on the NASDAQ Capital Market under the symbol “RIBT.” Our CUSIP No. is 762831-10-5.
Holders
As of March 31, 2018, there were approximately 285 holders of record and 7,190 beneficial owners of our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all future earnings
for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2018, we issued the securities described below without registration under the Securities Act.
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
persons and were acquired for investment purposes only.
On November 30, 2018, we issued 106,762 shares of common stock upon the exercise of a warrant for $102,492.
During the quarter ended December 31, 2018, we issued 213,523 shares of common stock upon the conversion of 225 shares of Series
G convertible preferred stock. These issuances were exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933.
Share Repurchases
We did not repurchase any of our common stock in 2018.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
See Note 4 of our Notes to Consolidated Financial Statements for a discussion of divestitures and discontinued operations.
Results of Operations
Revenues
Cost of goods sold
Gross profit
Gross profit %
Selling, general and administrative expenses
Loss from operations
Other income (expense):
Interest expense
Change in fair value of derivative warrant liabilities
Loss on extinguishment of debt
Other, net
Total other (expense) income
Loss before income taxes
Years Ended December 31
2018
2017
Change
%
(in thousands)
$
14,762
11,780
2,982
20.2%
$
13,355
9,564
3,791
28.4%
11,194
(8,212)
9,888
(6,097)
10.5
(23.2)
(21.3)
(13.2)
(34.7)
(12)
-
-
168
156
(8,056)
(1,623)
670
(8,290)
125
(9,118)
(15,215)
$
$
Revenues increased $1.4 million, or 10.5%, in 2018 compared to the prior year. Animal feed product revenues increased 5.7%. Animal
feed product growth was primarily due to increased buying from our existing customer base driven by the cooperation agreement entered
into with Kentucky Equine Research (KER) at the end of December 2015. Food product revenues increased 14.3% year over year,
primarily due the addition of a new customer and increase in demands from existing customers along with the acquisition of Golden
Ridge.
Gross profit percentage decreased 8.2 percentage points to 20.2% in 2018 from 28.4% in the prior year. The decrease in gross profit
was primarily attributable to an approximately 16% increase in raw bran prices, product mix and reduced plant utilization during 2018
compared to 2017. The decrease in plant utilization was primarily due to closures or production delays caused by the drum dryer capital
expenditure project and plant improvements related to the SQF certification project at the Dillon plant. Additionally, our Mermentau
plant experienced a supply shortage which caused production to idle in the second quarter of 2018. Due to the supply shortage, we
shipped our animal feed orders from California which resulted in higher production and freight costs. We anticipate our ability to control
the production schedule and quality of milled rice at Golden Ridge will reduce our risk of experiencing supply shortages in 2019.
Selling, general and administrative (SG&A) expenses were $11.2 million in 2018, compared to $9.9 million in 2017, an increase of $1.3
million, or 13.2%. Salary, wages and benefit related expenses increased $0.7 million in 2018, compared to the prior year. The increase
was primarily due to the increase in headcount related to building out our sales team and an increase in headcount related to operations
and quality assurance staff to meet SQF certification. Outside services increased $0.2 million in 2018, compared to the prior year,
primarily related to Golden Ridge along with our GRAS (generally recognized as safe) project. Rent expense increased $0.1 million in
2018, compared to the prior year. The increase is related to the full year rent expense for our distribution center in Northern California.
Other increases in expenses of $0.4 million related to travel expenses of $0.1 million, increase in warehouse expenses related to SQF
certification of $0.1 million and an increase in general administrative expenses and related to the acquisition of Golden Ridge.
Corporate portion of the SG&A expenses were relatively flat in 2018, compared to the prior year. In connection with the Golden Ridge
acquisition, we incurred approximately $0.1 million in non-capitalized acquisition-related costs, primarily driven by professional fees.
Other income (expense) was $0.2 million for 2018 compared to $9.1 million of other expense for 2017. The $9.3 million decrease in
expense is primarily related to an $8.3 million loss on extinguishment comprised of (i) a $6.6 million loss related to accreting the senior
debentures and subordinated notes to face value when the notes were fully paid off in July 2017 from the HN divestiture proceeds and
(ii) a $1.7 million loss on extinguishment of debt related to the extinguishment which occurred upon replacement of subordinated notes
in February 2017. In addition, Golden Ridge was able to recover approximately $0.1 million in other income related to a previously
uncollectible debt. Interest expense decreased $1.6 million from 2017.
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Liquidity, Going Concern and Capital Resources
See Note 1 of our Notes to Consolidated Financial Statements for a discussion of liquidity.
Cash Flows
Cash used in operating activities of continuing operations is presented below (in thousands).
Cash flow from operating activities of continuing operations:
Loss from continuing operations
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock and share-based compensation
Change in fair value of derivative warrant and conversion liabilities
Loss on extinguishment of debt
Interest accreted
Deferred taxes
Other
Changes in operating assets and liabilities:
Years Ended December 31
2018
2017
$
(8,101)
$
(10,185)
773
886
-
-
-
-
(14)
757
1,073
(670)
8,290
1,000
(5,046)
32
(179)
279
(679)
303
(5,025)
Accounts receivable
Inventories
Accounts payable and accrued expenses
Other
Net cash used in operating activities of continuing operations
331
(138)
1,111
(89)
(5,241)
$
$
We used $5.2 million in operating cash during 2018, compared to $5.0 million of operating cash in 2017. We also funded $3.3 million
of capital expenditures in 2018, compared to $0.9 million in in the prior year.(cid:3)These capital expenditures relate primarily to our specialty
ingredients’ equipment in our Dillon plant and our SQF projects to certify our facilities. Offsetting these uses of cash was $11.1 million
of proceeds from warrant exercises.
As of December 31, 2018, our cash and cash equivalents balance was $7.0 million and our restricted cash balance was $0.2 million (see
Note 1), compared to $6.2 million and $0.8 million of restricted cash as of December 31, 2017.
In March 2019, we completed a private placement of 3,046,668 shares of common stock and a pre-funded warrant exercisable into
1,003,344 shares of common stock for aggregate gross proceeds of approximately $12.1 million, discussed further in Note 9.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have
a current or future material effect on our financial condition, changes in financial condition, revenue, expenses, results of operations,
liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in U.S. Dollars and in accordance with accounting principles
generally accepted in the United States (GAAP). The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are affected by
the application of our accounting policies. Our significant accounting policies are described in Note 2 to our Consolidated Financial
Statements. Critical accounting estimates are those that require application of management’s most difficult, subjective or complex
judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our
judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions.
It is possible that materially different amounts would be reported using different assumptions. The following is a description of what
we consider to be our most significant critical accounting policies.
20(cid:3)
(cid:3)
Inventories - Inventories are stated at the lower of cost or net realizable value, with cost determined by the first-in, first-out method.
We employed a full absorption procedure using standard cost techniques for the majority of our operations in 2018 and 2017. The
standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs.
Provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels, historical
obsolescence and future sales forecasts, while inventory determined to be obsolete is written off immediately.
Property and Equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the
straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred while
renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in net income (loss).
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by
the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss is recognized based
on the difference between the carrying values and estimated fair value. The estimated fair value is determined based on either the
discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in
the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends
and competitive influences. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated
costs to sell.
Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified
tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth
quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the
reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a
quantitative two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The quantitative two-
step goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value.
Multiple valuation techniques can be used to assess the fair value of the reporting unit. All of these techniques include the use of
estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the
determination of fair value or goodwill impairment, or both.
Revenue Recognition – We account for a contract with a customer when the written contract is committed, the rights of the parties,
including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially
all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single
performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling
activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service.
We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery
to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of
our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are
reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.
Amounts billed and due from our customers are classified as accounts receivables on our consolidated balance sheets and require
payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices due within
30 days or less. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from customers
prior to revenue recognition on a contract are contract liabilities, are classified as unearned revenue on our consolidated balance sheets
and are typically applied to an invoice within 30 days of receipt. Revenues recognized in 2018 include less than $0.1 million in unearned
revenue as of January 1, 2018.
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items
that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing
component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and
volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize
includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract
includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely
amount method. As of December 31, 2018, we have $0.1 million of contract liabilities recorded.
Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing
or amount of revenue recognized.
21(cid:3)
(cid:3)
Incremental costs of obtaining a revenue contract are capitalized and amortized on a straight-line basis over the expected customer
relationship period if we expect to recover those costs. As a practical expedient, we expense costs to obtain a contract as incurred if the
amortization period would have been a year or less. Typically, costs to incur revenue contracts are not significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
22(cid:3)
(cid:3)
(cid:3)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of RiceBran Technologies:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of RiceBran Technologies and subsidiaries (the Company) as of
December 31, 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash
flows, for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations
and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2018.
Houston, Texas
April 1, 2019
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
23(cid:3)
(cid:3)
(cid:3)
(cid:3)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of RiceBran Technologies:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of RiceBran Technologies (the “Company”) as of December 31, 2017,
the related consolidated statements of operations, comprehensive loss, changes in equity (deficit) and cash flows for the year ended
December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations
and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
/s/ Marcum LLP
We have served as the Company's auditor from 2014 to 2018.
