As filed with the Securities and Exchange Commission on March 30, 2007__________
Registration Number 333-________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Registration No. 333-________FORM S-1
REGISTRATION STATEMENT
UNDERUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549 |
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Form S-1
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REGISTRATION STATEMENT UNDER THE
THE SECURITIES ACT OF 1933 |
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NUTRACEA
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(Name of Small Business Issuer in Its Charter) |
RICEBRAN TECHNOLOGIES
(Exact Name of Registrant as Specified in its Charter)
California (State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)organization) | | 2040 (Primary Standard Industrial Classification Code Number) | | 87-0673375 (I.R.S. Employer Identification No.) |
6720 N. Scottsdale Road, Suite # 390
Scottsdale, AZ 85253
(602) 522-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
W. John Short
Chief Executive Officer
RiceBran Technologies
6720 N. Scottsdale Road, Suite # 390
Scottsdale, AZ 85253
(602) 522-3000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
with copies to:
1261 Hawk’s Flight Court, El Dorado Hills, CA 95762
(916) 933-7000
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(Address and Telephone Number of Principal Executive Offices) |
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Bradley D. Edson
1261 Hawk’s Flight Court, El Dorado Hills, CA 95762
(916) 933-7000
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(Name, Address and Telephone Number of Agent For Service) |
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Copy to: |
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Christopher V. Chediak, Esq.
| Barry I. Grossman, Esq. |
Weintraub Genshlea Chediak Law CorporationTobin Coleman Grodin | Benjamin S. Reichel, Esq. |
400 Capitol Mall, 11th Floor, Suite 1100 | Ellenoff Grossman & Schole LLP |
| Sacramento, CA 95814 | 150 East 42nd Street, 11th Floor
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| (916) 558-6000 | New York, New York 10017 |
| (212) 370-1300 |
Approximate Datedate of Commencementcommencement of Proposed Saleproposed sale to the Public: from time to timepublic: As soon as practicable after the effective date of this Registration Statement.hereof.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, of 1933, check the following box. x
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________________
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________________
If this formForm is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________________
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Larger accelerated filer | ¨ | | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | | Smaller reporting company | x |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Share (1) | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee |
| Common Stock | 32,050,00 | $3.075 | $98,553,750 | $3,025.60 |
| Title of each class of securities to be registered | | Proposed Maximum Aggregate Offering Per Share(1) | | | Proposed maximum aggregate offering price(1) | | | Amount of registration fee | |
| Common stock, no par value | | | | | $ | 15,000,000 | | | $ | 2,046.00 | |
| Warrants to purchase common stock(2) | | | (4) | | | | (4 | ) | | | (5 | ) |
| Shares of common stock underlying warrants(2)(3) | | | | | | | | | | | | |
| Total | | | | | | $ | 15,000,000 | | | $ | 2,046.00 | |
| (1) | The proposed maximum offering price per share is estimatedEstimated solely for the purpose of calculating the registration fee in accordance withunder Rule 457(c) on the basis457(o) of the averageSecurities Act of the high and low sales price1933, as reported by the Over-the-Counter Bulletin Board on March 28, 2007.amended. |
If, as a result of stock splits, stock dividends or similar transactions, or by reason of changes in the conversion price of the preferred stock, the number of securities purported to be registered on this registration statement increases, the provisions of Rule 416 under the Securities Act of 1933 shall apply, and this registration statement shall be deemed to cover any such additional shares of common stock. | (2) | Includes [_____] shares of common stock and [_____] warrants which may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any. |
| (3) | Pursuant to Rule 416 under the Securities Act of 1933, as amended, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions. |
| (4) | The warrants to be issued to investors hereunder are included in the price of the common stock above. |
| (5) | No separate registration fee is required pursuant to Rule 457(g) promulgated under the Securities Act of 1933, as amended. |
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with SectionTHE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of the Securities Act ofOF THE SECURITIES ACT OF 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said SectionOR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), may determine.MAY DETERMINE
The information in this prospectus is not complete and may be changed. The Selling Security Holders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IS NOT A SOLICITATION OF AN OFFER TO BUY IN ANY STATE IN WHICH AN OFFER, SOLICITATION, OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 30, 2007.SEPTEMBER 27, 2013
PRELIMINARY PROSPECTUS
PROSPECTUS__________ SHARES OF COMMON STOCK
WARRANTS TO PURCHASE __________ SHARES OF COMMON STOCK
NutraCea
32,050,000 Shares of Common Stock
This prospectus relates to the disposition of up to 32,050,000We are offering _____ shares of NutraCeaour common stock, or interests therein by the shareholders named in this prospectus under the heading "Selling Security Holders". We will not receive any of the proceeds from the disposition of the shares covered hereby or interests therein, although we will receive the proceeds from the cash exercise ofno par value per share, together with warrants to acquire certainpurchase ___ shares of these shares.our common stock. One share of common stock is being sold together with a warrant, with each warrant being immediately exercisable for ______ share of common stock at an exercise price of $_____ per share and will expire ___ months after the issuance date.
Our common stock is quotedtraded on the Over-the-Counter (“OTC”) Bulletin BoardOTCQB Marketplace, operated by OTC Markets Group, under the symbol “NTRZ”“RIBT”. On March 29, 2007,September 25, 2013, the last salereported sales price offor our common stock on the OTC Bulletin Board was $3.08$0.06 per share. We do not intend to list the warrants on any securities exchange or other trading market and we do not expect that a public trading market will develop for the warrants.
Our principal executive offices are located at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762, and our telephone number is (916) 933-7000.
INVESTING IN THE COMMON STOCK OFFERED HEREINSECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD CONSIDER CAREFULLYRISKS, INCLUDING THOSE SET FORTH IN THE “RISK FACTORS” CONTAINED INSECTION OF THIS PROSPECTUS BEGINNING ON PAGE 5.
4. INVESTORS SHOULD ONLY CONSIDER AN INVESTMENT IN THESE SECURITIES IF THEY CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IFPASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.OFFENSE.
| | Per Share(1) | | | Per Warrant(1) | | | Total | |
| Public offering price | | $ | | | | $ | | | | $ | | |
| Underwriting discounts and commissions (2) | | $ | | | | $ | | | | $ | | |
| Proceeds, before expenses, to us(3) | | $ | | | | $ | | | | $ | | |
| (1) | One share of common stock is being sold together with a warrant, with each warrant being exercisable for the purchase of ___ share of common stock. |
| (2) | We have agreed to issue warrants to the underwriters and to reimburse the underwriters for certain expenses. See “Underwriting” on page ___ of this prospectus for a description of these arrangements. |
| (3) | We estimate the total expenses of this offering will be approximately $_________. |
The underwriters expect to deliver our securities, against payment, on or about ________, 2013.
We have granted the underwriters a 45-day option to purchase up to _____ additional shares of common stock and additional warrants to purchase up to _______ additional shares of common stock from us at the offering price for each security, less underwriting discounts and commissions, to cover over-allotments, if any.
Maxim Group LLC
The date of this prospectus is March 30, 2007.
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ABOUT THIS PROSPECTUS__________ SHARES OF COMMON STOCKWARRANTS TO PURCHASE _______ SHARES OF COMMON STOCK
We have not authorized anyone to provideABOUT THIS PROSPECTUS
This summary highlights certain information different from that containedappearing elsewhere in this prospectus. ThisFor a more complete understanding of this offering, you should read the entire prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where such offer or sale is not permitted. The information containedcarefully, including the risk factors and the financial statements. References in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. In this prospectus, references to “NutraCea”, the“we,” “us,” “our,” and “Company”, “we”, “us” and “our” refer to NutraCea, a California corporation.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectusRiceBran Technologies and in any prospectus supplement we may file constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events concerning our business and to our future revenues, operating results, and financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “forecast,” “predict,” “propose,” “potential,” or “continue” or the negative of those terms or other comparable terminology.
Any forward looking statements contained in this prospectus or any prospectus supplement are only estimates or predictions of future events based on information currently available to our management and management’s current beliefs about the potential outcome of future events. Whether these future events will occur as management anticipates, whether we will achieve our business objectives, and whether our revenues, operating results, or financial condition will improve in future periods are subject to numerous risks. The section of this prospectus captioned “Risk Factors,” beginning on page 4, provides a summary of the various risks that could cause our actual results or future financial condition to differ materially from forward-looking statements made in this prospectus. The factors discussed in this section are not intended to represent a complete list of all the factors that could adversely affect our business, revenues, operating results, or financial condition. Other factors that we have not considered may also have an adverse effect on our business, revenues, operating results, or financial condition, and the factors we have identified could affect us to a greater extent than we currently anticipate. Before making any investment in our securities, we encourage you to carefullyits subsidiaries. You should read the information contained under the caption “Risk Factors,” as well the other information contained inboth this prospectus and any prospectus supplement we may file.
together with additional information described below under the heading "Where You Can Find More Information."
ABOUT RICEBRAN TECHNOLOGIES
Corporate Information
RiceBran Technologies’ principal executive office is located at 6720 N. Scottsdale Road, Suite # 390, Scottsdale, AZ 85253. Our telephone number is (602) 522-3000.
Company Overview
We are a “TheraFoods,” “NutraCea,” “NutraBeauticals,” “RiSolubles,” “RiceMucil,” “RiceMucille,” “StaBran,” “SolublesSolution,” “ZymeBoost,” “NutraHGH,” “Equineceuticals,” “FiberSolutions,” “NutraBreathe,” “LiverBoost,” “RiceLean,” “VetCeuticals,” “PetCeuticals,” Caduceus logo, “HiFiSolubles,” “Therafeed,” “Via-Bran,” “Proventics,” “SuperSolubles,” “Nourishing The Body to Health,” “Proceuticals,” “Cea100,” “DiaBoost”human food ingredient, nutritional supplement and “NutraBalance” are registered trademarksanimal nutrition company that uses our proprietary and patented technologies for value-added processing of NutraCea.healthy, natural and nutrient dense products derived from raw rice bran (RRB), an underutilized by-product of the rice milling industry.
RiceX®We have three reportable business segments: (i) USA, which manufactures and RiceX Solubles®distributes stabilized rice bran (SRB) in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; (ii) Brazil, which extracts crude rice bran oil (RBO) and defatted rice bran (DRB) from rice bran, which are registered trade namesthen further processed into a number of valuable human food and animal nutrition products; and (iii) Corporate, which includes our corporate, administrative, regulatory and compliance functions.
The RiceX Company, NutraCea’scombined operations of our USA and Brazil segments encompass our bio-refining approach to processing RRB into various high quality value-added constituents and finished products. Over the past decade, we have developed and optimized our proprietary bio-refining processes to support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in human meats, baked goods, cereals, coatings, health foods, nutritional supplements, nutraceuticals and high-end animal nutrition and health products.
The manufacturing facilities included in our USA segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into a number of food ingredient and derivative products. The USA segment consists of two locations in California and two locations in Louisiana, all of which can produce SRB. One of the two Louisiana SRB facilities, located in Lake Charles, has been idle since May 2009. The USA segment also includes our Dillon, Montana Stage II facility which produces our Stage II products 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, Proryza P-35, a water-dispersible 35% protein extract from SRB, and Proryza PF-20/50, a 20% protein and 50% insoluble dietary fiber extract of SRB. Stage II refers to the patented processes run at our Dillon, Montana facility and the products produced at that facility using our patented processes. In 2012, approximately 50% of USA segment revenue was from sales of human ingredient and derivative products and the other 50% was from sales of animal nutrition products. We expect human ingredient and derivative product sales to grow more rapidly than sales of animal nutrition products in the future.
The Brazil segment consists of the operation of our majority-owned subsidiary Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas, Brazil. Irgovel manufactures RBO and DRB products for both the human and animal food markets in Brazil and internationally. In refining RBO to an edible grade, several co-products are obtained. One such product is distilled fatty acids, a valuable raw material for the detergent industry. DRB is sold in bulk as animal feed and compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market. In 2012, approximately 46% of Brazil segment product revenue was from sales of RBO products and 54% was from sales of DRB products. Irgovel is a wholly owned subsidiary. Mirachol®, Max "E"®subsidiary of our holding company, Nutra SA. We own 50.3 % of Nutra SA with the remaining 49.7 % held by our minority equity partner Alothon Group and Max "E" Glo® are registered trademarksits affiliated entities. Alothon has certain rights associated with its equity ownership as more fully described in the “Ownership Interest in Nutra SA” under the “Business” section of The RiceX Company.
this prospectus.
With the proceeds from this offering, we will be positioned to capitalize on specific market conditions that we expect will increase market acceptance of our products and lead to increased growth and profitability. These market conditions include: (i) increased global demand for vegetable oil, (ii) increased demand for new protein sources, (iii) consumer demand for “clean” labels on food products, and iv) demand for proprietary, evidence-based functional ingredients for nutraceuticals and functional foods.
Our growth strategy is multifaceted and involves: (i) a re-launch of our Nutraceuticals and Functional Foods (NFF) business through the acquisition and integration of H&N Distribution, Inc., an established co-packaging company that serves the NFF industry, (ii) the expansion of our global distribution network, (iii) the expansion of existing production facilities in both the USA and Brazil segments, iv) the investment in the development and commercialization of rice bran products in China in partnership with Wilmar-International, and v) continuing to generate evidence-based functionality of our proprietary products.
Recent Developments
IPROSPECTUS SUMMARYn April 2013, we entered into a series of agreements with various affiliates of Wilmar-International Limited (collectively, Wilmar) under which we agreed to license to Wilmar all of our patented and proprietary intellectual property and know-how for stabilizing and further processing rice bran, including technologies resulting from recent research and development efforts regarding extraction and concentration of protein from rice bran. In return, Wilmar agreed to license to us (i) its intellectual property with respect to processing of rice bran, and its derivatives, based on the intellectual property licensed to Wilmar for use worldwide, excluding China and (ii) its other intellectual property with respect to processing of rice bran, and its derivatives, for use worldwide, excluding certain countries in Asia. Under the agreements, we obtained the right to purchase up to 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative using the intellectual property licensed to Wilmar.
In July 2013, we amended our exclusive distribution agreement with Beneo-Remy, a 100% owned subsidiary of Sudzucker AG, a German public company, under which Beneo-Remy will exclusively distribute our SRB product and non-exclusively distribute our other products to more than 40 countries in Europe, the Middle East, Africa and other geographies. The amended agreement provides for minimum purchases of approximately $8.8 million by Beneo-Remy during the 4 year term of the agreement. As of September 26, 2013, Beneo-Remy has made approximately $400,000 in purchases under the agreement.
In August 2013, we entered into a multi-year purchase agreement with a rapidly growing US-based direct sales company to purchase a minimum of approximately $7.65 million of one of our patented Stage II products during the 40 month term of the agreement.
In September 2013, we entered into an exclusive distribution agreement with a Taiwanese marketing and distribution company to market another of our patented Stage II products in Taiwan.
On September 24, 2013, we entered into an Acquisition and Stock Purchase Agreement with H&N Distribution, Inc. (H&N) and the shareholders of H&N (the H&N Shareholders) pursuant to which the H&N Shareholders will sell 100% of the issued and outstanding shares of capital stock of H&N to us (the Purchase Agreement). H&N is engaged in the business of functional food blending and manufacturing, and the distribution of food ingredients and product. Under the Purchase Agreement, we agreed to purchase 100% of the H&N capital stock for $2,000,000 plus a number of shares of our common stock based on H&N’s adjusted EBITDA (as defined in the Purchase Agreement) for the calendar year ending December 31, 2013. The number of shares of our common stock that will be issued to the H&N Shareholders ranges from 37,500,000 to 47,500,000 shares. At closing, H&N’s current chief executive officer and founder, Mark McKnight, will join the Company as senior vice president of contract manufacturing and remain CEO of H&N. The closing of the Purchase Agreement remains subject to certain conditions including but not limited to the completion of our due diligence on H&N and our raising at least $7,500,000 in a financing. A portion of the proceeds from this offering will be used to satisfy the cash purchase price at the closing of the Purchase Agreement. Upon closing of the transaction, H&N will become part of our USA Segment.
The following summary is qualified in its entirety by the information contained elsewhere in this prospectus. You should read the entire prospectus, including “Risk Factors”By incorporating H&N’s formulating and the financial statements before making an investment decision.packaging capabilities into our business model, we expect to drive sales of our Stage II products into multiple NFF channels allowing us to capture not only single ingredient sales but also sales of blended finished products consisting predominantly of our ingredients blended with other products and sold as a finished product on a business to business basis.
SUMMARY OF THE OFFERING
| Securities offered: | | | |
Issuer:
| | NutraCea
1261 Hawk’s Flight Court
El Dorado Hills, California 95762
(916) 933-7000
| |
| | | |
Description of Business:
| | We are a developer, formulator and distributor of nutraceutical, health, cosmetic and nutrition products using stabilized rice brand and specially formulated rice bran oil. We have also developed dietary products that provide the benefits of stabilized rice bran and rice bran oil as a nutritional supplement for humans and animals. Consumer products are marketed under the TheraFoods® name. Medical supplements are marketed under the NutraCea® name. Products for veterinary and animal use are marketed under the NutraGlo® name. Cosmetics are marketed under the NutraBeautical® name. A description of our business begins on page 22 of this prospectus.
On October 4, 2005, we acquired The RiceX Company. The RiceX Company manufactures and distributes nutritionally dense foods and food ingredients made from stabilized rice bran for supply to the global food manufacturing and equine feed industries.
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The Offering:
| | This offering relates to the disposition of_____ shares of our common stock or interests therein, that are outstanding andtogether with warrants to purchase ____ shares of our common stock that mayat an exercise price of $[*] per share. The warrants will be acquired from timeimmediately exercisable and will expire ____ months after the issuance date. |
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| Common stock outstanding before the offering (1): | | __________ shares |
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Common stock to time upon exercise ofbe outstanding options and warrants. The selling shareholders andafter the number ofoffering (1): | | __________ shares that may be disposed of by each are set forth on page 66 of this prospectus. | |
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Shares:
Underwriter’s Over-Allotment Option: | | 32,050,000 sharesThe Underwriting Agreement provides that we will grant to the underwriter an option, exercisable within 45 days after the closing of our common stock. A descriptionthis offering, to acquire up to an additional 15% of ourthe total number of common stock is set forth on page 64and warrants to be offered by us pursuant to this offering, solely for the purpose of this prospectus. | covering over-allotments. |
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| Use of proceeds: | | We intend to use a portion of the net proceeds from this offering for the following purposes: ·approximately $_________________ to fund the cash portion of the purchase price for the acquisition of H&N Distribution, Inc. ·approximately $__________________ for a capacity expansion project at the Dillon, Montana facility; ·approximately $__________________ for other capital improvement and quality assurance projects in other US facilities; ·approximately $__________________ for an additional capital contribution to Nutra SA, LLC (Nutra SA) to fund operations at its operating subsidiary Industria Riograndens De Oleos Vegetais Ltda. (Irgovel); and ·approximately $__________________ for continued research and development to support certain product launches. |
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| OTCQB Symbol: | | RIBT |
Manner of Sale:
| | The selling shareholders may sell, transfer or otherwise dispose |
| Risk Factors: | | Investing in our securities involves substantial risks. You should carefully review and consider the “Risk Factors” section of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. A description of the manner in which sales may be made is set forth in this prospectus beginning on page 71 of4 and the other information in this prospectus. | |
| | | |
Use of Proceeds:
| | We will not receive anyprospectus for a discussion of the proceeds from the dispositionfactors you should consider before you decide to invest in this offering. |
(1) The total number of shares of our common stock outstanding after this offering is based on 226,781,297 shares outstanding as of September 26, 2013 and excludes as of that date the following:
| · | 36,118,641 shares of common stock or interest therein,issuable upon exercise of outstanding stock options, at a weighted average exercise price of $0.12 per share, under our equity incentive plans; |
| · | 24,940,600 additional shares of common stock reserved for future issuance under our equity incentive plans; |
| · | 88,094,553 shares of common stock (subject to adjustment) that are issuable upon conversion of outstanding convertible promissory notes; |
| · | 143,252,425 shares of common stock (subject to adjustment) issuable upon exercise of outstanding warrants, with current exercise prices ranging from $0.07 per share to $0.69 per share, which also contain certain anti-dilution provisions. |
| · | ___________ shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering; and |
| · | ___________ shares of common stock issuable upon exercise of the warrants to be received by the selling shareholders. | |
| | | |
Risk Factors:
| | The securities offered hereby involve a high degree of risk and will resultunderwriters in immediate and substantial dilution. A discussion of additional risk factors relating to our stock, our business andconnection with this offering begins on page 5 of this prospectus. | offering. |
Except as otherwise indicated herein, all information in this prospectus assumes the underwriter does not sell any common stock contained in the over-allotment option and the warrants offered hereby are not exercised.
PleaseYou should carefully consider and evaluate all of the specificinformation in this prospectus, including the risk factors set forthlisted below. Risks and uncertainties in addition to those we describe below, as well asthat may not be presently known to us, or that we currently believe are immaterial, may also harm our business and operations. If any of these risks occur, our business, results of operations and financial condition could be harmed, the other informationprice of our common stock could decline, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements contained in this prospectus before purchasing sharesprospectus.
Risks Relating to Our Business
Our significant losses and negative cash flow raise questions about our ability to continue as a going concern.
Our net cash used in operating activities was approximately $4.8 million in 2012 and approximately $2.9 million for the first six months of 2013. We may not be able to achieve revenue growth, profitability or positive cash flow, on either a quarterly or annual basis, or that profitability, if achieved, will 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 re-filing for bankruptcy, pursuing dissolution and liquidation, seeking to merge with another company, selling all or substantially all of our common stock. This prospectusassets or raising additional capital through equity or debt financings. Because of our recurring losses and negative cash flows from operations, the audit report of our independent registered public accountants on our consolidated financial statements for 2012 contains forward-looking statementsan explanatory paragraph stating that involve risksthere is substantial doubt about our ability to continue as a going concern.
We have not yet achieved positive cash flows.
We have generated negative operating cash flows since our inception. We continue to assess our business to identify core and uncertainties. Our actual resultsnon-core assets. To raise additional cash funding we may differ significantly from the results discussedbe required to sell non-core assets and/or business units although there are no current plans do so. Additionally, we will need to reduce operating expenses and increase cash flow to fund current operations in our USA segment if we are not able to fund these operations by raising additional capital through equity or debt financings.
We have generated significant losses since our inception in 2000, and losses in the forward-looking statements.
Risks Relatedfuture could cause the trading price of our stock to Our Business
Wedecline or have a limited operating historymaterial adverse effect on our financial condition, our ability to pay our debts as they become due and have just generatedon our first profits since we began operations.cash flows.
WeSince we began operations in February 2000, and incurred losses in each reporting period until 2006. Our prospects for financial success are difficult to forecast because we have a relatively limited operating history. Our prospects for financial success must be considered in lightincurred an accumulated deficit of the risks, expenses$212 million and difficulties frequently encountered by companies in new, unproven and rapidly evolving markets. Our business could be subject to any or allan accumulated other comprehensive loss of the problems, expenses, delays and risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in product development, possible cost overruns due to price and cost increases in raw product and manufacturing processes, uncertain market acceptance, and inability to respond effectively to competitive developments and attract, retain and motivate qualified employees. Therefore, there can be no assurance that our business or products will be successful, that we will$2 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 your investment. Further, we may be unable to pay our debt obligations as they become due, which include obligations to secured creditors.
We may need to raise 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.
In addition to the funds raised in this offering, we likely will 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 will not encounter unforeseen difficultiesand certain of our shareholders enter into voting arrangements that give them additional voting control or representation on our board of directors.
We have had material weaknesses in our internal control over financial reporting in the past. Any material weaknesses in our internal control over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.
In our Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 30, 2012, our management identified material weaknesses in our internal control over financial reporting at our Brazilian subsidiary, Irgovel. While we believe we have since remediated such weaknesses, any future failure to remedy deficiencies in our internal control over financial reporting that may deplete its capital resources more rapidly than anticipated.be discovered or our failure to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that internal control over our financial reporting is effective. Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties or shareholder litigation, which could have an adverse effect on our results of operations and the trading price of our common stock.
In addition, if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
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, and the estimated price and acceptance of our products.products and other factors. These assumptions are based on theour best estimates, of our management; however there can be no assurance that our assessments regarding market size, potential market share attainable by us, the price at which we will be able to sell our products, market acceptance of our products or a variety of other factors willmay not prove to be correct. Any future success may depend upon factors including changes in the dietary supplement industry, 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.
We have entered into an Acquisition and Stock Purchase Agreement to acquire H&N Distribution, Inc., but such Agreement may not timely lead to acquisition of H&N Distribution, Inc.
On September 24, 2013, we entered into a certain Acquisition and Stock Purchase Agreement with the shareholders of H&N Distribution, Inc. (H&N), a company involved in functional food blending and manufacturing, and the distribution of food ingredients and products. Although the Acquisition and Stock Purchase Agreement is binding on all parties, the closing (and our acquisition of H&N) remains subject to several conditions, including completion of due diligence, absence of material adverse changes to H&N and other conditions set forth in the agreement including the consummation of a financing of at least $7,500,000. Therefore, we may not close the acquisition in a timely manner, or at all. Once the acquisition is consummated, we will face the integration risks discussed above, and it is not known how third parties, competitors, and costumers will respond to the acquisition.
We may face difficulties integrating businesses we acquire.
As part of our strategy, we expect to review opportunities to buy other businesses or technologies, such as the acquisition of H&N, that would complement our current products, expand the breadth of our markets or enhance technical capabilities, or that may otherwise offer growth opportunities. The H&N acquisition and other acquisitions involve numerous risks, including:
| · | problems combining the purchased operations, technologies or products; |
| · | 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 may not that be able to successfully integrate H&N or any other businesses, products, technologies or personnel that we might acquire in the future.
We have significant foreign operations and there are inherent risks in operating overseas.
An important component of our business strategy is to build rice bran stabilization and rice bran oil facilities in foreign countries and to market and sell our products internationally. For example, we have an operation in Brazil which manufactures rice bran oil. There are risks in operating facilities in foreign countries because, among other reasons, we may be unable to attract sufficient qualified personnel, intellectual property rights may not be enforced as we expect, and legal rights may not be available as contemplated. Should any of these risks occur, our ability to expand our foreign operations may be materially limited and we may be unable to maximize the output from these facilities and our financial results may decrease from our anticipated levels. The inherent risks of international operations could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include, among others:
| · | cultural differences in the conduct of business; |
| · | fluctuations in foreign exchange rates; |
| · | greater difficulty in accounts receivable collection and longer collection periods; |
| · | challenges in obtaining and maintaining financing; |
| · | impact of recessions in economies outside of the United States; |
| · | reduced or obtainable protection for intellectual property rights in some countries; |
| · | unexpected changes in regulatory requirements; |
| · | tariffs and other trade barriers; |
| · | political conditions in each country; |
| · | management and operation of an enterprise spread over various countries; |
| · | the burden and administrative costs of complying with a wide variety of foreign laws; and |
Brazilian economic, political and other conditions, and Brazilian government policies or actions in response to these conditions, may negatively affect our business and results of operations.
The Brazilian economy has historically been characterized by interventions by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. For example, the government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil. We have no control over, and cannot predict, what policies or actions the Brazilian government may take in the future.
Our Brazilian Segment’s business, results of operations, financial condition and prospects may be adversely affected by, among others, the following factors:
| · | exchange rate movements; |
| · | exchange control policies; |
| · | expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP; |
| · | other economic political, diplomatic and social developments in or affecting Brazil; |
| · | liquidity of domestic capital and lending markets; |
| · | changes in environmental regulation; and |
| · | social and political instability. |
Our interests in Nutra SA are subject to certain drag along rights and we may receive little or no proceeds from such sale.
Beginning on January 1, 2014, or earlier in the event of a default or a qualifying event as described in the Nutra SA Membership Interest Purchase Agreement, should the other investors in Nutra SA desire to sell 100% of Nutra SA to a third party, we are obligated to cooperate in the negotiation and sale of Nutra SA in accordance with the terms of such sale as agreed to thereby. In the event of a sale, the other investors in Nutra SA are entitled to a preferential return of any proceeds received from the sale of Nutra SA in an amount equal to a minimum of 2 times and a maximum of 2.3 times such investors’ unreturned capital which will be distributed first to such investors until the preferential return has been paid in full. The unreturned capital balance for the other investors is currently $13,425,000. Because of these drag along rights, we will only receive a certain portion of the proceeds if the sales proceeds are greater than the amount of such preferential return, and it is possible that we will receive no or little proceeds from the sale of Nutra SA.
Our interests in our subsidiaries other than Nutra SA may be diluted.
Pursuant to the Nutra SA Investor Rights Agreement dated January 18, 2011, the investors of Nutra SA may convert their membership interests in Nutra SA into interests of each our subsidiaries. The conversion occurs on a percentage/numerical basis, rather than on a value basis, meaning that the other investors of Nutra SA are entitled to an equity interest in our other subsidiaries such that their percentage ownership in each of our other subsidiaries equals the percentage ownership in Nutra SA immediately prior to the conversion. Therefore the impact thereof is difficult to predict. Should one or more of our other subsidiaries become more profitable relative to Nutra SA, the other investors may elect to convert their interests from Nutra SA into equity interests of our subsidiaries which would dilute our ownership of our subsidiaries and lower the profits we would otherwise have received therefrom.
The capital expansion project and planned temporary shutdown at our Irgovel facility could adversely affect our business, financial condition or results of operations.
Irgovel is currently undergoing a capital expansion project involving installation of new equipment and improvements to existing infrastructure. As a result of the project, we expect production at the Irgovel facility to shutdown for approximately 7 weeks while certain new equipment is brought on line. The timing of this shutdown is scheduled to occur in late December 2013, and is subject to change based on availability of funds, the timing of the delivery of equipment from suppliers, the availability of installers and other factors. Where possible, we intend to stockpile certain inventory for sale during the period the plant is shutdown. However, this inventory may not be adequate to timely fulfill all outstanding orders during this period. In addition, during such shutdown, we will have to continue to expend capital to maintain the Irgovel facility and equipment. Facility shutdown and subsequent restart expenses may adversely affect our periodic results when these events occur.
The installation of new equipment at the Irgovel facility involves significant uncertainties. For example, our new equipment may not perform as expected or may differ from design and/or specifications. If we are required to redesign or modify the equipment to ensure that it performs as expected, we may need to further shutdown the facility until the equipment has been redesigned or modified as necessary. The costs related to the capital expansion project are uncertain and the costs may increase beyond those projected.
If we fail to fund the Irgovel capital expansion project, the investors of Nutra SA may obtain certain rights with respect to Irgovel, including the right to participate in the operations of Irgovel.
Irgovel will need additional financing and/or capital to complete the capital expansion project and meet working capital needs during the planned shutdown. We have certain commitments to provide no less than $500,000 by November 15, 2013 to Irgovel to meet these funding requirements under our agreements with the investors in Nutra SA. If instead, the investors fund the cash shortfall at Irgovel they may obtain certain rights, including the right to force the sale of all of Nutra SA’s assets and the right to substantively participate in the operations of Irgovel and Nutra SA. Any of the foregoing risks associated with the capital expansion project could lead to lower revenues or higher costs or otherwise have a negative impact on our future results of operations and financial condition.
Irgovel has certain financial performance obligations which if not met may lead to us losing management control over Irgovel.
Irgovel is owned by Nutra SA. Nutra SA is owned by us and certain other investors. Under the limited liability company agreement for Nutra SA, as amended, Irgovel must satisfy certain financial performance requirements in order for us to maintain control over Irgovel. These financial performance requirements include Irgovel’s satisfaction of revenue, earnings and net debt targets described in the Membership Interest Purchase Agreement dated December 29, 2010, as amended (the Nutra SA Membership Interest Purchase Agreement). If Irgovel fails to meet these financial requirements, we could lose management control over Irgovel’s operations, and management control would transfer to the other investors in Nutra SA. Any such change in management control would cause us to no longer consolidate Irgovel’s financial results with our financial results. Instead, we would be required to account for Irgovel as an equity investment on our balance sheets which may negatively impact our share price.
Our business could be affected adversely by labor disputes, strikes or work stoppages in Brazil.
All of our employees at our Irgovel facility in Brazil are represented by a labor union and are covered by a collective bargaining agreement. As a result, we are subject to the risk of labor disputes, strikes, work stoppages and other labor-relations matters. Our collective bargaining agreement in Brazil typically has a one-year term and requires that we provide wage adjustments each year. We may be unable to negotiate new collective bargaining agreements on similar or more favorable terms and may experience work stoppages or other labor problems in the future. We could experience a disruption of our operations or higher ongoing labor costs, which could have a material adverse effect on our operating results and financial condition, potentially resulting in cancelled orders by customers, unanticipated inventory accumulation or shortages and reduced revenues and net income.
Fluctuations in foreign currency exchange could adversely affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including primarily the Brazilian Real. Currently, a significant portion of our revenues and expenses occur in our Brazilian subsidiary, Irgovel. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect historically, during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against the Brazilian real and any other currency which affects a material amount of our operations, will affect our revenues, cost of sales, gross profit (loss), operating expenses, or other income and expenses and the value of balance sheet items denominated in foreign currencies. These fluctuations may have a material adverse effect on our financial results. Disruptions in financial markets may result in significant changes in foreign exchange rates in relatively short periods of time which further increases the risk of an adverse currency effect. Since we plan to expand our international operations, we will likely increase our exposure to foreign currency risks. We do not hedge our currency risk, and do not expect to, as currency hedges are expensive and do not necessarily reduce the risk of currency fluctuations over longer periods of time.
We depend on a limited number of customers.
During 2006,As of December 31, 2012 and June 30, 2013, three customers accounted for 40% of USA segment revenues. In our Brazil segment, three customers accounted for 38% and 34% of segment revenues as of December 31, 2012 and June 30, 2013 respectively. As of December 31, 2012 and June 30, 2013, the top ten USA segment customers accounted for 77% and 64% respectively of segment accounts receivable and 63% and 62% respectively of segment revenues. As of December 31, 2012 and June 30, 2013 in our Brazil segment, out top ten customers accounted for 75% and 51% respectively of segment accounts receivable and 57% and 49% respectively of segment revenues.
Although we received approximately 67%continue to expand our customer base in an attempt to mitigate the concentration of product sales revenue from five customers, and approximately 48% of our revenue from one customer. Athe loss of any one of these customers could have a materialan adverse effect on our revenues and results of operations.
The inability of our significant customers to meet their obligations to us may adversely affect our financial results.
We are subject to credit risk due to concentration of our trade accounts receivables. Although the accounts our significant customers are current, the inability of our significant customers and obligors to meet their future obligations to us, may adversely affect our financial condition and 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.
AllThe majority of ourthe products arethat we have sold through June 30, 2013 have been based on stabilized rice bran. Although we will market stabilized rice bran as a dietary supplement, as an active food ingredient for inclusion inSRB produced at our productsUS facilities and in other companies' products, and in other ways, aextracted RBO from Irgovel. A decline in the market demand for our SRB and RBO products, as well as the products of other companies utilizing our SRB and RBO products, couldwould have a significant adverse impact on us.
We areOur ability to generate sales is dependent upon our ability to continue our ongoing marketing efforts.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 merchandise and health food retailers, and to other companies for use in their products. We must increase the level of awareness of dietary supplements 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 there cansuch efforts may not be no assurance that it will be successful.
Further, because of our current cash position, we may face difficulties maintaining a sales force sufficient to effectively market our products as intended.
We rely uponOur ability to adapt to sudden increases in demand of our product is limited by an adequate supply of raw rice bran.bran and our ability to find additional facilities for production.
AllMany of our current products depend on our proprietary technology using stabilizedraw rice bran, which is a by-product from milling paddy rice to white rice. Our ability to manufacture rice bran raw materialsSRB is currently limited to the production capability of our facilityequipment located at Farmers Rice Cooperativeour two suppliers’ rice mills in California and our singleown plant located adjacent to our supplier in Mermentau, Louisiana. Along with our value-added product plants in Dillon, Montana. Between the Dillon, Montana plant and theour facility at Farmers Rice Cooperative,in Pelotas, Brazil, we currently are capable of producing all of our required rice bran raw materials. The current production capacity will meet our immediate supply needs, but that capacity may not be sufficientenough finished products to meet all of our needs for the year ahead. We expanded the Dillon, Montana facility which was completed in 2006 and placed in operations in 2007. We have also entered into a new supply agreement in Louisiana, involving the construction of a new facility which we anticipate will be operating by the end of the first quarter of 2007. These facilities should meet our needs for 2007 and early 2008, but are not anticipated to be sufficient to meet our longer term supply needs. Therefore, we anticipate building new facilities to meet the forecastedcurrent demand. If demand for our products were to increase dramatically in the future, we would need additional production capacity which may take time and envision we willmay expose us to additional long term operating costs.