New York, NY
March 15, 2018
(cid:3)
(cid:3)
24(cid:3)
(cid:3)
ASSETS
Current assets:
RiceBran Technologies
Consolidated Balance Sheets
December 31, 2018 and 2017
(in thousands, except share amounts)
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $14 and $8
Purchase price working capital receivable
Inventories
Finished goods
Packaging
Deposits and other current assets
Total current assets
Property and equipment, net
Goodwill
Other long-term assets, net
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Commodities payable
Accrued salary, wages and benefits
Accrued expenses
Unearned revenue
Escrow liability
Note payable to seller of Golden Ridge
Long term debt, current portion
Total current liabilities
Long term debt, less current portion
Total liabilities
Commitments and contingencies
Shareholders' Equity:
2018
2017
$
7,044
225
2,529
1,147
$
6,203
775
1,273
-
856
102
610
12,513
15,010
3,178
16
$
30,717
564
114
519
9,448
7,850
-
63
$
17,361
$ 1,583
2,735
933
520
145
259
609
77
6,861
145
7,006
$ 765
-
773
741
75
258
-
4
2,616
12
2,628
Preferred stock, 20,000,000 shares authorized:
Series G, convertible, 3,000 shares authorized,
405 and 630 shares issued and outstanding in 2018 and 2017, respectively
201
313
Common stock, no par value, 50,000,000 shares authorized,
29,098,207 and 18,046,731shares issued and outstanding
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
296,739
(273,229)
23,711
$
30,717
279,548
(265,128)
14,733
$
17,361
(cid:3)
See Notes to Consolidated Financial Statements
25(cid:3)
(cid:3)
RiceBran Technologies
Consolidated Statements of Operations
Years Ended December 31, 2018 and 2017
(in thousands, except share and per share amounts)
Revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Loss from continuing operations before other income (expense)
Other income (expense):
Interest expense
Change in fair value of derivative warrant liabilities
Loss on extinguishment of debt
Other income
Other expense
Total other income (expense)
Loss from continuing operations before income taxes
Income tax (expense) benefit
Loss from continuing operations
Income from discontinued operations, net of tax
Net loss
Less - Net loss attributable to noncontrolling interest
in discontinued operations
Net loss attributable to RiceBran Technologies shareholders
Less - Dividends on preferred stock, beneficial conversion feature
Net loss attributable to RiceBran Technologies common shareholders
Basic earnings (loss) per common share:
Continuing operations
Discontinued operations
Basic loss per common share - RiceBran Technologies
Diluted earnings (loss) per common share:
Continuing operations
Discontinued operations
Diluted loss per common share - RiceBran Technologies
Weighted average number of shares outstanding:
Basic
Diluted
See Notes to Consolidated Financial Statements
26(cid:3)
2018
2017
$
14,762
11,780
2,982
11,194
(8,212)
$
13,355
9,564
3,791
9,888
(6,097)
(12)
-
-
193
(25)
156
(8,056)
(45)
(8,101)
-
(8,101)
(1,623)
670
(8,290)
307
(182)
(9,118)
(15,215)
5,030
(10,185)
3,983
(6,202)
-
(8,101)
-
(8,101)
$
(1,671)
(4,531)
778
(5,309)
$
$
$
$
$
$
$
$
$
(0.37)
-
(0.37)
(0.37)
-
(0.37)
(0.92)
0.47
(0.45)
(0.92)
0.47
(0.45)
22,099,149
22,099,149
11,923,923
11,923,923
(cid:3)
Net loss
RiceBran Technologies
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2018 and 2017
(in thousands)
Other comprehensive income - foreign currency translation, net of tax
Comprehensive loss, net of tax
Less - Comprehensive loss attributable to noncontrolling interest, net of tax
2018
2017
$ (8,101)
$ (6,202)
-
184
(8,101)
(6,018)
-
(1,614)
Total comprehensive loss attributable to RiceBran Technologies shareholders
$
(8,101)
$
(4,404)
See Notes to Consolidated Financial Statements
27(cid:3)
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(cid:3)
RiceBran Technologies
Consolidated Statements of Cash Flows
Years Ended December 31, 2018 and 2017
(in thousands)
Cash flow from operating activities:
Net loss
Income from discontinued operations
Loss from continuing operations
Adjustments to reconcile net loss from continuing operation to net cash used in operating
activities of continuing operations:
Depreciation and amortization
Stock and share-based compensation
Change in fair value of derivative warrant and conversion liabilities
Loss on extinguishment of debt
Interest accreted
Deferred taxes
Other
Changes in operating assets and liabilities (net of acquisition):
Accounts receivable
Inventories
Accounts payable and accrued expenses
Other
Net cash used in operating activities of continuing operations
Net cash provided by operating activities of discontinued operations
Net cash used in operating activities
Cash flows from investing activities:
Acquisition of Golden Ridge, net of cash acquired
Disbursement of notes receivable
Purchases of property and equipment
Net cash used in investing activities of continuing operations
Net cash provided by investing activities of discontinued operations
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from warrant exercises
Payments of debt
Proceeds from issuance of debt, net of issuance costs
Proceeds from issuance of debt and warrants, net of issuance costs
Proceeds from issuance of preferred stock and warrants, net of issuance costs
Proceeds from issuance of common stock, net of issuance costs
Other
Net cash provided by (used in) provided by financing activities of continuing operations
Net cash provided by financing activities of discontinued operations
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents of discontinued operations
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents
Restricted cash
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
Cash and cash equivalents
Restricted cash
Cash and cash equivalents and restricted cash, end of period
Net change in cash and cash equivalents and restricted cash
Supplemental disclosures, continuing operations:
Cash paid for interest of continuing operations
2018
2017
$
(8,101)
-
(8,101)
$
(6,202)
3,983
(10,185)
773
886
-
-
-
-
(14)
331
(138)
1,111
(89)
(5,241)
-
(5,241)
(1,862)
(475)
(3,248)
(5,585)
-
(5,585)
757
1,073
(670)
8,290
1,000
(5,046)
32
(179)
279
(679)
303
(5,025)
1,251
(3,774)
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(862)
(862)
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15,139
11,106
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$
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6,978
7,044
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7,269
291
$
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5,518
1,747
2,778
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1,062
(4,883)
154
6,636
$
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$
-
342
6,203
775
6,978
6,636
$
$
10
$
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See Notes to Consolidated Financial Statements
29(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 1. LIQUIDITY AND MANAGEMENT’S PLAN
We believe that despite the multi-year history of operating losses and negative operating cash flows from our continuing operations,
there is no substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements
are issued.(cid:3)(cid:3)The factors that alleviated the doubt are summarized below:
(cid:120)
Cash and cash equivalents increased $0.8 million, from $6.2 million as of December 31, 2017, to $7.0 million as of December
31, 2018.
(cid:120) Our $7.0 million cash position at December 31, 2018 exceeds our $5.2 million negative cash flow from operating activities of
(cid:120)
continuing operations.
In 2018, we received $11.1 million in proceeds from warrant exercises that significantly increased our cash position as well as
our shareholders’ equity.
(cid:120) We acquired Golden Ridge, a cash flows positive operation.
(cid:120)
Subsequent to year end 2018, we completed with strategic institutional investors including Continental Grain Company, DG
Capital Management and Dillon Hill Capital, a private placement of 3,046,668 shares of common stock and a pre-funded
warrant exercisable into 1,003,344 shares of common stock for aggregate gross proceeds of approximately $12.1 million, as
discussed further in Note 9. We also received approximately $2.0 million in proceeds from warrant holders for warrants
exercised in March 2019, discussed further in Note 9.
NOTE 2 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
We are an 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 raw rice bran, an underutilized by-product of the rice milling industry. We
apply our proprietary and patented technologies and intellectual properties to convert raw rice bran into numerous high value products
including stabilized rice bran (SRB), RiBalance, a complete rice bran nutritional package derived from further processing of SRB;
RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluble derivative of RiBalance,
and ProRyza, rice bran protein-based products, and a variety of other valuable derivatives extracted from these core products. Our target
markets are natural food, food and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally. In
connection with the acquisition of Golden Ridge, we are now a supplier of rice, specializing in #1 and #2 Grade U.S. premium long and
medium white rice.
We manufacture and distribute SRB for food and animal nutrition customers, in various granulations along with Stage II products and
derivatives. Stage II refers to the proprietary, patented processes run at our Dillon, Montana facility and includes products produced at
that facility. Over the past decade, we have developed and optimized our proprietary processes to 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.
We produce SRB in four locations: two leased raw rice bran stabilization facilities located within supplier-owned rice mills in Arbuckle
and West Sacramento, California; one company-owned rice bran stabilization facility in Mermentau, Louisiana, and now our first
company-owned rice mill in Wynne, Arkansas, the largest rice producing state in the United States. At our Dillon, Montana facility, we
produce our process patented Stage II products including: RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of SRB;
RiFiber, a fiber rich derivative of SRB; RiBalance, a complete rice bran nutritional package derived from further processing SRB, and
our ProRyza family of products including, protein- and protein/fiber-based products. We operate proprietary processing equipment and
process-patented technology for the stabilization and further processing of rice bran into finished products.
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation – The accompanying consolidated financial statements have been prepared in
U.S. Dollars and in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of the
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and
expenses. Actual results may differ from those estimates. The accompanying consolidated financial statements include the accounts of
RiceBran Technologies and all subsidiaries in which we have a controlling interest. All significant inter-company balances are
eliminated in consolidation. Variable interest in subsidiaries for which we are the primary beneficiary are consolidated. Noncontrolling
interests in our subsidiaries are recorded net of tax as net earnings (loss) attributable to noncontrolling interests.
30(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Because of the uncertainty inherent in such estimates, actual results could differ from
those estimates.
Reclassifications – Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation
with the current year.
Cash and Cash Equivalents – We consider all highly liquid investments purchased with an original maturity of three months or less at
the time of purchase to be cash equivalents. In all periods presented, we maintained our cash and cash equivalents with major banks.
We maintain cash in bank accounts in amounts which at times may exceed federally insured limits. We have not experienced any losses
on such accounts.
Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable represent amounts receivable on trade accounts.
The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of accounts
receivable. We analyze the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends
and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts. From period to
period, differences in judgments or estimates utilized may result in material differences in the amount and timing of the provision for
doubtful accounts. We periodically evaluate our credit policy to ensure that the customers are worthy of terms and support our business
plans.
Inventories – In our continuing operations, inventories are stated at the lower of cost or net realizable value. We employed a full
absorption procedure using standard cost techniques for the majority of our operations in 2018 and 2017. The standards are customarily
reviewed and adjusted so that they are materially consistent with actual purchase and production costs. Provisions for potentially
obsolete or slow-moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales
forecasts, while inventory determined to be obsolete is written off immediately.
Property and Equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the
straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred while
renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in net income (loss).
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by
the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss is recognized based
on the difference between the carrying values and estimated fair value. The estimated fair value is determined based on either the
discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in
the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends
and competitive influences. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated
costs to sell.
Goodwill – Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified
tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth
quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the
reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a
quantitative two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The quantitative two-
step goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value.
Multiple valuation techniques can be used to assess the fair value of the reporting unit. All of these techniques include the use of
estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the
determination of fair value or goodwill impairment, or both.
Revenue Recognition – We account for a contract with a customer when the written contract is committed, the rights of the parties,
including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially
all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single
performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling
activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service.
31(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery
to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of
our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are
reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.
Amounts billed and due from our customers are classified as accounts receivables on our consolidated balance sheets and require
payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due
within 30 days or less. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from
customers prior to revenue recognition on a contract are contract liabilities, are classified as unearned revenue on our consolidated
balance sheets and are typically applied to an invoice within 30 days of receipt. Revenues recognized in 2018 include less than $0.1
million in unearned revenue as of January 1, 2018.
Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items
that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing
component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and
volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize
includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract
includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely
amount method. As of December 31, 2018, we have $0.1 million of contract liabilities recorded.
Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing
or amount of revenue recognized.
Incremental costs of obtaining a revenue contract are capitalized and amortized on a straight-line basis over the expected customer
relationship period if we expect to recover those costs. As a practical expedient, we expense costs to obtain a contract as incurred if the
amortization period would have been a year or less. Typically, costs to incur revenue contracts are not significant.
Selling, General and Administrative Expenses – Selling, general and administrative expenses include salaries and wages, bonuses
and incentives, share-based compensation expense, employee-related expenses, facility-related expenses, marketing and advertising
expense, depreciation of non-operating property and equipment, professional fees, amortization of intangible assets, provisions for losses
on accounts receivable and other operating expenses.
Research and Development – Research and development expenses include internal and external costs. Internal costs include salaries
and employment related expenses. External expenses consist of costs associated with product development. All such costs are charged
to expense in the period they are incurred.
Share-Based Compensation – 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, reduced for estimated forfeitures, and
expensed on a straight-line basis over the service period of the grant. We recognize forfeitures as they occur. Prior to 2017, forfeitures
were estimated at the time of grant based on our historical forfeiture experience and are revised in subsequent periods if actual forfeitures
differ from those estimates. 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, 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 is recognized on a straight-line basis over the requisite service period for the
entire award.
32(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
We account for share-based compensation awards granted to non-employees and consultants by determining the fair value of the awards
granted at either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably
measured. Generally, we value stock options granted to non-employees and consultants using the Black-Scholes-Merton valuation
model and stock at the fair value of the award. If the fair value of the equity instruments issued is used, it is measured using the stock
price and other measurement assumptions as of the earlier of (i) the date at which a commitment for performance by the counterparty to
earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete. The expense associated with
stock awards issued to consultants or other third parties 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 value is re-measured each reporting period over
the requisite service period.
Income Taxes – We account for income taxes by recording a deferred tax asset or liability for the recognition of future deductible or
taxable amounts and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of timing
differences between the recognition of assets and liabilities for financial reporting and tax purposes during the year.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards. A valuation allowance is established, when necessary, to reduce that deferred tax asset
if it is more likely than not that the related tax benefits will not be realized. Due to the complexity of some of these uncertainties, the
ultimate resolution may result in a payment that may be different from current estimates of the tax liabilities. If our estimate of tax
liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts
ultimately proves to be less than the recorded amounts, the reversal of the liabilities may result in income tax benefits being recognized
in the period when it is determined that the liabilities are no longer necessary.
On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the Tax
Cuts and Jobs Act or TCJA). The TCJA permanently reduces the U.S. federal corporate tax rate from a maximum 35% to 21%,
eliminates corporate Alternative Minimum Tax, modified rules for expensing capital investment, limits the deduction of interest expense
for certain companies and has international tax consequences for companies that operate internationally. Most of the changes introduced
in the TCJA are effective beginning on January 1, 2018.
Recent Accounting Guidance
Recent accounting standards not yet adopted
The following represent the standards not yet adopted that will, or are expected to, result in a significant change in practice and/or
have a significant financial impact on us.
In February 2016, the Financial Accounting Standards Board (FASB) issued guidance which changes the accounting for leases, ASU
2016-02, Leases (and subsequent guidance related to the topic in ASUs 2018-11). This update requires a lessee to recognize on the
balance sheet the right-of-use assets and lease liabilities for leases with a lease term of more than twelve months. Under prior GAAP,
the recognition, measurement and presentation of expenses and cash flows arising from a lease for us as a lessee depend primarily on
the lease’s classification as a finance or operating lease. For both types of leases, lessees will recognize a right-of-use asset and a lease
liability. For capital or finance leases, lessees will recognize amortization of the right-of-use asset separately from interest expense on
the lease liability. The guidance is effective for our annual and interim periods beginning January 1, 2019, and must be adopted on a
modified retrospective approach. We intend to elect to adopt the optional transition method to apply the standard as of the effective
date and to recognize a cumulative effect adjustment to the opening balance to retained earnings effective January 1, 2019. We expect
to elect certain practical expedients permitted under Topic 842, including the practical expedient for short-term leases in which a lessee
is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities for
leases with a term of 12 months or less. In addition, we expect to elect the package of practical expedients permitted under the transition
guidance within Topic 842, which among other things, allows us to carry forward the historical lease classification. We expect to record
operating lease right of use assets of approximately $2.8 million to $3.2 million and operating lease liabilities of approximately $3.0
million to $3.5 million at adoption, with the difference being a reduction to existing liabilities, upon adoption as of January 1, 2019.
33(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting.” This update expands the scope of Topic 718 to include all share-based payment transactions for
acquiring goods and services from nonemployees. The amendments in this update specify that Topic 718 applies to all share-based
payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-
based payment awards. The amendments in this update also clarify that Topic 718 does not apply to share-based payments used to
effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part
of a contract accounted for under ASC Topic 606. The amendments in this update are effective for the Company on January 1, 2019.
We expect no impact upon adoption.
Recently adopted accounting standards
In May 2014, the FASB issued guidance on revenue from contracts with customers to clarify the principles for recognizing revenue,
ASU 2014-09, Revenue: Revenue from Contracts with Customers (and subsequent guidance related to the topic in ASUs 2016-08, 2016-
10, 2016-12. 2016-20, and 2017-14). On January 1, 2018, we adopted the guidance using the modified retrospective method. Upon
completing our implementation assessment of the guidance, we concluded that no adjustment was required to the opening balance of
retained earnings at the date of initial application. We applied the guidance to all contracts as of January 1, 2018. The comparative
information has also not been restated and continues to be reported under the accounting standards in effect for those periods. Additional
disclosures required by the guidance are presented within the revenue recognition policy disclosure above. See Note 6 for revenue
disaggregated by product line and geography.
NOTE 3. ACQUISITIONS
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 and patented
technologies. The acquisition has been accounted for as a business combination under ASC 805. The results of Golden Ridge’s
operations are included in our consolidated financial statements beginning November 28, 2018. In 2018, we incurred $0.1 million of
acquisition-related costs which are included in selling, general and administrative expenses.
The following table summarizes the preliminary purchase price allocation (PPA), the consideration transferred to acquire the Golden
Ridge business, as well as the amounts of identified assets acquired and liabilities assumed based on the estimated fair value as of the
November 28, 2018, acquisition date (in thousands, except share and per share amounts).
1,666,667 shares of common stock, at fair value of $3.00 per share at Closing
Golden Ridge financial liabilities paid for the seller
Cash
Note payable to seller
Working Capital Adjustment Receivable
Total fair value of consideration transferred
Cash
Accounts Receivable
Inventories
Property and equipment
Accounts Payable
Commodities Payable
Accrued Expenses
Equipment Notes
Net recognized amounts of identifiable assets acquired
Goodwill
$ 5,000
2,661
250
609
(1,147)
7,373
409
1,587
103
5,092
(222)
(2,559)
(12)
(203)
4,195
$
3,178
The 1,666,667 shares issued at closing include 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 December 31, 2018, the 380,952 shares remain in escrow and there is no
escrow receivable for amounts receivable under the indemnification obligations. The fair value of trade receivables at November 28,
2018, was $1.5 million, which was $0.1 million less than the amount of gross trade receivables. The $3.2 million to goodwill is primarily
attributable to the expected synergies and the assembled workforce of Golden Ridge and is deductible for tax purposes over the next
fifteen years. We paid an installment on the note payable to the seller in January 2019. The note payable to the seller bears interest at
34(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
6.8% and is due November 2019. Management’s provisional estimation of the working capital adjustment receivable is recorded in the
PPA and is subject to finalization with the seller. Any adjustment to the working capital adjustment receivable would change the net
consideration with an adjustment to goodwill.
In July 2018, we loaned $0.6 million to Golden Ridge Rice Mills, LLC, as evidenced by notes in exchange for $0.4 million of cash and
property with a net book value of $0.1 million. We recognized a $0.1 million gain on disposition of property upon issuance of the notes.
In October 2018, we loaned another $0.1 million to the same supplier, as evidenced by an amended note. The notes carried interest at
a rate of 6% per year. The notes were effectively settled with the acquisition and the $0.1 million note issued in exchange for property
is treated as a noncash transaction in the statements of cash flows.
Our 2018 revenues and net loss included approximately $0.9 million $0.2 million related to the acquired business, respectively. The
following table provides unaudited pro forma information for 2018 and 2017 as if the acquisition had occurred January 1, 2017 (in
thousands, except share and per share amounts).
Revenues
Net loss from continuing operations
Net loss per share attributable to common shareholders
Weighted average number of common shares outstanding - Basic and Diluted
Years Ended December 31
2018
2017
$
$
$
30,289
(10,601)
(0.45)
23,615,131
$
$
$
24,955
(10,363)
(0.40)
13,590,590
No adjustments have been made for synergies that are resulting or planned from the acquisition. The unaudited proforma information
is not indicative of the results that may have been achieved had the companies been combined as of January 1, 2017, or of our future
operating results.
NOTE 4. DISCONTINUED OPERATIONS
In the second quarter of 2017, we determined that our plans to dispose of our wholly owned subsidiary Healthy Natural (HN) and to
divest of our investment in Nutra SA, LLC (Nutra SA) met the criteria for presentation as discontinued operations. Accordingly, the
HN and Nutra SA operating results are presented as discontinued operations and are excluded from continuing operations for all periods
presented.
35(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
The following table summarizes the major line items included in the income from discontinued operations, cash flows from discontinued
operations, and other data related to the discontinued operations (in thousands).
Revenues
Cost of goods sold
Selling, general and administrative expenses
Other income (expense)
Income (loss) from operations, before income taxes
Income tax expense
Income (loss) from operations, net of tax
Gain (loss) on sale or disposition
Income tax benefit (expense)
Gain (loss) on sale or disposition, net of tax
Income (loss) from discontinued operations, net of tax
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net cash provided by (used in) continuing operations
HN
$
Total
$
2017
Nutra SA
12,209
$
(12,517)
(3,188)
(1,224)
(4,720)
-
(4,720)
(1,897)
695
(1,202)
(5,922)
$
(1,152)
(692)
1,114
154
(576)
9,902
(6,651)
(462)
-
2,789
(1,048)
1,741
12,883
(4,719)
8,164
9,905
2,403
16,693
(52)
-
19,044
$
$
$
$
$
$
$
$
22,111
(19,168)
(3,650)
(1,224)
(1,931)
(1,048)
(2,979)
10,986
(4,024)
6,962
3,983
1,251
16,001
1,062
154
18,468
Depreciation included in cost of goods sold
Depreciation included in selling, general and administrative expenses
Capital expenditures
$
96
49
18
$
897
56
142
$
993
105
160
Net cash provided by investing activities in the table above is presented in our consolidated statements of cash flows in net cash provided
by (used in) investing activities of discontinued operations and includes the $16.7 million net proceeds from the sale of HN and the $0.5
million net payments upon divestiture of Nutra SA.