We may not be able to execute on this initiative. In the event we are unable to create additional production capacity to produce more stabilized rice bran products to fulfill our current and future requirements this could materially and adversely affect our business, results from operations, and financial condition.
We are pursuing other supply sources in the United States and in foreign countries and anticipate being able to secure alternatives and back-up sources of rice bran, although we have not entered into any definitive agreements other than the agreements with Farmers Rice Cooperative and Louisiana Rice Mill. However, there can be no assurance that we will continue to secure adequate sources of raw rice bran to meet our requirements to produce stabilized rice bran products.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. If economic or weather conditions adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase. We are not generallyalways able to immediately pass cost increases to our customers and any increase in the cost of stabilized rice branSRB products wouldcould have an adverse effect on our results of operations.
We face competition.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 nutraceuticals, functional food ingredients, rice bran oils, 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 us.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. We also have contractual obligations which require ongoing payments such as various debt agreements and lease obligations and the agreement of Irgovel to pay tax obligations to the Brazilian government. 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 affect on our financial condition and results of operations.
We have a high concentration of credit risk.
We currently depend on a limited number of customers. This results in a concentration of credit risk with respect to our outstanding accounts receivable. We consider the financial strength of the customer, 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 for 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 and 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.
Our products could fail to meet applicable regulations which could have a material adverse affect on our financial performance.
The dietary supplement and cosmetic industries are subject to considerable government regulation, both as to efficacy as well as labeling and advertising. There is no assurance that all of ourOur products and marketing strategies willmight not satisfy all of the applicable regulations of the Dietary Supplement, Health and Education Act, the Federal Food, Drug and Cosmetic Act, the U.S. Food and Drug Administration, and/or the U.S. Federal Trade Commission.Commission, the Brazilian National Health Surveillance Agency and/or other foreign regulatory agencies. Failure to meet any applicable regulations would require us to limit the production or marketing of any non-compliant products or advertising, which could subject us to financial or other penalties.
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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 $5,000,000 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 affect 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. Further, no insurance is available to cover certain types of risks, such as acts of God, war, terrorism, major economic and business disruptions, and similar events. 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.
WeOur success is dependent upon our ability to protect and enforce the patents, trade secrets and trademarks that we have one patent entitled Methods for Treating Joint Inflammation, Pain and Loss of Mobility, which covers both humansto develop and mammals. In addition, our subsidiary RiceX has five United Statesobtain new patents and may decide to file corresponding international applications. RiceX holds patents to the production of Beta Glucantrademarks for future processes, machinery, compounds and to a micro nutrient enriched rice bran oil process. RiceX also holds patents to a method to treat high cholesterol, to a method to treat diabetes and to a process for producing Higher Value Fractions from stabilized rice bran.products that we develop. The process of seeking patent protection may be long and expensive, and there can be no assurance that patents willmight not be issued that we willor be broad in scope. We may not be able to protect our technology adequately, or thatand our competition will notmay be able to develop similar technology.technology that does not infringe or encroach upon any of our rights.
There currently are no claims or lawsuits pending or threatened against us or RiceX regarding possible infringement claims, but there can be no assurance that infringement claims by third parties, or claims for indemnification resulting from infringement claims, will notcould be asserted in the future or that such assertions, if proven to be accurate, will not have a material adverse affect 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 affect 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 affect on our financial condition and results of operations. There can be no assurance that aA license under a third party'sparty’s intellectual property rights willmight not be available to us on reasonable terms, if at all.
We are dependent on key employees and consultants.employees.
Our success depends upon the efforts of our top management team and certain other key employees, including the efforts of Bradley D. Edson, our President and ChiefJohn Short (Chief Executive Officer, Todd C. Crow, our ChiefOfficer), Dale Belt (Chief Financial Officer, Ike E. Lynch, our Chief Operating Officer, Margie D. Adelman, our Secretary and SeniorOfficer), Dave Hutchinson (Senior Vice President of Operations), Robert Smith, PhD (Senior Vice President of Business Development) and Kody K. Newland, our SeniorColin Garner (Senior Vice President of Sales and Marketing.Marketing). Although we have written employment agreements with each of the foregoing individuals there is no assurance thatour CEO and CFO, such individuals will notcould die, become disabled, or become disabled.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. There is no assurance that we will We may not be able to recruit and employ such executives at times and on terms acceptable to us.
We Have Not Yet Achieved Positive Cash Flow
We have not generated a Also, volatility, lack of positive cash flow from operations continuous period to period since commencing operations. We raised approximately $50,000,000performance in a February 2007 private placement, $17,560,000our stock price and changes in the form ofour overall compensation program, including our equity in May 2005, and approximately $8,000,000 in the form of equity in the October 2004, and paid off all short and long term debt obligations, strengthening our balance sheet and positioning us for the growth in sales we are anticipating. While we believe that we have adequate cash reserves and working capital to fund current operations,incentive program, may adversely affect our ability to meet long term business objectives may be dependent upon our ability to raise additional financing through public or private equity financings, establish increasing cash flow from operations, enter into collaborative or other arrangements with corporate sources, or secure other sources of financing to fund long-term operations. There is no assurance that external funds will be available on terms acceptable to us in sufficient amount to finance operations until we do reach sufficient positive cash flow to fund our capital expenditures. In addition, any issuance of securities to obtainretain such funds would dilute percentage ownership of our shareholders. Such dilution could also have an adverse impact on our earnings per share and reduce the price of our common stock. Incurring additional debt may involve restrictive covenants and increased interest costs and demand on future cash flow. Our inability to obtain sufficient financing may require us to delay, scale back or eliminate some or all of our product development and marketing programs. key employees.
Our products may require clinical trials to establish efficacy and safety.
Certain of our products may require clinical trials to establish our benefit claims or their safety and efficacy. Such trials can require a significant amount of resources and there is no assurance that such trials will be favorable to the claims we make for our products, or that the cumulative authority established by such trials will be sufficient to support our claims. Moreover, both the findings and methodology of such trials are subject to challenge by the FDA and scientific bodies. If the findings of our trials are challenged or found to be insufficient to support our claims, additional trials may be required before such products can be marketed.
Risks Related to Our Stock
Our Stock Price is Volatile.
The market price of a share of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. During 2006, the high and low sales prices of a share of NutraCea common stock were $2.74 and $0.60, respectively. During 2005, the high and low sales prices of a share of our common stock were $1.81 and $0.30, respectively. The market price of a share of our common stock may continue to fluctuate in response to a number of factors, including:
| · | announcements of new products or product enhancements by us or our competitors; |
| · | fluctuations in our quarterly or annual operating results; |
| · | developments in our relationships with customers and suppliers; |
| · | the loss of services of one or more of our executive officers or other key employees; |
| · | announcements of technological innovations or new systems or enhancements used by us or its competitors; |
| · | developments in our or our competitors intellectual property rights; |
| · | adverse effects to our operating results due to impairment of goodwill; |
| · | failure to meet the expectation of securities analysts' or the public; and |
| · | general economic and market conditions. |
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 2, 2007, NutraCea had approximately 134,370,254 shares of common stock outstanding. Additionally, as of March 2, 2007, December 31, 2006, options and warrants to purchase a total of 51,136,597 shares of our common stock were outstanding. The possibility that substantial amounts of our outstanding 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.
Sales of Our Stock Pursuant to Registration Statements May Hurt Our Stock Price
We granted registration rights to the investors in our October 2005, May 2006 and February 2007 capital stock and warrant financings. As of March 2, 2007, a total of 13,087,627 shares of our common stock remained eligible for resale by selling shareholders that had shares registered on two registration statements that we have filed in connection with October 2005 and May 2006 financings. In addition, this registration statement registers for resale 32,050,000 shares of our common stock relating to our February 2007 financing. Sales or potential sales of a significant number of shares into the public markets may negatively affect our stock price.
The Exercise of Outstanding Options and Warrants May Dilute Current Shareholders
As of March 2, 2007, there were outstanding options and warrants to purchase a total of 51,136,597 shares of our common stock. Holders of these options and warrants may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us. Moreover, while these options and warrants are outstanding, our ability to obtain financing on favorable terms may be adversely affected.
We may need to raise funds through debt or equity financings in the future, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.
We may choose to raise additional funds in debt or equity financings if they are available to us on terms we believe reasonable to increase our working capital, strengthen our financial position or to make acquisitions. 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 the company. 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.
The authorization of our preferred stock may have an adverse effect on the rights of holders of our common stock.
We may, without further action or vote by holders of our common stock, designate and issue shares of our preferred stock. The terms of any series of preferred stock 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 may engage in future acquisitions that dilute our shareholders and cause us to incur debt or assume contingent liabilities.
As part of our strategy, we expect to review opportunities to buy other businesses or technologies that would complement its current products, expand the breadth of its markets or enhance technical capabilities, or that may otherwise offer growth opportunities. In the event of any future acquisitions, we could:
| · | issue stock that would dilute current shareholders' percentage ownership; |
These purchases also involve numerous risks, including:
| · | problems combining the purchased operations, technologies or products; |
| · | 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 cannot assure you that we will be able to successfully integrate any businesses, products, technologies or personnel that we might purchase in the future.
Compliance with corporate governance and public disclosure regulations may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations issued by the Securities and Exchange Commission,SEC, such as Dodd-Frank, are creating uncertainty for companies. In order to comply with these laws, we may need to invest substantial resources to comply with 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 rightsrights.
Our Articlesarticles of Incorporationincorporation and by-lawsbylaws 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 this Offering
We may allocate net proceeds from this offering in ways which differ from our estimates based on our current plans and assumptions discussed in the section entitled “Use of Proceeds” and with which you may not agree.
The allocation of net proceeds of the offering set forth in the “Use of Proceeds” section below represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions, our future revenues and expenditures. The amounts and timing of our actual expenditures will depend on numerous factors, including market conditions, cash generated by our operations, business developments and related rate of growth. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes. Circumstances that may give rise to a change in the use of proceeds and the alternate purposes for which the proceeds may be used are discussed in the section entitled “Use of Proceeds” below. You may not have an opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. As a result, you and other stockholders may not agree with our decisions. See “Use of Proceeds” for additional information.
Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings.
Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. Of the approximately 226,781,297 shares of common stock outstanding as of September 26, 2013, all of which are, or will be, freely tradable without restriction, unless held by our “affiliates.” Some of these shares may be resold under Rule 144 of the Securities Act of 1933, as amended. The sale of 88,094,553 shares issuable upon conversion of our outstanding convertible notes and 179,371,065 shares issuable upon exercise of outstanding options and warrants could also lower the market price of our common stock.
You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of up to __________ shares of common stock and corresponding warrants offered in this offering at a public offering price of $____ per share, and after deducting underwriter commissions and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $___ per share, or __%, at the public offering price, assuming no exercise of the warrants. In addition, in the past, we issued options and warrants to acquire shares of common stock and may need to do so in the future to support our operations. To the extent these options and/or warrants are ultimately exercised, you will sustain future dilution.
There is no public market for the warrants to purchase common stock in this offering.
There is no established public trading market for the warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants on any securities exchange. If the registration statement covering the shares issuable upon exercise of the warrants is no longer effective, the warrants will be issued with restrictive legends unless such warrants are eligible for sale under Rule 144.
Holders of warrants will have no rights as common stockholders until such holders exercise their warrants and acquire our common stock.
Until holders of warrants acquire shares of our common stock upon exercise of the warrants, holders of warrants will have no rights with respect to the shares of our common stock underlying such warrants. Upon exercise of the warrants, the holders will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
The warrants included in this offering may not have any value.
The warrants will expire on _______, 20__. In the event our common stock price does not exceed the exercise price of the warrants during the period in which the warrants are exercisable, the warrants may not have any value.
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. Our common stock trades on the OTCQB. Our common stock is thinly traded and subject to volatility in price and demand. See “Price Range of Our Common Stock”.
The market price of a share of our common stock may continue to fluctuate in response to a number of factors, including:
| · | announcements of new products or product enhancements by us or our competitors; |
| · | fluctuations in our quarterly or annual operating results; |
| · | developments in our relationships with customers and suppliers; |
| · | our ability to obtain financing; |
| · | the loss of services of one or more of our executive officers or other key employees; |
| · | announcements of technological innovations or new systems or enhancements used by us or our competitors; |
| · | developments in our or our competitors’ intellectual property rights; |
| · | adverse effects to our operating results due to 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 September 26, 2013, we had 226,781,797 shares of common stock outstanding. Additionally, as of September 26, 2013, approximately 267,465,618 shares of our common stock were issuable upon exercise or conversion of outstanding options, warrants and convertible debt. 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. In addition, commencing upon the earlier of January 2014 or upon an event of default under the limited liability agreement, the other investors in Nutra SA may elect to exchange their units in Nutra SA for shares of our common stock at a price to be determined based on the appraised fair value of Nutra SA which would significantly increase the amount of our common stock outstanding and the amount of the equity overhang.
Our outstanding options, warrants and convertible notes may dilute current shareholders.
As of September 26, 2013, there were outstanding options, warrants and convertible debt that are exercisable for a total of approximately 267,465,618 shares of our common stock.
The outstanding common stock warrants issued in our May 2009 financings and the convertible debt and common stock warrants issued in our 2012 and 2013 financings contain anti-dilution provisions that cause the exercise prices and conversion prices of the warrants and convertible debt to decrease automatically if we issue shares of our common stock or securities convertible into shares of our common stock in a financing at prices below the exercise and conversion prices of these warrants and convertible debt. These adjustments automatically cause the number of shares issuable upon exercise of these warrants and convertible debt to proportionately increase. Any such adjustment would materially dilute the holders of our common stock.
Our interests in certain of our subsidiaries have been pledged to secure obligations under certain credit agreements.
We have issued convertible notes and debentures which are secured against substantially all of the assets of certain of our subsidiaries. In the event of default under such notes and debentures, the holders may foreclose upon such interests to secure the obligations under the notes and debentures.
Because the SEC imposes additional sales practice requirements on brokers who deal in our shares, which are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty reselling your shares and may cause the price of the shares to decline.
Our stock is a penny stock. The SEC generally defines “penny stock” to be any equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 (excluding the value of their primary residence) or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the willingness of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock. These factors may result in an investor who satisfies the conditions of Rule 144 promulgated under the Securities Act still being unable or having difficulty liquidating his or her “restricted” shares purchased in this offering.
USE OF PROCEEDSThe authorization and issuance of preferred stock may have an adverse effect on the rights of holders of our common stock.
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. The Shares coveredterms of 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, no shares of which remain outstanding as of September 26, 2013. We may issue additional series of preferred stock in the future.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus, including, without limitation, statements regarding the assumptions we make about our business and economic model, our dividend policy, business strategy and other plans and objectives for our future operations, are being registered forforward-looking statements.
These forward-looking statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “could,” “expects,” “plans,” “contemplates,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “intend” or “continue” or the accountnegative of such terms or other comparable terminology, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to inherent risks and uncertainties in predicting future results and conditions that could cause the actual results to differ materially from those projected in these forward-looking statements. Some, but not all, of the selling shareholders. forward-looking statements contained in this prospectus and the documents incorporated by reference herein include, among other things, statements about the following:
| · | our significant losses and negative cash flow raise questions about our ability to continue as a going concern; |
| · | the risk that we will be unable to pay our debt obligations as they become due or that we will be able to find sufficient financing to fund our operations; |
| · | the risks associated with foreign operations; |
| · | the effect certain conversions of securities may have on us, whether the conversion be pursuant to options, warrants, or contractual obligation and whether the conversion occurs at the parent or subsidiary levels; |
| · | future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital our reliance on certain key customers |
| · | regulatory compliance costs; |
| · | product liability claims and product recalls; |
| · | outstanding pledges and obligations to lenders; and |
| · | the other matters described in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” |
You should also read the matters described in “Risk Factors” and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. The forward-looking statements in this prospectus may not prove to be accurate and therefore you are encouraged not to place undue reliance on forward-looking statements. You should read this prospectus completely
We estimate that we will not receive anyup to $__________ in net proceeds from the dispositionsale of common stock and corresponding warrant in this offering, based on an assumed price of $_____ per share of common stock and corresponding warrant and after deducting estimated underwriter fees and estimated offering expenses payable by us. We cannot predict when or if the interests therein,warrants will be exercised. It is possible that the warrants may expire and may never be exercised.
We intend to use the net proceeds from this offering for the following purposes:
| · | approximately $__________________to fund the cash portion of the purchase price for the acquisition of H&N Distribution, Inc.; |
| · | approximately $__________________ for an additional capital contribution to Nutra SA to fund operations at Irgovel; |
| · | approximately $__________________for a capacity expansion project at the Dillon, Montana facility; |
| · | approximately $__________________for other capital improvement and quality assurance projects in other US facilities; and |
| · | approximately $__________________ for continued research and development to support certain product launches. |
The remaining net proceeds will be used for working capital and other general corporate purposes.
The allocation of the net proceeds of the offering set forth above represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions, our future revenues and expenditures.
The amounts and timing of our actual expenditures will depend upon numerous factors, including market conditions, cash generated by our operations, business developments and related rate of growth. We may find it necessary or advisable to use portions of the selling shareholders.proceeds from this offering for other purposes.
Circumstances that may give rise to a change in the use of proceeds and the alternate purposes for which the proceeds may be used include:
the existence of other opportunities or the need to take advantage of changes in timing of our existing activities;
the need or desire on our part to accelerate, increase or eliminate existing initiatives due to, among other things, changing market conditions and competitive developments; and/or
if strategic opportunities of which we are not currently aware present themselves (including acquisitions, joint ventures, licensing and other similar transactions).
From time to time, we evaluate these and other factors and we anticipate continuing to make such evaluations to determine if the existing allocation of resources, including the proceeds of this offering, is being optimized. Pending such uses, we intend to invest the net proceeds of this offering in direct and guaranteed obligations of the United States, interest-bearing, investment-grade instruments or certificates of deposit.
If you purchase securities in this offering, [and assuming no value is attributed to the warrants,] your interest will be diluted immediately to the extent of the difference between the assumed public offering price of $_____ per share and the as adjusted net tangible book value per share of our common stock immediately following this offering.
Our net tangible book value as of June 30, 2013 was approximately $(609), or approximately $0.00 per share. Net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2013.
Net tangible book value dilution per share of common stock to new investors represents the difference between the amount per share paid by purchasers in this offering and the as adjusted net tangible book value per share of common stock immediately after completion of this offering, [assuming that no value is attributed to the warrants.] After giving effect to our sale of _____ shares in this offering at an assumed public offering price of $_____ per share, and after deducting the underwriter commissions and estimated offering expenses, our as adjusted net tangible book value as of June 30, 2013 would have been $_____, or $_____ per share. This represents an immediate increase in net tangible book value of $_____ per share to existing stockholders and an immediate dilution in net tangible book value of $_____ per share to purchasers of shares in this offering, as illustrated in the following table:
| Assumed public offering price per share | | $ | | |
| Net tangible book value per share as of June 30, 2013 | | $ | | |
| Increase in net tangible book value per share attributable to new investors | | $ | | |
| Adjusted net tangible book value per share as of June 30, 2013, after giving effect to the offering | | $ | | |
| Dilution per share to new investors in the offering | | $ | | |
The above discussion and tables do not include the following:
| · | 24,940,600 shares of common stock currently reserved for future issuance under our equity incentive plans. As of September 26, 2013, there were options to purchase 36,118,641 shares of our common stock outstanding under our equity incentive plans with a weighted average exercise price of $0.12 per share; |
| · | 143,252,425 shares of common stock issuable upon exercise of outstanding warrants as of September 26, 2013, with exercise prices ranging from $0.07 per share to $0.69 per share; |
| · | 88,094,553 shares of common stock (subject to adjustment) that are issuable upon conversion of outstanding convertible promissory notes; and |
| · | __________ shares of common stock that will be issued upon exercise of warrants at an exercise price of $_____ per share sold in this offering or to the underwriters. |
PRICE RANGE OF
COMMONOUR COMMON STOCK
Market Information
Our common stock currently tradesis quoted on the OTC Bulletin Board (“OTCBB”) exchangeOTCQB under the symbol “NTRZ.OB”.“RIBT.” The following table sets forth, for the range ofperiods indicated, the high and low closing sales prices forper share of our common stock as reported onby the OTCBB for the periods indicated below. OTCQB. The quotationsprices below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.
| | High | | | Low | |
| 2011 | | | | | | |
| First Quarter | | $ | 0.41 | | | $ | 0.16 | |
| Second Quarter | | $ | 0.39 | | | $ | 0.16 | |
| Third Quarter | | $ | 0.19 | | | $ | 0.11 | |
| Fourth Quarter | | $ | 0.20 | | | $ | 0.10 | |
| 2012 | | | | | | | | |
| First Quarter | | $ | 0.16 | | | $ | 0.10 | |
| Second Quarter | | $ | 0.16 | | | $ | 0.04 | |
| Third Quarter | | $ | 0.09 | | | $ | 0.04 | |
| Fourth Quarter | | $ | 0.12 | | | $ | 0.04 | |
| 2013 | | | | | | | | |
| First Quarter | | $ | 0.12 | | | $ | 0.05 | |
| Second Quarter | | $ | 0.09 | | | $ | 0.06 | |
| Third Quarter through September 26, 2013, 2013 | | $ | 0.07 | | | $ | 0.06 | |
NUTRACEA COMMON STOCK | | Low | | High | |
Year Ended December 31, 2006 | | | | | |
| Fourth Quarter | | $ | 1.30 | | $ | 2.74 | |
| Third Quarter | | $ | 0.80 | | $ | 1.38 | |
| Second Quarter | | $ | 0.60 | | $ | 1.45 | |
| First Quarter | | $ | 0.65 | | $ | 1.42 | |
| | | | | | | | |
Year Ended December 31, 2005 | | | | | | | |
| Fourth Quarter | | $ | 0.65 | | $ | 1.17 | |
| Third Quarter | | $ | 0.39 | | $ | 1.81 | |
| Second Quarter | | $ | 0.39 | | $ | 0.65 | |
| First Quarter | | $ | 0.30 | | $ | 0.67 | |
Holders
On September 26, 2013, the last sales price reported on the OTCQB for our common stock was $0.06 per share. As of March 2, 2007,September 26, 2013, there were approximately 303226.7 million shares of our common stock outstanding and approximately 280 holders of record of our common stock.
DIVIDEND POLICYOptions and Warrants
There are outstanding warrants and outstanding options to purchase 143,252,425 and 36,118,641 shares of our common stock, respectively, as of September 26, 2013.
Convertible Notes
There is approximately $8.1 million of principal amount of convertible notes outstanding convertible into 88,094,553 shares of our common stock, subject to adjustment, of common stock as of September 26, 2013.
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. Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA. Pursuant to the terms of outstanding senior convertible debentures and senior convertible notes, we may not pay any dividends while the debentures and senior convertible notes are outstanding. Otherwise, the payment of dividends on common stock, if any, in the future is within the discretion of our Board of Directors and will depend on its earnings, capital requirements and financial condition and other relevant facts.
SELECTED CONSOLIDATED FINANCIAL DATA
The following unaudited selected historical information has been derived from the audited consolidated financial statements of NutraCea. The selected consolidated financial informationtable sets forth our cash and cash equivalents and our capitalization as of December 31, 2006June 30, 2013:
| · | on a pro forma basis, based upon an assumed offering price of $_____ per share of common stock and corresponding warrant, to give effect to the sale of _______ shares of common stock and _______ warrants in this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
Based on the assumed offering price of $_____ per share of common stock and 2005 and for eachcorresponding warrant, we allocated $_____ of the three years inaggregate consideration to each share of common stock [(assuming no value to the period ended December 31, 2006 are derived fromcorresponding warrants).] The pro forma information below is only for illustrative purposes and our audited consolidated financial statements included elsewhere incapitalization following the completion of this prospectus. The selected consolidated financial information asoffering will be adjusted based on the actual offering price and other terms of December 31, 2004, 2003 and 2002 and for each of the two years in the period ended December 31, 2003 have been derived from our audited consolidated financial statements that are not included in this prospectus. The information set forth belowoffering determined at pricing. You should be read this table in conjunction with the financial statements, related Notes thereto, and the section entitled“Use of Proceeds” above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includedand financial statements and the related notes appearing elsewhere in this Form 10-K.
Annual Summary
Selected financial information represents annual results. Due to the acquisition of The RiceX Company on October 4, 2005, the following represents annual results for NutraCea and three months of operations for RiceX for 2005 information.
Statements of Operations Data: (In thousands except per share data)
| | | Years ended December 31, | |
| | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | | |
| Revenues | | $ | 18,090 | | $ | 5,564 | | $ | 1,225 | | $ | 1,536 | | $ | 1,286 | |
| Costs and expenses | | | 17,043 | | | 8,558 | | | 24,776 | | | 9,763 | | | 4,392 | |
| Income (loss) from operations | | | 1,047 | | | (2,994 | ) | | (23,551 | ) | | (8,227 | ) | | (3,106 | ) |
| Other income (expense) | | | 538 | | | (878 | ) | | (24 | ) | | (4,309 | ) | | (3,356 | ) |
| Net income (loss) | | $ | 1,585 | | $ | (3,872 | ) | $ | (23,575 | ) | $ | (12,536 | ) | $ | (6,462 | ) |
| Basic net income (loss) per common share | | $ | 0.02 | | $ | (0.10 | ) | $ | (1.18 | ) | $ | (2.05 | ) | $ | (0.29 | ) |
| Diluted net income (loss) per common share | | $ | 0.02 | | | n/a | | | n/a | | | n/a | | | n/a | |
| | | | | | | | | | | | | | | | | |
| Weighted average number of shares outstanding | | | 76,696 | | | 38,615 | | | 19,906 | | | 6,107 | | | 22,071 | |
____________________
Balance Sheet Data: (In thousands)
| | | As of December 31, | |
| | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | | |
| Cash, cash equivalents, restricted cash and investments | | $ | 15,235 | | $ | 3,636 | | $ | 2,112 | | $ | 100 | | $ | 35 | |
| Total assets | | | 73,255 | | | 47,464 | | | 3,338 | | | 541 | | | 556 | |
| Current liabilities | | | 2,881 | | | 1,261 | | | 441 | | | 1,028 | | | 1,628 | |
| Long-term debt | | | - | | | 9 | | | 1,635 | | | - | | | - | |
| Deficit accumulated during the development stage | | | (49,305 | ) | | (50,890 | )(1) | | (44,928 | ) | | (21,345 | ) | | (8,683 | ) |
| Total stockholders' equity (deficit) | | $ | 66,884 | | $ | 38,893 | | $ | 1,167 | | $ | (487 | ) | $ | (3,123 | ) |
prospectus.
(1) | The Company adopted Securities and Exchange Commission, Staff Accounting Bulletin No. 108 in 2006. As a result, the Company increased accumulated deficit at December 31, 2005 by $2,090,000. See Note 3 to the audited financial statements. |
Operating Expenses (in thousands):
Research and Development (R&D) expenses increased $186,000 in 2006 to $377,000 due to increased product development costs.
| | Six Months Ended June 30, 2013 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Selling, general and administrative | | $ | 1,883 | | | $ | 1,060 | | | $ | 2,318 | | | $ | 5,261 | |
| Professional fees | | | 463 | | | | - | | | | 267 | | | | 730 | |
| Impairment of property | | | - | | | | 300 | | | | - | | | | 300 | |
| Total operating expenses | | $ | 2,346 | | | $ | 1,360 | | | $ | 2,585 | | | $ | 6,291 | |
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2012 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Selling, general and administrative | | $ | 2,394 | | | $ | 1,936 | | | $ | 2,373 | | | $ | 6,703 | |
| Professional fees | | | 400 | | | | - | | | | 587 | | | | 987 | |
| Intersegment fees | | | (112 | ) | | | - | | | | 112 | | | | - | |
| Impairment of property | | | - | | | | 1,069 | | | | - | | | | 1,069 | |
| Total operating expenses | | $ | 2,682 | | | $ | 3,005 | | | $ | 3,072 | | | $ | 8,759 | |
| | | | | | | | | | | | | | | | |
| | Favorable (Unfavorable) Change | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Selling, general and administrative | | $ | 511 | | | $ | 876 | | | $ | 55 | | | $ | 1,442 | |
| Professional fees | | | (63 | ) | | | - | | | | 320 | | | | 257 | |
| Intersegment fees | | | (112 | ) | | | - | | | | 112 | | | | - | |
| Impairment of property | | | - | | | | 769 | | | | - | | | | 769 | |
| Total operating expenses | | $ | 336 | | | $ | 1,645 | | | $ | 487 | | | $ | 2,468 | |
Sales, General and Administrative (SG&A) expenses increased $2,170,000 from $3,862,000 in 2005 to $6,032,000 in 2006. The increase was mostly due to added employee related, travel, office, commission, and other generalConsolidated operating expenses. Included in SG&A category is stock-based compensation for employees, directors and consultants. Stock-based compensation decreased $142,000 from $868,000 in 2005 to $726,000 in 2006. Stock-based compensation expenses decreased $420,000 from $1,511,000 in 2005 to $1,091,000 in 2006. These non-cash charges relate to issuances of common stock and common stock warrants and options in 2006 and 2005. The higher issuances of restricted stock, options and warrants during 2005 was deemed necessary by management to retain and compensate officers, directors, consultants and employees while conserving cash assets that would otherwise have been expended for these purposes.
Professional fees decreased $123,000 from $1,627,000 in 2005 to $1,504,000 in 2006. In 2006, professional expenses were associated with consultants, accounting, SOX 404 compliance, legal, investor relations and stock-based compensation expenses. We incurred investor relations costs$6.3 million for the first half of $251,000 in 20062013, compared to $307,000$8.8 million for the first half of 2012, an improvement of $2.5 million. The reduction in 2005, a decrease of $56,000 associated with an investor relations firm and fees associated with SEC filing requirements. Stock-based compensation on stock and warrant issues to consultants for services decreased $278,000 from $643,000 in 2005 to $365,000 in 2006
Interest expense decreased by $889,000 to $7,000 in 2006 dueUSA segment impairment charges between periods contributed $0.8 million to the payoffimprovement. The impairment charge in the six months ended June 30, 2012, related to the impairment of a notemachinery and equipment not currently in use, which was written down $1.1 million to its estimated fair value in the second quarter of $2,400,000 at 7% interest compounded quarterly2012. In the first quarter of 2013, we reevaluated the machinery and equipment not in used and, based on October 4, 2005. Interest expensecurrent market conditions recorded an additional impairment of $0.3 million to write the machinery and equipment down to an estimated fair value of $0.4 million. The estimate of net realizable value is subject to change.
The improvement in 2006 primarily consisted of interest on a loan for equipment.
Income tax expense is reported incorporate segment selling, general and administrative expenses (SG&A) of $0.5 million related to a reduction in compensation expense for stock options and consistspayroll as a result of $5,000, $2,400reduction in force and $2,400 for the years ended December 31, 2006, 2005end of stock option vesting periods.
USA segment SG&A expenses decreased $0.8 million due to a $0.4 million change in gain on sale of excess property and 2004, respectively.
Deferred taxes arise from temporary differences$0.4 million lower depreciation expense. Depreciation expense was lower in 2013 as a result of an impairment charges taken in the recognitionsecond quarter of certain expenses for tax and financial reporting purposes. At December 31, 2006 and 2005, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2006, net operating loss carryforwards were approximately $25,018,000 for federal tax purposes that expire at various dates from 2011 through 2020 and $12,230,00 for state tax purposes that expire in 2010 through 2015.2012.
The Company has an unrecorded income tax benefit of $14,100,000 resulting fromBrazil segment professional fees decreased $0.3 million because the exercise of options during 2006. This benefit can only be recognized if the net operating losses are used in future periods or if net operating losses expire, and will be recorded in equity.
Utilization of net operating loss carry forwards may be subject to substantial annual limitations dueBrazil segment no longer pays investor fees to the “changeinvestors in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations.Nutra SA. The annual limitation may resultinvestors in expiration of net operating loss carry forwards before utilization.
Comparison of Results for the Years Ended December 31, 2005 and 2004
DueNutra SA have agreed to the merger of NutraCea with RiceX which occurred in the fourth quarter of 2005, the results of operations discussed below may not be comparable to future operations of the combined entity.
We had a net loss of $3,872,000 for the year ended December 31, 2005, or $0.10 loss per share, compared to a net loss of $23,583,000 for 2004, or $1.18 loss per share. The net loss reduction of $19,710,000 was primarily due to reduced issuances of common stock, stock option and warrants that result in non-cash expenses, increased total revenues, and new business development in the infomercial market. There were positive trends in our domestic animal product lines primarily sold to the equine market and our domestic functional foods and nutraceutical product lines.
waive all investor fees until further notice.
Other Income (Expense) (in thousands):
| | Six Months Ended June 30, 2013 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Interest income | | $ | - | | | $ | - | | | $ | 26 | | | $ | 26 | |
| Interest expense | | | (875 | ) | | | - | | | | (778 | ) | | | (1,653 | ) |
| Foreign currency exchange, net | | | - | | | | - | | | | (288 | ) | | | (288 | ) |
| Change in fair value of derivative warrant and conversion liabilities | | | (2,494 | ) | | | - | | | | - | | | | (2,494 | ) |
| Loss on extinguishment | | | (526 | ) | | | - | | | | - | | | | (526 | ) |
| Financing expense | | | (564 | ) | | | - | | | | - | | | | (564 | ) |
| Other | | | (17 | ) | | | - | | | | (326 | ) | | | (343 | ) |
| Other income (expense) | | $ | (4,476 | ) | | $ | - | | | $ | (1,366 | ) | | $ | (5,842 | ) |
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2012 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Interest income | | $ | 18 | | | $ | - | | | $ | 45 | | | $ | 63 | |
| Interest expense | | | (321 | ) | | | (17 | ) | | | (467 | ) | | | (805 | ) |
| Foreign currency exchange, net | | | - | | | | - | | | | (782 | ) | | | (782 | ) |
| Change in fair value of derivative warrant and conversion liabilities | | | 506 | | | | - | | | | - | | | | 506 | |
| Loss on extinguishment | | | (2,986 | ) | | | - | | | | - | | | | (2,986 | ) |
| Financing expense | | | (1,544 | ) | | | - | | | | - | | | | (1,544 | ) |
| Other | | | - | | | | - | | | | (110 | ) | | | (110 | ) |
| Other income (expense) | | $ | (4,327 | ) | | $ | (17 | ) | | $ | (1,314 | ) | | $ | (5,658 | ) |
| | | | | | | | | | | | | | | | |
| | Favorable (Unfavorable) Change | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Interest income | | $ | (18 | ) | | $ | - | | | $ | (19 | ) | | $ | (37 | ) |
| Interest expense | | | (554 | ) | | | 17 | | | | (311 | ) | | | (848 | ) |
| Foreign currency exchange, net | | | - | | | | - | | | | 494 | | | | 494 | |
| Change in fair value of derivative warrant and conversion liabilities | | | (3,000 | ) | | | - | | | | - | | | | (3,000 | ) |
| Loss on extinguishment | | | 2,460 | | | | - | | | | - | | | | 2,460 | |
| Financing expense | | | 980 | | | | - | | | | - | | | | 980 | |
| Other | | | (17 | ) | | | - | | | | (216 | ) | | | (233 | ) |
| Other income (expense) | | $ | (149 | ) | | $ | 17 | | | $ | (52 | ) | | $ | (184 | ) |
Consolidated revenuesother expense was $5.8 million for the year ended December 31, 2005 were $5,564,000, anfirst half of 2013, compared to other expense of $5.7 million for the first half of 2012. The $0.2 million increase of $4,339,000, or 354% on a comparative basis to the year ended December 31, 2004. The 354% increase was primarily a result of new sales in the infomercial market of $3,012,000 which began in September 2005. We had sales in the nutraceutical equine market of $1,071,000, sales in other nutraceutical markets of $323,000, and technology income of $100,000 in 2005. Also contributing to our revenue increaseexpense was fourth quarter sales of approximately $1,058,000 by The RiceX Company, which we acquired at the beginningcomprised of the fourth quarter of 2005.
Cost of goods sold increased from $600,000 in 2004 to $2,878,000 in 2005 due primarily to the significant increase in product sold in 2005. Gross margins increased $2,061,000 to $2,686,000 in 2005, from $625,000 in 2004. This 330% increase was due to new sales in the infomercial market, increased sales in the equine market and nutraceutical markets, and the addition of gross margins attributable to The RiceX Company.
R&D expenses increased $64,000 in 2005 to $191,000 due to increased product development costs.
SG&A expenses decreased $7,782,000 from $11,644,000 in 2004 to $3,862,000 in 2005. The decrease related primarily to share-based compensation. Share-based compensation decreased $8,847,000 from $9,715,000 in 2004 to $868,000 in 2005. These non-cash charges are related to issuances of common stock and common stock warrants and options awarded in 2005 compared to 2004. During 2004, these non-cash expenses relating to the issuance of 5.5 million restricted shares of common stock to the Company’s former Chief Executive Officer for services rendered and repayment of debt; the value of restricted shares and shares covered by the Company’s S-8 registration statement issued to officers, directors and consultants for services; and the value of options and warrants issued to various employees and consultants. The increased issuance of restricted stock, options and warrants during 2004 was deemed necessary by management to retain and compensate officers, directors, consultants and employees while conserving cash assets that would otherwise have been expended for these purposes.