Healthy Natural (HN) Discontinued Operations
In July 2017, we completed the sale of the assets of HN for $18.3 million in cash. The selling price is subject to adjustment if the
estimated closing working capital with respect to the assets sold and the liabilities assumed is different than the actual closing working
capital for those assets and liabilities. The sale agreement contains customary indemnification provisions and provisions that restrict us
from engaging in a business conducted by HN for five years from the date of closing. A $0.2 million working capital adjustment escrow
and a $0.6 million indemnity claim escrow were funded from the proceeds and are classified as restricted cash. The indemnity claim
escrow was released to us in the second quarter of 2018.
On a preliminary basis, we estimated a working capital adjustment of $0.3 million as of December 31, 2018 and 2017. The working
capital adjustment will result in an adjustment to the initial net proceeds of $16.7 million and the gain on the sale of $8.2 million, net of
a $4.7 million income tax provision which we recognized in 2017. The definition of working capital under the agreement is subject to
interpretation and we have not yet finalized the adjustment with the purchaser of HN. The final adjustment may differ from the estimate.
36(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
The following table summarizes the carrying amount of HN as of the July 14, 2017 sale (in thousands).
Accounts receivable, net
Inventories
Other current assets
Property and equipment
Intangible
Other
Assets
Accounts payable
Accrued expenses
Liabilities
Net assets sold
$
871
1,987
47
871
791
24
4,591
759
290
1,049
3,542
$
Nutra SA Discontinued Operations
On November 28, 2017, Nutra SA redeemed our entire membership interest in Nutra SA. We no longer hold any interest in Nutra SA.
We held a variable interest in our equity interest in Nutra SA. We were the primary beneficiary of Nutra SA, and as such, Nutra SA’s
assets, liabilities and results of operations were included in the consolidated financial statements through November 28, 2017, the date
of disposal of Nutra SA. The minority investors in Nutra SA held an average interest in Nutra SA of 36% in 2017, through the date of
disposal.
Cash provided by Nutra SA operations was generally unavailable for distribution to our continuing operations under the terms of the
LLC Agreement. Nutra SA’s only operating subsidiary was Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas,
Brazil. Nutra SA’s debt was secured by Irgovel’s accounts receivable and property. The non-Brazilian entities within the consolidated
ownership group did not guarantee any of Nutra SA’s debt. No interest related to debt held by non-Brazilian entities was allocated to
Nutra SA in any period presented.
We recorded a $1.2 million loss on disposal of Nutra SA in the fourth quarter of 2017. The following table summarizes the estimated
carrying amount of the Nutra SA net liabilities disposed as of the November 28, 2017, disposal date and the components of the Nutra
SA loss on disposal (in thousands).
Cash
Accounts receivable, net
Inventories
Other current assets
Property and equipment
Other
Accounts payable
Accrued expenses
Debt
Net liabilities disposed
Foreign curency translation adjustment
Redeemable noncontrolling interest
Payments to purchaser at disposal
Other
Loss on disposal of Nutra SA
Income tax benefit
Loss on disposal of Nutra SA, net of tax
$
20
653
630
413
10,070
1,435
(2,560)
(7,878)
(7,345)
(4,562)
4,218
1,663
540
37
1,896
(694)
1,202
$
NOTE 5. INCOME (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
stocks 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.
37(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Diluted EPS is computed by dividing the net income attributable to RiceBran Technologies common shareholders by the weighted
average number of common shares outstanding during the period increased by the number of additional common shares that would have
been outstanding if the impact of assumed exercises and conversions is dilutive. 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.
Below are reconciliations of the numerators and denominators in the EPS computations.
Years Ended December 31
2018
2017
NUMERATOR (in thousands):
Basic and diluted - loss from continuing operations
Dividend on preferred stock--beneficial conversion feature
Basic and diluted - adjusted loss from continuing operations
DENOMINATOR (in thousands):
Basic EPS - weighted average number of common shares outstanding
Effect of dilutive securities outstanding
Diluted EPS - weighted average number of shares outstanding
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
Warrants
Convertible preferred stock
Restricted stock units
Weighted average number of nonvested shares of common stock
not included in diluted EPS because effect would be antidilutive
$
$
(8,101)
-
(8,101)
$
$
(10,185)
(778)
(10,963)
22,099,149
11,923,923
-
-
22,099,149
11,923,923
911,264
16,383,944
581,680
623,603
514,961
21,588,045
2,529,872
601,986
1,169,986
1,249,234
The impacts of potentially dilutive securities outstanding at December 31, 2018 and 2017, were not included in the calculation of diluted
EPS in 2018 and 2017 because to do so would be anti-dilutive. Those securities listed in the table above which were anti-dilutive in
2018 and 2017, which remain outstanding, could potentially dilute EPS in the future.
NOTE 6. 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
consolidated totals) are stated below as a percent of consolidated totals.
% of revenue, 2018
% of revenue, 2017
Customer
A
C
B
1%
17% 14%
0%
17% 14%
D
4%
0%
% of accounts receivable, as of December 31, 2018
% of accounts receivable, as of December 31, 2017
13%
25%
0% 16% 14%
0%
0%
0%
We purchase rice bran from five suppliers. Purchases from these suppliers represent 40% of our cost of goods sold in 2018 and 37% of
our cost of goods sold in 2017.
38(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
The following table presents revenues by geographic area shipped to (in thousands).(cid:3)
Years Ended December 31
2018
2017
United States
Other international
Revenues
$
$
13,469
1,293
14,762
$
$
12,196
1,159
13,355
The following table presents revenues by product line (in thousands).(cid:3)
Food
Animal nutrition
Revenues
NOTE 7. PROPERTY AND EQUIPMENT
Land
Furniture and fixtures
Plant
Computer and software
Leasehold improvements
Machinery and equipment
Property and equipment, cost
Less accumulated depreciation
Property and equipment, net
Years Ended December 31
2018
2017
$
$
8,600
6,162
14,762
$
$
7,525
5,830
13,355
December 31
2018
2017
Estimated Useful Lives
$
$
585
430
8,613
1,295
681
13,528
25,132
10,122
15,010
237
311
6,580
1,207
274
8,677
17,286
9,436
7,850
$
$
5-7 years
30 years, or life of lease
3-5 years
4-7 years or life of lease
5-10 years
For the years ended December 31, 2018 and 2017, depreciation expense totaled $0.7 million and $0.6 million, respectively. As of
December 31, 2018, we recorded approximately $0.5 million of fixed assets in accounts payable.
39(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 8. DEBT
Future principal maturities of debt outstanding December 31, 2018, are as follows (in thousands):
Equipment
Notes
$
32
22
23
14
91
Capital
Lease
Obligations
45
$
48
32
6
131
$
Note
Payable to
Seller
609
$
-
-
-
609
$
Total Debt
686
$
70
55
20
831
$
2019
2020
2021
2022
Total
$
The equipment notes expire at dates ranging from February 2019 to August 2022 and the capital lease obligations expire at dates ranging
from March 2021 to November 2022. Obligations under the notes and the majority of the leases were initially recorded in November
2018 when we assumed the debt in 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.
We issued senior debentures in the principal amount of $6.6 million and related warrants in a private placement. In connection with the
senior debenture private placement, in February 2017, we also entered into agreements that resulted in (i) a reduction in the annual
interest rate on the subordinated notes from 11.8% to 7%, (ii) an extension of the maturity date of the subordinated notes to May 2019
from May 2018 and (iii) our first quarter 2017 payment of $0.2 million of note principal and $0.3 million of accrued note interest. The
transactions, and the accounting therefore, are described further in Note 9.
Until July 2017, when we repaid the senior debentures and the subordinated notes in full with the proceeds from the sale of HN in July
2017, we accreted interest on the debentures at an effective rate of 160.6% per year and on the subordinated notes at 15.0% per year.
Upon extinguishment in July 2017, we recognized a loss on extinguishment of $6.6 million for the differences between (i) the $0.6
million carrying amount of the senior debentures and the $6.6 million face value paid and (ii) the $5.3 million carrying amount of the
subordinated notes and the $6.0 million face value paid.
In February 2017, we used the net proceeds from the senior debenture private placement, discussed further in Note 9, to pay in full the
outstanding senior revolving loan and the senior term loan.
The note payable to the seller bears interest at 6.8% and is due November 2019. We paid an installment on the note payable to the seller
in January 2019.
NOTE 9. EQUITY, SHARE-BASED COMPENSATION, WARRANTS AND FINANCING TRANSACTIONS(cid:3)
In February 2017, shareholders approved and we filed an amendment to our articles of incorporation increasing our authorized shares
of common stock from 25,000,000 to 50,000,000.
Our board of directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference,
rights and restrictions and issue shares of preferred stock. We previously designated and issued six series of preferred stock of which
no shares remain outstanding. In addition, we designated and issued a seventh series of preferred stock, 2,000 shares of Series G in
2017, of which 405 shares remain outstanding as of December 31, 2018.
The Series G preferred stock is non-voting and may be converted into shares of our common stock at the holders’ election at any time,
subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 948.9915 shares of common stock. The Series G
preferred stock is entitled to receive dividends if we pay dividends on our common stock, in which case the holders of Series G preferred
stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is
issuable upon conversion of the Series G preferred stock. If we are liquidated or dissolved, the holders of Series G preferred stock are
entitled to receive, before any amounts are paid in respect of our common stock, an amount per share of Series G preferred stock equal
to $1,000, plus any accrued but unpaid dividends thereon.
40(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Series F preferred stock is no longer outstanding. The Series F preferred stock was non-voting and could be converted into shares of
our common stock at the holder’s election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share
for 666.66666 shares of common stock. The Series F preferred stock was only entitled to receive dividends if we declared dividends,
in which case the dividend was to be paid (i) first an amount equal to $0.01 per share of preferred stock and (ii) then to and in the same
form as dividends paid on shares of our common stock. Otherwise, the Series F preferred stock had no liquidation or other preferences
over our common stock.
Share-based compensation expenses related to stock options, stock and restricted stock units issued to employees and directors are
included in selling, general and administrative expenses. The following table provides a detail of share-based compensation expense
(in thousands).
Stock options
Common stock, vested at issuance and nonvested at issuance
Restricted stock units
Compensation expense related to common stock
awards issued under equity incentive plans
Share Sequencing
Years Ended December 31
2017
2018
$
132
476
102
$
176
744
27
$
710
$
947
From June 2015 until March 2017, the minority interest holders in Nutra SA could elect to exchange units in Nutra SA for shares of our
common stock, the number of common stock and warrants issuable upon this election, was variable and indeterminate. For accounting
purposes, we were not able to conclude that we had sufficient authorized and unissued shares to settle all contracts subject to the GAAP
derivative guidance during the period the minority interest holders had this right, which the right terminated March 31, 2017. Our
adopted sequencing approach (Share Sequencing) was based on earliest issuance date, therefore, we were required to carry warrants
issued between June 2015 and March 2017, at fair value, as a derivative warrant liability, and preferred stock issued between June 2015
and March 2017, in temporary equity. We reclassified the affected warrants from derivative warrant liability to equity at an amount
equal to the warrants’ fair value on March 31, 2017, and we reclassified the amounts related to the 3,000 shares of Series F preferred
stock and 2,000 shares of Series G preferred stock from temporary equity to equity at the preferred stocks’ carrying amount on March
31, 2017.
Warrants
The following table summarizes information related to outstanding warrants:
Range of
Exercise Prices
$0.96
$1.60
$2.00
$3.30
$5.25 to $5.87
$6.55 to $16.80
Shares
Under
Warrants
6,945,994
-
50,000
600,000
2,571,670
85,050
10,252,714
December 31, 2018
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
$
$
0.96
NA
2.00
3.30
5.34
6.63
2.25
3.1
NA
4.1
0.3
0.5
0.5
2.3
December 31, 2017
Shares
Under
Warrants,
Exercisable
Cashless
(1)
3,774,344
-
-
-
384,536
85,050
4,243,930
Shares
Under
Warrants
12,972,832
300,000
2,660,000
-
3,156,670
2,067,771
21,157,273
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
$
$
0.96
1.60
2.00
NA
5.33
6.61
2.30
4.1
2.4
3.6
NA
1.7
1.0
3.4
(1) Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. The shares
listed represent the shares holders could exercise cashless as of December 31, 2018. 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. Should 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.
41(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
The following table summarizes warrant activity.
Outstanding, January 1, 2017
Issued
Impact of repricing senior debenture purchaser warrants:
Prior to repricing
After repricing
Impact of repricing subordinated note holder warants:
Prior to repricing
After repricing
Impact of anti-dilution clauses:
Prior to impact
After impact
Transfer from liability to equity
Exercised
Outstanding, December 31, 2017
Issued
Impact of warrant modification:
Prior to modifcation
After modification
Exercised cashless
Exercised for cash
Expired
Outstanding, December 31, 2018
Equity Warrants
Liability Warrants
Shares
Underlying
6,364,110
25,000
Weighted
Average
Exercise Price
5.77
$
0.96
Weighted
Average
Remaining
Contractual
Life (Years)
2.44
5.01
Shares
Underlying
4,474,868
11,783,163
Weighted
Average
Exercise Price
1.82
$
0.96
Weighted
Average
Remaining
Contractual
Life (Years)
3.3
5.0
(875,000)
875,000
(289,669)
289,669
-
-
14,768,163
-
21,157,273
315,000
(850,000)
600,000
(300,000)
(8,686,838)
(1,982,721)
10,252,714
5.49
0.96
5.25
0.96
NA
NA
1.16
NA
2.30
4.73
5.27
3.30
1.60
1.28
6.61
2.25
$
2.1
5.5
3.3
3.3
NA
NA
4.8
NA
3.4
NA
1.6
0.6
1.8
3.6
-
2.3
2.3
-
-
-
-
(1,489,868)
2,327,919
(14,768,163)
(2,327,919)
-
-
-
-
-
-
-
-
-
NA
NA
NA
NA
1.50
0.96
1.16
0.96
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
0.8
0.8
4.8
-
NA
NA
NA
NA
NA
NA
NA
NA
NA
Exercisable, December 31, 2018
10,252,714
$
2.25
Transactions with Preferred Stock Holders.
In February 2017, we issued and sold 2,000 shares of Series G preferred stock and sold warrants to purchase 1,423,488 shares of common
stock (exercise price of $0.96 per share, exercisable beginning in February 2017 and expiring in February 2022). A subordinated note
holder exchanged subordinated notes with a principal and carrying value of $0.1 million and cash for 180 shares of the Series G preferred
stock and related warrants, which was treated as an extinguishment of debt. The net cash proceeds from the sale was $1.7 million, after
deducting allocated cash offering expenses of $0.1 million. On the date of issuance, we allocated $1.0 million of the proceeds to
derivative warrant liability, to record the warrants at fair value, recorded a $0.1 million loss on extinguishment and reduced debt $0.1
million related to the subordinated noteholders exchange, and recorded $1.2 million as preferred stock. We recorded a $0.8 million
dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock
issued to purchases who did not exchange debt, as the fair value of the common stock underlying the convertible preferred stock at
issuance exceeded the amount recorded in preferred stock.
In the fourth quarter of 2017, we issued 968,491 shares of common stock upon conversion of 499 shares of Series F preferred stock and
670 shares of Series G preferred stock. In third quarter of 2017, we issued 2,111,188 shares of common stock upon conversion of 2,186
shares of Series F preferred stock and 689 shares of Series G preferred stock. In second quarter of 2017, we issued 220,439 shares of
common stock upon conversion of 315 shares of Series F preferred stock and 11 shares of Series G preferred stock. We reclassified the
$1.2 million carrying value of the related preferred stock to common stock in 2017.
In the fourth quarter of 2018, we issued 213,523 shares of common stock upon conversion of 225 shares of Series G preferred stock.
We reclassified the $0.1 million carrying value of the related preferred stock to common stock.
42(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Transactions with Senior Debenture Holders
In February 2017, we sold and issued in a private placement, for an aggregate subscription amount of $6.0 million: (i) senior debentures
in the principal amount of $6.6 million and (ii) warrants to purchase an aggregate of 6,875,000 shares of common stock (exercise price
of $0.96 per share, exercisable beginning February 2017 and expiration February 2022). We received aggregate net proceeds of $5.5
million, after deducting placement agent fees and allocated expenses of $0.5 million. Concurrently, we amended existing warrants, held
by the debenture purchasers, for the purchase of up to 875,000 shares to (i) reduce the exercise prices from an average $5.49 per share
to $0.96 per share, providing the warrants are not exercisable until August 2017, and (ii) change the expiration dates to August 2022,
which increased the average remaining term of the warrants from 2.1 years to 5.5 years. We recorded $4.6 million as an increase to
derivative warrant liabilities, to record the warrants at their fair value on the date of issuance, the $0.5 million as an increase in common
stock to record the change in fair value of existing warrants and the remaining $0.4 million to debt, debt issuance costs and debt discount.
We used the net proceeds from the offering to (i) pay off the senior revolving loan and term loan debt totaling $3.8 million and (ii) pay
$0.2 million of principal and $0.3 million of interest due on subordinated notes and (iii) for working capital and general corporate
purposes. We filed a registration statement on Form S-3, which became effective in May 2017, to register the shares under the warrants
issued to the senior debenture purchasers.
Transaction with Subordinated Note Holders
In connection with the February 2017 senior debenture private placement, we entered into agreements which resulted in (i) a reduction
in the annual interest rate on the subordinated notes from 11.75% to 7% (ii) an extension of the maturity date of the subordinated notes
to May 2019 from May 2018 (iii) the payment of an aggregate amount equal to $0.5 million on the subordinated notes; (iv) the issuance
of warrants to purchase up to 3,484,675 shares of our common stock (exercise price of $0.96 per share, expiration February 2022); and
(v) the amendment of existing warrants held by the subordinated note holders for the purchase of 289,669 shares of common stock to
reduce the exercise price from $5.25 per share to $0.96 per share. We accounted for the transaction as an extinguishment of debt and
issuance of new debt. In February 2017, we (i) recorded a loss on extinguishment of debt of $1.5 million, (ii) adjusted subordinated
notes payable debt down by $0.9 million to its fair value as of the transaction date, (iii) increased derivative liability by $2.3 million,
representing the fair value of the newly issued warrants, and (iv) increased common stock equity by $0.1 million for the change in the
fair value of the existing warrants.
Transactions with Holders of Warrants with Full Ratchet Anti-Dilution Clauses
As a result of the February 2017 financing transactions described above, the exercise price of certain warrants that contained full ratchet
anti-dilution provisions was reduced from $1.50 per share to $0.96 per share and the number of shares of common stock underlying two
warrants increased from 1,489,868 shares to 2,327,919 shares. The holder of the warrants subsequently converted the warrants in
cashless transactions and recorded a $0.1 million loss on the conversions equal to the difference between the fair value of the liabilities
and the fair values of the common stock on the dates of the conversions. In the three months ended September 30, 2017, the holder
converted one warrant for the purchase of 781,252 shares of common stock (exercise price of $0.96 per share) and we issued 103,008
shares of common stock based on the fair value at the date of exercise of $0.98 per share. In addition, in the three months ended
December 31, 2017, a warrant holder cashless exercised a warrant for the purchase of 1,546,667 shares of common stock (exercise price
of $0.96 per share) and we issued 511,602 shares of common stock based on the fair value at the date of exercise of $1.46 per share.
Other Warrant Issuances, Modifications and Exercises
In the three months ended March 31, 2018, we issued warrants for the purchase of up to 315,000 shares of common stock, at a weighted
average exercise price of $4.73 per share and a weighted average term of 2.4 years. We recognized $0.1 million of expense for these
issuances.
In the three months ended March 31, 2018, warrant holders exercised for $1.8 million cash, at $0.96 per share, warrants for the purchase
of 1,827,999 shares of common stock (remaining term at December 31, 2017, of 4.3 years). In the three months ended June 30 2018,
warrant holders exercised for $3.9 million, at $0.96 per share, warrants for the purchase of 4,092,077 shares of common stock. In the
three months ended September 30, 2018, warrant holders exercised for $5.3 million cash, at $2.00 per share, warrants for the purchase
of 2,660,000 shares of common stock. In the three months ended December 31, 2018, warrant holders exercised for $0.1 million cash,
at $0.96 per share, warrants for the purchase of 106,762 shares of common stock. In addition, in the three months ended September 30,
2018, a warrant holder cashless exercised a warrant for the purchase of 300,000 shares of common stock at an exercise price of $1.60
per share and we issued 139,392 shares of common stock based on the fair value at the date of exercise of $2.63 per share.