Professional fees decreased $10,778,000 from $12,405,000 in 2004 to $1,627,000 in 2005. The decrease related primarily to share-based compensation. Share-based compensation on stock and warrant issues to consultants for services decreased $10,640,000 from $11,283,000 in 2004 to $643,000 in 2005.
Interest expense increased by $868,000 to $896,000 in 2005 due to interest and discount related to a note payable of $2,400,000 at 7% interest compounded quarterly. On October 4, 2005, principle of $2,400,000 and $137,000 interest was paid in full. A non-cash discount in the amount of $759,000 was amortized in 2005.
The provision of income taxes for the years ended December 31, 2005 and 2004 consists of the $2,400 for minimum state income taxes.
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial statement purposes. At December 31, 2005, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2005, net operating loss carry forwards were approximately $23,000,000 for federal tax purposes that expire at various dates from 2011 through 2025 and $19,700,000 for state tax purposes that expire in 2010 through 2015.following:
| · | a $0.8 million increase in interest expense, as a result of (i) an increase in average debt outstanding in both the Corporate and Brazil segments and (ii) the increase in interest expense in the Corporate segment as a result of amortizing the debt discount on a senior debenture when the principal was paid in 2013; |
| · | the $2.5 million reduction in Corporate segment loss on extinguishment, a reduction from the $3.0 million loss in 2012 to a $0.5 million in 2013. In 2013, the losses were related to the conversion of $0.3 million of our senior debenture and the prepayment of $0.3 million on those debentures as described in the Debt note to the consolidated financial statements included herein; |
| · | the $1.0 million reduction in Corporate segment financing expense to $0.6 million in 2013 from $1.5 million in 2012. In 2013 the loss was associated with the issuance of subordinated convertible notes and related warrants and represented the excess of the fair value of the derivative conversion and warrant liabilities, and other consideration, at issuance over the proceeds from issuance, as described in the Debt footnote to the consolidated financial statements; and |
| · | a $0.2 million increase in other expense in Brazil related to penalties on tax obligations; offset by |
| · | a $0.4 million improvement in foreign exchange; and |
| · | a Corporate segment $3.0 million decrease in income from the change in the fair value of derivative warrant and conversion liabilities. Our liability warrants and conversion liabilities are valued using the lattice model each reporting period and the resulting change in fair value is recorded in the statements of operations. The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants and make certain other assumptions. |
Utilization of net operating loss carry forwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code and similar state regulations. The annual limitation may result in expiration of net operating loss carry forwards before utilization.
Liquidity and Capital Resources
We continue to experience losses and negative cash flows from operations on a consolidated basis which raises substantial doubt about our ability to continue as a going concern. We currently have insufficient funds to support our operations in the near term. Although we believe that we will be able to obtain the funds necessary to continue as a going concern there can be no assurances that our efforts will prove successful. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
With respect to liquidity and capital resources, we manage the Brazil segment, consisting currently of our plant in Brazil, separately from our U.S. based Corporate and USA segments. Cash on hand at our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA.
Cash used in operating activities for 2012 and 2011, is presented below by segment (in thousands).
Our | | 2012 | |
| | Corporate and USA | | | Brazil | | | Consolidated | |
| Net loss | | $ | (7,816 | ) | | $ | (3,320 | ) | | $ | (11,136 | ) |
| Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | | | | | |
| Depreciation and amortization | | | 2,071 | | | | 2,541 | | | | 4,612 | |
| Change in fair value of derivative warrant and conversion liabilities | | | (5,420 | ) | | | - | | | | (5,420 | ) |
| Financing expense | | | 2,184 | | | | - | | | | 2,184 | |
| Loss on extinguishment | | | 4,941 | | | | - | | | | 4,941 | |
| Impairment of property | | | 1,069 | | | | - | | | | 1,069 | |
| Other adjustments, net | | | 1,333 | | | | (931 | ) | | | 402 | |
| Changes in operating asset and liabilities: | | | | | | | | | | | | |
| Pre-petition liabilities | | | (1,615 | ) | | | - | | | | (1,615 | ) |
| Other changes, net | | | (413 | ) | | | 554 | | | | 141 | |
| Net cash used in operating activities | | $ | (3,666 | ) | | $ | (1,156 | ) | | $ | (4,822 | ) |
| | | | | | | | | | | | |
| | | 2011 | |
| | Corporate and USA | | | Brazil | | | Consolidated | |
| Net loss | | $ | (8,506 | ) | | $ | (2,369 | ) | | $ | (10,875 | ) |
| Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | | | | | |
| Depreciation and amortization | | | 2,418 | | | | 2,562 | | | | 4,980 | |
| Change in fair value of derivative warrant liability | | | (332 | ) | | | - | | | | (332 | ) |
| Impairment of intangibles and property | | | 1,592 | | | | - | | | | 1,592 | |
| Recovery from former customer | | | (1,000 | ) | | | - | | | | (1,000 | ) |
| Other adjustments, net | | | 2,063 | | | | (266 | ) | | | 1,797 | |
| Changes in operating asset and liabilities: | | | | | | | | | | | | |
| Pre-petition liabilities | | | (4,790 | ) | | | - | | | | (4,790 | ) |
| Other changes, net | | | (206 | ) | | | (318 | ) | | | (524 | ) |
| Net cash used in operating activities | | $ | (8,761 | ) | | $ | (391 | ) | | $ | (9,152 | ) |
Corporate and USA
On a combined basis, the Corporate and USA segments used (i) $3.7 million of cash in operating activities in 2012 compared to $8.8 million in 2011. Prepetition liability payments in 2012 and 2011 were $1.6 million and $4.8 million.
We took steps in 2012 and 2011 to improve profitability and liquidity by reducing our U.S. based employee headcount at both the corporate and plant operations level. In the ongoing effort to improve profitability, significant emphasis will be placed on growing revenues. The growth of revenues is expected to include the following:
| · | growth in existing markets for stabilized rice bran (SRB), rice bran oil (RBO) and defatted rice bran (DRB); |
| · | expanding our product offerings and improving existing products; |
| · | aligning with strategic partners who can provide channels for additional sales of our products; and |
| · | implementing price increases. |
We may also monetize certain assets which could result in additional impairment of asset values. Asset monetization may include some or all of the following:
| · | sale of certain facilities; |
| · | sale of a noncontrolling interest in one or more subsidiaries; or |
| · | sale of surplus equipment. |
We continue to work to improve Corporate and SRB segment cash equivalentsflows from operations. We made final distributions to unsecured creditors which reduced pre-petition liabilities by $1.6 million in the first half of 2012. Payments of pre-petition liabilities reduced cash flows from operations in the periods paid, but were $14,867,000, $3,491,000 and $1,928,000 at December 31, 2006, 2005 and 2004, respectively.
Forin payment of obligations incurred prior to our November 2009 filing of the year ended December 31, 2006, netvoluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The funds for the 2012 distributions, included in cash used in operations, was $629,000, compared to net cash usedwere derived from receipts on notes receivable, and proceeds from issuances of the subordinated convertible notes, senior convertible debentures and related warrants in operations in the same period of 2005 of $3,378,000, an improvement of $2,749,000. This improvement in cash used by operations resulted from our increase in sales and gross margins offset by our increase total operating expenses as noted above. January 2012.
Cash used in investing activities in 2012 included $0.6 million of proceeds from the sale of USA segment equipment, $0.7 million from collections of USA segment notes receivable and $0.2 million of restricted cash released for the year ended December 31, 2006 was $9,698,000, compared to $63,000 for the same periodpayment of 2005. This increase was caused by our current plant expansion projects and the acquisition of other assets. pre-petition liabilities.
Cash provided by financing activities in 2012 included $3.6 million of proceeds, net of costs (primarily legal and investment banking fees), which we received from financingthe issuances of subordinated convertible notes, the senior convertible debenture and related warrants. The net proceeds of $3.6 million were used to fund the working capital needs of the Corporate and USA segments, including payments to the unsecured creditors. In addition, during 2012, the Corporate and USA segments received $1.5 million in proceeds from senior and subordinated debt issuances and paid $2.2 million on debt.
Cash used in operating activities for the yearsix months ended December 31, 2006 was $21,703,000June 30, 2013 and 2012, is attributedpresented below by segment (in thousands).
| | Six Months Ended June 30, 2013 | |
| | Corporate and USA | | | Brazil | | | Consolidated | |
| Net loss | | $ | (6,711 | ) | | $ | (2,097 | ) | | $ | (8,808 | ) |
| Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | | |
| Depreciation and amortization | | | 708 | | | | 1,291 | | | | 1,999 | |
| Change in fair value of derivative warrant and conversion liabilities | | | 2,494 | | | | - | | | | 2,494 | |
| Loss on extinguishment | | | 526 | | | | - | | | | 526 | |
| Financing expense | | | 564 | | | | - | | | | 564 | |
| Impairment of property | | | 300 | | | | - | | | | 300 | |
| Other adjustments, net | | | 27 | | | | (789 | ) | | | (762 | ) |
| Changes in operating assets and liabilities | | | (408 | ) | | | 1,230 | | | | 822 | |
| Net cash used in operating activities | | $ | (2,500 | ) | | $ | (365 | ) | | $ | (2,865 | ) |
| | | | | | | | | | | | |
| | Six Months Ended June 30, 2012 | |
| | Corporate and USA | | | Brazil | | | Consolidated | |
| Net loss | | $ | (8,019 | ) | | $ | (1,983 | ) | | $ | (10,002 | ) |
| Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | | |
| Depreciation and amortization | | | 1,245 | | | | 1,279 | | | | 2,524 | |
| Change in fair value of derivative warrant and conversion liabilities | | | (506 | ) | | | - | | | | (506 | ) |
| Loss on extinguishment | | | 2,986 | | | | - | | | | 2,986 | |
| Impairment of property | | | 1,069 | | | | - | | | | 1,069 | |
| Financing expense | | | 1,544 | | | | - | | | | 1,544 | |
| Other adjustments, net | | | 859 | | | | (620 | ) | | | 239 | |
| Changes in operating asset and liabilities: | | | | | | | | | | | | |
| Pre-petition liabilities | | | (1,615 | ) | | | - | | | | (1,615 | ) |
| Other changes, net | | | (513 | ) | | | 111 | | | | (402 | ) |
| Net cash used in operating activities | | $ | (2,950 | ) | | $ | (1,213 | ) | | $ | (4,163 | ) |
Corporate and USA
On a combined basis, the Corporate and USA segments used 2.5 million of cash in operating activities in the first half of 2013 compared to our private placement financing (see below),$3.0 million in the first half of 2012.
Cash used in investing activities in the first six months of 2013 and 2012 included $0.8 million and $0.3 million of proceeds from exercisethe sale of stock optionsUSA segment equipment. Proceeds from the 2013 sales were used for general corporate purposes. The first six months of 2012, also included $0.6 million from collections of USA segment notes receivable and $0.2 million of restricted cash released for the repaymentpayment of long-term debtpre-petition liabilities.
Cash provided by financing activities in the amountfirst six months of $15,000. Our working capital position was $23,320,000, $5,206,0002013 and $284,000 as2012 included $0.5 million and $2.4 million of December 31, 2006, 2005 and 2004, respectively.
On May 12, 2006,proceeds, net of costs, which we sold an aggregate of 17,560 shares of our Series C Convertible Preferred Stock at a price of $1,000 per share in a private placement transaction. This private placement of securities generated aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net after offering and related expenses). The preferred shares can be converted to shares of our common stock at a conversion rate of approximately 1,176 shares of common stock for each preferred share issued in the transaction. Additionally, the investors were issued warrants to purchase an aggregate of 10,329,412 shares of our common stock at an exercise price of $1.35 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investorsissuance of subordinated convertible debt, the senior convertible debenture and a warrantrelated warrants (see the Debt note to purchase 500,000 shares of common stock at an exercise price per share of $1.35 and a term of five years.
On October 4, 2005, we sold an aggregate of 7,850 shares of our Series B Convertible Preferred Stock at a price of $1,000 per share in a private placement transaction. This private placement of securities generated aggregate grossthe consolidated financial statements). The net proceeds of approximately $7,850,000 (approximately $7,301,000 after offering expenses). The preferred shares can be converted$0.5 million and $2.4 million have been used to sharesfund the working capital needs of common stock at a conversion rate of 2,000 shares of common stock for each preferred share issuedthe Corporate and USA segments, including distributions to the unsecured creditors in the transaction. Additionally, we issued in this transaction warrants to purchase an aggregate of 7,850,000 shares of common stock at an exercise price of $0.70 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 and a term of five years.
On February 15, 2007, we sold an aggregate of 20,00,000 shares of our common stock at a price of $2.50 per share in connection with a private placement for aggregate gross proceeds of $50,000,000 (approximately $47,000,000 after offering expenses). Additionally, the investors were issued warrants to purchase an aggregate of 10,000,000 shares of our common stock at an exercise price of $3.25 per share. The warrants have a term of five years and are immediately exercisable. An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,200,000 shares of common stock at an exercise price per share of $3.25 and a term of five years.2012.
Domestic Initiatives
We began an initiative to expand our Dillon, Montana plant to increase production capacity to meet the growing market demand for our value-added products made from stabilized Rice Bran. We ordered additional equipment and expanded the Dillon Montana facility. The first phase expansion of Dillon has increased our NutraCea Solubles and NutraCea Fiber Complex capacity by more than 100%. An additional 50% capacity increase will follow in 2007 through a phase II expansion of Dillon. We intend to construct an additional processing facility in Louisiana during 2007 to produce the value-added product of NutraCea Solubles, Dextrinized Rice Bran and NutraCea Fiber Complex in an effort to meet expected customer demands for these products.
We have existing financial liquidity from cash on hand and current cash flow to complete the expansion. Strong market interest in our proprietary stabilized Rice Bran derivatives has prompted the need for increased manufacturing capability and is consistent with our goal of meeting growing customer demands and a new awareness of our products' value. This increase in manufacturing capacity is the most efficient and economical means of boosting capacity as quickly as possible to meet the increasing demands of the marketplace.
We have entered into a raw rice bran supply agreement with Louisiana Rice Mill LLC, or LRM. The agreement quadruples our current annual supply of raw rice bran in the United States. In addition, we announced the construction of our stabilization facility at the LRM rice milling facility in Mermentau, Louisiana. Under the terms of the agreement, LRM will supply raw rice bran from its rice milling operations to NutraCea. The supply agreement is intended to provide as much as 30,000 tons annually to our current supply of raw bran, which will be processed through our exclusive proprietary stabilization system to produce stabilized rice bran for both the human and animal nutrition markets. We have the ability to fund this project with existing cash resources. The new facility at LRM is expected to be completed and operational by April 2007.
We have also entered into a second raw rice bran supply agreement with another Louisiana rice milling company and engineering and permitting work is currently underway. The second Louisiana plant will include both rice stabilization technology and value-added products technology. The second plant is expected to begin operations during the second half of 2007. Again, NutraCea has the ability to fund this project with existing cash resources..
International Initiatives
On September 13, 2005,2011, we entered into an agreement with a Dominican Republicpartner with the goal of developing technology to extract and concentrate protein from rice mill whereby the two companies agreed to form a joint venture. The terms ofbran. In March 2013, the agreement allows uswas mutually terminated under terms whereby we each received (i) the optionright to install equipment to produce annually at least 5,000 metric tons of stabilized rice bran inseparately develop, modify and improve the Dominican Republic, or in the alternative produce the product in the United States and ship the raw ingredients to the Dominican Republic and package it in final form there. The joint venture will be equallyjointly developed technology owned by the two companiespartner and will commercially sell stabilized rice bran products through retail(ii) we received a nonexclusive, royalty free, perpetual license to that technology (License). We agreed to pay the partner $1.2 million as a lump sum in April 2013. In April 2013 we sold a 50% interest in our subsidiary holding the License and government inpaid this $1.2 million obligation to the Dominican Republic and Haiti. Nutracea has shipped product directly rather than utilizepartner with the joint venture since the Company has chosen not to build a processing facility in the Dominican Republic asproceeds of the datesale.
Under a revolving credit facility with TCA Global Credit Master Fund, LP (TCA), effective May 2013, as amended July 2013, we may borrow up to $8 million, based on the amount of this prospectus.
On October 25, 2005,eligible accounts receivable we signed an agreement with an industrial consortium in Colombiaprovide to studysecure the creationrepayment of a joint entity to share equally in the profits generated from sales of our products in the Colombian market. Underamounts borrowed. Borrowings under the agreement are evidenced by a revolving note which accrues interest at the Colombian consortium is to provide 50%rate of all the financing necessary to construct the plants (with us providing the remaining 50% of the financing)12% per year and is due in January 2014. We owe TCA various other fees under the agreement that are expected to be responsible for providing all the necessary land and space required for the implementationaverage approximately 7% of the plants to be constructed. The Colombian consortium would be responsible for providing all of the sales and distribution as part of its contribution to the joint entity. We continue efforts to execute a formal definitive agreement; however, we have not entered into a definitive agreement as of the date of this prospectus.
average borrowings per year.
USA segment accounts receivable collections are required to be directed to a TCA owned account. Collections TCA receives, in excess of amounts due for interest and fees, are treated as additional repayments and reduce amounts outstanding. Minimum cumulative repayments are $0.1 million as of October 2013, $0.2 million as of November 2013 and $0.3 million as of December 2013, or 15% of the total initially borrowed in each tranche, if greater. Until cumulative repayments equal the required minimum, TCA may withhold 20% of collections. We may request, on a weekly basis, that TCA advance us any amounts collected in excess of amounts (i) due for interest and fees and (ii) required to meet the minimum cumulative repayments.
On October 28, 2005,
In May 2013, we borrowed $1.4 million under the TCA revolving note. The proceeds, net of cash expenses, totaled $1.2 million and were used to (i) pay down $0.4 million of debt, (ii) fund a $0.5 million investment in Nutra SA and (3) for general corporate purposes. In July 2013, we borrowed an additional $0.6 million. The net proceeds of $0.6 million were used to make a $0.1 million investment in Nutra SA and for general corporate purposes. We expect the amount of our eligible receivables will limit our ability to borrow under this facility, such that our outstanding borrowings at any time are less than approximately $2.4 million.
Brazil
The Brazil segment used $1.2 million in operating cash in 2012, compared to using $0.4 million of operating cash in 2011, primarily due to the higher net loss in 2012.
During the first quarter of 2011, Irgovel began disbursing cash for capital improvements which are part of a project to expand production capacity and improve operational efficiency. In 2012 and 2011, these disbursements totaled $6.4 million and $6.8 million.
In December 2010, we entered into a binding lettermembership interest purchase agreement with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (the Investors). The Investors agreed to purchase a 35.6% interest in Nutra SA for an aggregate purchase price of intent$7.7 million. The Corporate segment received $4.0 million of the January 2011 proceeds. The remaining amount of $3.7 million, less $0.5 million retained by Nutra SA for administrative expenses, was invested in the Brazil segment for capital improvements and working capital needs. We received in the second quarter of 2011, an additional $3.0 million from the Investors - $1.0 million for the purchase of outstanding units in Nutra SA from the Corporate segment, which was used by that segment for working capital, and $2.0 million for the purchase of new units in Nutra SA, which was used by Irgovel to fund a capital expansion. In the third quarter of 2011, the Investors purchased additional units for $0.9 million, which was used by the Corporate segment for working capital. In the fourth quarter of 2012, the Investors purchased additional units in Nutra SA for $1.5 million, which was invested in the Brazil segment for capital improvements and working capital needs. As of December 31, 2012, the Investors owned a 49.0% interest in Nutra SA.
The Brazil segment used $0.4 million in operating cash in the first half of 2013, compared to $1.2 million of operating cash in the first half of 2012. The reduction in use of cash was primarily the result of increased payables caused by extending the payment terms with an Ecuadorian companycertain vendors during the second quarter of 2013.
Irgovel is currently undergoing a capital expansion project involving installation of new equipment and improvements to study arrivingexisting infrastructure. As of June 30, 2013, additional capital expenditures on the project are expected to total R$5.2 million ($2.3 million at the June 30, 2013 exchange rate) of which R$1.7 million ($0.7 million) was included in accounts payable as of June 30, 2013. Additional financing and/or capital will be required to complete the project. As a definitive agreementresult of the project, we also expect production at the Irgovel facility to shutdown near the end of December 2013 for a working arrangement thatapproximately seven weeks while certain new equipment is brought on line. The timing of this shutdown is subject to change based on availability of funds, the timing of the delivery of equipment from suppliers, the availability of installers and other factors. Where possible, we intend to stockpile certain inventory for sale during the period the plant is shutdown. However, this inventory may not be adequate to timely fulfill all outstanding orders during this period. In addition, during such shutdown, we will allowhave to continue to expend capital to maintain the Ecuadorian companyIrgovel facility and equipment. Facility shutdown and subsequent restart expenses may adversely affect periodic results when these events occur. Funding of capital expansion projects is being provided by proceeds received from the sale of Nutra SA membership interests to existing equity holders and bank debt.
The investors in Irgovel have the right to utilize our proprietary ingredientspurchase from Nutra SA up to an additional 750,000 units for another $1.5 million. If immediately prior to such purchase Nutra SA and value-added processingIrgovel have sufficient cash to complete certain projects, then the units will have no voting rights. In the second quarter of 2013, we transferred $0.7 million in their multi-faceted food business, which includes animal feed, poultry and cereals.cash to Nutra SA. In exchange, title was returned to us for certain equipment contributed to Nutra SA in December 2012 with an historical cost of $0.2 million. We have not entered into a definitive agreement as of the date of this prospectus, as we have chosen notneed to locate facilities in Equador at this time. Instead, we are currently servicing this company with product shipped from the United States.
In November 2005, NutraCea signed a Supply and Distribution Agreement with T. Geddes Grant, a Jamaican Corporation. The agreement requiresraise funds to enable us to deliver a customized formulatedmake an additional capital investment in Nutra SA, sufficient to (i) complete the projects (ii) provide the working capital Irgovel requires and fortified RiSolubles mix to T. Geddes Grant. The agreement requires that T. Geddes Grant purchase certain minimums during the agreement(iii) maintain our 51% ownership interest in order for them to maintain exclusivity under the terms of the agreement. As of the date of this prospectus, we have not shipped product to T. Gaddes Grant.Nutra SA.
On December 19, 2006, NutraCea began distributing product to thousands of orphans through Community Based Organizations in Malawi as part of an extraordinary collaborative effort with Feed the Children, Raising Malawi and The Malaria Solution Foundation. The mission was to provide direct physical assistance, long-term sustainability and support to many of Malawi's two million orphans and vulnerable children. Approximately ten thousand children at the Consol Homes-Raising Malawi Orphan Care Center received our product to help improve their overall nutrition. The initial product distribution was made possible through funding raised by The Malaria Solution Foundation with a purchase and donation of NutraCea's products.
There can be no assurance that these international initiatives will be achieved in part or whole, however management continues its efforts to formalize its relationship within these countries to further its business activities.
Off BalanceOff-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing and liquidity support or market risk or credit support risk support to the Company.
Contractual Obligations
As part of the normal course of business, the Company incurs certain contractual obligations and commitments which will require future cash payments. The following tables summarize the significant obligations and commitments.
| | | Payments Due by Period | |
($ in thousands) | | Total | | 2007 | | 2008 | | 2009 | | 2010 | | 2111 | | 2112 | |
| | | | | | | | | | | | | | | | |
| Long-term debt | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| Capital lease | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| Operating leases | | | 4,031 | | | 605 | | | 729 | | | 750 | | | 775 | | | 801 | | | 371 | |
| Purchase obligations | | | - | | | - | | | - | | | - | | | - | | | - | | | - | |
| Total contractual obligations | | $ | 4,031 | | $ | 605 | | $ | 729 | | $ | 750 | | $ | 775 | | $ | 801 | | $ | 371 | |
us.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 2, Part II - Item 8, FINANCIAL STATEMENTS. We believe the application of these accounting policies on a consistent basis enables us to provide timely and reliable financial information about our earnings results, financial condition and cash flows.
The preparation of consolidated financial statements in accordance with accounting principles generally accepted accounting principlesin the United States of America (GAAP) requires managementus to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviewsWe review these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors that theywe believe to be reasonable under the circumstances. In any given reporting period, actual results could differ from the estimates and assumptions used in preparing our financial statements.
Critical accounting policies are those that may have a material impact on our consolidated financial statements and also require managementus to exercise significant judgment due to a high degree of uncertainty at the time the estimate is made. Management hasWe have discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committeeaudit committee of our Boardboard of Directors.directors. We believe our critical accounting policies include those addressing revenue recognition, allowance for doubtful accounts, inventories, long lived assets, intangible assets, goodwill and inventories.derivative liabilities.
Revenue RecognitionPrinciples of Consolidation
The consolidated financial statements include the accounts of RiceBran Technologies and all subsidiaries in which we have a controlling interest. All significant inter-company accounts and transactions are eliminated in consolidation. Noncontrolling interests in our subsidiaries are recorded net of tax as net earnings (loss) attributable to noncontrolling interests.
Foreign Currencies
The consolidated financial statements are presented in our reporting currency, U.S. Dollars. The functional currency for Irgovel is the Brazilian Real. Accordingly, the balance sheet of Irgovel is translated into U.S. Dollars using the exchange rate in effect at the balance sheet date. Revenues from product salesand expenses are recognized when productstranslated using the average exchange rates in effect during the period. Translation differences are shippedrecorded in accumulated other comprehensive income (loss) as foreign currency translation. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign exchange gain or loss in the statements of operations.
Cash and whenCash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less at the risktime of loss has transferredpurchase to the buyer. Deposits are deferred until either the product has shipped or conditions relating to the salebe cash equivalents. As of June 30, 2013, we maintain our cash, including restricted cash, and cash equivalents, with major banks. We maintain cash in bank accounts, which at times may exceed federally insured limits. We have been substantially performed.not experienced any losses on such accounts.
Accounts Receivable and Allowance for Doubtful Accounts
We continuously monitor collections from our customers and maintain anAccounts 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 our provision for doubtful accounts. We continue to evaluate our credit policy to ensure that the customers are worthy of terms and support our business plans.
Inventories
Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method. In the USA segment, we employ a full absorption procedure using standard cost techniques. The standards are customarily reviewed and adjusted annually so that they are materially consistent with actual purchase and production costs. In the Brazil segment we use actual average purchase and production costs. Provisions for potentially obsolete or slow moving inventory are made based upon our analysis of inventory levels, historical experienceobsolescence and any specific customer collection issues that we have identified. While such credit losses have historically not exceeded our expectationsfuture sales forecasts.
Long-Lived Assets, Intangible Assets and the provisions established, there is a risk that credit losses in the future will exceed those that have occurred in the past, in which case our operating results would be adversely affected.Goodwill
Valuation of long-lived assets
Long-lived assets, consisting primarily of property, and equipment, patents and trademarks,intangible assets, and goodwill, comprise a significant portion of our total assets. Long-livedProperty is stated at cost less accumulated depreciation. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that theirstated at cost less accumulated amortization.
The carrying values may notof property and intangible assets with finite lives are evaluated periodically in relation to the expected future cash flows of the underlying assets and monitored for other potential triggering events that might indicate impairment. Adjustments are made in the event that estimated undiscounted net cash flows estimated to be recoverable. Recoverability of assets is measured by a comparison ofderived from the asset are less than the carrying value of an asset to the future net cash flows expected to be generated by those assets.related asset. The cash flow projections are based on historical experience, management’s view of growth rates within the industry, and the anticipated future economic environment.
Factors we consider important that could trigger a reviewWe are required to test goodwill for impairment includeat least annually (by policy, December 31) and more often if an event occurs or circumstances change that more likely than not reduce the following:
| (a) | significant underperformance relativefair value of a reporting unit below its carrying value. In assessing the recoverability of goodwill, we make estimates and assumptions about sales, operating margin, terminal growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. The fair value of a reporting unit has been determined using an income approach based on the present value of the future cash flows of each reporting unit. The goodwill impairment test compares the fair value of individual reporting units to expected historical or projected future operating results, |
| (b) | significant changes in the manner of its use of the acquired assets or the strategy of its overall business, and |
| (c) | significant negative industry or economic trends. |
When we determine that the carrying value of patentsthese reporting units. If fair value is less than carrying value then goodwill impairment may be present and trademarks, long-lived assetsa corresponding write down would be recorded. The market value of our common stock is an indicator of fair value and related goodwilla consideration in determining the fair value of our reporting units.
Revenue Recognition
We recognize revenue for product sales when title and enterprise-level goodwill may not be recoverable basedrisk of loss pass to our customers, generally upon shipment for USA segment customers and Brazil segment international customers, and upon customer receipt for Brazil segment domestic customers. Each transaction is evaluated to determine if all of the existencefollowing four criteria are met: (i) persuasive evidence of one or morean arrangement exists; (ii) delivery has occurred; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured. If any of the above indicatorscriteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured. Changes in judgments and estimates regarding the application of impairment, it measures any impairment based onthe above mentioned four criteria might result in a projected discounted cash flow method using a discount rate determinedchange in the timing or amount of revenue recognized by its management to be commensurate with the risk inherent in its current business model.such transactions.
Marketable Securities
Marketable securitiesWe make provisions for estimated returns discounts, and price adjustments when they are marked to market at each period end. Any unrealized gains and lossesreasonably estimable. Revenues on the marketable securitiesstatements of operations are excludednet of provisions for estimated returns, routine sales discounts, volume allowances and adjustments. Revenues on the statements of operations are also net of taxes collected from operating resultscustomers and are recorded as a component of other comprehensive income (loss). If declines in value are deemed other than temporary, losses are reflected in Net income (loss).
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market and consists of nutraceutical products. While we have an inventory of these products, any significant prolonged shortage of these ingredients or of the supplies usedremitted to enhance these ingredients could materially adversely affect the our results of operations.
Property and Equipment
Property and equipment are stated at cost. We provide for depreciation using the straight-line method over the estimated useful lives as follows:governmental authorities.
Furniture and equipment | 5-7 | | years |
Automobile | 5 | | years |
Software | 3 | | years |
Leasehold Improvements | 2.4-7 | | years |
Property and equipment | 7-10 | | years |
Shipping and Handling Fees and Costs
ExpendituresAmounts billed to a customer in a sale transaction related to shipping costs are reported as revenues and the related costs incurred for maintenanceshipping are included in cost of goods sold.
Research and repairsDevelopment
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 operations as incurred while renewals and bettermentsexpense in the period they are capitalized. Gains or lossesincurred.
Derivative Conversion Liabilities
We have certain convertible debt outstanding that contain anti-dilution clauses. Under these clauses, we may be required to lower the conversion price on the saleconvertible debt based on future issuances of propertyour common stock, awards of options to employees, additional issuance of warrants and/or other convertible instruments below certain conversion prices. We account for the conversion liabilities associated with these anti-dilution clauses as liability instruments, separate from the host debt. The conversion liabilities are classified as debt on our consolidated balance sheets. These conversion liabilities are valued using the lattice model each reporting period and equipment are reflectedthe resultant change in fair value is recorded in the statements of operations.operations in other income (expense).
Fair Value of Financial InstrumentsDerivative Warrant Liabilities
ForWe have certain warrant agreements in effect that contain anti-dilution clauses. Under these clauses, we may be required to lower the exercise price on these warrants and issue additional warrants based on future issuances of our financialcommon stock, awards of options to employees, additional issuance of warrants and/or other convertible instruments including cash, accounts receivable, inventory, prepaid expenses, accounts payable, accrued salariesbelow certain exercise prices. We account for the warrants with these anti-dilution clauses as liability instruments. These warrants are valued using the lattice model each reporting period and benefits, deferred compensation, accrued expenses, customer deposits, due to related party, notes payable - related party and note payable, the carrying amounts approximateresultant change in fair value due to their short maturities.
Stock-Based Compensation
On January 1, 2006, NutraCea adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognizedis recorded in the financial statements of operations in other income (expense).
Share-Based Compensation
Share-based compensation expense for employees is calculated at the grant date using the Black-Scholes-Merton valuation model based on their fair values. The pro forma disclosures previously permitted under SFAS 123 are no longer an alternativeawards ultimately expected to financial statement recognition. NutraCea adopted SFAS 123(R) usingvest, reduced for estimated forfeitures, and expensed on a straight-line basis over the modified prospective method which requires the applicationrequisite service period of the accounting standardgrant. Forfeitures are 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. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as of January 1, 2006. The consolidated financial statements as ofexpected life, volatility, risk-free interest rates and for the year ended December 31, 2006 reflect the impact of adopting SFAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restateddividend yield to reflect, and do not include, the impact of SFAS 123(R). For stock-based compensation grants to consultants, we recognize as compensation expensedetermine the fair value of such grants, recognized over the related service period. Prior to 2006, we recorded stock-based compensation grantsshare-based awards, based on both historical information and management’s judgment regarding market factors and trends. We treat options granted to employees based onof foreign subsidiaries as equity options. We use alternative valuation models if grants have characteristics that cannot be reasonably estimated using the excess ofBlack-Scholes-Merton model.
We account for share-based compensation awards granted to non-employees and consultants by determining the estimated fair value of the commonawards 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 options granted to non-employees and consultants using the Black-Scholes-Merton valuation model. If the fair value of the equity instruments issued is used, it is measured using the stock onprice and other measurement assumptions as of the measurementearlier 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 of stock awards issued to consultants or other third parties is recognized over the exercise price.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. Most non-employee awards have graded vesting schedules resulting in higher compensation expense recorded early in the 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 the deferred tax asset if it is “more likely than not” that the related tax benefits will not be realized.
Use of Estimates
The preparation of consolidated 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.
Quantitative and Qualitative Disclosures About Market Risk
Our cash and cash equivalents have been maintained only with maturities of 30 days or less. Our short-term investments have interest reset periods of 30 days or less. These financial instruments may be subject to interest rate risk through lost income should interest rates increase during their limited term to maturity or resetting of interest rates. As of December 31, 2006, there was no long-term debt outstanding. Future borrowings, if any, would bear interest at negotiated rates and would be subject to interest rate risk. We do not believe that a hypothetical adverse change of 10% in interest rates would have a material effect on our financial position.Overview
History and Our Corporate Structure GENERAL
NutraCea (“we,” “us,” “our,” orWe incorporated under the “Company”) is a California corporation formerly known as Alliance Consumer International, Inc. As a resultlaws of the reorganization transaction discussed below,State of California on March 18, 1998. From July 2003 until October 2012, our corporate name was “NutraCea”. Our common stock is currently trading over-the-counter under the symbol “RIBT.” In November 2009, we conductfiled a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The bankruptcy proceeding did not include any of our subsidiaries. We managed our assets and operated our business previously carriedas “debtor-in-possession” under the jurisdiction of the bankruptcy court from November 2009 until we successfully exited Chapter 11 proceedings in November 2010, under an Amended Plan of Reorganization. In January 2012, we made the final payments to our unsecured creditors under the Amended Plan of Reorganization. All creditors under the amended plan were paid all amounts due to them, including interest.
We are a human food ingredient, nutritional supplement and animal nutrition company focused on by NutraStar Technologies Incorporated, or NTI, a Nevada corporation that was formedvalue-added processing and started doingmarketing of healthy, natural and nutrient dense products derived from raw rice bran (RRB), an underutilized by-product of the rice milling industry.
Using our bio-refining business in February 2000model, we apply our proprietary and is a wholly-owned subsidiary. In addition, we conduct business through our wholly-owned subsidiary, The RiceX Company, or RiceX, a Delaware corporation that we acquired on October 4, 2005.
The RiceX subsidiary is primarily engaged in the manufacturing ofpatented technologies and intellectual properties to convert RRB into numerous high value products including stabilized rice bran at its Sacramento facility for various consumptive uses, and the custom manufacturing(SRB), rice bran oil (RBO), defatted rice bran (DRB), RiBalance (a complete rice bran nutritional package derived from further processing of rice grain based products for food ingredient companies at its production facility in Dillon, Montana. RiceX Nutrients, Inc. has specialized processing equipment and techniques for the treatment of rice grain products to cook, convert, isolate, dry and package finished food ingredients used in the formulation of health food and consumer food finished products. NutraCea Solubles, aSRB), RiSolubles (a highly nutritious, carbohydrate and lipid rich fraction isof SRB), RiFiber (a fiber rich derivative of SRB), Proryza rice bran protein products and a variety of other valuable derivatives extracted from these core products.
Our target markets are natural food, functional food, nutraceutical supplement and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.