43(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
In the three months ended September 30, 2018, we modified certain warrants for the purchase of 850,000 shares, at an exercise price of
$5.27 per share which were to expire in April 2020. As modified, the warrants are now for the purchase of 600,000 shares, at an exercise
price of $3.30 per share and expire in April 2019. The fair value of the warrants immediately before the modification equaled the fair
value of the warrants immediately after the modification and, therefore, no gain or loss was recorded.
Other Common Stock Issuances
In the three months ended December 31, 2018, we issued:
(cid:120)
(cid:120)
(cid:120)
1,666,667 shares of common stock in connection with the acquisition of Golden Ridge, discussed further in Note 4.
11,217 shares of common stock to a director with a fair value at issuance of $2.82 per share. The shares vest the earlier of
June 2019 or one day prior to our next annual meeting of shareholders.
6,945 shares of common stock to a consultant at a grant date fair value of $2.89 per share.
In the three months ended September 30, 2018, we issued 7,188 shares of common stock to a consultant at a grant date fair value of
$2.83 per share.
In the three months ended June 30, 2018, we issued 208,855 shares of common stock to directors with an average fair value at issuance
of $1.78. The shares vest the earlier of June 2019 or one day prior to our next annual meeting of shareholders.
In the three months ended March 31, 2018, we issued 50,469 shares of common stock to employees with an average fair value at issuance
of $1.38 per share and 27,882 shares of common stock to a consultant with an average fair value at issuance of $1.42 per share.
In the three months ended December 31, 2017, we issued 15,288 shares of common stock to a consultant at a grant date fair value of
$1.31 per share.
In the three months ended September 30, 2017, we issued:
(cid:120)
(cid:120)
(cid:120)
35,336 shares of common stock to a director with a fair value at issuance of $1.09 per share. The shares vested in June 2018.
25,814 shares of common stock to a consultant at a grant date fair value of $1.12 per share
and sold 2,654,732 shares of common stock for $1.08 per share. The net proceeds from the offering of $2.8 million, after
deducting commissions and other cash offering expenses of $0.1 million, are included in common stock. We used the
proceeds for general corporate purposes.
(cid:120) we issued 57,230 shares of common stock to employees and a consultant with a fair value at issuance of $1.07 per share.
In the three months ended June 30, 2017, we issued:
(cid:120)
(cid:120)
96,372 shares of common stock as transitional director compensation to the chairman of our board, who was awarded
transitional director compensation in the amount of (i) $10,000 or 7,035 shares per month for July 2016 through December
2016 and (ii) $8,333 or 9,027 shares per month for January 2017 through March 2017. The amount was payable in either cash
or stock at the chairman’s election. The chairman elected to receive shares of common stock.
345,205 shares of common stock to our directors at a grant date fair value of $0.90 per share. The stock awards vested in June
2018 or one day before the date of the next annual shareholder meeting.
In the three months ended March 31, 2017, we issued:
(cid:120)
(cid:120)
108,696 shares of our common stock to a former employee, in lieu of paying $100,000 cash for a 2016 bonus.
28,157 shares of common stock to a consultant at a grant date fair value of $0.84 per share.
Equity Incentive Plan
Our board of directors adopted our 2014 Equity Incentive Plan (2014 Plan) in August 2014, after the plan was approved by shareholders.
A total of 1,600,000 shares of common stock were initially reserved for issuance under the plan. In June 2017, shareholders approved
a 1,700,000 increase in the authorized shares issuable under the 2014 Plan. In June 2018, shareholders approved a 3,000,000 increase
in the number of shares authorized for issuance under the 2014 Plan. The total shares authorized under the 2014 Plan is now 6,300,000
shares. Under the terms of the plan, we may grant stock options, shares of common stock and share-based awards to officers, directors,
employees or consultants providing services on such terms as are determined by the board of directors. Our board of directors
administers the plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients. The
stock options granted under the plan have terms of up to 10 years. As of December 31, 2018, awards for the purchase of 3,792,919
shares have been granted and remain outstanding (stock options, stock and restricted stock and restricted stock units) and 2,507,081
shares are reserved for future grants under the 2014 Plan.
44(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Options
A summary of stock option activity follows.
Weighted
Average
Exercise
Price
$
8.83
Weighted
Average
Remaining
Contractual
Life (Years)
7.2
0.79
3.62
2.91
2.25
NA
1.28
3.06
$
10.0
8.1
8.5
10.0
NA
8.5
8.5
Shares Under
Options
170,811
481,500
(12,652)
639,659
653,873
(32,500)
(310,305)
950,727
Outstanding, January 1, 2017
Granted
Forfeited, expired, or cancelled
Outstanding, December 31, 2017
Granted
Exercised
Forfeited
Outstanding, December 31, 2018
As of December 31, 2018, outstanding stock options had an intrinsic value of $0.9 million, the weighted average remaining vesting
period of options outstanding was 3.6 years and unrecognized option compensation cost was $0.9 million. The intrinsic value of options
exercised in 2018 was $0.1 million. The average fair value of stock options granted was $1.5 per share in 2018 and 2.68 in 2017. The
following are the assumptions used in valuing the 2018 and 2017 stock option grants:
Assumed volatility
Assumed risk free interest rate
Average expected life of options (in years)
Expected dividends
Years ended December 31
2018
75% - 81%
(78% weighted average)
2.2% - 2.8%
(2.5% weighted average)
6.2
(6.2 weighted average)
-
2017
85% - 87%
(87% weighted average)
1.8% - 2.0%
(2.0% weighted average)
6.2
(6.2 weighted average)
-
The following table summarizes information related to outstanding and exercisable stock options as of December 31, 2018:
Outstanding
Exercisable
Range of Exercise
Prices
$0.76 to $0.91
$1.09 to $1.98
$2.86 to $2.97
$3.47
$4.27 to $4.77
$16.00 to $74.00
Shares
Underlying
Options
247,578
184,165
391,250
34,790
45,243
47,701
950,727
Weighted
Average
Exercise
Price
$
0.83
1.40
2.87
3.47
4.60
20.83
3.06
$
Weighted
Average
Remaining
Contractual
Life (Years)
8.3
9.0
9.6
6.5
5.6
3.0
8.5
Shares
Underlying
Options
123,453
11,500
16,250
34,790
45,209
47,701
278,903
Weighted
Average
Exercise
Price
$
0.81
1.50
2.97
3.47
4.60
20.83
5.33
$
Weighted
Average
Remaining
Contractual
Life (Years)
8.2
7.9
6.6
6.5
5.6
3.0
6.6
In the fourth quarter of 2018, we issued options to employees for the purchase of up to 375,000 shares of common stock at an exercise
price of $2.86 per share and a grant date fair value of $1.90 per share. The options vest and become exercisable in four equal annual
installments beginning in October 2019.
45(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
In the third quarter of 2018, employees exercised for cash, options for the purchase of up to 32,500 shares of common stock at an
exercise price of $0.85 per share.
In first quarter of 2018, we issued options to employees for the purchase of up to 278,873 shares of common stock at an exercise price
of $1.42 and a grant date fair value of $0.97 per share. The options vest and become exercisable in four equal annual installments
beginning in January 2019.
Restricted Stock Units
RSU Shares
Issued to
Employees
Unrecognized
Stock
Compensation
(in thousands)
(a)
Weighted
Average
Expense
Period
(Years)
Nonvested at January 1, 2017
-
$
-
Granted
Expensed
Nonvested at December 31, 2017
Granted
Cancelled
Forfeited
Expensed
Nonvested at December 31, 2018
1,175,000
1,175,000
1,045,000
(705,000)
(300,000)
1,215,000
188
(27)
161
724
(31)
(69)
$
(102)
683
-
3.6
3.0
2.6
2.3
In October 2018, we issued restricted stock units (RSUs), under the 2014 Plan, to our executive officers and other employees covering
a total of 1,045,000 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. The RSUs’ shares vest as to (i) 79,000
shares if the vesting price equals or exceeds $5.00 per share, (ii) 237,000 shares if the vesting price equals or exceeds $10.00 per share
and (iv) 729,000 shares the later of October 1, 2019, and the date the vesting price equals or exceeds $15.00 per share.
In late June 2017, we issued RSUs, under the 2014 Plan, to our executive officers covering a total of 1,175,000 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. The RSU’s shares vested as to (i) 117,500 shares if the vesting price equaled or exceeded
$5.00 per share, (ii) 352,500 shares if the vesting price equaled or exceeded $10.00 per share and (iv) 705,000 shares if the vesting price
equaled or exceeded $15.00 per share. In January 2018, the portion of the June 2017 RSUS related to the $15.00 per share target vesting
price were cancelled. In June 2018 and July 2018, RSUs for a total of 170,000 shares and 130,000 shares were forfeited. After these
forfeitures, and as of December 31, 2018, the remaining 170,000 shares under the June 2017 RSU grant vest as to (i) 42,500 shares if
the vesting price equals or exceeds $5.00 per share, (ii) 127,500 shares if the vesting price equals or exceeds $10.00 per share.
Nonvested Stock
Shares
Issued to
Employees
and
Directors
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Vesting
(Years)
Unrecognized
Stock
Compensation
(in thousands)
Fair Value
(in thousands)
(a)
Nonvested at January 1, 2017
Granted
Vested
Nonvested at December 31, 2017
Granted
Vested
Nonvested at December 31, 2018
256,839
380,541
(252,636)
384,744
220,072
(410,851)
193,965
(b)
(c)
(d)
$
2.44
$
265
0.7
$
285
349
220
569
403
661
582
$
0.92
2.42
0.94
1.83
1.00
1.84
$
46(cid:3)
0.5
176
0.5
$
173
RiceBran Technologies
Notes to Consolidated Financial Statements
(a) 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.
Includes 26,107 shares, for which vesting was accelerated in December 2018.
(b) Includes 73,608 shares, for which vesting was accelerated in June 2017, based on the terms of a severance agreement.
(c)
(d) Excludes 850,744 shares, issued to a supplier, nonvested and unearned as of December 31, 2018. In February 2016, we issued
950,000 shares of common stock to the 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 December 31, 2017, 99,256 shares have been released
from escrow (39,964 in 2018 and 48,509 in 2017). We may recall any shares remaining in escrow as of February 8, 2026. Any
recalled shares will be cancelled.
Subsequent Issuances
In January and February 2019, we issued options to employees and a consultant for the purchase of up to 188,662 shares of common
stock at an average exercise price of $3.25 per share and an average grant date fair value of $2.04 per share. The options vest and
become exercisable in four equal annual installments beginning in January and February 2020.