In February 2008, through our Delaware subsidiary Nutra S.A., we acquired 100% ownership of Irgovel, our rice bran oil processing plant in Pelotas, Brazil. During 2011, we sold approximately 49% of our ownership of Nutra SA, to AF Bran Holdings-NL LLC and AF Bran Holding LLC.
We have three reportable business segments: (i) USA segment, which manufactures and distributes SRB in various granulations along with Stage II products and derivatives; (ii) Brazil segment, which extracts crude RBO and DRB from rice bran, which are then further processed into fully refined rice bran oil for sale internationally and in Brazil, compounded animal nutrition products for horses, cows, swine, sheep and poultry and a number of valuable human food and animal nutrition products derivatives and co-products; and (iii) Corporate segment, which includes our corporate staff, general and administrative expenses including public company expenses, intellectual property, professional fees, and other expenses not directly attributable to other segments. No Corporate allocations, including interests, are made to the other segments.
The combined operations of our USA and Brazil segments encompass our bio-refining approach to processing RRB into various high quality, value-added constituents and finished products. Over the past decade, we have developed and optimized our proprietary bio-refining processes to support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in human meats, baked goods, cereals, coatings, health foods, nutritional supplements, nutraceuticals and high-end animal nutrition and health products.
USA Segment
The USA segment consists of two locations in California and one location in Louisiana all of which produce SRB. A second SRB plant located in Lake Charles, Louisiana has been idle since May 2009 and the operating equipment from that plant has been sold. The USA segment also includes our Dillon, Montana Stage II facility which produces our Stage II products 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), Proryza P-35 (a water-dispersible 35% protein extract from SRB) and Proryza PF-20/50 (a 20% protein and 50% insoluble dietary fiber extract of SRB). Stage II refers to the proprietary processes run at our Dillon, Montana facility and includes products produced at that facility using our patented processes. The manufacturing facilities included in our USA segment have proprietary and patented processing equipment and technology for the Dillon, Montana facility. NutraCea believes that these manufacturing capabilities are unique among grain processors, with customstabilization and further processing capabilities suited to numerous food applications.
NutraCea is a health science company that has proprietary intellectual property that allows us to process and convert Rice Bran, one of the world’s largest wasted food resources,rice bran into a highly nutritious ingredient that has applications as a value added ingredient in variousfinished products. In 2012, approximately 50% of USA segment revenue was from sales of human food products and asapproximately 50% was from sales of animal nutrition products. We lease a key component of patented and proprietary formulations28,000 square foot facility in West Sacramento, California that have applications for treatment modalities in nutritional supplementation and as stand- alone products that can be sold through non-related entities with distribution into the market place, both domestically and internationally. These products include food supplements and medical foods, or "nutraceuticals," which provide health benefits for humans and animals based on stabilized rice bran and stabilized rice bran derivatives. We believe that stabilized rice bran products can deliver beneficial physiological effects. We have conducted and are continuing to pursue ongoing clinical trials and third party analyses in order to further support the uses for and effectiveness of our products.
Through the acquisition of The RiceX Company by NutraCea on October 4, 2005, the combined company, known as NutraCea, has createdhouses a vertically integrated company combining the manufacture, product development and marketing of a variety of products based upon the use of stabilized rice bran and rice bran formulations. We generated approximately $18,090,000, $5,564,000 and $1,225,000 in revenue for the years ended December 31, 2006, 2005 and 2004, respectively. We reported a net income of $1,585,000 for the year ended December 31, 2006, a net loss of $3,872,000 for the year ended December 31, 2005 and net loss of $23,582,000 for the year ended December 31, 2004. Our net operating loss, or NOL, carry-forwards expire for federal tax purposes at various dates from 2011 through 2025, and expire for state tax purposes in 2006 through 2010. See Part II — Item 8. FINANCIAL STATEMENTS.
As of December 31,2006, we occupy approximately 51,644 square feet of executive offices, laboratory, warehouse and production facilities. Two rice bran stabilization facilities are co-located within supplier rice mills in El Dorado HillsArbuckle and West Sacramento, California; Burley, Idaho; Dillon, Montana and Scottsdale, Arizona. The Company is relocating its headquarters to Phoenix, Arizona, and has contracted for 26,147 square feet, which will replace the office space currently occupied in El Dorado Hills, California.
34
RiceXÔ and RiceX SolublesÔ are our registered trade names. TheraFoods®, ProCeuticals®, NutraGlo®, NutraBeauticals®, Mirachol®, Max “E”®, Max “E” Glo®, StaBran®, RiSolubles® and RiceMucil®, are some of our registered trademarks. In total, we have thirty five registered trademarks. In addition to our trade names and our trademarks, we hold patents to the production of Beta Glucan and a micro nutrient enriched rice bran oil process. We also hold patents to a method to treat high cholesterol, to a method to treat diabetes and on a process for producing Higher Value Fractions, or “HVF”, from stabilized rice bran. See PATENTS AND TRADEMARKS below.
Brazil Segment
The Brazil segment consists of the consolidated operations of Nutra SA, whose only operating subsidiary is Irgovel, located in Pelotas, Brazil. Irgovel manufactures RBO and DRB products for both the human ingredient and animal nutrition markets in Brazil and internationally. In refining RBO to an edible grade, several co-products are obtained. One such product is distilled fatty acids, a valuable raw material for the detergent industry. Irgovel recently started production of rice lecithin, which has application in human nutrition, animal nutrition and industrial applications. DRB is compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market, sold as a raw material for further processing into human food ingredients or sold in bulk into the animal nutrition markets in Brazil and neighboring countries. In 2012, approximately 46% of Brazil segment product revenue was from sales of RBO products and 54% was from sales of DRB products.
Our corporateIrgovel subsidiary is comprised of several facilities on approximately 19 acres in Pelotas, Brazil. These facilities include a plant for extraction of RBO from raw rice bran, RBO refining processes, compounded animal nutrition manufacturing, consumer RBO bottling, distilled fatty acid manufacture, lecithin manufacture, and support systems including steam generation, maintenance, administrative offices are locatedand a quality assurance laboratory.
Ownership Interest in Nutra SA
In December 2010, we entered into a membership interest purchase agreement with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (the Investors). The Investors agreed to purchase a 35.6% interest in Nutra SA for an aggregate purchase price of $7.7 million. The Corporate segment received $4.0 million of the January 2011 proceeds. The remaining amount of $3.7 million, less $0.5 million retained by Nutra SA for administrative expenses, was invested in the Brazil segment for capital improvements and working capital needs. We received in the second quarter of 2011, an additional $3.0 million from the Investors - $1.0 million for the purchase of outstanding units in Nutra SA from the Corporate segment, which was used by that segment for working capital, and $2.0 million for the purchase of new units in Nutra SA, which was used by Irgovel to fund a capital expansion. In the third quarter of 2011, the Investors purchased additional units for $0.9 million, which was used by the Corporate segment for working capital. In the fourth quarter of 2012, the Investors purchased additional units in Nutra SA for $1.5 million, which was invested in the Brazil segment for capital improvements and working capital needs. As of September 26, 2013, the Investors own a 49.7% interest in Nutra SA.
The Investors have certain rights, summarized below, under an investor rights agreement and the Nutra SA limited liability agreement (the LLC Agreement):
| · | Conversion Rights – The Investors may exchange units in Nutra SA for equity interests in our subsidiaries. After any exchange, the Investors would possess the same rights and obligations with respect to the securities of our subsidiaries, as they have in Nutra SA. |
| · | Global Holding Company (GHC) Roll-Up – If we form an entity, GHC, to hold our Brazil segment assets, the Investors may exchange units in Nutra SA for equity interests in GHC. The investors may exercise this right after the second anniversary of the formation of GHC or, if an event of default has occurred, after the later of January 2013 and the GHC formation date. The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in GHC. |
| · | RiceBran Technologies Roll-Up – The Investors may exchange units in Nutra SA for our common stock. This right is available upon the earlier of January 2014 or, if an event of default has occurred, January 2013. We may elect to postpone our obligation to complete the roll-up to January 2015 if the roll-up would result in over 25% of our common stock being owned by the Investors. The appraised fair value of the Investors’ interest in Nutra SA and the market price of our stock would be used to determine the amount of ownership interest the Investors would receive. |
| · | Drag Along Rights – The Investors have the right to force the sale of all Nutra SA assets after the earlier of (i) January 2014, (ii) January 2013 if an event of default occurs, or (iii) the date of a qualifying event. The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control). We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale. |
The Investors have the right to subsequently purchase from Nutra SA up to an additional 750,000 units for another $1,500,000. If immediately prior to such purchase Nutra SA and Irgovel have sufficient cash to complete certain projects, then the units will have no voting rights.
In connection with the December 2012 capital contributions, we amended the LLC Agreement. Pursuant to this amendment, among other things, any units held by the Investors after January 1, 2014, accrue a yield at 1261 Hawk's Flight Court, El Dorado Hills, California 95762. Our corporate offices are scheduled4% if a certain milestone condition is satisfied, and at 8% if the milestone condition is not satisfied (the Yield). The milestone condition relates to be moved to Phoenix, Arizona on or aboutNutra SA having performed all of the following: obtaining additional back financing, completion of the capital expansion project within certain spending limitations, and operation of the plant post expansion at targeted processing levels. Commencing with the first weekquarter of April 2007. Our telephone number2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors. Until March 31, 2014, or if at any time Nutra SA is (916) 933-7000. Wepast due on its obligations to pay the Investors the Yield, all amounts due to us for management fees or for shared employees as provided under the LLC Agreement shall be tolled and remain unpaid until all past due amounts, if any, owed to the Investors have three wholly-owned subsidiaries, NTI, whichbeen paid in turn wholly owns NutraGlo Incorporated, a Nevada corporation, RiceX, which wholly owns RiceX Nutrients, Inc., a Montana corporation and Nutramercials, Inc., a Nevada corporation that is a memberfull.
Following the payment of Infomaxx, LLC. We also own part of NutraStarSport, Inc., a Nevada corporation.
HISTORY
We originally incorporatedthe Yield, Nutra SA must distribute all distributable cash (as defined in the LLC Agreement) to the members on March 18, 199831 of each year as follows: (i) first, to the Investors in California as Alliance Consumer International, Inc. On December 14, 2001, NTI effectedan amount equal to a reorganization withminimum of 2 times and a maximum of 2.3 times the inactive publicly-held company, Alliance Consumer International, Inc.,Investors’ capital contribution, less the aggregate amount of distributions paid to the Investors, (ii) second, to us in an amount equal to (i) two times the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iii) third, to us and the name was changedInvestors in proportion to NutraStar Incorporated. As a result ofour respective membership interests.
Under the reorganization NTI became a wholly-owned subsidiary of NutraStar Incorporated and NutraStar Incorporated assumedLLC agreement, the business of NTI.
On October 1, 2003, NutraStar Incorporated changedNutra SA is to be conducted by the manager, currently our nameCEO, subject to NutraCeathe oversight of the management committee. The management committee is comprised of three of our representatives and two Investor representatives. Upon an event of default or a qualifying event (as defined in the LLC Agreement), we will no longer control the management committee and the common stock began trading on the OTCBB under the symbol "NTRC." On November 12, 2003, we declared a 1:10 reverse stock split. Our common stock trades on the OTCBB under the symbol "NTRZ.OB"
On April 27, 2000, NutraStar formed NutraGlo Incorporated, or NutraGlo, a Nevada corporation, which was owned 80% by NTImanagement committee will include three Investor representatives and 20% by NaturalGlo Investors L.P. During 2001, NutraGlo started marketing, manufacturing and distributing onetwo of our representatives. In addition, following an event of default or a qualifying event, a majority of the members of the management committee may replace the manager of Nutra SA.
Background
Consistent with our mission to convert feed to food, our greatest opportunities are in the functional food, nutritional supplement, nutraceutical and human food ingredient markets.
Functional Foods, Nutritional Supplements and Nutraceuticals
The US nutraceutical and functional foods market is projected to reach $75.3 billion in 2017 and grow at a compounded annual growth rate of nearly 6% between 2013 and 2017. Premium ingredient manufacturers 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”.
Nutraceuticals covers a range of products including botanical extracts, dietary supplements, isolated nutrients and medical foods. Our products can be used as functional ingredients in nutraceutical products to the equine market. In 2002, we issued 250,001 shares of our common stockprovide certain specific nutrients or food components (including antioxidants, oryzanols, vitamin E, vitamin B, and fiber) and general nutritional supplementation. Our ingredient products are primarily sold to NaturalGlo Investors L.P. in exchange for the remaining 20% of the common stock of NutraGlo. The value of the shares was $250,001. As a result, NutraGlo is now a wholly-owned subsidiary of NTI.
On October 4, 2005, we acquired RiceX in a merger transaction in which our wholly-owned subsidiary, Red Acquisition Corporation, merged with and into RiceX, with RiceX surviving the merger as our wholly-owned subsidiary. In the merger, the stockholders of RiceX received 28,272,064 shares of NutraCea common stock in exchange for 100% of the shares of RiceX common stock, and NutraCea assumed the outstanding RiceX options and warrants, which became options and warrant to purchase a total of 11,810,507 shares of NutraCea common stock.
PRODUCTS
The NutraCea Process stabilizes rice bran, which is the portion of the rice kernel that lies beneath the hull and over the white rice. Rice bran contains over 60% of the nutritional value of rice. However, without stabilization, the nutritional value of rice bran is lost shortly after the milling process. This is due to the lipase-induced rancidity caused by the rice milling process. Consequently, this rich nutrient resource must either be thrown away or disposed of as low value animal feed. The NutraCea Process deactivates the lipase enzyme and makes the bran shelf life stable for a minimum of one year. While other competing processes have been able to stabilize rice bran for a limited time, the NutraCea Process naturally preserves more of the higher value nutritional and antioxidant compounds found in rice bran for a significantly longer period of time.
The NutraCea Process has enabled the Company to develop a variety of nutritional food products, including its primary product, NutraCea® Stabilized Rice Bran. The NutraCea® Stabilized Rice Bran NutraCea produces meets microbiological standards for human consumption. Our customers include consumer nutrition and healthcare companies, domesticnutritional supplement retailers, and international foodmulti-level personal product marketers. In August 2013, we entered into a multi-year agreement to sell certain of our Stage II products to a rapidly growing direct marketing company. Pursuant to that agreement, that company will purchase a minimum of $7.65 million in products during the term of the agreement which expires in December 2016. We will seek additional long-term supply agreements with similar companies in the future. As part of this strategy, we have been working with co-packaging and companion animal feed manufacturers.fulfillment companies to expand our presence in these markets.
We produce stabilized, nutrient-rich rice branoil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that may be used in a wide variety of new products. We are pursuing the development of proprietary rice bran products from stabilized rice bran. Our current products include:
NutraCea Stabilized Rice Bran:
| | Stable whole rice bran and germ. This is our basic stabilized rice bran product that is both a food supplement and an ingredient for cereals, baked goods, companion animal feed, health bars, etc., and also the base material for producing NutraCea Solubles, oils and NutraCea Fiber Complex. |
NutraCea Stabilized Rice Bran Fine:
| | This is the same product as the NutraCea Stabilized Rice Bran, except that it has been ground to a particle size that will pass through a 20 mesh screen. It is used primarily in baking applications.
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Dextrinized Rice Bran:
| | A carbohydrate converted NutraCea Stabilized Rice Bran that is more suitably used in baking and mixed health drink applications. This product contains all of the nutrient-rich components of NutraCea Stabilized Rice Bran.
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NutraCea Solubles:
| | A highly concentrated soluble carbohydrate and lipid rich fraction component of NutraCea Stabilized Rice Bran with the fiber removed. NutraCea Solubles also embodies a concentrated form of the vitamins and nutrients found in NutraCea Stabilized Rice Bran.
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NutraCea Fiber Complex:
| | Nutrient-rich insoluble fiber source that contains rice bran oil and associated nutrients. This product, designed for use by the baking and health food markets, is the remaining ingredient when NutraCea Stabilized Rice Bran is processed to form NutraCea Solubles.
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In addition to the above, further refining NutraCea Stabilized Rice Bran into oil and its by-products can produce Max “E” Oil, NutraCea Defatted Fiber and Higher Value Fractions.
Max "E" Oil:
| | Nutrient-rich oil made from NutraCea Stabilized Rice Bran. This oil has a high flash point, which provides a very long fry life, and it is not readily absorbed into food. In addition, the oil maintains many of the nutritional benefits of the whole rice bran products. |
NutraCea Defatted Fiber:
| | Low fat soluble fiber that does not contain rice bran oil. This is a product designed for use by the baking industry for its high fiber nutritional benefits. |
Higher Value Fractions:
| | Nutraceutical-like compounds naturally occurring in NutraCea Stabilized Rice Bran and Rice Bran Oil that provide specific health benefits. Tocopherols, tocotrienols, and gamma oryzanol are some of the antioxidant-rich fractions that are found in rice bran and are enhanced by stabilization, with the gamma oryzanol being unique to rice.
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We have developed a number of product lines using NutraCea Process stabilized rice bran products and proprietary rice bran formulations in various categories.
INDUSTRY BACKGROUND
By definition, nutraceuticals are products from natural sources that have biologically therapeutic effects in humans and animals. These compounds include vitamins, antioxidants, polyphenols, phytosterols, as well as macro and trace minerals. The NutraCea Process stabilized rice bran and rice bran oil are good sources for some of these compounds, including tocotrienols, a newly discovered complex of vitamin E, and gamma-oryzanol, which is found only in rice bran. Among other things, these compounds act as potent antioxidants. Stabilized rice bran and its derivatives also contain high levels of B-complex vitamins and beta-carotene, a vitamin A precursor. Stabilized rice bran also contains high levels of carotenoids and phytosterols, both essential fatty acids, as well as a balanced amino acid profile and both soluble and insoluble fiber which promote colon health. See section “Benefits of NutraCea Stabilized Bran” for additional information.
Rice is one of the world's major cereal grains, although United States production of rice is only a small fraction of total world production. According to the United States Department of Agriculture, approximately 65% ofenhance the nutritional value of rice is containedpopular consumer products. Foods that are ideally suited for the addition of our SRB and DRB to their products include processed meats, cereals, baked goods, breading and batters. The inclusion of DRB in thebreading and batters can result in a reduction in oil uptake, higher moisture retention, improved nutritional profiles, and reduced costs.
In 2008, we received USDA/FSIS approval to market rice bran the outer brown layer of the rice kernel which is removed during the milling process. However, raw, unstabilized rice bran deteriorates rapidly. Because of the rapid degradation and short shelf life, rice bran has not been widely accepted as a component of nutrition, health or beauty products, notwithstanding the known benefits. We have developed a method of stabilizing rice bran we believe is superioran ingredient to other methods and provides a shelf life greater than one year, which we believe is longer than any other stabilized rice bran. The longer shelf life allows for economical production of nutrition products which incorporate rice bran ingredients.
As the market becomes more aware of the value of our ingredients and proprietary formulations we believe demand for our products will increase materially. Since stabilized rice bran is a safe food product, we believe that its beneficial effects can be obtained with no known deleterious side effects, such as those that may be present in pharmaceuticals. Many physicians have taken an interest in our nutraceutical products as a means of offering alternative or complementary approaches for treating serious healthcare problems. If further clinical trials support the beneficial effects of our nutraceutical and medical foods products and if the medical community widely endorses such use of our products, we believe that our products in certain situations, may be used as a nutritional therapy either priorfiller 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 functional 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, our SRB has a strong marketing position in the US meat market and an even stronger position outside the US where non-meat ingredients make up a larger percentage of meat products.
Animal Nutrition
Our SRB and DRB are marketed as feed ingredients in the US and international animal nutrition markets. We will continue to orpursue high margin sales opportunities in those markets. Our SRB and DRB are used as equine feed ingredients and have been shown to provide health benefits. Show and performance horses represent the premium end of the equine market and are a complementkey target for our animal nutrition products. In our Brazil segment, we also blend DRB with other ingredients to traditional pharmaceutical therapies for the treatment ofproduce a variety of ailments including diabetesfeed formulations targeted to animal species such as horses, beef cattle, dairy cows, pigs, sheep and coronary heart disease.poultry.
THE IMPORTANCE OF RICE
Rice is the staple food for approximately 70%over half of the world’s population and is the staple food source for several of the world’s largestmost populous countries. WorldAsia accounts for roughly 90% of global rice production and China is expected to be more than 615the world’s number one rice producer. Globally, Brazil and the United States rank about 9th and 10th, respectively, in production of rice at approximately 11 million metric tons in the 2006-2007 crop year (according to the United States Department of Agriculture), constituting more than one quarter of all cereal grains produced worldwide. The United States accounts for less than 2% of the world’s riceproduction. 90% of world rice tonnage is produced in 13 countries with aggregate populations of 3.2 billion people (according to the USA Rice Federation, Rice Notes). Approximately 75% of all rice production occurs in China, India, South East Asia, Africa and South America. Combined, these regions have a population of 2.3 billion people (nearly 50% of the world’s population), and an average per capita gross domestic product of $2,000 (less than one tenth of the U.S. average).annually.
Malnutrition is a common problem in this group of nations, particularly for people located in rural villages where subsistence rice farming is a primary livelihood. Transportation and storage are poor. Consequently, locally grown rice is consumed locally and the amount of food available varies widely over time with changes in seasons and weather. Children are especially susceptible to variations in local agricultural output due to their heightened nutritional needs and dependency on others for food. Per capita rice consumption in many of the poorer rice belt countries exceeds one pound per day.
Despite the importance of rice as a worldwide food source and the problems associated with nutritional deficiencies in rice-dependent nations, approximately 65% of the nutrients found in rice are destroyed during milling. Most of the rice nutrients are contained in the outer brown layer of the rice kernel known as the bran layer, which, because of poor stability, becomes inedible due to lipase-induced rancidity or microbiological spoilage shortly after the milling process.
RICE PROCESSING AND RICE BRAN STABILIZATION
When harvested from the field, individual rice iskernels are stored in the formcommon receiving locations such as farm silos for future delivery to grain dryers or area rice mills. At this stage, large quantities of paddy,individual rice kernels are collectively called “paddy rice,” or “rough” rice. In this form, the rice kernel is fully enveloped by the rice hull. The hull, which serves as a protective cover, shielding the inner rice kernel from damage.
After storage and drying, if necessary, paddy rice is driedcleaned of foreign material (scalping, de-stoning and then removed inaspiration) just before it enters the first stage of milling, yieldingor 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. rice kernels (caryopsis) from unhusked kernels which are returned to the paddy husker.
In the second stage of milling, the outer brown layer,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 is removed to produce white rice. Rice brancollected from the milling process is composed of the rice germ and several sub-layers which accounts for(pericarp, testa, nucellus and aeurone) surrounding the white starchy endosperm. Commercial rice bran makes up approximately 8%10% of rough rice by weightweight. Rice germ, an especially nutrient rich material, makes up approximately 10% of paddycommercial rice and contains over 60% of the nutrients found in each kernel of rice. (See Juliano, B.O., 1985 Rice: Chemistry and Technology, American Association of Cereal Chemists, St. Paul, MN, pp. 37-50.)bran by weight.
Under normal milling conditions, whenAs brown rice is milled into white rice, the oiloils present in the bran and a potent lipase enzyme found on the surface of theraw rice bran come into contact with one another. Thenative lipase enzyme causes veryenzymes that are naturally present in the rice kernel. These lipase enzymes initiate a rapid enzymatic hydrolysis of the oil, converting itoils (triglycerides) into glycerol, monoglycerides, diglycerides and free fatty acid, or FFA.acids (FFA). As the FFA content increases, thebuilds in raw rice bran, the bran becomes unsuitable for human or animal consumption. Atunpalatable and off flavors (rancidity) begin to develop. If left unchecked, enzymatic degradation at normal room temperature,temperatures can increase the FFA level increaseslevels to 5-8% within 24 hours and thereafter increasescan continue at thea rate of approximately 4-5% per day.day thereafter. Enzymatic degradation is the most serious form of degradation of raw rice bran. Rice bran stabilization is unfit for human consumption at 5%the process of carefully deactivating native enzymes to prevent the increase of FFA which typically occurs within 24 hours of milling.
When theotherwise caused by lipase enzyme can be deactivated, rice bran can be stabilized, thus preserving a potentially important nutrient source thatactivity. Stabilization is largely wasted today. Heat will deactivatecritical in the lipase enzyme, reduce microbiological load and reduce moisture levels. Although heat serves as the basis for most attempts to stabilize rice bran, most of the rice bran nutrients are lost in this process. Parboiled, or converted rice, is subjected to soaking and steaming prior to being dried and milled. This process softens the rice kernel and reduces the problem of lipase-induced hydrolysis. The bran produced from parboiled rice, however, is only semi-stabilized, typically spoiling in 20 days or less. The parboiling process also destroys muchpreservation of the nutritional value of the bran, because many of the micro nutrients are water-soluble and are leached out during the parboiling process. Therean important nutrient source that is largely used as animal feed or otherwise wasted.
Historically there have been a number of attempts to develop alternative rice bran stabilization processes that deactivatetechniques, including the lipase enzyme usinguse of chemicals, microwave heating, and variants onor variations of existing extrusion technology. We believe eachMany of these efforts resultsapproaches have had limited success in an inferior product that uses chemicalspart because they have produced rice bran with limited shelf life or does not remain stable for a commercially reasonable period, or the nutrients in the bran are lost thereby significantly reducing the nutritional value in the bran.with significant degradation of nutrients.
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Our Proprietary Rice Bran Stabilization TechnologyTHE NUTRACEA SOLUTION
The NutraCea ProcessOur stabilization process uses proprietary innovations in food extrusion technology to create a combination of temperature, pressure and other conditions necessary to thoroughly deactivate the lipase enzymeenzymes without significantly damaging the structure or activitynutrient content of other,raw rice bran. This means that higher value compounds in bran, such as oils, proteins and proteins found in the bran. The NutraCea Processphytonutrients are left undamaged and are available for utilization. Our process does not use chemicals to stabilize raw rice bran, and produces an “all natural” nutrient-rich product.bran.
Our processing equipment isstabilizers are designed to be installed adjacent to, on the premises of or in near proximity to any two-stageconventional rice mill and is located downstream from the rice polishers. After hulling, the rice is transported pneumatically to the rice polishing room where the brown rice kernels are tumbled and theso that freshly milled raw rice bran is polished from the surface of each kernel. The bran is separated from the denser polished rice grain and is transported pneumaticallycan be quickly delivered to a loop conveyor system we designed. The loop conveyor system immediately carries the fresh, unstabilized rice bran to the NutraCea stabilizer. Stabilization is achieved by feeding the fresh rice bran into a specially designed andour proprietary technological process. The result is a selectively deactivated lipase enzyme and reduced microbiological load.stabilizers. Process logic controllers that maintain exact process conditions within the prescribed pressure/temperature regime control the system.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 ourthe equipment of materials in process and safely shut down.resume production only after proper operating conditions are re-established.
BranSRB leaving our stabilization system is treated through an additional proprietary technological process that further tempers and reduces the moisture. This Bran is then discharged onto our proprietary cooling unitunits specifically controllingdesigned to control air pressure and humidity. The cooled Bran is thenCooled SRB can be loaded into one ton shipping containersbulk hopper trucks for transportation to other processing facilitieslarge volume customers or is transportedsent by pneumatic conveyor to a bagging unit for packaging in 30, 40,into 50 andpound or 2,000 pound sacks. NutraCea Stabilized Rice Bran (NutraCea SRB) has a shelf life
The NutraCea Process system is modular. The processing conditions created by the NutraCea Process are unique. Each stabilization module can process approximately 2,000 pounds of NutraCea Branbran per hour and has a capacity of over 5,7007,200 tons per year. Stabilization production capacity can be doubled, tripled or tripledfurther multiplied by installing additional NutraCea 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, which haswith a maximum production capacity of 840 tons per year, for installation in countries or locations where rice mills are substantially smaller than those in the United States.
NutraCea also producesAdditional patented and proprietary value added productsprocesses involve enzyme treatment of SRB or DRB to produce fractions enriched in its Dillon, Montana.one or more macronutrients, including proteins, fibers, lipids and micronutrients such as vitamins, minerals and phytosterols, among others. In Dillon, NutraCea has established a production facility which hasthese processes SRB or DRB, in an aqueous slurry, is treated with one or more enzymes, centrifugally separated and the ability to isolate components of the Stabilized Rice Bran into value added products with impressive nutritional profiles. The primary isolate is NutraCea Solubles which is a nutritionally dense pleasant tasting ingredient. Solubles can be used in nutritional finished goods like beverages, bars, powders and pastes. Solubles can also be served as a stand-alone nutrition supplement in feeding programs designed to address malnutrition in pregnant/lactating mothers and infant to adolescent children. Another isolate produced in Dillon is Fiber Complex. Fiber complex is an excellent source of hypoallergenic fiber which can be used in dietary supplement formats like a fiber powders, capsules, wafers, baked products and fiber bars.fractions dried on drum driers.
BENEFITS OF NUTRACEA STABILIZED RICE BRAN
Rice bran is hypoallergenic and a richvaluable source of protein with a balanced amino acid profile for human nutrition and is rich in healthy oil, vitamins, antioxidants, dietary fiber and other nutrients. The approximate composition and caloric content of NutraCea Stabilized Rice Branour SRB is as follows:
| Fat (oil) | | 18%-23%18-23% |
| Protein | | 12%-16%12-16% |
| Total Dietary Fiber | | 23%-35% |
Soluble Fiber | | 2%-6%20-30% |
| Moisture | | 4%-8%4-8% |
| Ash | | 7%-10%6-14% |
| Calories | | 3.2 kcal/gram |
Rice bran is unique in the plant kingdom. Its protein is hypoallergenic and contains all of the essential amino acids, the necessary building blocks of protein in the body. Rice bran contains approximately 20%18-23% oil, which closely resembles peanut oil inhas a favorable fatty acid composition and excellent heat stability. Rice bran oil contains essential fatty acids and a broad range of nutraceutical compounds that have been demonstrated to have therapeutic properties. (See Cheruvanky
In the bio-refining process, raw rice bran is obtained from a number of rice mills and Raghuram, 1991 Journaltransported to a facility within which it is first stabilized via extrusion and then solvent extracted to produce crude RBO and DRB. Crude RBO is subsequently processed in a number of steps designed to sequentially capture constituents of value and to remove and discard impurities. The final outcome of these steps is a highly refined, edible RBO that has superior flavor and functional properties. In addition, the various co-products of crude RBO processing, distilled fatty acids for example, are refined and sold as products in their own right. DRB is finely ground and packaged for use as a versatile food ingredient in many applications. DRB may also be compounded with other ingredients such as a vegetable proteins, carbohydrates, vitamin premixes and minerals to produce an array of nutritionally targeted animal feeds for various species. The DRB can also be further processed to extract and concentrate protein and dietary fiber. Our bio-refining process and related technologies are being continuously evolved as we examine the technical and commercial feasibility of producing additional products derived from both RBO and DRB.
DRB contains many of the American Collegesame nutritional and functional benefits as SRB, except that the oil has been removed. This is important for several ingredient applications where SRB’s oil content could present food formulation challenges. By removing oil from SRB, nutritionists have greater options to formulate DRB into breakfast bars, calorie reduced foods, low fat baking applications and batter and breading for frying applications. Additionally, DRB is ideally suited for downstream enzymatic processing, transforming DRB into an ideal feedstock for protein concentrates and fiber concentrates.
RBO as extracted from stabilized rice bran can be utilized in a variety of Nutrition, Vol. 10, No. 4, pp. 593-691.) In July 2005edible and industrial oil applications. With proper processing, RBO becomes high quality cooking oil possessing beneficial high temperature frying characteristics. RBO has a unique fatty acid content that imparts improved oxidative stability as compared to other vegetable oils such as soy or cottonseed giving it advantages when used in food applications. The RBO extraction process utilized at our Brazilian facility uses a conventional solvent extraction process to separate oil from raw bran, resulting in crude RBO available for sale to industrial markets or other processors. Additional refining processes done in Brazil can involve degumming, neutralization, bleaching, de-waxing and deodorizing. A bio-refining process approach results in numerous marketable co-products in addition to the actual end product.
Our Growth Strategy
With the proceeds from this offering, we entered into a consulting agreement with an individualwill be positioned to assist in the research and validationcapitalize on specific market conditions that we believe will increase market acceptance of our products and lead to increased growth and profitability. These market conditions are:
| 1. | Increasing global demand for vegetable oil – Our Brazil Segment currently sells 100% of the rice bran oil it produces in its oil extraction and refining plant in Pelotas, Brazil. Following the capital expansion project at this plant, we expect raw rice bran processing capacity to increase by approximately 50% in early 2014. |
| 2. | Increasing demand for new protein sources – We have co-developed proprietary technologies with DSM Innovation Center, a subsidiary of Royal DSM N.V., that enables the extraction of protein from DRB and SRB feed stocks that we produce in both of our Brazil and US Segments. We recently launched new protein products from our US operations based on these technologies and plan to produce protein from DRB in our Brazil Segment in the future. In addition, RBT has entered into a series of agreements with Wilmar-International (Wilmar) to develop and commercialize rice bran products, including protein, for the China market. Wilmar currently operates 12 large rice mills in China and is a leading producer of raw rice bran that is available for further processing into higher value products such as protein and fiber. |
| 3. | Demand for “clean” labels on food products – The market for healthy and nutritious foods is rapidly expanding in the US, Europe and other global markets with increasing demand for healthy, natural and minimally processed ingredients that are hypoallergenic, non-genetically modified, and produced in a sustainable fashion. The regulatory need to add front-of-label warnings on food items is driving food companies to replace standard food ingredients like soy and wheat with “cleaner” ingredients such as rice bran which is non-allergenic, non-genetically modified, natural and minimally processed. Incorporation of our food ingredients by major global food companies into meats, baked goods and cereals has steadily increased in the past year helping drive sales. We expect this growth to continue as more food companies adopt rice bran as a standard food ingredient. This trend is not limited to human foods as we are finding a similar transition to “clean” ingredients among high-end animal nutrition companies. |
| 4. | The value of proprietary, evidence-based functional ingredients for nutraceuticals and functional foods – With increasing medical costs associated with doctor visits and medications, consumers are becoming more proactive in adopting and maintaining healthier lifestyles through exercise, balanced nutrition and increased consumption of functional foods and nutraceuticals. Associated with this trend is higher demand by marketers of nutraceuticals and functional foods for novel functional ingredients and particularly for proprietary and patented ingredients that provide barriers to competition in the marketplace, therefore commanding higher premiums. We currently develop and commercialize proprietary rice bran ingredients and derivatives from our Stage II facility in the USA Segment. |
Re-Launch Our Nutraceutical and Functional Foods (NFF) Business
The US nutraceutical and functional foods market is projected to reach $75.3 billion in the medical foods market.
Nutraceuticals are food constituents that2017 and grow at compound annual growth rate of nearly 6% between 2013 and 2017. We have human therapeutic effects. Someinvested significant resources on research and development of rice bran extracts with health-related applications. Functionalities for a subset of these compounds include a newly discovered complexproducts were validated through scientific studies and human clinical studies. Our portfolio of Vitamin E called “tocotrienols,” and gamma oryzanol, which is only found in rice. These compounds are potent antioxidants that have been shown to aid in reducing damage from free radicals in the body. NutraCea Bran also contains very high levels of B-complex vitamins, betacarotene (a vitamin A precursor), other carotenoids and phytosterols, as well as both soluble and insoluble fiber. (See Saunders, 1990, Rice Bran Oil, presented at Calorie Control Council Meeting, February 14, 1990, Washington, D.C.)
We have been assigned five U.S. patents relating to the production or use of nutraceutical HVF products. See PATENTS AND TRADEMARKS below.
BUSINESS STRATEGY
Our goal is to become a significant global supplier of Stabilized Rice Bran andfunctional ingredients includes rice bran based productsextracts that demonstrate beneficial properties in the premium consumer food and animal feed sectorsareas of the marketplace. We produce stabilized rice bran and related products in manufacturing facilities we own or through other arrangements. See SUPPLY AND MANUFACTURING below. We intend to protect our process and products through both trade secret protection and through patent and trademark protection. See PATENTS AND TRADEMARKS below.
We believe that clinical support for stabilized rice bran products will further enhance the value of our products as nutraceuticals and functional food ingredients. Finally, we intend to aggressively market our products in four distinct product areas. These areas are nutraceuticals, functional food ingredients, performance feed and companion pet food supplements, and rice bran oils. In pursuit of this goal, we have focused and will continue to focus our marketing and development efforts in developed regions, including the U.S., Europe, South Africa, Argentina, Japan, South Korea and Taiwan; and in developing regions, including in Central and South America, India, China, Indonesia and most of the other countries in Asia and Africa.
DEVELOPED NATIONS
In developed nations, our focus is on producing and selling ingredients to large consumer product marketers as health enhancing ingredients for existing or newly developed products, and as stand-alone products to consumers. In addition, we have continued relationships with South Korean, German and other European companies to introduce our products into these regions. Although there can be no assurance that our products will be successfully introduced into these regions, we believe that interest of this type validates the potential opportunity. In addition, we believe that the relationship reflects the strategy for our foreign ventures. We intend to seek other opportunities in developed nations to convert stabilized rice bran grown in those countries into finished goods and into HVFs with demonstrated health or nutritional benefits.
DEVELOPING NATIONS
Our strategic development, using the NutraCea model, has been focused on making our nutrient-dense stabilized rice bran products available to developing countries where nutritional deficiencies are a major concern, particularly among school-aged children. We remain on the cutting edge in developing nations by reducing malnutrition and enhancing nutritional growth potential of school-aged children. The school nutritional and diet upgrading programs in developing countries worldwide represent a multi-billion dollar market, which provides us with an opportunity to make significant sales. The Food and Agriculture Organization of the United Nations and the Foreign Agricultural Service of the United States Department of Agriculture have targeted over 800 million nutritionally deficient humans for assistance in the worldwide program titled “American Special Supplemental Food Programs for Women, Infants and Children”.
NutraCea’s first international strategic alliance was established through its wholly owned subsidiary RiceX, in December 2000 with PRODESA and the Christian Children’s Fund in Guatemala. Under this alliance, we supplied nutritionally dense ingredients throughout Guatemala over a twelve-month period starting in January 2001. As a result, our stabilized rice bran product, NutraCea Solubles, has been used as a base for a nutritionally enhanced drink for school breakfast and lunch programs to over 67,000 children in rural communities throughout Guatemala. The twelve-month program in Guatemala was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. This proof-of-concept program in Guatemala generated nearly $2,300,000 in revenues for RiceX in the year ended December 31, 2001. In 2002 and following the similar program of Guatemala, El Salvador’s Ministry of Education in San Salvador purchased RiceX’s stabilized rice bran product, RiceX Solubles, for applications in its school nutrition programs for El Salvadorian children. RiceX had similar programs in the region in 2003 and 2004.
We are broadening our presence in the international markets. Building on our 2001 successful proof-of-concept program in Guatemala, we continue to develop and expand international market development activities in Central and South America. We have initiated discussions with governmental agencies within various Central and South America countries to explore securing contracts for the introduction of our highly nutritious and proprietary food supplements for use in local and national school feeding initiatives and family nutritional support programs. We are pursuing a strategy to introduce our technology to both the public and private sectors simultaneously using the strength of our local partners in foreign markets.
We are building alliances with strong partners demonstrating our commitment to building the type of mutually-beneficial strategic relationships that could launch our products through distribution channels in commercial and retail outlets in Latin America countries as well as supply a better, more cost effective solution for government feeding programs.
We continue to work with major rescue and relief agencies, congressional supporters and government offices of the USDA and the United States Agency for International Development to bring a multi-year program to provide nutritional drinks to substantial numbers of children each school day from either a U.S. basis facility or some future international facilities.
We also intend to partner with local governments and companies in developing nations to stabilize locally grown rice bran for local consumption and for future export. In furtherance of this objective, we plan to introduce our stabilization process systems in large rice mills located in Central and South America, China, India and Southeast Asia in the future. In many developing nations, the average person has a 300-500 calorie daily diet deficit. (See The Food and Agriculture Organization of the United Nations (FAO), Agrostat PC, on diskette (FAO, Rome, 12993); and the World Resources Institute in collaboration with the United Nations Environment Programme and the United Nations Development Programme, World Resources 1994-95 (Oxford University Press; New York, 1994), p. 108.). If we are able to expand into these areas, each NutraCea processing system has the capacity to provide up to 500 nutritionally dense calories to over 1 million people daily on an ongoing basis. The diet supplement provided by the locally grown and stabilized rice bran would help those people approach U.S. levels of nutrition.
We continue to hold discussions regarding the demonstration of our system and the end products for our technology with a number of companies and governments, including countries in Central America, India, China, Argentina, Brazil, Malaysia and certain African countries. We currently have signed letters of intent with companies in the food processing business and rice milling business in Central and South America countries as well as the Far East. See Part II - Item7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - “International Initiatives”, for additional discussions. However, there can be no assurance that these letters of intent and discussions will lead to implementation of the NutraCea Process with these companies or governments.
SALES AND MARKETING
We have targeted three distinct channels of product distribution in which NutraCea Bran and related products may be used as the primary ingredient. Our key marketing strategy is to form strategic alliances with industry leaders in each of our target markets. This strategy will allow us to leverage the research, marketing and distribution strengths of our partners in order to more economically and efficiently introduce and market products. We have formed alliances, or have entered into negotiations to form alliances, in each of our target markets, which are nutraceuticals, functional food ingredients, performance feed and companion pet food supplements.
During fiscal 2006, approximately two percent of our net sales were to regions outside of the United States. Information on net sales to unaffiliated customers and long-lived assets attributable to our geographic regions is included in Note 18 of Notes to Consolidated Financial Statements.
Our overall marketing plans in each of the target markets are discussed below.
Nutraceuticals
Nutraceuticals are food-derived substances with pharmaceutical-like properties, including vitamins and dietary supplements. NutraCea Bran can be used as a nutraceutical to provide certain specific nutrients or food components (including antioxidants, oryzanols, Vitamin E, Vitamin B, and bran fiber) or to address specific health applications such as cardiovascular health, diabetes control, fighting free radicalsweight management, glucose balance, inflammatory response and general nutritional supplementation. Our ingredient products are sold to consumer nutrition and healthcare companies, national nutritional retailers, multi-level personal product marketers,` and an infomercial company.
Functional Food Ingredients
NutraCea Bran is a low cost, all natural food product that contains a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that can be used to enhance the nutritional value of popular consumer products. Foods that are ideally suited for the addition of NutraCea Bran to their products include cereals, snack foods and breads. We are marketing NutraCea Stabilized Bran to consumer food companies for use in already established products and for development of new products.
The functional food market in the United States is $16 billion and we estimate that this represents more than a several $100 million annual market share opportunity for us.gastrointestinal health. Premium ingredient manufacturers are in high demand and we are strategically positioned to take advantage of this growing and sustainable market opportunity. OurWe believe our proprietary technology and product patents represent extremely valuable assets for achieving strategic leverage in this industry segment.segment particularly in the nutraceuticals, functional foods and functional beverages sectors.
In late 2009, we ceased further development of our NFF business as we repositioned our overall business. We are now well positioned to re-launch our NFF business by adopting the following strategy:
Performance FeedDirect marketing to formulators and Companion Pet Food Supplementsco-packers. We believe that marketing our active ingredients directly to formulators and co-packers who manufacture turnkey finished products for direct to consumer marketing companies (i.e. multi-level marketing (MLM), web, radio, retail) and to active ingredient distributors will reduce new product development cycles and drive sales of our functional ingredients. Co-packers and distributors of healthy and natural products have established credibility with multiple marketing companies who rely on these businesses to develop and manufacture new turnkey products. In our experience, working with formulators and co-packers to sell finished products to marketing and distribution companies can shorten the product development cycle and increases sales quickly.
We also market NutraCea Bran asIn December 2010, we began working with H&N Distribution Inc., an Irving, Texas based company (H&N), specializing in filling and packaging healthy and natural products for NFF markets to develop turnkey products for a feed supplement for animals. NutraCea Stabilized Bran is used as an equine feed supplementMLM company. This resulted in sales of approximately $68,000 of certain Stage II products in 2011. Sales in 2012 increased to approximately $310,000 and has proven to provide greater muscle mass, improved stamina, and hair-coat luster when added to a normal diet. Show and performance horses represent the premium end of the equine market and present more than a $100 million annual market share opportunity for our future revenue growth. During 2003, NutraCea launched its own equine supplement label “Max E Glo”.through August 2013 were approximately $630,000. In 2004, NutraCeaAugust 2013, we entered into a distributionmulti-year agreement to sell one of our Stage II products to a rapidly growing direct marketing company. Pursuant to the agreement, that company will purchase a minimum of $7.65 million in products during the term of the agreement which expires in December 2016.
In September 2013, we entered into an agreement with MannaPro, a national feed distributor. We continued to hold numerous discussions with several major domestic equine feed manufacturers and distributors.
Rice Bran Oils
Nutrient-rich oil made from NutraCea Stabilized Rice Bran has a high flash point, which provides a long fry life and is not readily absorbed into food. The oil also maintains many of the nutritional benefits of whole rice bran products, making it ideally suited for healthy salad and cooking oils. We hold a patent on the process for obtaining micronutrient enriched rice bran oil. There can be no assurance that any of our Stabilized Rice Bran Oil marketing efforts will be successful.
MARKETING METHODS
As of March 2, 2007, we have a Senior Vice-President of Sales and Marketing and nine domestic sales representatives. In addition, we have one equine market consultant and severalTaiwanese marketing and distribution agreementscompany to supply them with distributors in Mexico, South America, Western and Eastern Europe and Africa, for developing and marketing NutraCea Bran products. In addition, we have retained a firm to provide and assist in potential qualified customer introductions. We also have a non-exclusive agreement with a firm granting rights to advertise, promote, market, sell and distribute someanother of our Stage II products world-wide. We continue to work to develop additional significant alliancesfor exclusive distribution in efforts to increase our sales volume.
Pursuant to the Stabilized Rice Bran Processing Sales and Marketing Agreement between NutraCea and Farmers’ Rice Cooperative, or Farmers, a cooperative association organized under the California Food and Agriculture Code, dated September 1, 2005, we granted a license to Farmers to use our rice bran processing equipment for production of stabilized rice bran to a limited number of Farmers’ customers..Our Nutrition Supplements are currently marketed domestically through various distribution channels. In addition, we distribute products under the names FlexProtex™, Rice'n Shine™, Flex Protex Cream™, SuperSolubles®, ZymeBoost® and CeaBars™ through ITV Global, Inc. ("ITV"), a direct response marketing company. We and ITV entered into a Private Label Supply Agreement (the "Supply Agreement") and Strategic AllianceTaiwan. The agreement is renewable based on August 24, 2005. Pursuant to this agreement, ITV will market and sell our products through infomercials. In 2006, we generated $8,057,000 in sales from these infomercials. The Supply Agreement has an initial term of two years and allows for a subsequent one-year term renewal. We have agreed in the Supply Agreement to fulfill ITV's requirements for the products specified in the agreement while ITV will use its best efforts to market, distribute and sell such products. The contracts have specific unit and dollar minimums in order for them to maintain limited exclusivity.annual minimum purchases.
We believe that focusing our marketing efforts on distributors, formulators and co-packaging companies will increase sales of our Stage II products in both the short- and long-term as new functional ingredients are added to our portfolio of products.
Acquisition of formulating and packaging company that serves the NFF. As part of our growth strategy, on September 24, 2013, we entered into an Acquisition and Stock Purchase Agreement with H&N and the shareholders of H&N (the H&N Shareholders) pursuant to which we will purchase 100% of the issued and outstanding shares of capital stock of H&N for $2,000,000 plus a number of shares of our common stock based on H&N’s adjusted EBITDA for the calendar year ending December 31, 2013. The number of shares of our common stock that will be issued to the H&N Shareholders ranges from 37,500,000 to 47,500,000 shares. We will use a portion of the proceeds from this offering to fund the acquisition of H&N. Upon closing of the transaction, H&N will become part of our USA Segment. H&N’s current chief executive officer and founder, Mark McKnight, will enter into a multi-year employment agreement with us and be appointed senior vice president of contract manufacturing for us and remain as chief executive officer of H&N.
By incorporating H&N’s formulating and packaging capabilities into our business model, we expect to drive sales of our Stage II products into multiple NFF channels allowing us to capture not only single ingredient sales but also sales of blended finished products consisting predominantly of our ingredients blended with other products and sold as a finished product on a business to business basis.
Increase production capacity of our Stage II products. Production of certain Stage II products at our Dillon, Montana facility is projected to grow by over 400% based on volume over current production levels by 2016. The Dillon plant can accommodate the growth in production through early 2015 but will require additional production capacity during 2015. As part of our growth strategy, we plan to use part of the proceeds from this offering to double production capacity at our Dillon plant. Expansion efforts are projected to begin in July 2014 with completion by the end of 2014.
Develop novel proprietary functional ingredients. As part of our long-term strategy to grow the NFF business, we will continue to develop functional ingredients and packaged, compounded finished products from rice bran and to validate their functionality through evidence-based scientific studies and human clinical trials.
Increase Global Distribution Network
Our nutraceutical equinegrowth strategy includes increasing sales of our products are distributedin overseas markets. As part of this strategy, in July 2013 we amended our exclusive distribution agreement with Beneo-Remy, a 100% owned subsidiary of Sudzucker AG, a German public company, under the name "Absorbine Flex+®" by W.F. Young, Inc. Wewhich Beneo-Remy will exclusively distribute our SRB product and W.F. Youngnon-exclusively distribute our other products to more than 40 countries in Europe, Middle East, Africa and other geographies. As previously described above, in September 2013, we also entered into aan exclusive distribution agreement on May 1, 2001 which provides for NutraGlo to manufacture, package and ship all W.F. Young's sales requirements while W.F. Young is grantedwith a license to use and market our equine products. NutraGlo has agreed to sell its equine healthcare products exclusively through W.F. Young at preferred product prices. W.F. Young has agreed to use its best efforts to promote NutraGlo's current and future equine products and make minimum product purchases. In May of 2003, the purchase requirements for the three-year contract had been met. The distribution agreement was for an initial term of three years ending on August 31, 2004. On September 18, 2003, NutraCea, W.F. Young and Wolcott Farms, Inc. entered into a Technology Agreement which, among other things, extended the initial term of the distribution agreement through September 12, 2006. On April 12, 2005, NutraCea and W.F. Young entered into a Manufacturing Agreement which granted to us the exclusive worldwide rights to manufacture certain equine products for W.F. Young. Additionally, on April 12, 2005, NutraCea and W.F. Young entered into a Distribution Agreement under which we granted W.F. Young (i) the right of first offer and right of first refusalTaiwanese company to market our stabilized rice bran food supplements (other than Equine Flex+)derivatives in Taiwan. We plan to add additional distributors to our network in Canada, Mexico, Central/South America, Asia and other global markets.
Complete Expansion of our Rice Bran Bio-Refinery in Brazil
Our Irgovel facility is currently undergoing a major expansion that is expected to be completed and fully operational by the first half of 2014. This expansion should increase RRB processing approximately 50% from current capacity of 6,000 metric tons per month to approximately 9,000 metric tons per month of processed RRB resulting in higher revenues and profitability.
Co-Research and Development and Investment in New Wilmar Businesses
We will continue to collaborate with Wilmar’s research and development and commercialization groups to develop and market rice bran derived products in China. Under the agreements, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar. If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation. The exercise price for this option will equal 25% of the equinecapital investment made in the entity, plus interest, as defined in the agreement. We believe this strategic partnership represents a significant opportunity for RBT to participate in the Asia food market and (ii)to increase the rightoverall value of first offer and right of first refusal to market the Flex+ product and Flex+ technology for the non-equine, non-human market.our business.
We have developed a numberContinue to Generate Evidence-Based Functionality of other nutraceutical animal products, which we are seeking to distribute, subject to certain limited rights of first refusal granted to W.F. Young, through various distribution channels such as the Internet and strategic joint ventures in the large animal, pet and veterinarian industries.
CUSTOMERS
During year ended December 31, 2006 we had revenues of $18,090,000. We had one customer that represented more than ten percent of total revenues generated during 2006, that being ITV Global, Inc. with revenues reported approximately $8,057,000, or 45%.
During year ended December 31, 2005 we had revenues of $5,564,000. We had one customer that represented more than ten percent of total revenues generated during 2005, that being ITV Global, Inc. with revenues reported approximately $3,013,000, or 54%.
During year ended December 31, 2004 we had revenues of $1,225,000. We had one customer that represented more thatn ten percent of total revenues generated during 2004, that being W.F. Young, Inc. with revenues reported approximately $1,071,000, or 87%.
Loss of anyone of these customers could have a material adverse effect on our revenues and results of operations
Our Proprietary Ingredients
SUPPLY AND MANUFACTURING
We purchase unstabilized rice bran from one major supplier, Farmers Rice Cooperative (FRC). Pursuant to our agreement with FRC, our stabilization machinery is physically attached to FRC’s rice processing plants and the rice bran by-product is directly transferred to our machinery for stabilization without the need for shipping. The relationship with FRC is symbiotic, as the rice manufacturer searches for raw rice bran marketing channels while we have ready access to unstabilized bran. At the end of 2006, FRC was our only supplier of unstabilized rice bran. We have recently entered into a new supply agreement with Louisiana Rice Mill which will increase our annual unstabilized rice bran supply four-fold. We have negotiated additional supply agreements with other rice mills within the United States and have begun the process of engineering and permitting in preparation for additional domestic operations. We have ongoing contractual discussions for supplies of rice bran in Europe and throughout other areas of the world. We are continuing to seek additional relationships with rice processors, both in the United States and abroad as part of our overall business strategy. We believe suitable alternative supply arrangements are readily available if needed.
As required, we ship NutraCea Bran from our facility in California to our plant in Dillon, Montana for further processing into NutraCea Solubles, Dextrinized Rice Bran and NutraCea Fiber Complex. We ordered and installed additional equipment and have expanded the Dillon Montana facility. This additional equipment has increased our NutraCea Solubles and NutraCea Fiber Complex by more than 100%. A second phase expansion of Dillon is currently underway with a completion date in the fall of 2007 which will provide a total expansion of 3 times the 2005 capacity. We intend to construct an additional value-added product processing facility during 2007 which will match the capacity of the expanded Dillon facility.
Every food product that we manufacture is produced under published FDA and USDA regulations for “Good Manufacturing Practices.” Our Chief Operating Officer oversees quality control and quality assurance testing. Product samples for each product code are analyzed for microbiological adherence to a predetermined set of product specifications and each lot is released only when it demonstrates its compliance with specifications.
RESULTS OF TRIALS AND SCIENTIFIC RESEARCH
The beneficial attributes of stabilized rice bran, including the RiSolubles® and RiceMucil® Nutritional Supplements, have been studied and reported by several laboratories, including Medallion Laboratories, Craft’s Technologies, Inc., Southern Testing & Research Laboratories, and Ralston Analytical Laboratories. NutraCea has no affiliation with any of the laboratories that performed these studies but did pay for certain portions of these studies. These analyses have verified the presence of antioxidants, polyphenols, and phytosterols, as well as beneficial macro and trace minerals, in NutraCea’s stabilized rice bran products. Antioxidants are compounds which scavenge or neutralize damaging compounds called free radicals. Polyphenols are organic compounds which potentially act as direct antioxidants. Phytosterols are plant-derived sterol molecules that help improve immune response to fight certain diseases.
A 57-subject clinical trial conducted by Advanced Medical Research, with our funding, by NutraCea suggested that consumption of the stabilized rice bran used in NutraCea’s RiSolubles® and RiceMucil® Nutritional Supplementsour RiSolubles nutritional supplements may lower blood glucose levels of type 1 and type 2 diabetes mellitus patients and may be beneficial in reducing high blood cholesterol and high blood lipid levels. If warranted, NutraCea®we may develop products which address the use of stabilized rice branSRB products as medical foods for, and to potentially make health benefit claims relating to, the effects of dietary rice bran on diabetesoverall health and cardiovascular disease.well being and as it may relate to maintaining balanced sugar and lipid levels.
Through several consulting physicians, NutraCea hasWe have maintained relationships with several medical institutions and practicing physicians who may continue to conduct clinical trials and beta work for itsour products. Some of these previous clinical trials are reviewed in an article entitled “Effects of Stabilized Rice Bran, its Soluble and Fiber Fractions on Blood Glucose Levels and Serum Lipid Parameters in Humans with Diabetes Mellitus Types I and II” published in the March 2002 issue of the Journal of Nutritional Biochemistry.Biochemistry (March 2002, 175-187) The trials produced positive results by showing that the levels of blood lipids and glycosylated hemoglobin were reduced. Subsequently, sixthree domestic and six international patents were issued.issued to us on the strength of these clinical trials.
In December 2007, we formed Rice Science, LLC (Rice Science), a Delaware limited liability company, with Herbal Science Singapore Pte. Ltd. (Herbal Science) to develop nutraceutical extracts and pharmaceutical chemistries from our SRB. Herbal Science utilized sophisticated methodologies in the identification and isolation of specific biologically active compounds that have been tested for effectiveness against specific disease conditions. In March 2011, our partnership with Herbal Science ended with us acquiring the membership interest formerly owned by Herbal Science, leaving Rice Science as our wholly owned subsidiary. We are hopeful that the research performed by Herbal Science will result in biologically active SRB extracts for use in the nutraceutical and functional food industry. extracts from SRB that would be effective in addressing inflammation and pain. A number of SRB extracts have been tested with two identified as having significant in vitro activities. A blend of these two extracts was created to produce a third extract that exhibits a high level of in vitro inhibition of Cox 1, Cox 2 and Lox 5 enzymes. This extract was used in a pharmacokinetic study to determine uptake kinetics of key bioactives into human serum. Results indicated that the bioactive compounds were rapidly assimilated. The W. F. Young Company, distributors of Absorbine® Equine Pain Relief Products, sponsorednext step would be to conduct a 50-horse equinehuman clinical trial if funds were available. A number of active compounds were identified and modeled.
Late in 2007, the Cancer Biomarkers Group in the Department of Cancer Studies and Molecular Medicine, University of Leicester in Leicester, UK published a research paper evaluating the effect of our SRB in ApcMin mice (British Journal of Cancer (2007) 96, 248-254). The mice were genetically modified to serve as models for mammary, prostate and intestinal carcinogenesis. They reported that consumption of SRB (30% in the diet) reduced the numbers of intestinal adenomas in these mice by 51% compared to the same mice on a control diet.
Intellectual Property
From 2011 to March 2013, we engaged in a joint research project with DSM Innovation Center, a subsidiary of Royal DSM N.V., to develop methods for extracting and concentrating high quality vegetable protein from rice bran. Combined spending on research and development related to that project totaled $3 million. In March 2013, we announced the development of an improved fiber protein product and a separate water soluble rice bran protein product which demonstrated NutraCea’s Absorbine Flex+® Equine Productshave been commercialized under the Proryza mark. RBT will continue to be effective products for treating joint degenerationsupport internal as well as inflammation in horses.
Our program managed by Christian Childrens Fund,external R&D efforts that improve on existing technologies or CCF,lead to the development of Guatemala in 2001 was highly successful in reducing malnutrition in school age children and enhancing their nutritional growth potential. Our stabilizednew technologies relating to rice bran product, NutraCea Solubles, was used as a base for a nutritionally enhanced drink for school breakfastprocessing and lunch programs to over 67,000 children in rural communities throughout Guatemala. CCF randomly selected 150 children from the group and evaluated their nutritional condition. Thirty-seven percent (37%) of the children were classified as having acute or chronic malnutrition at the start of the test. At the end of six months, no acute malnutrition existed and only 5% chronic malnutrition remained.applications.
PATENTS AND TRADEMARKS
Through our subsidiary NTI, we filed a non-provisional patent application with 47 claims entitled "Methods of Treating Joint Inflammation, Pain and Loss of Mobility" on November 6, 2001. In a December 3, 2002 office action, the U.S. Patent and Trademark Office allowed 26 and disallowed 21 of the patent's 47 claims. Subsequently, in February 2004, the 26 claims which were allowed in December of 2002 were disallowed. In March 2004, we appealed the disallowance of the 26 claims which were previously allowed. Additionally, in October 2003, nine additional preventive claims were added to the patent. In February 2005, we received a written notification that the U.S. Patent and Trademark Office had allowed 11 claims and the prosecution of the application was closed. On June 8, 2005, NutraCea was granted U.S. Patent Number 6,902,739. We have entered into an agreement with a consulting firm to provide patent and license analysis and intend to continue expanding our claims.
Through our subsidiary RiceX, we have been assigned fivehold eight U.S. patents relating to the production or use of Nutraceutical or HVF products. Therice bran and rice bran derivatives. In addition to the issued U.S. patents, include Patent Number 5,512,287 "PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT," whichwe have been issued on April 30, 1996; Patent Number 5,985,344 "PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL," which issued on Nov. 16, 1999; Patent Number 6,126,943 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS," which issued on Oct. 3, 2000; Patent Number 6,303,586 B1 "SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA," which issued on Oct. 15, 2001 and Patent Number 6,350,473 B1 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS," which issued on Feb. 26, 2002. NutraCea currently has severalfifteen additional International patents filed and pending formal review, and wecovering the subject areas. We intend to apply for additional patents in the future as new products, treatments and uses are developed.
The NutraCea Process isOur bio-refining and related stabilization activities are an adaptation and refinement of standard food processing technology applied to the stabilization of rice bran. We have chosen to treat the NutraCea Processcertain of our methods and processes as a trade secret and not to pursue process or process equipment patents on the original processes. However, processas we develop improvements will be reviewedwe intend to periodically review whether we should seek patent protection for future patent protection.them. We believe that thecertain unique products, and their biological effects, resulting from NutraCea's Stabilized Rice Bran are patentable.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 endeavor to protect our intellectual property rights through patents, trademarks, trade secretsGovernment Regulations
USA Segment
The U.S. Food and other measures. However, there can be no assuranceDrug Administration (FDA), The U.S. Department of Agriculture (USDA) and The Federal Trade Commission (FTC) are the Government entities that we will be able to protect our technology adequately or that competitors will not develop similar technology. There can be no assurance that any patent application we may file will be issued or that foreign intellectual property laws will protect our intellectual property rights. Other companiesregulate the manufacture, marketing and inventors may receive patents that contain claims applicable to our systems and processes. The useadvertising of our systems covered by such patents could require licenses that may not be available on acceptable terms, if at all. In addition, there can be no assurance that patent applications will resultproducts sold in issued patents.
Although there currently are no pending claims or lawsuits against us regarding possible infringement claims, there can be no assurance that infringement claims by third parties, or claims for indemnification resulting from infringement claims, will not be asserted in the future or that such assertions, if proven to be true, will not have a material adverse affect on our 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 such litigation could result in substantial cost and diversion of our resources, which could have a material adverse effect on our financial condition and results of operations. Adverse determinations in such litigation could result in the loss of our proprietary rights, subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our systems or products, any of which could have a material adverse effect on our financial condition and results of operations. In addition, there can be no assurance that a license under a third party's intellectual property rights will be available on reasonable terms, if at all.
GOVERNMENT REGULATIONS
The FDA enforces Federal Food Drug and Cosmetic Act or FFDCA,(FFDCA) and the U.S. FoodDietary Supplement Health and drug Administration, or FDA,Education Act (DSHEA) regulations govern the marketing of our products.
The FFDCA provides the statutory framework governing the manufacturing, distribution, compositionas they pertain to foods, food ingredients and labeling of dietary supplements for human consumption. These requirements apply to our products trademarks TheraFoods®supplement production and ProCeutical®.
Marketers of dietary supplements may make three different types of claims in labeling: nutrient content claims; nutritional support claims; and health claims.
| · | Nutrient content claims are those claims that state the nutritional content of a dietary supplement and include claims such as “high in calcium” and “a good source of vitamin C.” The FFDCA prescribes the form and content of nutritional labeling of dietary supplements and requires the marketer to list all of the ingredients contained in each product. A manufacturer is not required to file any information with the FDA regarding nutrient content claims, but must have adequate data to support any such claims. |
| · | Nutritional support claims may be either statements about classical nutritional deficiency diseases, such as “vitamin C prevents scurvy” or statements regarding the effect of a nutrient on the structure or function of the body, such as “calcium builds strong bones.” The FFDCA requires that any claim regarding the effect of a nutrient on a structure or function of the body must be substantiated by the manufacturer as true and not misleading. In addition, the label for such products must bear the prescribed disclaimer: “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” |
| · | Health claims state a relationship between a nutrient and a disease or a health-related condition. FDA’s regulations permit certain health claims regarding the consumption of fiber and the reduction of risk for certain diseases, such claims may relate to rice bran ingredients. |
marketing. The FDA has broad authority to enforce the provisions of federal law applicable to dietary supplements, including the power to seize adulterated or misbranded products or unapproved new drugs, to request product recall, to enjoin further manufacture or sale of a product, to issue warning letters, and to institute criminal proceedings. In the future, we may be subject to additional laws or regulations administered by the FDA or other regulatory authorities, the repeal of laws or regulations that we might consider favorable or more stringent interpretations of current laws or regulations. We are not able to predict the nature of such future laws or regulations, nor can itwe predict the effect of such laws or regulations on itsour operations. We may be required to reformulate certain of itsour products, recall or withdraw those products that cannot be reformulated, keep additional records, or undertake expanded scientific substantiation. Any or all of such requirements could have a material adverse effect on our business and financial condition.
The Federal Trade Commission, or FTC regulates the advertising of dietary supplement and other health-related products. The FTC'sTheir primary concern is that any advertising must be truthful and not misleading, and that a company must have adequate substantiation for all product claims. The FTC actively enforces requirements that companies possess adequate substantiation for product claims. FTC enforcement actions may result in consent decrees, cease and desist orders, judicial injunctions, and the payment of fines with respect to advertising claims that are found to be unsubstantiated.
The USDA retains jurisdiction over meat products and food ingredients intended for use in meats. Therefore, the use of SRB and DRB as meat enhancers is regulated by this agency. Both SRB and DRB have USDA approval for use in meat products.
Brazil Segment
The Brazil Ministry of Agriculture, Livestock, and Food Supply (MAPA) and the Brazil Ministry of Health (MS), through its National Agency of Sanitary Surveillance (ANVISA), are the primary regulators of agricultural products. MAPA is the regulatory body in Brazil that is responsible for the regulation and control of pharmaceuticals, biologicals and medicated feed additives for animal use. MAPA’s regulatory activities are conducted through the Secretary of Agricultural Defense and its Livestock Products Inspection Department. In addition, regulatory activities are conducted at a local level through the Federal Agriculture Superintendence. These activities include the inspection and licensing of both manufacturing and commercial establishments for veterinary products, as well as the submission, review and approval of pharmaceuticals, biologicals and medicated feed additives. ANVISA enforces most of the regulations regarding processed food products, including edible oil. Other ministries and/or agencies also involved in the monitoring and control of food safety include the Brazil Environment Protection Institute (IBAMA), of the Ministry of the Environment; the National Institute of Metrology, Standardization and Industrial Quality (INMETRO) of the Ministry of Development.
In addition to the foregoing, our operations will be subject to federal, foreign, state, and local government laws and regulations, including those relating to zoning, workplace safety, and accommodations for the disabled, and itsour relationship with itsour employees are subject to regulations, including minimum wage requirements, anti-discrimination laws, overtime and working conditions, and citizenship requirements.
Sales and Marketing
Both of our USA and Brazil segments use internal sales staff, outside independent sales representatives and third party distributors to market our portfolio of products domestically and internationally. In 2012, three customers accounted for approximately 40% of USA segment revenues. In our Brazil segment, three customers accounted for approximately 38% of segment revenues. We continue to diversify our customer base in an attempt to mitigate the concentration of customers. We have recently signed multi-year contracts with two customers who we expect to grow significantly. In addition, we have recently initiated new ingredient sales to large international consumer products companies that we expect to further diversify our portfolio risk.
Our Strategic Alliances
In 2011, we entered into an agreement with DSM Innovation Center, a subsidiary of Royal DSM N.V., with the goal of developing technology to extract and concentrate protein from rice bran. In March 2013, the agreement was mutually terminated under terms whereby we each received (i) the right to separately develop, modify and improve the jointly developed technology owned by the partner and (ii) a nonexclusive, royalty free, perpetual license to that technology.
RBT PRO, LLC (RBT PRO) was a wholly owned subsidiary whose only asset was the license acquired in March 2013. In April 2013, we entered into a series of agreements with various affiliates of Wilmar International Limited (collectively, Wilmar). In connection therewith, we sold a 50% membership interest in RBT PRO to Wilmar for $1.2 million. RBT PRO granted an exclusive, royalty free, perpetual sublicense of the license to Wilmar for use throughout China and to us for use worldwide, excluding China.
We also entered into a cross license agreement with Wilmar. We agreed to license to Wilmar all of our intellectual property with respect to processing of rice bran and its derivatives for use in China. Wilmar agreed to license to us (i) its intellectual property with respect to processing of rice bran, and its derivatives, based on the intellectual property licensed to Wilmar under the license for use worldwide, excluding China and (ii) its other intellectual property with respect to processing of rice bran, and its derivatives, for use worldwide, excluding certain countries in Asia.
Under the agreements, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar. If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation. The exercise price for this option will equal 25% of the capital investment made in the entity, plus interest, as defined in the agreement.
Our Competition
There are a number of companies that have invested significant resources to develop stabilizing 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 arehave best of breed technologies for stabilizing rice bran and, as such, have developed significant brand recognition in substantial compliancethe animal feed and human food ingredient sectors both domestically and internationally. Together with all material governmental lawsour decades of application technology know-how and regulations.
COMPETITION
Althoughpatented processing methods, we believe that we arehave a first-to-market advantage over the only company to use non-chemical methods to stabilize all natural rice bran so that the bran has a shelf life of over one year, we competecompetition with other companies attempting to stabilize rice bran, as well as companies producing other food ingredients and nutritional supplements. We believe that our only significant competitor currently for rice bran products is Producer’s Rice Mill. We believe that the product it is offering is inferior in many waysrespect to our products. For instance, Producer’s Rice Mill includes certain additivesSRB products
We are aware of several new producers of rice based animal nutrition and food ingredient products in the stabilization process that markets the finished product more unpalatable for the animal recipients. Regardless, there can be no assurance that we will be able to compete successfully in the rice bran industry.US, Europe and Asia. We believe that our major nutritional supplement competitors include producers of isolated soy protein, wheat bran and oat bran, particularly in the functional food ingredients market segment.
We compete with other companies that offer products incorporating stabilized rice branSRB as well as companies that offer other food ingredients and nutritional supplements. Suppliers of nutritional supplements and other products that use other ingredients provided by other suppliers are subject to the higher costs of shorter shelf life and the seasonal availability of stabilized rice bran ingredients. We also face competition from companies providing products that use oat bran and wheat bran in theas nutritional supplements as well as for health and beauty aids. Many consumers may consider such products to be a replacement for the products manufacturedwe manufacture and distributed by us even though they have a higher incidencedistribute.
Beginning in 2008 with the purchase of allergic reactions and adverse health indications. Many of our competitors have greater marketing, research, and capital resources thanIrgovel, we do, and may be able to offer their products at lower costs because of their greater purchasing power or the lower cost of oat and wheat bran ingredients. There are no assurances that our products will be ablealso began to compete successfully.in the world's edible oil market. Our competition for exports of rice bran oil resides primarily in Southeast Asia. Our branded rice bran oil “Carreteiro” competes with other bottled oils such as soy, palm, canola, peanut and others in the Brazilian market. In addition, our exported rice bran oil competes with those same oils from other grains, seeds and plants in markets around the world.
Research and Development Expenditures
During fiscal years 2006, 2005 and 2004, we spent $377,000, $191,000 and $127,000, respectively, on product research and development.
Employees
As of March 2, 2007, weAugust 31, 2013, the USA and Corporate segments had a total of 51 full time41 employees located in the US and one part time employee.the Brazil segment had 237 employees. Our employee count may change periodically. From year to year we experience normal variable labor fluctuation at our production facility in Dillon Montana.facilities. We consider that ourbelieve relations with our employees are good. None of our U.S. based employees are covered by collective bargaining agreements. All of the non-managerial employees at our Irgovel facility in Brazil are represented by a labor union and are covered by a collective bargaining agreement.
Our 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 August 31, 2013:
DescriptionPrimary Segment | | Location | | Status | | Primary Use |
| USA | | West Sacramento, California | | Leased | | Warehousing, and administrative |
| | | | | | |
| USA | | Mermentau, Louisiana | | Owned | | Manufacturing |
| | | | | | |
| USA | | Lake Charles, Louisiana | | Building – owned Land - leased | | Manufacturing (idled since May 2009) |
| | | | | | |
| USA | | Dillon, Montana | | Owned | | Manufacturing |
| | | | | | |
| Brazil | | Pelotas, Brazil | | Owned | | Manufacturing, R&D and administrative |
| | | | | | |
| Corporate | | Scottsdale, Arizona | | Leased | | Administrative – corporate offices |
We currentlyOur corporate headquarters are located at 6720 N. Scottsdale Rd. – Suite 390, Scottsdale, AZ 85253. As of December 31, 2012, we lease 15,680approximately 9,000 square feet of corporate office laboratoryspace in Scottsdale.