In January 2019, we issued 30,887 shares of common stock to employees with a fair value at issuance of $3.22 per share.
In January 2019, we issued 170,818 shares of common stock upon conversion of 180 shares of Series G preferred stock. We reclassified
the $0.1 million carrying value of the related preferred stock to common stock.
In March 2019, we issued and sold 3,046,668 shares of common stock for $3.00 per share and issued a prefunded warrant exercisable
into 1,003,344 shares of common stock for $2.99 per share with an exercise price of $0.01 per share. The warrant is exercisable upon
shareholder approval and expires in March 2029. The net proceeds from the offering total $12.1 million, after deducting commissions
and other cash offering expenses of $0.1 million.
In March 2019, warrant holders exercised for cash, warrants for the purchase of up to 600,000 shares of common stock at an exercise
price of $3.30 per share. The exercised warrants had expiration dates in April 2019. Additionally, in March 2019, warrants for the
purchase of up to 950,614 shares of common stock at an exercise price of $5.25 per share expired.
In March 2019, a consultant exercised for cash, options for the purchase of 18,750 shares of common stock at an exercise price of $0.85
per share and options for the purchase of 58,328 shares of common stock at an exercise price of $0.76 per share. The options exercised
had a remaining life of 8.3 and 8.2 years respectively, as of December 31, 2018.
NOTE 10. INCOME TAXES
On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the Tax
Cut an Jobs Act or TCJA). The Tax Act reduces the U.S. federal corporate tax rate to a maximum of 21 percent, eliminates corporate
Alternative Minimum Tax, modified rules for expensing capital investment, limits the deduction of interest expense for certain
companies and has international tax consequences for companies that operate internationally. The Tax Act contains several base
broadening provisions that became effective on January 1, 2018, that did not have a material impact on 2018 earnings.
ASC 740, Income Taxes, requires filers to record the effect of tax law changes in the period enacted. However, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118) which permits filers to record provisional amounts during
a measurement period ending no later than one year from the date of enactment. As of December 31, 2017, we remeasured the applicable
deferred tax assets and liabilities based on the rates at which they are expected to reverse. The gross deferred tax assets and liabilities
were provisionally adjusted which resulted in an expense for income taxes of $7.1 million which was fully offset by a corresponding
change to our valuation allowance in 2017. Pursuant to SAB 118, we recognized provisional amounts for the impact of the Tax Act in
2017. During 2018, we completed our accounting for the enactment-date effects of the TCJA and recognized no adjustments to the
provisional amounts recorded in 2017.
47(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
Deferred tax asset (liability) is comprised of the following (in thousands):
December 31
2018
2017
$
$
Net operating loss carryforwards
Capital loss
Stock options and warrants
Property
Intangible assets
Capitalized expenses
Other
Net deferred tax assets
Less: Valuation allowance
Deferred tax asset (liability)
4,541
-
214
299
94
86
164
5,398
(5,398)
-
5,560
7,030
322
499
89
142
230
13,872
(13,872)
-
$
$
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. In
accordance with ASC 740-10, deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The realization of deferred tax assets can be affected by, among other things, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods,
our experience with utilizing operating losses and tax credit carryforwards by jurisdiction, and tax planning alternatives that may be
available. We have determined it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Accordingly, we have provided a valuation allowance for deferred tax assets.
The following table summarizes the change in the valuation allowance (in thousands):
Vaulation allowances at beginning of year
Net operating loss
Expiration of net operating losses and limitations
Effect of federal rate reduction from 34% to 21%
Capital loss from redemption of Nutra SA interests
Adjustment to Deferred Taxes
Impact of state tax rate change
Other adjusments
Change in valuation allowance, before transfer
Transferred from discontinued operations
Valuation allowances at end of year
Years Ended December 31
2018
2017
$
$
13,872
1,920
(9,939)
-
-
(321)
(146)
12
(8,474)
-
5,398
10,510
4,358
2,353
(7,079)
11,058
-
-
(1,384)
9,306
(5,944)
13,872
$
$
As of December 31, 2018, net operating loss (NOL) carryforwards for U.S. federal tax purposes totaled $18.5 million and expire at
various dates from 2019 through 2037. Net operating loss carryforwards for state tax purposes totaled $22.8 million at December 31,
2018, and expire at various dates from 2019 through 2038. Effective with the 2017 Tax Act in December 2017, all net operating losses
generated after December 31, 2017 will no longer expire. The amount of the total federal net operating loss that has an indefinite life is
$8.6 million.
48(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
We experienced several ownership changes as defined in IRC Section 382(g) as a result of offerings and conversions that occurred in
2013 and 2014 and a new shareholder obtaining a greater than 5% interest in the value our equity in September 2017. Our ability to
utilize previously accumulated net operating loss carryforwards is subject to substantial annual limitations due to change in ownership
provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations. In general, the annual limitation is equal
to the value of the stock of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for
the month in which the ownership change occurs. Any unused annual limitation may generally be carried over to later years until the
NOL carryforwards expire. We completed a formal analysis for the taxable year 2017 to determine the amount of annual limitation on
net operations loss carryforwards prior to utilization. The study resulted in a substantial annual limitation on utilization of net operating
loss carryforwards generated before September 13, 2017. Accordingly, we have reduced our net operating loss carryforwards by $13.7
million to reflect these limitations. On November 28, 2017, Nutra S.A. LLC (Nutra SA) redeemed our entire membership interest in
Nutra SA which resulted in generating a capital loss of $29.6 million for federal tax purposes. Of this, $23.6 million is subject to IRC
Section 382 annual limitation of $0.3 million. We have determined it is more likely than not that all of the capital loss subject to IRC
Section 382 limitation will expire unused. Accordingly, we are not recognizing the deferred tax asset associated with the IRC Section
382 limited capital loss.
We are subject to taxation in the U.S. federal jurisdiction and various state and local jurisdictions. We record liabilities for income tax
contingencies based on our best estimate of the underlying exposures. We are open for audit by the IRS for years after 2014 and,
generally, by U.S. state tax jurisdictions after 2013.
Reconciliations between the amounts computed by applying the U.S. federal statutory tax rate to loss before income taxes, and income
tax expense (benefit) follows (in thousands):
Income tax benefit at federal statutory rate
Increase (decrease) resulting from:
State tax benefit, net of federal tax effect
Effect of U.S. federal rate reduction from 34% to 21%
Effect of change in state tax rate
Change in valuation allowance
Capital loss on redemption of Nutra SA interests
Reduction in deferred balances for forfeited, expired or cancelled options
Expirations of net operating losses & application of IRC 382 limitation
Nontaxable fair value adjustment
Nondeductible expenses
Allocated from discontinued operations
Adjustments to deferreds
Other
Tax provision expense (benefit)
Years Ended December 31
2018
2017
$
$
(1,692)
(5,173)
(184)
-
146
(8,474)
-
-
9,939
-
-
-
321
(11)
45
$
(400)
7,079
-
9,306
(11,058)
317
(310)
(234)
55
(5,046)
-
434
(5,030)
$
We recognize interest and penalties related to uncertain tax positions in selling, general and administrative expenses. We have not
identified any uncertain tax positions requiring a reserve as of December 31, 2018 or 2017. We do not expect that the total amount of
unrecognized tax benefits will materially change over the next twelve /months.
NOTE 11. FAIR VALUE MEASUREMENT
The fair value of cash and cash equivalents, restricted cash, accounts and other receivables and accounts payable approximates their
carrying value due to shorter maturities. As of December 31, 2018, and 2017, the fair value of our debt (Level 3 measurement)
approximated its carrying value, based on current market rates for similar debt with similar maturities.
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 the financial statements at fair value. Assets
and liabilities measured at fair value on a recurring basis include derivative warrant and conversion liabilities. 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:
49(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
(cid:404) Level 1 – inputs include quoted prices for identical instruments and are the most observable.
(cid:404) Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates
and yield curves.
(cid:404) 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.
For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.
Warrants accounted for as derivative liabilities were valued using the lattice model each reporting period and the resultant change in fair
value is recorded in net income (loss). The lattice model required us to assess the probability of future issuance of equity instruments
at a price lower than the current exercise price of the warrants. The risk-free interest rate was determined by reference to the treasury
yield curve rate of instruments with the same term as the warrant.
The following tables summarize the changes in Level 3 items measured at fair value on a recurring basis (in thousands):
Total Level 3 Fair Value
Fair Value
as of
Beginning
of Year
Total
Realized
and
Unrealized
Gains
Issuance of
New
Instruments
Reclassify
to Equity
Conversion
to Common
Stock
Fair Value,
at End of
Year
Gains on
Instruments
Still Held
2017, derivative warrant liabilities
$
(1,527)
$
669
$
(7,917)
$
7,980
$
795
$
-
$
-
(1) Included in change in fair value of derivative warrant liabilities in net income (loss).
NOTE 12. 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.
Operating Leases
We lease certain properties under various operating lease arrangements that expire over the next 14 years. We incurred rent expense of
$0.5 million in 2018 and $0.4 million in 2017.
Future minimum payments under these operating lease commitments as of December 31, 2018, are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
$
519
525
536
548
528
1,897
4,553
$
In March 2018, we entered into a triple net lease for approximately 5,380 square feet of office space in The Woodlands, Texas. We
took possession of the space in May 2018. The initial term of the lease is sixty-five months and rent was abated for the first five months.
Minimum monthly base rents total $0.1 million per year during the initial term of the lease. We may extend the term of the lease for an
50(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
additional five-year period at a fair market base rent, as defined in the agreement. Our operating leases generally provide for rents which
escalate over time and rents are payable monthly or annually.
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 13. RELATED PARTY TRANSACTIONS
Entities beneficially owned by Baruch Halpern, a director, invested in our subordinated notes and related warrants prior to 2016.
Throughout the first six months of 2017, Mr. Halpern beneficially held approximately 43% of our outstanding subordinated debt which
was repaid in full in July 2017 from the proceeds of the sale of HN. The warrants remain outstanding. See Note 9 for information
related to the modification of the subordinated notes, repricing of related warrants and the issuance of warrants to subordinated note
holders in February 2017. In 2017, we paid $0.2 million of interest on the subordinated notes and expensed $0.1 million of interest on
the subordinated notes.