As part of the proposed acquisition of H&N, we would add an additional manufacturing, warehousing and warehouse spacedistribution facility to the USA segment. The facility is located at 1241in Irving, Texas in leased space. The manufactured facilities are cGMP certified to 21CFR110 and 1261 Hawk’s Flight Court, El Dorado Hills, California, a 2,000 square foot office facility at 1901 Conant Avenue, Burly, Idaho, a 1264 square foot office facility at 6991 East Camelback Road, Scottsdale, Arizona21CFR111 standards for production of human food and a 17,000 square foot warehouse facility at 1755 Enterprise Boulevard, West Sacramento, California. Our subsidiary, RiceX Nutrients, Inc., owns a 15,700 square foot production facility in Dillon, Montana. The lease for the El Dorado Hills facility expires in April 2007. In April 2007 we will move our corporate headquarters to 5090 North 40th Street, Phoenix, Arizona where we have entered into a five year lease for the 26,147 square-foot office.dietary supplement ingredients.
We believe that ourall 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 our anticipated needs through 2007 but we anticipate the Company will need to add additional space for 2008. The properties are adequately covered by insurance. We plan to build another production facility in 2007 to meet anticipated needs in 2008.current operations.
Research and Development Expenditures
Legal Proceedings
NutraCea commenced a lawsuit on September 8, 2006 against Langley Park Investments, PLC, a United Kingdom Corporation (“Langley”) in the United States District Court for the Eastern District of California, Sacramento Division. The factual basis underlying that case involved a private-placement transaction in which NutraCea exchanged 7 million restricted shares of its common stock for 1,272,026 ordinary shares of Langley common stock (the “Langley Shares”), half of which were immediately saleable by NutraCea and half of which were placed in escrow subject to certain conditions. After the commencement of the litigation, the partiesIn 2011, we entered into a Pre-Settlement/Escrow Agreement, pursuantjoint research and development agreement with DSM Innovation Center, a subsidiary of Royal DSM N.V., to which they agreeddevelop methods for extracting and concentrating high quality vegetable protein from rice bran. Combined spending on research and development related to that project totaled $3 million. In March 2013, we announced the proceeds from Langley’s saledevelopment of certain NutraCea shares, totaling $2.5 million, would be deposited into an escrow account. The matter has now been settled. Pursuantimproved fiber protein product and a separate soluble rice bran protein product. We will continue to support internal as well as external R&D efforts that improve on existing technologies or lead to the settlement, NutraCeadevelopment of new technologies relating to rice bran processing and applications.
Legal Proceedings
Various lawsuits, claims, proceedings and investigations are pending involving us as described below in this section. When applicable, we record accruals for contingencies when it is probable that a liability will receive $1.25 million frombe incurred and the $2.5 million held in escrow (Langley will receiveamount of loss can be reasonably estimated. In addition to the remainder), and NutraCea will retain all of the Langley Shares.
From time to timematters described herein, we are involved in or subject to, or may become involved in or subject to, routine litigation, incidental to the conduct of our business. While the outcome of lawsuitsclaims, disputes, proceedings and other proceedings against us cannot be predicted with certainty,investigations in the ordinary course of business, which in our opinion of management, no such lawsuits either individually or in the aggregate, are expected towill not have a material adverse effect on our financial positioncondition, cash flows or results of operations.
Irgovel Stockholders Lawsuit
37On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining former Irgovel stockholders (Sellers), requesting: (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion. The amount of damage claimed by Mr. Resyng is approximately $3 million.
We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement). Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.
On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million. We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above. We have not been served with any formal notices in regard to this matter so far. To date, only Irgovel has received formal legal notice. In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration. As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies. We believe any payout due to the lawsuit will be made out of the escrow account. As of September 26, 2013, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets. There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of December 31, 2012 and 2011 totaling $1.4 million and $1.9 million. When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement. As of December 31, 2012, $0.6 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.4 million to settle any remaining contingencies. We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.
MANAGEMENTDiabco Life Sciences, LLC
On January 27, 2012, we filed a complaint in the Superior Court of California, Sacramento County (the Court), seeking damages arising out of Diabco Life Sciences, LLC’s (Diabco) breach of a 2008 Promissory Note (the “Note”) in the principal amount of $542,500. A one-day court trial took place on August 30, 2013 at which time Diabco stipulated that total damages through July 23, 2013, including interest and late fees, amounted to $866,865.57. On September 23, 2013, the Court issued its Tentative Statement of Decision indicating that judgment will be entered in our favor in the amount of $866,865.57 as of July 23, 2013, plus additional daily interest of $148.63 from July 23, 2013 through the date of entry of judgment (at which time, interest will accrue on the judgment at the legal rate). Absent objections from any party by October 8, 2013, the Tentative Statement of Decision will become the Court’s Final Statement of Decision and judgment will be entered thereon.
Executive Officers and Directors
Our directors and executive officers, and their ages and positions as of March 21, 2007August 31, 2013, are as follows:
| Name | Age | Position |
Name
| | Age
| | Position
|
Directors and Executive Officers:
W. John Short (4) | | | | |
Bradley D. Edson | | 47 | 64 | Chief Executive Officer, President and Director |
Todd C CrowJerry Dale Belt | | 58 | 55 | Chief Financial Officer and Secretary |
Ike E. LynchColin Garner | | 62 | | Chief Operating Officer |
Margie D. Adelman | | 46 | | Secretary and Senior Vice President |
Kody Newland | | 50 | 54 | Senior Vice President of Sales |
David BensolGoldman (1)(2)(3)(4)(5) | 69 | Director |
| Baruch Halpern (1)(2)(3) | | 51 | 62 | Director and |
| Henk W. Hoogenkamp (3) | 65 | Director |
| Robert C. Schweitzer (1)(2)(3)(4)(5) | 67 | Chairman of the Board |
James C. Lintzenich (1)(2) | | 53 | | Director |
Edward L. McMillan (1)(3) | | 61 | | Director |
Patricia McPeak | | 66 | | Director |
Steven W. Saunders | | 51 | | Director |
Kenneth L. Shropshire (2)(3) | | 52 | | Director of Directors |
_____________
| (1) | Member of the Audit Committee. |
| | (2) | Member of the Compensation Committee. |
| (3) | Member of the Nominating/Nominating and Governance Committee. |
| (4) | Member of the Executive Committee. |
| (5) | Member of the Strategic Committee. |
Bradley D. EdsonW. John Short, has served as our Chief Executive Officerchief executive officer and director since October 20052009 and our president since April 2012. From July 2009 until October 2009 he also served as our Presidentpresident. In 2008 and 2009, as CEO and managing member of W John Short & Associates, LLC, Mr. Short was engaged as a management consultant, advisory board member and/or director to several companies including SRI Global Imports Inc., G4 Analytics Inc. and Unifi Technologies Inc. From April 2006 through December 2007, Mr. Short was the chief executive officer of Skip’s Clothing Company. From January 2004 through December 2005, Mr. Short was engaged as an advisor by the Government of El Salvador to assist in the restructuring of that country’s apparel industry in relation to the elimination of global apparel quotas. Mr. Short has held senior positions with financial services and consumer products businesses in North America, South America, Asia and Europe including over a decade in international corporate banking with Citibank N.A. in New York, Venezuela, Ecuador and Hong Kong. The Board believes that Mr. Short's experience in the financial services and consumer products industry, including his over 35 years of management experience in this industry, his expansive network of contacts and relationships in the industry, his detailed knowledge of our business structure and our products, and his experience as our chief executive officer, are the attributes, skills, experiences and qualifications that allow Mr. Short to make a valuable contribution as one of our directors since December 2004. Since October 2005, Mr. Edson also serves as Chief Executive Officer of our subsidiary, The RiceX Company, and one of its directors. Mr. Edson was formerly the Chairman and CEO of Vital Living Inc. (OTC BB: VTLV), a company that primarily developed and marketed nutraceuticals. Prior to Vital Living, Mr. Edson spent a decade developing a nationwide insurance agency focused on distribution channels for specialty products for the retail market. Prior to that, Mr. Edson was a former principal and officer of a NASD broker/dealer firm. Mr. Edson holds a Bachelor of Science Degree in Finance from Arizona State University.
Todd C. CrowJerry Dale Belt, has served as our Chief Financial Officerchief financial officer, chief accounting officer and executive vice president since October 2005. Mr. CrowJune 2010. He has also served as Vice President of Financeour secretary since December 2011. Mr. Belt is a certified public accountant, a certified turnaround professional, and Chief Financial Officer of The RiceX Company sincea certified insolvency and restructuring advisor with thirty years experience in finance and accounting in both public and private industry. He had been our financial advisor from November 1998 and as Secretary of The RiceX Company from January 19992009 to October 2005.June 2010. From September 19972008 through June 14, 2010, Mr. Belt served as managing director of restructuring for Sierra Consulting Group, a provider of turnaround, receivership, and consulting services. From 2002 through 2008, Mr. Belt served as managing director for FTI Consulting, Inc., a global business advisory firm. Mr. Belt began his restructuring career in 1999 with PricewaterhouseCoopers. Mr. Belt has consulted with companies ranging from startups to November 1998, Mr. Crow was Controller of The RiceX Company and from May 1996 to September 1997, he was The RiceX Company’s Chief Financial Officer.large multi-national enterprises. Prior to joining The RiceX Company,1999, Mr. CrowBelt served for 15 years in numerous senior management positions in privately held senior financial positions withenterprises. From 1978 to 1984, Mr. Belt spent 6 years in the Morning Star Group, an agri-business holding company, and Harter, Inc., a food-processing manufacturer.audit group of Coopers & Lybrand, conducting attestation services for large corporations.
Ike E. LynchColin Garner has served as our Chief Operating Officersenior vice president of sales since October 2005.September 2010. A seasoned sales and marketing professional, Mr. Lynch also currently serves as Chief Operating OfficerGarner brings 25 years of The RiceX Companysales experience in the technical food ingredients markets in the U.S., Canada, Latin America, Europe, Asia and Presidentthe Pacific Rim. Mr. Garner is responsible for leading our global sales initiatives for stabilized rice bran products. Over the course of his career, Mr. Garner has held several senior level positions with a number of recognized food ingredient manufacturers and Chief Operating Officerdistribution companies, most recently with Premium Ingredients International from 2009 to 2010, where he was director of RiceX Nutrients . From January 1997 through 2004, Mr. Lynch served as Vice Presidentbusiness development/sales. Previous positions include director of Operationsglobal business development for Kerry Ingredients & Flavors from 2007 to 2009 and International Business Development of The RiceX Company. In 2005, Mr. Lynch became Chief Executive Officer of The RiceX Company and served in that position until the RiceX/NutraCea merger. From 1966 through 1982, Mr. Lynch was employed by the H. J. Heinz Company in various management roles, culminating with the President and CEO position of the Hubinger Company, a subsidiary of Heinz. In 1982, Mr. Lynch left Heinz to become President and CEO of Dawn Enterprises LLC, specializing in Ethanol production and marketing. Mr. Lynch left Dawn Enterprises in 1989 to form Centennialvice president, Americas at Chaucer Foods Incorporated where he served as President and Chief Executive Officer until the acquisition of Centennial Foods by The RiceX Company in 1997.
Margie D. Adelman, was appointed Senior Vice President in January 2005 and Secretary of NutraCea in February 2005. From 2000 to 2004 Ms. Adelman owned and operated Adelman Communications, a full service public relations firm based in Boca Raton, Florida. From 1994 to 2000 Ms. Adelman was President of TransMedia Group, the largest public relations firm in Florida. Ms. Adelman holds a doctorate in Naturopathic Medicine from the Clayton School of Natural Medicine.
Kody K. Newland, has served as our Senior Vice President of Sales and Marketing since February 2006. From 1997 to 2006 Mr. Newland was a Vice President of Sales for American Modern Insurance Group Inc., a subsidiary of The Midland Company (Nasdaq: MLAN). From 1983 to 1997 Mr. Newland held various sales and marketing positions with the Foremost Corporation of America (now a division of the Zurich Company).
David Bensol,Goldman has served as one of our directors since March 2005. Mr. Bensol currently is President of Bensol Realty Corp and a management consultant. Mr. Bensol was the former CEO of Critical Home Care, which recently merged with Arcadia Resources, Inc. (AMEX: KAD) Mr. Bensol was the Executive Vice President and Director of Arcadia Resources from May 2004 until his resignation from those positions in December 2004. In 2000, Mr. Bensol founded what eventually became Critical Home Care, through a series of acquisitions and mergers. From 1979 to 1999 Mr. Bensol founded several public and private companies which became industry leaders in the areas of home medical equipment providers, acute care pharmacy providers and specialty support surface providers. Mr. Bensol received a BS Pharm. from St. Johns University, New York, and became a registered pharmacist in 1978.
James C. Lintzenich, has served as one of our directors since October 2005.2012. Mr. LintzenichGoldman, a certified public accountant, retired as a senior partner of Deloitte & Touche LLP (D&T) in 2001 after serving 35 years with that firm. During his career, Mr. Goldman specialized in serving SEC registrants, held the positions of partner-in-charge and senior technical partner of the Arizona audit practice, and served in D&T’s New York executive office, Los Angeles office and certain other offices. Since 2001, he has beenconsulted on, and performed investigations of, various accounting and financial matters, many involving public companies. He is a directorpast member of The RiceX Company since June 2003. Mr. Lintzenich has beenCouncil of the American Institute of CPAs and a management consult since April 2001. From August 2000 to April 2001 Mr. Lintzenichpast president of the Arizona Society of CPAs, among other executive board positions. In addition, he served as PresidentAudit Committee Chairman, Financial Expert, and Chief Operating Officermember of SLM Corporation (Sallie Mae), an educational loan institution. From December 1982 to July 2000, Mr. Lintzenich held various senior management and financial positions including Chief Executive Officer and Chief Financial Officer of USA Group, Inc., a guarantor and servicer of educational loans. Mr. Lintzenich currently serves on the Board of Directors of Swift Transportation from 2003 to 2006. He currently serves on the Lumina Foundation for Education.board of ML Liquidating Trust. Mr. Goldman obtained a bachelors degree in business administration and a masters of accounting degree from the University of Arizona. The Board believes that Mr. Goldman’s extensive experience as a CPA, outside board experience and business knowledge and financial expertise are the attributes, skills, experiences and qualifications that allow Mr. Goldman to make a valuable contribution as one of our directors.
Edward L. McMillanBaruch Halpern , has served as one of our directors since October 2005.January 2012. For more than 20 years, Mr. McMillanHalpern has been involved in equity research, advisory, capital raises, and has served as managing director of Halpern Capital, Inc., a boutique investment banking firm founded by Mr. Halpern in 2002. He has also held senior finance positions at major corporations. Since 2009, Mr. Halpern has been managing director of CrossCredit Capital, LLC, a firm focused on structured financial solutions, and since 2010 he has been managing director of Carbon Capital Advisors, LLC, a firm focused on green energy and carbon footprint amelioration. He is chairman and founder of Sustain:Green, a firm founded in 2012 offering financial products such as prepaid debit and credit cards designed to fight climate change. Prior to founding Halpern Capital in 2002, Mr. Halpern held various sell-side analyst positions. Additionally, he gained substantial buy-side experience as vice president and portfolio manager at Fred Alger & Co., an investment advisory firm. At Fred Alger & Co., Mr. Halpern served as a research group leader, managing a $1 billion portfolio with more than 600 companies in a broad range of industries. Mr. Halpern has an extensive corporate and industry background, having also held positions with Celanese Corporation and Beech-Nut, Inc. Mr. Halpern received his masters of business administration in finance from Baruch College. Mr. Halpern has been a directorCFA Charter holder since 1982 and holds numerous FINRA certifications. The Board believes that Mr. Halpern’s financial advisor and investment advisor experience, accounting and finance knowledge, and his detailed knowledge of The RiceX Company since July 2004. From January 2000our business structure and our products, are the attributes, skills, experiences and qualifications that allow Mr. Halpern to present Mr. McMillan owns and manages McMillan LLC.,make a transaction consulting firm which provides strategic consulting services and facilitates mergers and/or acquisitions predominantly to food and agribusiness industry sectors. From July 2004 to October 2005, Mr. McMillan was a director of The RiceX Company. From June 1969 to December 1987 he was with Ralston Purina, Inc. and Purina Mills, Inc. where he held various senior level management positions including marketing, strategic planning, business development, product research, and business segment management. From January 1988 to March 1996, McMillan was President and CEO of Purina Mills, Inc. From August 1996 to July 1997, McMillan presented a graduate seminar at Purdue University. From August 1997 to April 1999 he was with Agri Business Group, Inc. Mr. McMillan currently serves on the boards of directors of Balchem, Inc. (AMEX:BCP); Durvet, Inc.; Newco Enterprises, Inc.; CHB LLC.; and Hintzsche, Inc. Mr. McMillan also serves as Chair of the University of Illinois Research Park, LLC and the University of Illinois Alumni Association.
Patricia McPeak, founder of NutraCea and NutraStar Technologies, became a director in February 2000 where she served as Chairman and Chief Executive Officer until October 2005. In May 1989, Mrs. McPeak co-founded Food Extrusion, Inc. (The RiceX Company) and served as President and director until February 2000. Mrs. McPeak co-founded Brady International, Inc., a company engaged in developing stabilized rice bran and served as President and director until January 1989. Mrs. McPeak has extensive experience in the field of whole food complexes, protein, oil and ingredient production having served in the industry for 37 years.
Steven W. Saunders, has servedvaluable contribution as one of our directors since October 2005. Hedirectors. Mr. Halpern was appointed as a director of The RiceX Company from August 1998 to October 2005. Mr. Saunders has been President of Saunders Construction, Inc., a commercial construction firm, since February 7, 1991,in connection with the financing under our January 2012 note and President of Warwick Corporation, a business-consulting firm.warrant purchase agreement.
Kenneth L. ShropshireHenk W. Hoogenkamp , has served as one of our directors since April 2006.2012. Since 2006, Mr. ShropshireHoogenkamp has been an author and an independent management consultant to multiple companies, including us from time to time. From 1990 to 2006, Mr. Hoogenkamp served as a professorsenior director of strategic technology with Solae, a wholly owned subsidiary of DuPont. Mr. Hoogenkamp has authored eleven books on the importance of dairy protein and vegetable protein in formulated foods, beverages and meat products. He has published over 500 articles in 14 languages discussing protein ingredient solutions. Mr. Hoogenkamp is a member of several strategic and technology advisory boards to global food and ingredient companies. He previously served as the President of DMV-Campina USA, now Royal FrieslandCampina, the world's largest dairy protein operator. In December 1996, Mr. Hoogenkamp received an honorary doctoral degree from the Institute of Sports Medicine, in Bucharest, Romania, for his pioneering work on the effects of protein supplementation for elite sport performance. The Board believes that Mr. Hoogenkamp’s extensive knowledge of protein ingredient solutions, experience as a member of the strategic and technology advisory boards, network of contacts and relationships in this industry and his work experience, are the attributes, skills, experiences and qualifications that allow Mr. Hoogenkamp to make a valuable contribution as one of our directors. The investors in our January 2012 note and warrant financing had the right to designate one individual for the Board to consider appointing as a director on our Board. The investors designated Mr. Hoogenkamp, and after consideration and evaluation, the Board appointed Mr. Hoogenkamp as one of our directors.
Robert C. Schweitzer has served as a director and chairman of the board since October 2012. Mr. Schweitzer was formerly the president of Shay Investment Services Inc., a holding company consisting of a bank, an investment management company, and a broker-dealer. He served in that capacity from 2007 to 2012. From 2005 until 2007, Mr. Schweitzer was the Florida regional president of Northwest Savings Bank. Prior to 2005, he held numerous executive management positions at several banks and was also a director and head of real estate consulting for Coopers & Lybrand. He is currently chairman of the Wharton Schoolboard of PetMed Express, Inc. (PETS/NASDAQ) and serves on the board of directors of Altisource Asset Management (AAMC/NYSE) and OmniComm Systems, Inc. (OMCM/OTCQB). He also has served on the boards of three privately held companies and several not-for-profit entities. Mr. Schweitzer holds a master of business administration degree from the University of Pennsylvania since 1986; servingNorth Carolina, and a bachelor of science degree from the United States Naval Academy. He served in the United States Navy in the Nuclear Submarine Force and Navy Reserve for 30 years and retired with a rank of captain. The Board believes that Mr. Schweitzer’s extensive experience in the financial services and investment industries, outside board experience with public, privately held and not-for-profit entities and extensive business knowledge, are the attributes, skills, experiences and qualifications that allow Mr. Schweitzer to make a valuable contribution as a David W. Hauck professor since 2001, the chair of the Department of Legal Studies from 2000 to 2005, and the faculty director of the Sports Business Initiative since 2004. Mr. Shropshire is currently the president of the Sports Lawyers Association. Mr. Shropshire was of counsel at the law firm of Van Lierop, Burns & Bassett, LLP, from 1998 to 2004 and has been a practicing attorney in Los Angeles, California, focusing on sports and entertainment law. Mr. Shropshire has also taught coursework at the University of Pennsylvania School of Law, the University of San Diego School of Law and Southwestern University School of Law.
Board Composition
Our board of directors currently consists of 7 members. Mssrs. Bensol, Lintzenich, McMillan and Shropshire qualify as independent directors in accordance with the listing requirements of NASDAQ. The NASDAQ definition of independence includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees anddirectors.
Board Independence
Our securities are currently not listed on a national securities exchange or in an inter-dealer quotation system which has requirements that neitherdirectors be independent. However, our Board of Directors (the “Board”) annually determines the independence of each director, nor any of his family members, has engaged in various types of business dealings with us. In addition, as further required bybased on the NASDAQ rules, our board of directors has made a subjective determination as to each independent director that no relationships exist that,independence criteria set forth in the opinionlisting standards of our boardthe Marketplace Rules of directors, would interfere with his exercise of independent judgment in carrying out the responsibilities of a director.NASDAQ. In making theseits determinations, our directors reviewedthe Board considers all relevant facts and discussedcircumstances brought to its attention as well as information provided by the directors and us with regard toa review of any relevant transactions or relationships between each director’s businessdirector or any member of his or her family, and personal activities as they may relate to usthe Company, its senior management or our independent registered public accounting firm. Based on its review, the Board determined that each of Messrs. Goldman and our management.Schweitzer is independent under the NASDAQ criteria for independent board members.
Board Committees
Our directors are elected annually and hold office until their successors have been elected or qualified or until the earlier of their death, resignation, retirement, disqualification or removal. The remaining directors, though less than a quorum, may fill board vacancies, and persons elected to fill vacancies serve until the next annual meeting of shareholders unless they die, resign or are removed.Audit Committee
There are no family relationships among our directors and executive officers.
Board Committees
Audit Committee
The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, assists the full Board of Directors in its general oversight of our financial reporting, internal controls, and audit functions, and is directly responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm. OurThe members of the Audit Committee consistsare David Goldman, Baruch Halpern and Robert C. Schweitzer. Each of Jim Lintzenich, David BensolMessrs. Goldman and Ed McMillan, each anSchweitzer is independent director as defined under Rule 10A-3(b)(i) under the Securities and Exchange Act of 1934, as well as the listingNasdaq’s independence standards of NASDAQ. Our board of directorsfor audit committee members. The Board has determined that each of Mr. Lintzenich meets the requirements ofGoldman and Mr. Schweitzer is an “audit committee financial expert” under applicable federal securities laws and regulations, and has, as defined by the “financial sophistication” required underrules of the listing standardsSEC. The charter of NASDAQ.the Audit Committee is available on our website at www.ricebrantech.com on the Investor Relations page.
Compensation Committee
The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our executive officers and recommends to the Board of Directors stock option grants for our executive officers. The current members of the Compensation Committee are David Bensol, chairman, JamesGoldman, Baruch Halpern and Robert C. LintzenichSchweitzer. Each of Messrs. Goldman and Kenneth L. Shropshire, each an “independent” director as definedSchweitzer is independent under Nasdaq’s independence standards for compensation committee members. Our chief executive officer often makes recommendations to the rulesCompensation Committee and the Board concerning compensation of NASDAQ.other executive officers. The Compensation Committee seeks input on certain compensation policies from the chief executive officer. The charter of the Compensation Committee is available on our website at www.ricebrantech.com on the Investor Relations page.
GovernanceNominating and NominatingGovernance Committee
The GovernanceNominating and NominatingGovernance Committee is responsible for matters relating to the corporate governance of our companyCompany and the nomination of members of the boardBoard and committees thereof. The current members of the GovernanceNominating and NominatingGovernance Committee are David Bensol, Ed McMillanGoldman, Baruch Halpern, Henk W. Hoogenkamp and Kenneth L. Shropshire, each an “independent” director as definedRobert C. Schweitzer. Mr. Schweitzer is independent under Nasdaq’s independence standards. The charter of the rules of NASDAQ.Nominating and Governance Committee is available on our website at www.ricebrantech.com on the Investor Relations page.
CompensationExecutive Committee Interlocks and Insider Participation
No memberThe primary function of the compensation committee simultaneously served both as a memberExecutive Committee is to exercise the power and authority of the compensation committee andBoard as an officer or employee of oursmay be necessary during 2006. None of our executive officers serves as a memberthe intervals between meetings of the board of directorsBoard, subject to such limitations as are provided by law or the compensation committee, or committee performing an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. Prior to the formationby resolution of the compensation committee in May, 2006, our boardBoard. The members of directors as a whole made decisions relating to the compensation of our executive officers.Executive Committee are David Goldman, Robert C. Schweitzer and W. John Short. There is no charter for the Executive Committee.
Strategic Committee
On April 9, 2013, the Board established a Strategic Committee. The primary functions of the Strategic Committee are to actively engage with management on strategic planning and to review and evaluate potential strategic transactions, with the goal of improving our performance and shareholder value. The members of the Strategic Committee are David Goldman and Robert C. Schweitzer, each of whom is independent under Nasdaq’s independence standards. There is no charter for the Strategic Committee.
Code of Business Conduct and Ethics
Our board of directors has approved and we have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. Any waivers of any provision of this code for our directors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of this code for an employee or a representative may be granted only by our chief executive officer or principal accounting officer. We will provide any person, without charge, a copy of this Code. Requests for a copy of the Codecode may be made by writing to NutraCeaRiceBran Technologies at 1261 Hawk’s Flight Court, El Dorado Hills, California 95762,6720 N. Scottsdale Road, Suite 390, Scottsdale, Arizona 85253, Attention: Chief Financial Officer.
48
Executive Compensation
Compensation Discussion and Analysis
General
Our compensation arrangements with all but one person who served as our executive officers for all or part of 2006 reflect the individual circumstances surrounding the applicable executive officer’s hiring or appointment. For example, Todd C. Crow and Ike E. Lynch, who became our executive officers at the time we acquired The RiceX Company, or RiceX, in October 2005, were parties to employment agreements with RiceX at the time of the acquisition. We assumed these employment contracts in connection with the acquisition. Similarly, our current compensation arrangements for Brad Edson and Margie Adelman are based upon objective formula contained in employment agreements that we entered into with them in December 2004 and January 2005, respectively. We did not have a compensation committee when we entered into employment agreements with any of our executive officers. Each of their compensation arrangements were approved by our board of directors.
2006 Grants Of Plan-Based Awards
Set forth in the table below is information regarding asOn July 7, 2010, we granted Mr. Short an additional stock option award grantedunder our 2010 Equity Incentive Plan to purchase 5,000,000 shares of common stock at an named executive officer in 2006.exercise price of $0.20 per share. This stock option grand represents all ofvested as follows: (i) 1,000,000 shares n vested on July 7, 2010 (ii) 1,000,000 shares vested on the grants of awards to our named executive officers under any plan during or with respect to 2006.
Name | | Grant Date | | All Other Option Awards: # of Shares Underlying Options | | Exercise Price of Options ($/Sh) | | Close Price on Grant Date ($/Sh) | | Grant Date Fair Value of Option Awards | |
| Kody Newland | | | 2/27/2006 | | | 500,000 | | $ | 1.00 | | $ | 1.02 | | $ | 505,512 | |
The fair market value that is used to determinePlan Effective Date and (iii) the exercise price for option grants is the closing price of the Company’s stockremaining 3,000,000 shares will vest in equal monthly installments on the last market trading day priorof each month over the 48 month period commencing the month following the Plan Effective Date.
On July 15, 2011, we amended the agreement to provide that 20% of Mr. Short’s salary for the last six months of 2011 be paid in stock options instead of cash. Mr. Short received stock options to purchase up to 715,110 shares at an exercise price equal to $0.20 per share which vested and became exercisable in installments during 2011. The option expired as to 392,494 of the underlying shares on July 15, 2012 and 204,595 of the underlying shares on July 15, 2013. The option will expire as to the grant date as reportedremaining 118,021 of the underlying shares on the OTC Bulletin Board. TheJuly 15, 2014.
In 2012, Mr. Short received 90% of his salary under his employment agreement in cash. On April 25, 2012, Mr. Short was granted a stock option granted to Mr. Newland during 2006 expirespurchase up to 343,787 shares of common stock at an exercise price equal to $0.12 per share. The option vested as to 25% of the underlying shares on December 31, 2015April 25, 2012, and the shares subject to the object vest as to 20%remainder vested in installments through 2012. The fair value of the sharesoption on the date of grant and vest as toequaled 10% of Mr. Short’s salary. In December 2012, the shares atexercise price on all outstanding options held by Mr. Short was lowered from $0.20 per share to $0.08 per share.
For a description of the endtermination and change in control provisions of each successive calendar quarterMr. Short’s employment agreement, see “Termination and Change in Control Arrangements”.
Jerry Dale Belt, Chief Financial Officer and Secretary
On June 8, 2010, we entered into an employment agreement with Mr. Belt. Mr. Belt’s term of employment extends through June 1, 2014. Pursuant to the employment agreement, we agreed to pay Mr. Belt an annual salary of $230,000 which Mr. Newland remains a service provider for us. We adopted SFAS 123(R)increased to $255,000 on January 1, 2006,2011. Mr. Belt may be eligible to earn an annual bonus each year up to 50% of his annual salary and a discretionary bonus each year as determined by our Board or Compensation Committee. No bonuses were earned for 2012 or 2011. In connection with his employment, we granted to Mr. Belt a stock option under our 2010 Equity Incentive Plan to purchase 2,500,000 shares of common stock at a price per share equal to $0.20. This stock option vested as follows: (i) 500,000 shares vested on June 15, 2010, (ii) 500,000 shares vested on the date the Bankruptcy Court entered an order approving and confirming our plan of reorganization, which was October 27, 2010 and (iii) 31,250 shares vest each month for 48 months ending October 27, 2014.
On July 15, 2011, we amended the employment agreement with Mr. Belt to provide that 20% of his salary for the last six months of 2011 be paid in stock options instead of cash. Mr. Belt received stock options to purchase up to 486,274 shares at an exercise price equal to $0.20 per share which vested and became exercisable in installments during 2011. The option expired as to 266,896 of the underlying shares expired on July 15, 2012 and as to 139,124 of the underlying shares on July 15, 2013. The option will expire as to the remaining 80,254 of the underlying shares on July 15, 2014.
On February 14, 2012, we modified the termination and change in control provisions of Mr. Belt’s employment agreement. For a description of the termination and change in control provisions of Mr. Belt’s employment agreement, see Note 13“Termination and Change in Control Arrangements”.
In 2012, Mr. Belt received 90% of his salary under his employment agreement in cash. On April 25, 2012, we granted Mr. Belt a stock option to our Consolidated Financial Statements contained elsewherepurchase up to 233,755 shares of common stock at an exercise price equal to $0.12 per share. The option vested as to 25% of the underlying shares on April 25, 2012, and the remainder vested in this prospectus.installments through 2012. The grant date fair value of the option on the date of grant equaled 10% of Mr. Belt’s salary. In October 2012, the exercise price on all outstanding options held by Mr. Belt was lowered from $0.20 per share to $0.08 per share.
Colin Garner, Senior Vice President of Sales
Colin Garner was appointed our Senior Vice President of Sales effective September 1, 2010. In connection with his appointment, we entered into an employment agreement with Mr. Garner on September 1, 2010. The agreement terminated September 1, 2012. Under the agreement we agreed to pay Mr. Garner an annual salary of $180,000 which would have increased to $200,000 on January 1, 2012 if Mr. Garner achieved certain sales targets that were approved by our Board. These targets were not met. Mr. Garner was eligible under the agreement to earn an annual bonus each year up to 50% of his annual salary and a discretionary bonus each year as determined by our Board or the Compensation Committee. No bonuses were earned for 2012 or 2011.
Under the terms of the agreement, Mr. Garner was eligible for reimbursement of up to $15,000 of actual moving expenses and reimbursement of up to $1,000 per month in temporary housing cost for up to nine months. Subsequently the temporary housing reimbursements were extended until March 2012.
On September 1, 2010, we granted Mr. Garner a stock option under our 2010 Equity Incentive Plan, expiring September 1, 2020, to purchase 1,000,000 shares of common stock at a price per share equal to $0.20. The option vests as to 20,833 shares each month for 48 months ending August 31, 2014.
On July 15, 2011, we entered into an amendment to the employment agreement with Mr. Garner to provide that 20% of his salary for the last six months of 2011 be paid in stock options instead of cash. Mr. Garner received stock options to purchase up to 343,252 shares, at an exercise price equal to $0.20 per share, which vested and became exercisable in installments during 2011. The option expired as to 188,397 of the underlying shares on July 15, 2012 and as to 98,205 of the underlying shares on July 15, 2013. The option expires as to the remaining 56,650 of the underlying shares on July 15, 2014.
In 2012, Mr. Garner received 83.4% of his salary under his employment agreement in cash. On April 25, 2012, we granted Mr. Garner a stock option to purchase up to 275,030 shares of common stock at an exercise price equal to $0.12 per share. The option vested as to 25% of the underlying shares on April 25, 2012, and the remainder vested in installments through 2012. The fair value of the option on the date of grant equaled 16.6% of Mr. Garner’s salary. In October 2012, the exercise price on all outstanding options held by Mr. Garner was lowered from $0.20 per share to $0.08 per share.
Equity Compensation Arrangements
2005 Equity Incentive Plan
The Board adopted the 2005 Equity Incentive Plan (2005 Plan) in May 2005 and our shareholders approved the 2005 Plan in September 2005. Under the terms of the 2005 Plan, we could grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to us on such terms as are determined by the Board. A total of 10,000,000 shares of common stock were reserved for issuance under the 2005 Plan. During 2012, no grants were made under the 2005 Plan. As of December 31, 2012, options to purchase a total of 7,396,250 shares were outstanding. In 2012, the Board determined that no additional grants will be made under the 2005 Plan.
Our Board administered the 2005 Plan, determined vesting schedules on plan awards is calculated usingand can accelerate their schedules for award recipients. Options granted under the Black-Scholes valuation model using2005 Plan have terms of up to 10 years.
2010 Equity Incentive Plan
The Board adopted our 2010 Equity Incentive Plan (2010 Plan) in February 2010. A total of 25,000,000 shares of common stock were initially reserved for issuance under the following assumptions:2010 Plan. The amount reserved increases annually each January 1st by 5% of the outstanding shares as of the prior December 31st. Additionally, in 2011 the Board approved an 8,000,000 share increase in the number of shares of common stock reserved under the 2010 Plan. Under the terms of the 2010 Plan, we may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services on such terms as are determined by the Compensation Committee. The Compensation Committee administers the 2010 Plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients. The options granted under the 2010 Plan have terms of up to 10 years. As of December 31, 2012, 17,796,950 shares were available for future issuance under the 2010 Plan.
Assumption
| | RateDecember 31,
2012 | |
Average risk free interest rate | | | |
| Initially reserved | | | 4.625,000,000 | % |
Average expected term (years)Additionally reserved - annual increases | | | 5.819,831,186 | |
Average expected volatilityAdditionally reserved - board action | | | 2148,000,000 | % |
Outstanding Equity Awards As Of December 31, 2006
The following table provides information as of December 31, 2006 regarding unexercised stock options held by each of our named executive officers.
| | | Outstanding Equity Awards at 12/31/06 | |
Name | | # of Securities Underlying Unexercised Options (# Exerciseable) | | # of Securities Underlying Unexercised Options (# Unexerciseable) (*) | | Option Exercise Price ($/sh) | | Option Expiration Date | |
| Brad Edson | | | 6,000,000 | | | — | | $ | 0.30 | | | 12/16/2014 | |
| Todd Crow(1) | | | 46,079 | | | — | | | 0.30 | | | 10/04/2008 | |
| | | | 38,399 | | | — | | | 0.30 | | | 10/04/2008 | |
| | | | 691,191 | | | — | | | 0.30 | | | 10/31/2009 | |
| | | | 76,799 | | | — | | | 0.30 | | | 9/21/2011 | |
| | | | 38,399 | | | — | | | 0.30 | | | 9/21/2011 | |
| | | | 38,399 | | | — | | | 0.30 | | | 1/28/2012 | |
| | | | 95,998 | | | — | | | 0.30 | | | 1/02/2012 | |
| | | | 425,662 | | | 112,016 | | | 0.30 | | | 3/31/2015 | |
| Ike Lynch(2) | | | 691,191 | | | — | | | 0.30 | | | 10/31/2009 | |
| | | | 30,719 | | | — | | | 0.30 | | | 9/09/2008 | |
| | | | 76,799 | | | — | | | 0.30 | | | 9/09/2008 | |
| | | | 95,998 | | | — | | | 0.30 | | | 1/02/2012 | |
| | | | 446,941 | | | 117,616 | | | 0.30 | | | 3/31/2015 | |
| Margie Adelman(3) | | | 1,000,000 | | | — | | | 0.30 | | | 1/24/2015 | |
| | | | | | | 1,000,000 | | | 0.30 | | | 1/24/2015 | |
| Kody Newland(4) | | | 300,000 | | | 200,000 | | | 1.00 | | | 12/31/2015 | |
_______________
(1)Options granted since inception, net of forfeited, expired or cancelled | For
| | (22,977,927 | ) |
| Stock granted since inception | | | (12,056,309 | ) |
Available for issuance under the option expiring on March 31, 2015, one half of the shares subject to the option vested upon grant and 1/36th of the shares vest monthly over three years |
(2)2010 Plan | For the option expiring on March 31, 2015, one half of the shares subject to the option vested upon grant and 1/36th of the shares vest monthly over three years
|
(3) | The unexerciseable option vests as to all 1,000,000 shares when NutraCea achieves annual gross sales of at least $25,000,000 and a positive EBITDA, disregarding noncash charges, over the same period. |
(4) | 100,000 of the shares subject to the option vested upon grant and 50,000 shares vest each calendar quarter thereafter17,796,950 | |
2006 Option Exercises and Stock Vested
In 2006, none of our named executive officers exercised any stock options or similar awards we granted to them, nor did any stock or similar award granted by us to any of our named executive officers vest.
Pension Benefits
None of our named executive officers are covered by a pension plan or other similar benefit plan that provides for payments or other benefits at, following, or in connection with retirement.
Nonqualified Deferred Compensation
None of our named executive officers are covered by a defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Outstanding Equity Awards
Potential Payments Upon The following table provides information as of December 31, 2012, regarding equity awards held by each of our named executive officers.
| | | | Option Awards | |
| | | | # of Securities Underlying Unexercised Options (# Exercisable) | | | # of Securities Underlying Unexercised Options (# Un-exercisable) | | | Equity Incentive Plan Awards: # of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise | | Option | |
| W. John Short | | | | 5,000,000 | | | | - | | | | - | | | | 0.08 | | 7/5/2019 | |
| | | | | 2,000,000 | | | | - | | | | - | | | | 0.08 | | 7/7/2020 | |
| (1 | ) | | | 1,562,500 | | | | 1,437,500 | | | | - | | | | 0.08 | | 7/7/2020 | |
| (4 | ) | | | 204,595 | | | | - | | | | - | | | | 0.08 | | 7/15/2013 | |
| (4 | ) | | | 118,021 | | | | - | | | | - | | | | 0.08 | | 7/15/2014 | |
| (5 | ) | | | 343,787 | | | | | | | | | | | | 0.08 | | 4/25/2022 | |
| | | | | | | | | | | | | | | | | | | | |
| Jerry Dale Belt | | | | 1,000,000 | | | | - | | | | - | | | | 0.08 | | 6/15/2020 | |
| (2 | ) | | | 812,500 | | | | 687,500 | | | | - | | | | 0.08 | | 6/15/2020 | |
| (4 | ) | | | 139,124 | | | | - | | | | - | | | | 0.08 | | 7/15/2013 | |
| (4 | ) | | | 80,254 | | | | - | | | | - | | | | 0.08 | | 7/15/2014 | |
| (5 | ) | | | 233,775 | | | | | | | | | | | | 0.08 | | 4/25/2022 | |
| | | | | | | | | | | | | | | | | | | | |
| Colin Garner | (3 | ) | | | 583,333 | | | | 416,667 | | | | - | | | | 0.08 | | 9/1/2020 | |
| (4 | ) | | | 188,397 | | | | - | | | | - | | | | 0.08 | | 7/15/2013 | |
| (4 | ) | | | 56,650 | | | | - | | | | - | | | | 0.08 | | 7/15/2014 | |
| (5 | ) | | | 275,030 | | | | | | | | | | | | 0.08 | | 4/25/2022 | |
| (1) | Shares underlying the option vest and become exercisable monthly in equal installments over the 48 months ending November 30, 2014. |
| (2) | Shares underlying the option vest and become exercisable monthly in equal installments over the 48 months ending October 27, 2014. |
| (3) | Shares underlying the option vest and become exercisable monthly in equal installments over the 48 months ending August 31, 2014. |
| (4) | Awards granted in lieu of salary for 2011. |
| (5) | Awards granted in lieu of salary for 2012. |
Termination orand Change in Control Arrangements
We have entered into employment agreements with certain of our named executive officersMr. Short and Mr. Belt that require us to make paymentsprovide compensation to them upon termination of their employment with us or a change in control of NutraCea. These arrangements are discussed below.
Brad Edson
The compensation due Mr. Edson in the eventCompany. Regardless of the terminationmanner in which their employment terminates, they will be entitled to receive amounts earned during the term of his employment agreement with us varies depending on the nature of the termination.
Resignation for Good Reason. In the event the agreement is terminated by reason of Mr. Edson’s resignation for “good reason,” Mr. Edson is entitled to:their employment. Such amounts include:
| · | 100%the portion of histheir current annual base salary and bonuses which have accrued through the enddate of the term of the agreement, but no less than the base salary paid to him in the previous 12 months, to be paid immediately following termination; |
| · | vested stock options; and |
| · | immediate payment for accrued but unused vacation time; andvacation. |
| · | vesting of all his unvested stock options. |
“Good Reason” is defined as (i)In addition, immediately before a Change of Control Transaction, all stock options granted pursuant to the assignment to Mr. Edson of duties that are inconsistent with his position2010 Plan will vest and nature of employment, (ii)become fully exercisable. Under the reduction of the duties which are inconsistent with his position and nature of employment, (iii) a change in Mr. Edson’s title, (iv) a reduction in Mr. Edson’s compensation and benefits, (v) a successor company not agreeing to assume the agreement or (vi)2010 Plan, a “Change of Control.”
UnderControl Transaction” means the agreement, a “Changeoccurrence of Control” is defined asany of the following events: (i) a mergerany person becomes the beneficial owner, directly or consolidation approved by our shareholders in which shares possessingindirectly, of securities of the Company representing fifty percent (50%) or more than 50% of the total combined voting power ofrepresented by our outstanding stock are transferred to a person or persons different from the persons holding those shares immediately before such merger or consolidation,then-outstanding voting securities; (ii) the transfer of more than 50%consummation of the total combined voting power of our outstanding stock to a personsale or persons different fromdisposition by the persons holding those shares immediately before such transaction, or (iii) the sale, transfer or other dispositionCompany of all or substantially all of our assetsits assets; or (iii) the consummation of a merger or consolidation of the Company or a subsidiary with another corporation or any other entity, other than a merger or consolidation which results in our complete liquidationvoting securities of the Company outstanding immediately prior thereto continuing to represent at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or dissolution.
If Mr. Edson had resigned for good reason on December 31, 2006, Mr. Edson would have been entitled to receivesuch surviving entity or its parent outstanding immediately an aggregate of $304,561, consisting of $275,000 relating to his remaining salary under the agreement and $29,561 for unused vacation time. All of Mr. Edson’s stock options were vested as of December 31, 2006.
Permanent Disabilityafter such merger or Death. In the event the agreement is terminated by reason of Mr. Edson’s “permanent disability” or death, Mr. Edson is entitled to:
| · | six months of his base salary payable on regular periodic installments; |
| · | any incentive compensation through the end of the fiscal year; and |
| · | immediate payment for accrued but unused vacation time. |
| · | vesting of all his unvested options |
consolidation.
In addition to the consideration described above, the amount of compensation payable to each of Mr. Short and Mr. Belt following termination or a change of control is discussed below.
W. John Short
Termination for Disability. In the event we terminate Mr. Short’s employment because of his Disability, Mr. Short is entitled to a lump sum cash payment equal to all reasonable moving expenses incurred by Mr. Short to relocate his family and personal possessions to Bend, Oregon.
“Permanent disability”Disability” is defined as Mr. Edson’sShort’s substantial inability to carry on substantially all ofperform his normal duties and obligations under the agreementthis Agreement for a continuous period of one hundred eighty (180)90 days or longer, or for 120 days or more in any 12-month period, due to accident, illnessa physical or othermental disability.
If Mr. Edson had been terminated on December 31, 2006, as a result of his permanent disability or death, Mr. Edson would have received an aggregate of $167,061, consisting of $137,500 for base salary that is payable on a bi-weekly basis over a period of six (6) months from the date of termination and $29,561 for unused vacation time that is payable upon termination. Edson was entitled to no incentive compensation for 2006. All of Mr. Edson’s stock options were vested as of December 31, 2006.
ResignationTermination Without Cause, for Good Reason, and TerminationNon-renewal of Employment Agreement, for Cause.Death or for Work Related Disability. In the event the agreementMr. Short’s employment is terminated (i) by reasonus other than for “cause”, (ii) because we elect to not renew his employment agreement at the end of its term, (iii) Mr. Edson’s resignation withoutShort terminates his employment for “good reason”, (iv) due to Mr. Short’s death or for “cause,”(v) due to Mr. Edson isShort’s “work related disability”, Mr. Short shall be entitled to:
| · | any and all earned but unpaida cash lump sum payment equal to the greater of (i) the base salary and anyannual bonuses that Mr. Short would have been paid had he remained employed for the remainder of the then current term or (ii) the base salary and all earned but unpaid incentive compensation asannual bonuses that Mr. Short would have been paid if he remained an employee for 12 months following the date of termination (such amount, the “Short Severance Payment”); |
| · | his option to purchase a total of 5,000,000 shares of common stock, expiring July 5, 2019, immediately vests in full and remains exercisable for 2 years following the date of termination; and |
| · | immediate payment for accrued but unused vacation time. |
“Cause” is defined as (i) the conviction of a felony, a crime involving moral turpitude causing material harm to our standing and reputation or fraud against us.
If Mr. Edson has resigned without good reason or was terminated for cause on December 31, 2006, Mr. Edson would have been entitled to receive an aggregate of $29,561 for unused vacation time, payable upon termination.
Termination Without Cause. In the event the agreement is terminated by reason of Mr. Edson’s termination without “cause,” Mr. Edson is entitled to:
| · | 100% of his base salary through the end of the term of the agreement, but no less than the base salary paid to him in the previous 12 months, to be paid immediately following termination; |
| · | all incentive compensation through the end of the term of the agreement; |
| · | immediatea cash lump sum payment for accrued but unused vacation time; and |
| · | vesting of all his unvested stock options. |
If Mr. Edson had been terminated on December 31, 2006, without cause, Mr. Edson would have been entitled to receive immediately an aggregate of $304,561, consisting of $275,000 relating to his remaining salary under the agreement and $29,561 for unused vacation time. Assuming our financial results in 2007 are the same as 2006, Mr. Edson would not be entitled to incentive compensation. Accordingly, we did not include the effect of potential incentive compensation payments that could be earned in 2007 if Mr. Edson were terminated without cause. All of Mr. Edson’s stock options were vested as of December 31, 2006.
Margie Adelman
The compensation due Ms. Adelman in the event of the termination of her employment agreement with us varies depending on the nature of the termination.
Termination Without Cause. In the event the agreement is terminated by reason of Ms. Adelman’s termination without “cause,” Ms. Adelman is entitled to:
| · | an amount equal to 12 months of her then base salary,all reasonable moving expenses incurred by Mr. Short to be paid immediately following termination; |
| · | anyrelocate his family and all earned but unpaid base salary and benefits as of the date of termination; and |
| · | payment for accrued but unused vacation time.personal possessions to Bend, Oregon. |
“Cause” is defined as (i) a determination bymaterial breach of the boardterms of directors that Ms. Adelmanhis employment agreement, which remains uncured for 30 days after written notice of the breach is delivered to Mr. Short, (ii) Mr. Short has been grossly negligent or has engaged in material willful or gross misconduct in the performance of herhis duties, and we have filed a civil lawsuit against her for the same claims, (ii) Ms. Adelman(iii) Mr. Short has takencommitted, as determined by our Board in good faith, or failed to take any actions such that such action or failure constitutes legal cause for termination under California law, (iii) Ms. Adelman has been convicted by a court of law of fraud, moral turpitude, embezzlement, theft, or dishonesty or other criminal conduct or any felony, (iv) Ms. Adelman having materially breached the terms of her employment agreement and not cured the breach in 10 days after receipt of written noticeMr. Short habitually misuses alcohol, drugs, or any controlled substance, or (v) Ms. Adelman having failed to meet written standards establishedMr. Short breaches his proprietary information agreement with us.
“Good Reason” is defined as (i) any material breach by us for performanceof Mr. Short’s employment agreement; (ii) a material reduction of his duties or responsibilities, or the assignment of duties andor responsibilities to Mr. Short that are not cured this failure within 10 days after receiptconsistent or commensurate with his position as chief executive officer or (iii) any reduction of written notice.Mr. Short’s base salary.
If Ms. Adelman had“Work-Related Disability” shall mean that Mr. Short, due to a physical disability that arises out of or is incurred in connection with his employment, has been terminated on December 31, 2006, without cause, Ms. Adelman would have been entitledsubstantially unable to receive immediately an aggregateperform his duties under this Agreement for a continuous period of $167,353, consisting of $155,400 twelve months of base salary and $11,95390 days or longer, or for accrued vacation time.120 days or more in any 12 month period; provided, that a “Work-Related Disability” shall not include a disability arising from, or resulting from, stress, mental, nervous, behavioral or emotional disorders, or related conditions or from alcohol, drug, or controlled substance abuse or misuse.
Termination for Causein Connection With a Change of Control.. In the event Ms. Adelmanthat Mr. Short resigns or is terminated for “cause”within 60 days before and 90 days after a Change of Control (as defined below), Ms. Adelman isMr. Short shall be entitled to:
| · | a cash lump sum payment equal to the Short Severance Payment; |
| · | anyhis options to purchase a total of 5,000,000 shares of common stock, expiring July 5, 2019, shall immediately vest in full and all earned but unpaid compensation as ofremain exercisable for 2 years following the date of termination; and |
| · | immediate payment for accrued but unused vacation time. |
If Ms. Adelman was terminated for cause on December 31, 2006, Ms. Adelman would have been entitled to receive an aggregate of $11,953 for unused vacation time, payable upon termination.
Disability. In the event the agreement is terminated by reason of Ms. Adelman’s “disability,” Ms. Adelman is entitled to:
| · | twelve months of his base salary payable in a lump sum; |
| · | continued benefits for six months following termination; and |
| · | immediate payment for accrued but unused vacation time. |
Under the agreement, Ms. Adelman is considered “disabled” if she is incapable of substantially fulfilling her duties because of physical, mental or emotional incapacity from injury, sickness or disease for a period of three (3) months in a twelve month period.
If Ms. Adelman had been terminated on December 31, 2006, as a result of her disability, Ms. Adelman would have received aggregate amounts of $169,831, consisting of $155,400 for twelve months of base salary, $11,953 for accrued vacation time and $2,478 for health insurance benefits. We estimate that it will cost us $2,478 in premiums to maintain Ms. Adelman’s health insurance for a six month period. .| · | a cash lump sum payment equal to all reasonable moving expenses incurred by Mr. Short to relocate his family and personal possessions to Bend, Oregon; and |
| · | a cash lump sum payment equal to the difference between (i) two times the sum of Mr. Short’s base salary and target bonus level for the year in which the termination occurs and (ii) an amount equal to the Short Severance Payment. |
“Change of Control” is defined as the occurrence of any of the following events: (i) the consummation of a merger or consolidation of the Company with any other entity which results in the voting securities of the Company outstanding immediately prior thereto failing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) the sale, mortgage, lease or other transfer in one or more transactions not in the ordinary course of business of assets or earning power constituting more than fifty percent (50%) of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any such person or group of persons.
Jerry Dale Belt
Todd Crow
The compensation due Mr. Crow in the event of the termination of his employment agreement with us or a change of control varies depending on the nature of the termination.
Termination Without Cause,. In the event the agreement is terminated by reason for Non-renewal of Mr. Crow’s termination without “cause,” Mr. Crow is entitled to the greater of (i) Mr. Crow’s monthly base salary times the number of months remaining on the terms of the agreementEmployment Agreement, for Good Reason, or (ii) one year of Mr. Crow’s base salary.Death
“Cause” is defined as (i) Mr. Crow’s willful and continued failure substantially to perform his duties and obligations under the agreement after written demand for substantial performance has been delivered to him by us which sets forth with reasonable specificity the deficiencies in Mr. Crow’s performance and giving Mr. Crow at least thirty (30) days to correct such deficiencies; (ii) Mr. Crow committing fraud or making intentionally material misrepresentations, (iii) Mr. Crow’s unauthorized disclosure or use of our trade secrets or confidential information; (iv) Mr. Crow’s conviction of a felony; (v) theft or conversion of our property by Mr. Crow; or (vi) Mr. Crow’s habitual misuse of alcohol, illegal narcotics, or other intoxicant.
If Mr. Crow had been terminated on December 31, 2006, without cause, Mr. Crow would have been entitled to receive immediately an aggregate of $284,900.
Termination for Cause, voluntary resignation, death or disability. In the event Mr. CrowBelt’s employment is terminated (i) by us other than for “cause,”Cause, (ii) because we elect to not renew his employment agreement at the end of its term, (iii) by Mr. Belt for Good Reason, or (iv) due to Mr. Belt’s death, “disability” or if he voluntarily resigns, Mr. Crow isBelt shall be entitled to:
| · | any and all earned but unpaid compensation as of the date of termination; and |
| · | immediate payment for accrued but unused vacation time. |
Underto a cash lump sum payment in an amount equal to the agreement,base salary that Mr. Crow is considered “disabled” if he is incapable of substantially fulfilling his duties because of physical, mental or emotional incapacity from injury, sickness or disease, despite reasonable accommodation by Employer, for a period exceeding three (3) months.
If Mr. Crow was terminated for cause on December 31, 2006, Mr. CrowBelt would have been entitled to receive an aggregate of $2,002paid had he remained employed for unused vacation time, payable upon termination.
Termination in Connection with a Change in Control. In the event that this agreement is terminated by reason of Mr. Crow’s termination as a result of a “change in control” and Mr. Crow is not employed in the same capacity or being paid the same base salary by the successor entity, Mr. Crow is entitled to:
| · | the greater of (i) two years of base salary or (ii) the base salary remaining to be paid through the term of the agreement; |
| · | continued medical and dental benefits for two years after the change of control; and |
| · | payment for accrued but unused vacation time. |
In addition, Mr. Crow holds a stock option for 500,000 shares that vests as to all unexercised in the event of a change of control.
A “change in control” is defined in the agreement as (i) a merger or acquisition in which we are not the surviving entity, except for (a) a transaction the principal purpose of which is to change the state of our incorporation, or (b) a transaction in which our shareholders immediately before such transaction hold, immediately after such transaction, at least 50% of the voting power of the surviving entity; (ii) a shareholder approved sale, transfer or other disposition of all or substantially all of our assets; (iii) a transfer of all or substantially all of our assets pursuant to a partnership or joint venture agreement or similar arrangement where our resulting interest is less than fifty percent (50%); (iv) any reverse merger in which we are the surviving entity but in which fifty percent (50%) or more of our outstanding voting stock is transferred to holders different from those who held the stock immediately before such merger; (v) a change in ownership of our stock through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of our stock representing fifty percent (50%) or more of the voting power of our outstanding stock; or (vi) a majority of the members of our board of directors are replaced during any twelve (12) month180 day period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors beforefollowing the date of such appointment of election.
If Mr. Crow had been terminated on December 31, 2006, by reason of Mr. Crow’shis termination as a result of a change in control and Mr. Crow was not employed in the same capacity or being paid the same base salary by the successor entity, Mr. Crow would have been entitled to receive an aggregate of $586,878, consisting of $310,800 for 2 years of base salary, $17,560 for the cost of health and dental insurance premiums, $2,002 for accrued vacation benefits and $256,516 for the benefit of accelerating the vesting of Mr. Crow’s unvested stock option. The benefit to Mr. Crow of the acceleration of his stock option was calculated by multiplying the number of unvested shares underlying the stock option at December 31, 2006 (112,016) by the difference between the closing price of our common stock on the trading day immediately before December 31, 2006 ($2.59) and the per share exercise price of the stock option ($0.30)(the “Belt Severance Payment”).
Ike Lynch
The compensation due Mr. Lynch in the event of the termination of his employment agreement with us or a change of control varies depending on the nature of the termination.
Termination Without Cause. In the event the agreement is terminated by reason of Mr. Lynch’s termination without “cause,” Mr. Lynch is entitled to the greater of (i) Mr. Lynch’s monthly base salary times the number of months remaining on the terms of the agreement and (ii) one year of Mr. Lynch’s base salary.
“Cause” is defined as (i) Mr. Lynch’s willful and continued failure substantially to perform his duties and obligations under the agreement after written demand for substantial performance has been delivered to him by us which sets forth with reasonable specificity the deficiencies in Mr. Lynch’s performance and giving Mr. Lynch at least thirty (30) days to correct such deficiencies; (ii) Mr. Lynch committing fraud or making intentionally material misrepresentations, (iii) Mr. Lynch’s unauthorized disclosure or use of our trade secrets or confidential information; (iv) Mr. Lynch’s conviction of a felony; (v) theft or conversion of our property by Mr. Lynch; or (vi) Mr. Lynch’s habitual misuse of alcohol, illegal narcotics, or other intoxicant.
If Mr. Lynch had been terminated on December 31, 2006, without cause, Mr. Lynch would have been entitled to receive immediately an aggregate of $284,900.
Termination for Cause, voluntary resignation, death or disability. In the event Mr. Lynch is terminated for “cause,” death, “disability” or if he voluntarily resigns, Mr. Lynch is entitled to:
| · | any and all earned but unpaid salary as of the date of termination; and |
| · | immediate payment for accrued but unused vacation time. |
Under the agreement, Mr. Lynch is considered “disabled” if he is incapable of substantially fulfilling his duties because of physical, mental or emotional incapacity from injury, sickness or disease for an aggregate period of three (3) months in a twelve month period.
If Mr. Lynch was terminated for cause on December 31, 2006, Mr. Lynch would have been entitled to receive an aggregate of $9,025 for unused vacation time, payable upon termination.
Termination in Connection with a Change in Control. In the event that this agreement is terminated by reason of Mr. Lynch’s termination as a result of a “change in control” and Mr. Lynch is not employed in the same capacity or being paid the same base salary by the successor entity, Mr. Lynch is entitled to:
| · | continued medical and dental benefits for two years after the change of control; and |
| · | payment for accrued but unused vacation time. |
In addition, Mr. Lynch holds a stock option for 500,000 shares that vests as to all unexercised in the event of a change of control.
A “change in control” is defined in the agreement as (i) a merger or acquisition in which we are not the surviving entity, except for (a) a transaction the principal purpose of which is to change the state of our incorporation, or (b) a transaction in which our shareholders immediately before such transaction hold, immediately after such transaction, at least 50% of the voting power of the surviving entity; (ii) a shareholder approved sale, transfer or other disposition of all or substantially all of our assets; (iii) a transfer of all or substantially all of our assets pursuant to a partnership or joint venture agreement or similar arrangement where our resulting interest is less than fifty percent (50%); (iv) any reverse merger in which we are the surviving entity but in which fifty percent (50%) or more of our outstanding voting stock is transferred to holders different from those who held the stock immediately before such merger; (v) a change in ownership of our stock through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of our stock representing fifty percent (50%) or more of the voting power of our outstanding stock; or (vi) a majority of the members of our board of directors are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of our board of directors before the date of such appointment of election.
If Mr. Lynch had been terminated on December 31, 2006, by reason of Mr. Lynch’s termination as a result of a change in control and Mr. Lynch was not employed in the same capacity or being paid the same base salary by the successor entity, Mr. Lynch would have been entitled to receive an aggregate of $481,013, consisting of a $180,000 payment, $22,648.00 for the cost of health and dental insurance premiums, $9,025 for accrued vacation benefits and $269,340 for the benefit of accelerating the vesting of Mr. Lynch’s unvested stock option. The benefit to Mr. Lynch of the acceleration of his stock option was calculated by multiplying the number of unvested shares underlying the stock option at December 31, 2006 (117,616) by the difference between the closing price of our common stock on the trading day immediately before December 31, 2006 ($2.59) and the per share exercise price of the stock option ($0.30).
Kody Newland
Termination Without Cause. In the event the agreement is terminated by reason of Mr. Newland’s termination without “cause,” Mr. Newland is entitled to:
| · | an amount equal to his base salary for the remainder of the term of his employment agreement, not to exceed 12 months; |
| · | any and all earned but unpaid base salary and benefits as of the date of termination; and |
| · | payment for accrued but unused vacation time. |
“Cause” is defined as (i) a determination bymaterial breach of the boardterms of directors thathis employment agreement, which breach remains uncured for 30 days following written notice of breach, (ii) Mr. NewlandBelt has been grossly negligent or has engaged in material willful or gross misconduct in the performance of herhis duties, and we have filed a civil lawsuit against her for the same claims, (ii) Mr. Newland has taken or failed to take any actions such that such action or failure constitutes legal cause for termination under California law, (iii) Mr. NewlandBelt has committed, as reasonably determined by our Board, or has been convicted by a court of law of fraud, moral turpitude, embezzlement, theft, or dishonesty or othersimilar criminal conduct, or any felony, (iv) Mr. Newland having materially breached the terms of her employment agreement and not cured the breach in 10 days after receipt of written noticeBelt habitually misuses alcohol, drugs, or any controlled substance, (v) Mr. Newland having failedBelt breaches his proprietary information agreement, or (vi) Mr. Belt fails to meet reasonable written standards established by us for performance of his duties and not cured this failure within 10 days after receipt of written notice.under his employment agreement.
If Mr. Newland had been terminated on December 31, 2006, without cause, Mr. Newland would have been entitled to receive immediately an aggregate of $152,137, consisting of $150,000 for twelve months of base salary and $2,137 for accrued vacation time.
Termination for Cause, death or disability. In the event Mr. Newland is terminated for “cause,” death or “disability,” Mr. Lynch is entitled to:
| · | any and all earned but unpaid salary as of the date of termination; and |
| · | immediate payment for accrued but unused vacation time. |
Under the agreement, Mr. Newland is considered “disabled” if he is incapable of substantially fulfilling his duties because of physical, mental or emotional incapacity from injury, sickness or disease for an aggregate period of three (3) months in a twelve month period.
If Mr. Newland was terminated for cause on December 31, 2006, Mr. Newland would have been entitled to receive an aggregate of $2,137 for unused vacation time, payable upon termination.
Change of Control Benefit. In the event of a “change of control”“Good Reason”, Mr. Newland’s stock option to purchase 500,000 shares of our common stock will accelerate as to all unvested shares.
“Change of control” is defined as (i) our mergerany material breach by us of any provision of Mr. Belt’s employment agreement; (ii) a material reduction of Mr. Belt’s duties or consolidationresponsibilities, or the assignment of duties or responsibilities to Mr. Belt that are not consistent or commensurate with his position as chief financial officer or (iii) any reduction of Mr. Belt’s base salary other corporation which results in our voting stock outstanding immediately before the transaction failing to represent more than fifty percent (50%)as part of a general reduction of the total voting power represented by the surviving entity immediately after the merger or consolidation or (ii) our sale or disposalsalaries of all or substantially all of our assets.employees.
Termination in Connection With a Change of Control. In the event that Mr. Belt resigns or is terminated within 60 days before and 90 days after a Change of Control, Mr. Belt shall be entitled to:
| · | a cash lump sum payment equal to the Belt Severance Payment; |
| · | his options to purchase a total of 2,500,000 shares of common stock, expiring June 15, 2020, shall immediately vest in full and remain exercisable for a period of 90 days following termination; and |
| · | a cash lump sum payment equal to the difference between (i) two times the sum of Mr. Belt’s base salary for the year in which the termination occurs and (ii) an amount equal to the Belt Severance Payment. |
Director Compensation
Non-employee directors receive the following cash consideration for serving as directors and as members of committees of our Board of Directors:
| | General Board Service | | | Executive Committee | | | Audit Committee | | | Nominating and Governance Committee | | | Compen- sation Committee | | | Nutra SA Management Committee Meeting | |
| | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| General board service - all directors | | | 40,000 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Service as Chairman | | | 25,000 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Committee Assignments: | | | | | | | | | | | | | | | | | | | | | | | | |
| Committee Chair | | | - | | | | 15,000 | | | | 10,000 | | | | 7,000 | | | | 7,000 | | | | - | |
| Members | | | - | | | | 2,000 | | | | 4,000 | | | | 2,000 | | | | 2,000 | | | | 2,000 | |
| Meeting Attendance Fees: | | | | | | | | | | | | | | | | | | | | | | | | |
| Full Board: | | | | | | | | | | | | | | | | | | | | | | | | |
| In-person face-to-face | | | 2,000 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Telephonic | | | 1,000 | | | | - | | | | - | | | | - | | | | - | | | | - | |
If a changeFor 2012, the non-employee directors, except those who began service in the fourth quarter of control had occurred on December 31, 2006, 200,0002012 (Messrs. Goldman and Schweitzer), agreed to accept stock options in lieu of cash for one half of their fees for general board service, service as chairman and committee assignments. The number of shares subject to Mr. Newland’s stock option would have immediately vested and Mr. Newland would have received a benefit of $318,000. The benefit to Mr. Lynch of the acceleration of his stock option was calculated by multiplying the number of unvested shares underlying the stock option at December 31, 2006 (200,000)options issued in lieu of cash was determined by dividing the amount of fees owed by the difference between the closing pricefair value of our common stockan option on the trading day immediately before December 31, 2006 ($2.59) and the per share exercise price of the stock option ($1.00).
Executive Employment Agreements
Brad Edson
On December 17, 2004, NutraCea entered into an employment agreement that expires December 31, 2007 with its current President and Chief Executive Officer, Bradley D. Edson, pursuant to which NutraCea is to pay Mr. Edson a base salary of $50,000 in year one; a base salary of $150,000 in year two; and a base salary of $250,000 in year three. The agreement also provides that Mr. Edson is entitled to an annual incentive bonus based upon performance (“Edson Incentive Bonus”) and to be provided a car allowance of $600 per month. The incentive bonus is payable annually within 10 days of the completion of NutraCea’s annual independent audit. The bonus is one percent of NutraCea’s “Gross Sales over $25, 000,000,” but only if NutraCea reports a positive EBITDA for the period. The bonus amount is limited to a maximum of $750,000 in any calendar year. In addition, Mr. Edson was issued warrants to purchase 6,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share. The warrants are immediately exercisable and expire ten years from the date of issuance.
ForIn addition to the fees reflected in the table above, non-employee directors receive a descriptionfee for attendance of management committee meetings of our Nutra SA subsidiary. The fee is $6,000 per meeting attended in Brazil and $2,000 per meeting attended in the termination and change in control provisions of Mr. Edson’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”United States.
Margie D. Adelman
On January 25, 2005, NutraCea entered intoIf a three year employment agreement with Margie D. Adelman, NutraCea’s Senior Vice President and Secretary, pursuant to which NutraCea is to pay Ms. Adelman a base salary of $150,000 per year. The agreement also provides that Ms. Adelman is entitled to a one-time initial bonus of $25,000 and will be eligible for future incentive bonuses based solely ondirector chairs the discretion of NutraCea’s Chief Executive Officer or PresidentBoard and the approval of NutraCea’s Compensation Committee. Ms. Adelman was issued a warrant to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per share, 500,000 shares of which vested upon signingExecutive Committee, the $15,000 Executive Committee chair fee is not paid.
We reimburse all directors for travel and 500,000 shares of which vested on January 25, 2006, subject to forfeiture under certain terms and conditions. In addition, Ms Adelman was issued warrants to purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 that will vest upon the achievement of NutraCea obtaining “Gross Sales over $25,000,000” and NutraCea reporting a positive EBITDA for the period. All warrants expire ten years from the date of issuance. On February 26, 2006, the agreement was modified to include a car allowance of $600 per month, a cost of living increase for the balance of the term of her agreement, and an additional week of paid vacation per calendar year.
For a description of the termination and change in control provisions of Ms. Adelman’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”
Todd C. Crow
In September 2005, we entered into a first amendment to employment agreement with Todd C. Crow, pursuant to which we assumed the employment agreement between Mr. Crow and The RiceX Company. The employment agreement, as amended, provides that Mr. Crow will serve asChief Financial Officer of NutraCea and the RiceX Company. Mr. Crow’s employment agreement, as amended, provides that Mr. Crow will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living adjustmentsother necessary business expenses incurred in the Sacramento metropolitan area. The agreement terminates on October 4, 2008. The term will be automatically extended for an additional one-year term unless either party delivers noticeperformance of election notdirector services and extend coverage to extend the employment at least 90 days prior to the expiration of the initial term.
For a description of the terminationthem under our directors’ and change in control provisions of Mr. Crow’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”
Ike E. Lynch
In September 2005, we entered into a first amendment to employment agreement with Ike E. Lynch, pursuant to which we assumed the employment agreement between Mr. Lynch and The RiceX Company. The employment agreement, as amended, provides that Mr. Lynch will serve as Chief Operating Officer of NutraCea, The RiceX Company and RiceX Nutrients, Inc., a subsidiary of The RiceX Company. The employment agreement, as amended, provides that Mr. Lynch will receive an annual base salary of $150,000, which salary will be reviewed annually and be adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area. The agreement terminates on October 4, 2008. The term will be automatically extended for an additional one-year term unless either party delivers notice of election not to extend the employment at least 90 days prior to the expiration of the initial term.
For a description of the termination and change in control provisions of Mr. Lynch’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”
Kody Newland
On February 27, 2006, NutraCea entered into a two year employment agreement with Kody Newland, NutraCea’s Senior Vice President of Sales, pursuant to which NutraCea is to pay Mr. Newland a base salary of $150,000 per year which will be reviewed annually and adjusted to compensate for cost of living adjustments in the Sacramento metropolitan area. The term of agreement may be extended by mutual agreement of the parties on a month to month basis. The agreement also provides that Mr. Newland is eligible for future incentive bonuses based solely on the discretion of NutraCea’s Chief Executive Officer or President and the approval of NutraCea’s Compensation Committee. Mr. Newland was issued an option to purchase 500,000 shares of NutraCea’s common stock at an exercise price of the greater of (i) one dollar ($1.00) per share; or (ii) the closing bid price of NutraCea’s common stock on the date of the grant as reported on the over-the-counter bulletin board. Such option is subject to the terms and conditions of a stock option agreement between the parties. In addition, the agreement includes a car allowance of $600 per month.
For a description of the termination and change in control provisions of Mr. Newland’s employment agreement, see “Potential Payments Upon Termination or Change in Control.”
Equity Incentive Plans
Our board of directors adopted our 2003 Stock Compensation Plan, or the 2003 Plan, on October, 2003.officers’ indemnity insurance policies. Under the terms of the 2003 Plan, NutraCea may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to NutraCea on such terms as are determined by the board of directors. A total of 10,000,000 shares of our common stock are reserved for issuance under the 2003 Plan. As of December 31, 2006 a total of 9,996,207 shares were issued under the 2003 Plan, no shares underlie outstanding stock option granted pursuant to the 2003 Plan and 3,793 shares were available for future grants under the Plan. Our board of directors administers the 2003 Plan and determines vesting schedules on plan awards. The 2003 Plan has a term of 10 years and stock options granted under the plan may not have terms in excess of 10 years. The Board may accelerate unvested options if NutraCea sells substantially all of its assets or is a party to a merger or consolidation in which NutraCea is not the surviving corporation. All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise.
Our board of directors adopted our 20052010 Equity Incentive Plan, or 2005 Plan, in May 2005 and our shareholders approved the 2005 Plan in September 2005. Under the terms of the 2005 Plan, NutraCea may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services to NutraCea on such terms as are determined by the board of directors. A total of 10,000,000 shares of our common stock are reserved for issuance under the 2005 Plan. As of December 31, 2006, no shares were issued under the 2005 Plan, no shares underlie outstanding stock option granted pursuant to the 2005 Plan and 10,000,000 shares were available for future grants under the Plan. Our board of directors administers the 2005 Plan, determines vesting schedules on plan awards and may accelerate these schedules for award recipients. The 2005 Plan has a term of 10 years and stock options granted under the plan may not have terms in excess of 10 years. All options will terminate in their entirety to the extent not exercised on or prior to the date specified in the written notice unless an agreement governing any change of control provides otherwise.