In March 2019, we issued and sold to Continental Grain Company (CGC) 666,667 shares of common stock at a purchase price of $3.00
per share and a pre-funded warrant to purchase up to 1,003,344 shares of common stock for a purchase price equal to $2.99 for each
share underlying the pre-funded warrant. The exercise price of the pre-funded warrant is $0.01 per share. In September 2017, we issued
and sold 2,654,732 shares of common stock to CGC. Our director, Ari Gendason is an employee and senior vice president and chief
investment officer of CGC. As of the date of this filing, CGC owns approximately 19% 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.
In July 2016, we entered into an agreement with (i) LF-RB Management, LLC, Stephen D. Baksa, Richard Bellofatto, Edward M. Giles,
Michael Goose, Gary L. Herman, Larry Hopfenspirger and Richard Jacinto II (collectively, the LF-RB Group) and (ii) our directors
Beth Bronner, Ari Gendason and Brent Rosenthal (together with the LF-RB Group, the Shareholder Group). The LF-RB Group
beneficially owns approximately 9.9% of our outstanding stock. Among other things, under the agreement we paid the LF-RB Group
$50,000 in cash and issued 100,000 shares of our common stock to the LF-RB Group for out-of-pocket legal fees and other expenses
incurred by the LF-RB Group in connection with its solicitation of proxies to elect its designees to our board at the 2016 annual meeting
of shareholders. In addition, the agreement requires that until December 31, 2018, we nominate directors Beth Bronner, Ari Gendason
and Brent Rosenthal for election to our board of directors and recommend that our shareholders vote to elect these individuals to our
board of directors. The Shareholder Group agreed, until December 31, 2018, to vote their respective shares of common stock in
accordance with the recommendations of our board of directors.
NOTE 14. EMPLOYEE TRANSACTIONS
Wayne Wilkison, our employee, and former owner of Golden Ridge, owns various farms and a freight company with which we conduct
business. During 2018, between the November 28, 2018 acquisition of Golden Ridge and December 31, 2018, we paid $0.2 million to
these entities. As of December 31, 2018, $1.9 million was included in commodities payable for amounts owed to these entities. The
note payable to seller of Golden Ridge, described further in Note 3, is payable to Wayne Wilkison.
NOTE 15. SUBSEQUENT EVENTS
On April 1, 2019, the Company and MGI Grain Processing, LLC, a Minnesota limited liability company (MGI), entered into an Asset
Purchase Agreement (the “Purchase Agreement”) whereby the Company will purchase substantially all assets and assume certain
liabilities of MGI for the aggregate purchase price equal to $3,500,000. MGI owns and operates a grain mill and processing facility and
the assets includes the physical assets, real property located in East Grand Forks, Minnesota, intellectual property and goodwill of MGI.
The purchase price is subject to adjustment if the estimated net working capital with respect to the assets sold and the liabilities assumed
falls outside of a specified working capital range for those assets and liabilities. The Purchase Agreement contains customary
51(cid:3)
RiceBran Technologies
Notes to Consolidated Financial Statements
representations, warranties and indemnification provisions, and the closing remains subject to certain closing conditions. The Company
and MGI expect the closing of the Purchase Agreement to occur on or about April 4, 2019 subject to the satisfaction of such closing
conditions.
52(cid:3)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
PART II
(continued)
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as such term is defined in
Rule 13a and Rule15d-15(e)) under the Securities Exchange Act of 1934 (Exchange Act) was performed as of December 31, 2018,
under the supervision and with the participation of our current management, including our current Chief Executive Officer and Chief
Financial Officer. Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in
reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective as of December 31, 2018.
Changes in Internal Control over Financial Reporting
Except for as set forth below, there were no changes in our internal control over financial reporting that occurred during the quarter
ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act and for the assessment of the effectiveness of internal control over financial
reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control
over financial reporting includes those policies and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
provide reasonable assurance regarding prevention, or timely detection, of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of current management, including our current Chief Executive Officer and Chief
Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2018. In making this assessment, management used the criteria set forth in the framework established by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) entitled “Internal Control - Integrated Framework (the 2013 Framework).”
53(cid:3)
Material Weaknesses
Our management concluded that as of December 31, 2018, we did not maintain effective internal controls over financial reporting.
Specifically, we identified material weaknesses over management’s review controls over significant accounting estimates and review
controls over accounting for non-routine and complex accounting transactions.
A Material weakness was identified relating to non-routine purchase accounting evaluation and related disclosures, and to the
company’s accounting for certain issuances of equity. Management’s review controls over non-routine and complex accounting
transactions were affected by our recent relocation from Arizona to Texas that resulted in reduced employed personnel with the
appropriate level of experience and technical expertise to oversee the accounting and financial reporting requirements related to
significant and complex acquisitions and equity transactions.
Management has initiated remediation measures including, but not limited to: hiring additional accounting staff or engaging a third
party to (i) assist us in complying with the accounting and financial reporting requirements related to significant and complex
acquisitions and equity transactions; and (ii) assist us with formalizing our business processes, accounting policies and internal control
documentation, strengthening supervisory reviews by our management, and evaluating the effectiveness of our internal controls in
accordance with the framework established by Internal Control - Integrated Framework (2013) published by the Committee of
Sponsoring Organizations of the Treadway Commission.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by Item 10 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120
days of our fiscal year end, or will be included in an amendment to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120
days of our fiscal year end, or will be included in an amendment to this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 12 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120
days of our fiscal year end, or will be included in an amendment to this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120
days of our fiscal year end, or will be included in an amendment to this Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120
days of our fiscal year end, or will be included in an amendment to this Form 10-K.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Exhibit Index attached hereto.
The Financial Statements are included under Item 8.
54(cid:3)
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7
5
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: April 1, 2019
RICEBRAN TECHNOLOGIES
By: /s/ Brent Rystrom
Brent Rystrom
Director and Chief Executive Officer
Power of Attorney
Each person whose signature appears below constitutes and appoints Brent Rystrom, true and lawful attorney-in-fact, with the power of
substitution, for him/her in any and all capacities, to sign amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
Principal Executive Officer:
/s/ Brent R. Rystrom
Brent R. Rystrom
Principal Financial Officer
and Principal Accounting Officer:
/s/ Dennis A. Dykes
Dennis A. Dykes
Additional Directors:
Director and Chief Executive Officer
April 1, 2019
Chief Financial Officer
April 1, 2019
/s/ Beth Bronner
Beth Bronner
Director
/s/ David I. Chemerow
David I. Chemerow
Director
/s/ Ari Gendason
Ari Gendason
/s/ David Goldman
David Goldman
/s/ Baruch Halpern
Baruch Halpern
/s/ Henk W. Hoogenkamp
Henk W. Hoogenkamp
/s/ Brent D. Rosenthal
Brent D. Rosenthal
Director
Director
Director
Director
Director and Chairman
58(cid:3)
April 1, 2019
April 1, 2019
April 1, 2019
April 1, 2019
April 1, 2019
April 1, 2019
April 1, 2019
RiceBran Technologies
Subsidiaries of the Registrant
As of April 1, 2019
Exhibit 21
State or Other Jurisdiction of Incorporation
Delaware corporation
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware corporation
Montana corporation.
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Delaware limited liability company
Subsidiaries of the Registrant
Golden Ridge Rice Milles, Inc. (1)
Grain Enhancement, LLC (2) (4)
NutraCea, LLC (1)
RBT PRO, LLC (6)
RBT – YOUJI, LLC (7)
Rice Rx, LLC (1)
Rice Science LLC (1)
The RiceX Company (1)
RiceX Nutrients, Inc. (3)
SRB-MERM, LLC (5)
SRB-LC, LLC (5)
SRB-MT, LLC (5)
SRB-WS, LLC (5)
SRB-IP, LLC (5)
_____
(1) wholly owned subsidiary of RiceBran Technologies
(2) 47.5% interest
(3) wholly owned subsidiary of The RiceX Company
(4) inactive
(5) wholly owned subsidiary of NutraCea, LLC
(6) 50.0 % interest
(7) 55.0 % interest
59(cid:3)
(cid:3)
Independent Registered Public Accounting Firm’s Consent(cid:3)
We consent to the incorporation by reference in the Registration Statements (Nos. 333-196541, 333-196950, 333-199646, 333-
212658, 333-217131 and 333-221124) on Form S-3 and (Nos. 333-110585, 333-135814, 333-199648 and 333-221781) on Form S-8
of RiceBran Technologies of our report dated April 1, 2019, relating to the consolidated financial statements of RiceBran
Technologies, appearing in this Annual Report on Form 10-K of RiceBran Technologies for the year ended December 31, 2018.
Exhibit 23.1
/s/ RSM US LLP
(cid:3)
RSM US LLP
Houston, TX
(cid:3)
April 1, 2019
60(cid:3)
(cid:3)
Independent Registered Public Accounting Firm’s Consent(cid:3)
We consent to the incorporation by reference in the Registration Statement of RiceBran Technologies on Form S-3 (Nos. 333-196541,
333-196950, 333-199646, 333-212658, 333-217131 and 333-221124) and Form S-8 (Nos. 333-110585, 333-135814, 333-199648 and
333-221781) of our report dated March 22, 2019, with respect to our audits of the consolidated financial statements of RiceBran
Technologies as of December 31, 2017, and for the year then ended, which report is included in this Annual Report on Form 10-K of
RiceBran Technologies for the year ended December 31, 2018.
Exhibit 23.2
(cid:3)
/s/ Marcum LLP
(cid:3)
Marcum LLP
New York, NY
(cid:3)
April 1, 2019
61(cid:3)
CERTIFICATION
Exhibit 31.1
I, Brent Rystrom, Director and Chief Executive Officer of RiceBran Technologies, certify that:
1)
I have reviewed this annual report on Form 10-K of RiceBran Technologies, a California corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report was prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Dated: April 1, 2019
/s/ Brent Rystrom
Name: Brent Rystrom
Title: Director and Chief Executive Officer
62(cid:3)
CERTIFICATION
Exhibit 31.2
I, Dennis Dykes, Chief Financial Officer of RiceBran Technologies, certify that:
1)
I have reviewed this annual report on Form 10-K of RiceBran Technologies, a California corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report was prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Dated: April 1, 2019
/s/ Dennis Dykes
Name: Dennis Dykes
Title: Chief Financial Officer
63(cid:3)
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)
Exhibit 32.1
In connection with the Annual Report of RiceBran Technologies (the Company) on Form 10-K for the year ending December 31, 2018,
as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Brent Rystom, Chief Executive Officer of
the Company, and Dennis Dykes Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Dated: April 1, 2019
By: /s/ Brent Rystrom
Brent Rystrom
Director and Chief Executive Officer
By: /s/ Dennis Dykes
Dennis Dykes
Chief Financial Officer
64(cid:3)