Director Compensation
Non-employee directors receive an annual cash retainer of $12,000 and a fee of $1,000 for each board meeting attended in person and $500 for each telephonic board meeting attended. In addition, they receive annual retainers of $2,000 per year to serve on the audit and compensation committees. The Chairman of the Board also receives an additional $4,000 per year. The Committee chairmen also receive an additional $1,000 per year. Each non-employee director automatically receives an option to purchase 35,000250,000 shares of common stock on January 1 of each year. Directors are reimbursed for reasonable expenses incurred in attending meetingsIf a director becomes a member of the Board andafter January 1 of a year, the director will receive a stock option to purchase a pro rata portion of the 250,000 shares based upon the months remaining in the year after the director was elected. On April 18, 2013, the Board committees.
Directors are eligible to participate in NutraCea’s 2005increased the number of shares of common stock that each non-employee director automatically receives annually under the 2010 Equity Incentive Plan.Plan from 250,000 to 1,000,000 shares.
In connection with the increase in the automatic director grant, on April 18, 2013, the Board granted each of the non-employee directors a stock option to purchase up to 750,000 shares of common stock. Each option has an exercise price of 0.08 per share, vests in nine equal monthly installments ending December 31, 2013, and expires on April 18, 2023.
On April 18, 2013, the Board granted each of the directors then serving on the Strategic Committee a stock option to purchase up to 250,000 shares of common stock. Each option has an exercise price of 0.08 per share, vests in twelve equal monthly installments ending March 31, 2014 and expires on April 18, 2018. The members of the Strategic Committee receive no additional compensation for serving on the committee.
Director Compensation Table
The following Director Compensation Tabledirector compensation table sets forth summary information concerning the compensation paid to our non-executive officernon-employee directors in 2006 for services to our company.2012 who served on the Board during the year:
Name | | Fees Earned or Paid in Cash ($) | | Option Awards ($)(1)(2) | | All Other Compensation ($) | | Total ($) | |
| David Bensol | | | 21,750 | | | 29,223 | | | — | | | 50,983 | |
| Eliot Drell | | | 13,000 | | | 29,223 | | | — | | | 42,233 | |
| James C. Lintzenich | | | 16,750 | | | 29,223 | | | — | | | 45,983 | |
| Edward L. McMillan | | | 17,000 | | | 29,223 | | | — | | | 46,233 | |
| Patricia McPeak | | | 0 | | | —(3 | ) | | 155,188(4 | ) | | 155,188 | |
| Steven W. Saunders | | | 14,000 | | | 29,223 | | | 77,953(5 | ) | | 43,223 | |
| Kenneth L Shropshire | | | 16,750 | | | 29,223 | | | — | | | 45,973 | |
| | | | | | | | | | | | | | |
| Total | | | 99,250 | | | 175,338 | | | 233,141 | | | 429,816 | |
| | Fees Earned or Paid in Cash | | | Option Awards | | | All Other Compen- sation | | | Total | |
| Name | | ($) (1) | | | ($) (2) | | | ($) | | | ($) | |
| David Goldman | | | 16,917 | | | | 2,519 | | | | - | | | | 19,436 | |
| Baruch Halpern | | | 33,000 | | | | 40,764 | | | | - | | | | 73,764 | |
| Henk W. Hoogenkamp | | | 25,750 | | | | 38,501 | | | | 157,461 | (4) | | | 221,712 | |
| Richard H. Koppes (3) | | | 37,500 | | | | 51,410 | | | | - | | | | 88,910 | |
| James C. Lintzenich (3) | | | 37,208 | | | | 49,527 | | | | 79,020 | (5) | | | 165,755 | |
| Edward L. McMillan (3) | | | 42,500 | | | | 56,771 | | | | 78,877 | (5) | | | 178,148 | |
| John J. Quinn (3) | | | 37,250 | | | | 49,074 | | | | - | | | | 86,324 | |
| Steven W. Saunders (3) | | | - | | | | 24,625 | | | | 97,158 | (5) | | | 121,783 | |
| Robert C. Schweitzer | | | 19,583 | | | | 2,519 | | | | - | | | | 22,102 | |
_______________
| (1) | Amounts shown do notin this column reflect compensation actually received by the directors. Instead,annual aggregate dollar amount of all fees earned or paid in cash for services as a director, including annual retainer fees, committee and/or chairmanship fees, and meeting fees. In addition, the amountsamount shown arefor Mr. Lintzenich includes $7,000 for attendance at management committee meetings of our Nutra SA subsidiary and the compensation costs recognized by NutraCea in 2006 for option awards as determined pursuant to Statementrelated retainer. |
| (2) | The amount shown is the grant date fair value of Financial Accounting Standards No. 123(R), or FAS 123R. These compensation costs reflect option awards granted in 2006. Theeach award, and the assumptions used to calculate the fair value of option awards are set forth under Note ___in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for 2012. As of December 31, 2012, the Notesdirectors named in the table held outstanding option awards to Consolidated Financial Statements contained herein.purchase the following number of shares of our common stock: David Goldman, 62,500 shares; Baruch Halpern, 399,105 shares; Henk W. Hoogenkamp, 308,884 shares; Richard H. Koppes, 635,761 shares; James C. Lintzenich, no shares; Edward L. McMillan, no shares; John J. Quinn, 1,151,131 shares; Steven W. Saunders, no shares; and Robert C. Schweitzer, 62,500 shares. |
(2) | The compensation cost recognized by NutraCea in fiscal 2006 for each stock option grant is based(3) | Messrs. Koppes, Lintzenich, McMillan, Quinn and Saunders resigned from the Board on the following fair value as of the grant date: $39,357 for a stock option grant to each non-employee director to purchase 35,000 shares of common stock made on May 23, 2006 at an exercise price of $1.14 per share. At the end of 2006, Mr. Bensol, Mr. Drell, Mr. Lintzenich, Mr. McMillan, Ms. McPeak, Mr. SaundersJune 18, 2013, November 9, 2012, November 7, 2012, December 2, 2012 and Mr. Shropshire held options to purchase an aggregate of 35,000 shares, 35,000 shares, 35,000 shares, 35,000 shares, 0 shares, 35,000 shares and 35,000 shares, respectively, as compensation for serving as NutraCea’s directors. Also, at the end of 2006, Mr. Bensol, Mr. Drell, Mr. Lintzenich, Mr. McMillan, Ms. McPeak, Mr. Saunders and Mr. Shropshire held an aggregate 0 shares, 35,000 shares, 0 shares, 0 shares, 35,000 shares, 0 shares and 0 shares, respectively, of common stock received as compensation for serving as directors.January 18, 2012, respectively. |
(3) | Ms. McPeak did not receive(4) | The amount shown represents fees earned by Mr. Hoogenkamp under a consultant agreement. It includes the fair value of 1,000,000 shares of stock option grant because she is an employee of NutraCea.issued under the agreement as well as cash fees. |
(4) | Reflects compensation received by Ms. McPeak(5) | The amounts shown represent the fair value of 1,067,842, 1,126,818 and 809,648 shares of our common stock granted to Messrs. Lintzenich, McMillan, and Saunders, respectively, in exchange for serving as an employeethe cancellation of NutraCea. Compensation consistsoptions for the purchase of the following: $154,807 as salary1,611,235, 1,676,074 and $381 for payment1,456,594 shares of life insurance premiums.our common stock, respectively. |
(5) | Reflects the grant of a warrant to Mr. Saunders for providing engineering and construction consultation to NutraCea. The compensation cost recognized by NutraCea in fiscal 2006 for the warrant is based on the following fair value as of the grant date: $78,740 for a stock option grant to purchase 100,000 shares of common stock made on February 27, 2006 at an exercise price of $1.00 per share. |
57
Limitation of Liability and Indemnification of Officers and Directors
Our articles of incorporation provide that it will indemnify its officers and directors, employees and agents and former officers, directors, employees and agents unless their conduct is finally adjudged as involving intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action. This indemnification includes expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by these individuals in connection with such action, suit, or proceeding, including any appeal thereof, subject to the qualifications contained in California law as it now exists. Expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit, or proceeding will be paid by NutraCea in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by NutraCea as authorized in the Articles of Incorporation. This indemnification will continue as to a person who has ceased to be a director, officer, employee or agent, and will benefit their heirs, executors, and administrators. These indemnification rights are not deemed exclusive of any other rights to which any such person may otherwise be entitled apart from the Articles of Incorporation. California law generally provides that a corporation shall have the power to indemnify persons if they acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of NutraCea and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. In the event any such person is judged liable for negligence or misconduct, this indemnification will apply only if approved by the court in which the action was pending. Any other indemnification shall be made only after the determination by our board of directors (excluding any directors who were party to such action), by independent legal counsel in a written opinion, or by a majority vote of shareholders (excluding any shareholders who were parties to such action) to provide such indemnification.
NutraCea carries Officers and Directors insurance. The aggregate limit of liability for the policy period (inclusive of costs of defense) is $5,000,000. The policy period ends on October 1, 2007.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of NutraCea pursuant to the foregoing provisions, or otherwise, NutraCea has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
SECURITYSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables settable sets forth certain information regarding beneficial ownership of our common stock as of March 2, 2007,August 31, 2013, by (i) each person or entity who is known by us to own beneficially more than 5% of the outstanding shares of that class or series of our stock, (ii) each of our directors, (iii) each of the Named Executive Officers,named executive officers, and (iv) all directors and executive officers as a group. We have authorized Series A preferred stock, Series B preferred stock and Series C preferred stock, but none of these shares are outstanding.
The table is based on information provided to us or filed with the Securities and Exchange Commission (“SEC”)SEC by our directors, executive officers and principal shareholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting and investment power with respect to shares. Shares of common stock issuable upon exercise or conversion of Series B preferred stock, Series C preferred stockoptions, warrants or issuable upon exercise of options and warrantspromissory notes that are currently exercisable or convertible or are exercisable or convertible within 60 days after March 2, 2007,August 31, 2013, are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrants,securities, but are not deemed outstanding for computing the percentage of any other shareholder. Unless otherwise indicated, the address for each shareholder listed in the following table is c/o NutraCea, 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762.RiceBran Technologies, 6720 N. Scottsdale Rd, Suite # 390, Scottsdale, AZ 85253.
COMMON STOCK | | Stock Beneficially Owned | | Stock Beneficially Owned | |
| | Prior to the Offerimg | | After the Offerimg | |
| | Number | | | Percentage | | Number | | Percentage | |
| Name and Address of Beneficial Owner | | | | | (1) | | | | (1) | |
| W. John Short (2) | | | 11,351,636 | | | | 4.75 | % | | | | | |
| David Goldman (3) | | | 884,994 | | | | * | | | | | | |
| Baruch Halpern (4) | | | 11,910,759 | | | | 4.99 | % | | | | | |
| Henk W. Hoogenkamp (5) | | | 3,327,130 | | | | 1.46 | % | | | | | |
| Robert C. Schweitzer (6) | | | 974,994 | | | | * | | | | | | |
| Jerry Dale Belt (7) | | | 2,439,029 | | | | 1.06 | % | | | | | |
| Colin Garner (8) | | | 1,102,506 | | | | * | | | | | | |
| | | | | | | | | | | | | |
| All directors and executive officers as a group (7 persons) (9) | | | 31,991,048 | | | | 14.11 | % | | | | | |
| | | Shares of Common Stock Beneficially Owned | |
Name and Address of Beneficial Owner | | Number (1) | | Percentage (1) | |
Patricia McPeak (2) | | | 13,907,567 | | | 10.06 | % |
| Bradley D. Edson (3) | | | 6,176,000 | | | 4.40 | % |
| James C. Lintzenich (4) | | | 2,918,019 | | | 2.15 | % |
| Ike E. Lynch (5) | | | 1,755,653 | | | 1.29 | % |
| Todd C. Crow (6) | | | 1,497,965 | | | 1.10 | % |
| Margie D. Adelman (7) | | | 1,071,207 | | | * | |
| Kody Newland (8) | | | 360,000 | | | * | |
| Eliot Drell (9) | | | 1,083,334 | | | * | |
| Steven W. Saunders (10) | | | 1,305,994 | | | * | |
| Edward L. McMillan (11) | | | 206,337 | | | * | |
| David Bensol (12) | | | 75,000 | | | * | |
| Kenneth L. Shropshire (13) | | | 35,000 | | | * | |
| All directors and executive officers as a group (12 persons) (14) | | | 30,392,076 | | | 20.06 | % |
* less than 1%
_________________
| (1) | Applicable percentage of ownership is based on 134,370,254226,781,797 shares of our common stock outstanding as of March 2, 2007,August 31, 2013, together with applicable(i) shares issuable upon exercise of options and warrants for such shareholder exercisable within 60 days of March 2, 2007.August 31, 2013, and (ii) shares issuable upon conversion of debt convertible within 60 days of August 31, 2013. |
| (2) | Includes 3,903,655249,900 shares held by the KAWJS Trust, 16,490 shares held by Mr. Short, 9,586,808 shares issuable upon exercise of options held by reporting person. Also includes 153,598Mr. Short, 749,219 shares issuable upon exercise of warrants held by Mr. Short and 749,219 shares issuable upon conversion of promissory notes held by Mr. Short. |
| (3) | Includes 10,000 shares held by the David Goldman & Lois A Goldman TRS FBO GOLDMAN FAMILY TRUST UA 04/23/2004 and 874,994 shares issuable upon exercise of options held by Mr. Goldman. |
| (4) | Includes (i) 35,714,286 shares underlying a trust controlledconvertible promissory note and 35,714,286 shares underlying a warrant held by the reporting person.Shoshana Shapiro Revocable Trust, (ii) 440,000 outstanding shares, 1,428,571 shares underlying a convertible promissory note and 3,641,284 shares subject to warrants held by Mr. Halpern, (iii) 350,000 outstanding shares and 6,923,886 shares underlying warrants held by the Baruch Halpern Revocable Trust and (iv) 1,086,601 shares issuable upon exercise of options held by Mr. Halpern. The convertible promissory notes and the warrants (Halpern Blocked Securities) are not exercisable or convertible into shares of our common stock to the extent such exercise or conversion would cause Mr. Halpern to beneficially own more than 4.99% of our outstanding common stock, unless the holders provide us with sixty one days’ prior written notice that the blockers should not apply. No such notice has been provided. Because of these blockers, the beneficial ownership described in the table above represents Mr. Halpern’s beneficial ownership of 4.99% of our common stock. |
(3) | (5) | Includes 6,000,0001,436,380 shares issuable upon exercise of options. |
(4) | Includes 1,521,608 shares issuable upon exercise of a warrant and 1,396,411 outstanding shares held by Intermark Group Holdings, LLC, of which the filing person is the owner. |
(5) | Includes 1,380,853 shares issuable upon exercise of options held by the reporting person and 88,188 held by the reporting person’s spouse. The reporting person disclaims beneficial ownership with regard to all shares owned by his spouse. |
| (6) | Includes 1,450,457 shares issuable upon exercise of options and warrants. |
(7) | Includes 68,707 shares and an additional 2,500 shares issuable upon exercise of options held by Adelman Global of which the filing person is the owner. Also includes 1,000,000 shares issuable upon exercise of options held by the reporting person. |
(8) | Includes 360,000874,994 shares issuable upon exercise of options. |
(9) | (7) | Includes 287,140 shares issuable upon exercise of options or warrants held by reporting person. Also includes 304,282 outstanding shares owned by, and 314,987 shares issuable upon exercise of options or warrants held by, Drell-Pecha Partnership, of which the reporting person is a partner. Also includes 31,925 shares of common stock jointly held by reporting person and spouse. Dr. Drell resigned from his position as a member of the Board on March 8, 2007. |
(10) | Includes 542,192 shares issuable upon exercise of options and warrants. |
(11) | Includes 111,789 shares issuable upon exercise of options held by the reporting person. Also includes 76,799 shares issuable upon exercise of warrants jointly held by the reporting person and his spouse. |
(12) | Includes 35,0002,439,029 shares issuable upon exercise of options. |
(13) | (8) | Includes 35,0001,102,506 shares issuable upon exercise of options. |
(14) | (9) | Includes an aggregate of 17,137,98518,899,750 shares issuable upon exercise or conversion of options, warrants and warrants.promissory notes and 10,034,158 shares underlying the Halpern Blocked Securities. |
DESCRIPTION OF SECURITIES
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 200,000,0001,200,000,000 shares of common stock, no par value, and 20,000,000 shares of Preferred Stock, no par value, of which 3,000,000 shares are designated Series A Preferred Stock, 25,000 shares are designated Series B Preferredpreferred Stock, and 25,000 shares are designated Series C Preferred Stock, 10,000 shares are designated Series D Preferred Stock and 2,743 shares are designated Series E Preferred Stock. As of March 2, 2007,September 26, 2013, there were 134,370,254226,781,797 shares of common stock outstanding and no shares of Series A Preferred Stock outstanding, no shares of Series B Preferred Stock outstanding, and two shares of Series C Preferred Stockpreferred stock outstanding.
Common Stock
Holders of NutraCeaour common stock are entitled to receive ratably dividends when, as, and if declared by NutraCea’sour board of directors out of funds legally available therefor. Upon theour liquidation, dissolution, or winding up, of NutraCea, the holders of theour common stock are entitled to receive ratably the net assets of NutraCea available after the payment of all debts and other liabilities and subject to the prior rights of our outstanding NutraCea preferred shares, if any. However, there are no assurances that upon any such liquidation or dissolution, there will be any net assets to distribute to the holders of NutraCeaour common stock.
The holders of NutraCeaour common stock are entitled to one vote for each share held on all matters submitted to a vote of NutraCeaour shareholders. Under certain circumstances, California law permits the holders of NutraCeaour common stock to cumulate their votes for the election of directors, in which case holders of less than a majority of the outstanding shares of NutraCeaour common stock could elect one or more of NutraCea’sour directors. Holders of NutraCeaour common stock have no preemptive, subscription, or redemption rights. The outstanding shares of NutraCeaour common stock are fully paid and nonassessable. The rights and privileges of holders of NutraCeaour common stock are subject to, and may be adversely affected by, the rights of holders of shares of NutraCea preferred stock that NutraCeawe may designate and issue in the future.
Preferred Stock
NutraCea’sOur board of directors is authorized to issue preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including dividend rights and rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without any vote or action by NutraCea’sour shareholders. Any preferred stock to be issued could rank prior to the NutraCeaour common stock with respect to dividend rights and rights on liquidation. NutraCea’sOur board of directors, without shareholder approval, may issue preferred stock with voting and conversion rights which could adversely affect the voting power of holders of NutraCeaour common stock and discourage, delay or prevent a change in control of NutraCea.the Company.
Series A Preferred StockWarrants
We have authorized a totalAs of 3,000,000 sharesAugust 31, 2013, warrants for the issuance of Series A Preferred Stock. No shares of Series A Preferred Stock are outstanding.
Series B Preferred Stock
We have authorized a total of 25,000 shares of Series B preferred stock. No shares are outstanding as of March 2, 2007.
Series C Preferred Stock
We have authorized a total of 25,000 shares of Series C preferred stock. Two shares of Series C Preferred Stock are outstanding as of March 2, 2007.
Voting
Series C preferred stock shall not be entitled to vote unless required by law or unless we take certain actions, which actions will require the affirmative vote of the holders of a majority of the outstanding shares of Series C preferred stock. These actions include, among other things, amending our Certificate of Determination, Rights and Privileges of Series C preferred stock, authorizing or creating any capital stock senior to, or on parity with, the Series C preferred stock, altering the powers, preferences or rights of the Series C preferred stock, issuing additional shares of Series C preferred stock and incurring certain debt.
Conversion
Each share of Series C preferred stock is convertible into the number of143,252,425 shares of our common stock equal to $1,000.00 divided by the conversion price, which is currently $0.85. The conversion price is subject to anti-dilution protection if we issue our common stock at prices less than the then current conversion price and for stock splits, stock dividends and other similar transactions.
Liquidation Preference
Upon occurrence of (1) our liquidation, (2) a merger or consolidation involving us where our existing shareholders do not retain more than 50% of the voting power in us, (3) a sale of all or substantiallywere outstanding, all of our assets or (4)which are exercisable at a tender offer or other business combination involving us where our existing shareholders do not retain more than 50%weighted average exercise price of the voting power in us, each$0.08 per share, and all of Series C preferred stock will be entitledwhich are exercisable through various dates expiring between October 13, 2013 and July 18, 2018. Outstanding warrants to receive in preference to holdersacquire 46,409,326 and 92,668,612 shares of our common stock an amount equal to $1,000, plus any accrued but unpaid dividends, if any. After receiving this preference,include a price protection mechanism in which the holdersexercise price of Series C preferred stockthese warrants will notautomatically be entitled to any further distributionlowered in the event we issue shares of our assets.common stock for a price less than $0.07 and $0.08, respectively, per share.
The descriptions of the warrants are only a summary and are qualified in their entirety by the provisions of the forms of the warrant, which are attached or referenced to the registration statement of which this prospectus forms a part.
Transfer Agent and Warrant Agent
American Stock Transfer & Trust Company, New York, New York, serves as transfer agent for the shares ofour common stock.
American Stock Transfer & Trust Company will also act as the warrant agent for the warrants issued under this offering.
The table below listsWe have entered into an underwriting agreement with Maxim Group LLC [acting as the selling shareholderssole book-running manager and other information regardingsole representative for the beneficial ownershipunderwriters named below.] Subject to the terms and conditions of the common stock by each ofunderwriting agreement, the selling shareholders. The first column lists the name of each selling shareholder. The second column listsunderwriters named below have agreed to purchase, and we have agreed to sell to them, the number of shares of common stock beneficially ownedand warrants to purchase common stock at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus and as indicated below:
| Underwriter | | Number of Shares |
| Maxim Group LLC | | |
| ________________ | | |
| | |
| Total | | |
The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares and warrants offered by this prospectus are subject to the approval of certain legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares and warrants offered by this prospectus if any such shares and warrants are taken, other than those shares and warrants covered by the over-allotment option described below.
Over-Allotment Option
We have granted to the underwriters an option, exercisable not later than 45 days after the effective date of the registration statement, to purchase up to _____ additional shares and warrants, consisting of an aggregate of ____________ shares of common stock and warrants to purchase an aggregate of _____ shares of common stock, at a per share price of $______ less the underwriting discounts and commissions set forth on the cover of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with this offering. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares and warrants as the number of shares and warrants to be purchased by it in the above table bears to the total number of shares and warrants offered by this prospectus. We will be obligated, pursuant to the option, to sell these additional shares and warrants to the underwriters to the extent the option is exercised. If any additional shares and warrants are purchased, the underwriters will offer the additional shares and warrants on the same terms as those on which the other shares and warrants are being offered hereunder.
Commissions
We have agreed to pay the underwriters (i) a cash fee equal to eight percent of the aggregate gross proceeds raised in this offering and (ii) warrants to purchase that number of shares of our common stock equal to an aggregate of ten percent (10%) of the shares of common stock sold in the offering (or _______ shares). Such underwriters’ warrants shall have an exercise price equal to $_______ per share, which is 110% of the public offering price, terminate five years after issuance, and otherwise have the same terms as the warrants sold in this offering except that (1) they will not be subject to redemption by the Company and (2) they will provide for unlimited “piggyback” registration rights with respect to the underlying shares during the two year period commencing six months after the effective date of this offering. Such underwriters’ warrants will be subject to FINRA Rule 5110(g)(1) in that, except as otherwise permitted by FINRA rules, for a period of 180 days following the effectiveness of the registration statement, of which this prospectus forms a part, the underwriters’ warrants shall not be (A) sold, transferred, assigned, pledged, or hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person.
The representative has advised us that the underwriters propose to offer the shares and warrants directly to the public at the public offering price set forth on the cover of this prospectus. In addition, the representative may offer some of the shares and warrants to other securities dealers at such price less a concession of up to $_________ per share. After the offering to the public, the offering price and other selling shareholderterms may be changed by the representative without changing the Company’s proceeds from the underwriters’ purchase of the shares and warrants.
The following table summarizes the public offering price, underwriting commissions and proceeds before expenses to us assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares and warrants. The underwriting commissions are equal to the public offering price per share less the amount per share the underwriters pay us for the shares and warrants.
| Per Share(1) | | Total Without Over Allotment | | Total With Over- Allotment | |
| Public Offering price | | | | | | |
| Underwriting discounts and commissions | | | | | | |
| Proceeds, before expenses, to us | | | | | | |
| (1) | The fees shown do not include the warrant to purchase shares of common stock issuable to the underwriters at closing. |
We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts and commissions, will be approximately $__________, all of which are payable by us. In addition, the underwriters will receive commemorative lucite (or other reasonable form) memorabilia and bound books valued up to $1,500.
Lock-Up Agreements
We and each of our officers, directors, and certain existing stockholders aggregating at least ___% of our outstanding shares, have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities convertible into or exercisable or exchangeable for shares of our common stock for a period of _____ (_) months after the effective date of the registration statement of which this prospectus is a part without the prior written consent of Maxim Group LLC.
Maxim Group LLC may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the representative will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares and warrants than are set forth on March 2, 2007.the cover page of this prospectus. This creates a short position in our common stock for its own account. The third column listsshort position may be either a covered short position or a naked short position. In a covered short position, the number of shares common stock or warrants over-allotted by the underwriters is not greater than the number of shares of common stock or warrants that are covered by this prospectus. The fourth and fifth columns listthey may purchase in the over-allotment option. In a naked short position, the number of shares of common stock owned and the percentage of common stock owned, assuming the sale of all of the shares of common stock covered by this prospectus. The following table assumes thator warrants involved is greater than the number of shares beneficially owned, other than the shares offered hereby, do not change after March 2, 2007. We do not know how long the selling shareholders will hold the shares set forth in the following table or how many shares they will ultimately sell or otherwise dispose of pursuant to this offering.
| | | | | | | Common Shares Beneficially Owned After Offering | |
Name of Selling Sharehold | | Common Shares Beneficially Owned Prior to Offering | | Common Shares Offered by this Prospectus | | Number | | Percentage | |
| Liberty Diversifiied Strategy Master Fund LLC (1) | | | 295,882 | | | 90,000 | | | 205,882 | | | * | |
| LibertyView Special Opportunities Fund, L.P. (2) | | | 600,000 | | | 600,000 | | | - | | | * | |
| LibertyView Socially Responsible Fund, L.P. (2) | | | 120,000 | | | 120,000 | | | - | | | * | |
| LibertyView Funds, L.P. (2) | | | 780,000 | | | 780,000 | | | - | | | * | |
| Trust D (for a portion of the assets of the Kodak Retirement Income Plan) (3) | | | 300,000 | | | 300,000 | | | - | | | * | |
| Fort Mason Partners, L.P. (4) | | | 146,160 | | | 146,160 | | | - | | | * | |
| Fort Mason Master, L.P. (4) | | | 2,253,840 | | | 2,253,840 | | | - | | | 1.67 | % |
| Enable Opportunity Partners L.P. (5) | | | 357,941 | | | 180,000 | | | 177,941 | | | * | |
| Enable Growth Partners L.P. (5) | | | 2,403,529 | | | 1,530,000 | | | 873,529 | | | 1.77 | % |
| RHP Master Fund, Ltd. (6) | | | 600,000 | | | 600,000 | | | - | | | * | |
| Pandora Select Partners, L.P. (7) | | | 600,000 | | | 600,000 | | | - | | | * | |
| Whitebox Intermarket Partners, L.P. (7) | | | 1,200,000 | | | 1,200,000 | | | - | | | * | |
| Capital Ventures International (8) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Cranshire Capital, L.P. (9) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Evolution Master Fund, Ltd., SPC, Segregated Portfolio M (10) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Highbridge International, LLC (11) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Midsummer Investment, Ltd. (12) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| QVT Fund L.P. (13) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Radcliffe SPC, Ltd. , for and on behalf of the Class A Segregated Portfolio (14) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Sandelman Partners Multi-Strategy Master Fund, Ltd. (15) | | | 1,800,000 | | | 1,800,000 | | | - | | | 1.33 | % |
| Alexandra Global Master Fund, LTD (16) | | | 2,400,000 | | | 2,400,000 | | | - | | | 1.78 | % |
| Credit Suisse Securities (USA) LLC (17) | | | 2,400,000 | | | 2,400,000 | | | - | | | 1.78 | % |
| Silver Oak Capital, LLC (18) | | | 2,400,000 | | | 2,400,000 | | | - | | | 1.78 | % |
| Rodman & Renshaw, LLC (19) | | | 1,200,000 | | | 1,200,000 | | | - | | | * | |
| EXI International Inc. (20) | | | 75,000 | | | 75,000 | | | - | | | * | |
| ITV Global (21) | | | 350,000 | | | 350,000 | | | - | | | * | |
| White Sales and Marketing, Inc. (22) | | | 200,000 | | | 200,000 | | | - | | | * | |
| White, Jeff (23) | | | 75,000 | | | 75,000 | | | - | | | * | |
| Wolfe Axelrod Weinberger Associates, LLC (24) | | | 300,000 | | | 50,000 | | | 250,000 | | | * | |
| Bi-Coastal Pharmaceutical Corp. (25) | | | 100,000 | | | 100,000 | | | - | | | * | |
__________
* | Represents holdings of less than one percent |
(1) | Securities beneficially owned by Pierce Diversified Strategy Master Fund LLC includes 205,882 shares of common stock underlying warrants immediately exercisable and 30,000 shares of common stock underlying warrants exercisable as of August 16, 2007. The natural person who has voting and dispositive power for these shares is Mitch Levine, managing member of Pierce Diversified Strategy Master Fund LLC. Mr. Levine disclaims beneficial ownership of the shares except for his pecuniary interest. |
(2) | Securities beneficially owned by LibertyView Capital Management represent shares of common stock, of which 400,000 are held of record by LibertyView Special Opportunities Fund, L.P., 80,000 are held of record by LibertyView Socially Responsible Fund, L.P. and 520,000 are held of record by LibertyView Funds, L.P. In addition, securities beneficially owned by LibertyView Capital Management include shares of common stock underlying warrants exercisable as of August 16, 2007, of which 200,000 shares are held of record by LibertyView Special Opportunities Fund, L.P., 40,000 are held of record by LibertyView Socially Responsible Fund, L.P. and 260,000 are held of record by LibertyView Funds, L.P. The natural person who has voting and dispositive power for the funds named above is Richard A. Meckler. LibertyView Capital Management and Mr. Meckler disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest therein. The selling security holder has indicated to the issuer that it may be considered an affiliate of a broker-dealer. The selling security holder has represented to the issuer that the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, the selling security holder had no agreements or understandings, directly or indirectly, with any party to distribute the securities. |
(3) | Securities beneficially owned by Trust D (for a portion of the assets of the Kodak Retirement Income Plan) represent 100,000 shares of common stock underlying warrants exercisable as of August 17, 2007. LibertyView Capital Management is the general manager of the fund and the natural person who has voting and dispositive power for these shares is Richard A. Meckler. LibertyView Capital Management and Mr. Meckler disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(4) | The shares listed herein are owned by Fort Mason Master, L.P, and Fort Mason partners, L.P. (Collectively, the “Fort Mason Funds”). 751,280 shares of common stock underlying warrants exercisable as of August 16, 2007 are held of record by Fort Mason Master, L.P. and 48,720 of common stock underlying warrants exercisable as of August 16, 2007 are held of record by Fort Mason Partners, L.P. Fort Mason Capital, LLC serves as the general partner of each of the Fort Mason Funds and, in such capacity, exercises sole voting and investment authority with respect to such shares. Mr. Daniel German serves as the sole managing member of Fort Mason Capital, LLC. Fort Mason Capital, LLC and Mr. German disclaim beneficial ownership of the shares, except to the extent of its or his pecuniary interest, if any. |
(5) | Securities beneficially owned by Enable Partners represent shares of common stock, of which 1,020,000 are held of record by Enable Growth Partners LP and 120,000 are held of record by Enable Opportunity Partners LP. In addition, Enable Partners represents shares of common stock underlying warrants immediately exercisable of which 873,529 shares are held of record by Enable Growth Partners LP and 177,941 shares are held of record by Enable Opportunity Partners LP and shares of common stock underlying warrants exercisable as of August 16, 2007 of which 510,000 are held of record by Enable Growth Partners LP and 60,000 are held of record by Enable Opportunity Partners LP. The natural person who has voting and dispositive power for the shares held by both funds named above is Mitch Levine, who is managing member of both funds. Enable Partners and Mr. Levine disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(6) | Securities beneficially owned by RHP Master Fund, Ltd. represent 200,000 shares of common stock underlying warrants exercisable as of August 17, 2007. RHP Master Fund, Ltd. is a party to an investment management agreement with Rock Hill Investment Management, L.P., a limited partnership of which the general partner is RHP General partner, LLC. Pursuant to such agreement, Rock Hill Investment Management directs the voting and disposition of shares owned by RHP Master Fund. Messrs. Wayne Bloch and Peter Lockhart own all of the interests in RHP General Partner. The aforementioned entities and individuals own all of the interests in RHP General Partner. The aforementioned entities and individuals disclaim beneficial ownership of the Company’s Common Stock owned by the RHP Master Fund. |
(7) | Securities beneficially owned by White Box Advisors, LLC represent shares of common stock, of which 400,000 are held of record by Pandora Select Partners, L.P. and 800,000 are held of record by Whitebox Intermarket Partners, L.P. In addition, White Box Advisors, LLC represents shares of common stock underlying warrants exercisable as of August 16, 2007, of which 200,000 shares are held of record by Pandora Select Partners, L.P. and 400,000 are held of record by Whitebox Intermarket Partners, L.P. The natural person who has voting and dispositive power for the shares held by both funds named above is Jonathan Wood, Director of White Box Advisors, LLC. White Box Advisors, LLC and Mr. Wood disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(8) | Securities beneficially owned by Capital Ventures International represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Heights Capital Management, Inc. is the authorized agent of the fund and the natural person who has voting and dispositive power for these shares is Martin Kobinger, investment manager of Heights Capital Management, Inc. Heights Capital Management, Inc. and Mr. Kobinger disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. The selling security holder has indicated to the issuer that it may be considered an affiliate of a broker-dealer. The selling security holder has represented to the issuer that the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, the selling security holder had no agreements or understandings, directly or indirectly, with any party to distribute the securities. |
(9) | Securities beneficially owned by Cranshire Capital, L.P. represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Downsview Capital, Inc. is the general manager of the fund named above and the natural person who has voting and dispositive power for these shares is Mitchell Kopin, the President of Downsview Capital Inc. Downsview Capital, Inc. and Mr. Kopin disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(10) | Securities beneficially owned by Evolution Master Fund, Ltd., SPC, Segregated Portfolio M represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Evolution Capital Management, LLC is the general manager of the fund and the natural person who has voting and dispositive power for these shares is Adrian John Brindle, Director of Evolution Capital Management, LLC. Evolution Capital Management, LLC and Mr. Brindle disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. The selling security holder has indicated to the issuer that it may be considered an affiliate of a broker-dealer. The selling security holder has represented to the issuer that the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, the selling security holder had no agreements or understandings, directly or indirectly, with any party to distribute the securities. |
(11) | Securities beneficially owned by Highbridge International, LLC represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Highbridge Capital Management, LLC is the trading manager of Highbridge International LLC and has voting and investment discretion over the securities held by Highbridge International LLC. Glenn Dubin and Henry Swieca control Highbridge Capital Management, LLC. Each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims beneficial ownership of the securities held by Highbridge International LLC. |
(12) | Securities beneficially owned by Midsummer Investment, Ltd. represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. The natural persons who have voting and dispositive power for these shares are Michael Amsalem and Scott D. Kaufman. Messrs. Amesalem and Kaufman disclaim beneficial ownership of the shares except to the extent of each of their respective pecuniary interests. |
(13) | Management of QVT Fund L.P. is vested in its general partner, QVT Associates GP LLC. QVT Financial L.P. is the investment manager for WVT Fund L.P. and shares voting and investment control over the Company securities held by QVT Fund L.P. QVT Financial GP LLC is the general partner of QVT Financial L.P. and as such has complete discretion in the management and control of the business affairs of QVT Financial L.P. The managing members of WVT Financial GP LLC are Daniel Gold, Lars Bader, Tracy Fu and Nicholas Brumm. Each of WVT Financial L.P., QVT Financial GP LLC, Daniel Gold, Lars Bader, Tracy Fu and Nicholas Brumm disclaims beneficial ownership of the Company’s securities held by QVT Fund L.P., of which 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. |
(14) | Pursuant to an investment management agreement, RG Capital Management, L.P. (“RG Capital”) serves as the investment manager of Radcliffe SPC, LTd.’s Class A Segregated Portfolio. RGC Management Company, LLC (“Management”) is the general partner of RG Capital. Steve Katznelson and Gerald Stahlecker serve as the managing members of Management. Each of RG Capital, Management and Messrs. Katznelson and Stahlecker disclaims beneficial ownership of the securities owned by Radcliffe SPC, Ltd., for and on behalf of the Class A Segregated Portfolio, of which 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. |
(15) | Securities beneficially owned by Sandelman Partners Multi-Strategy Master Fund, Ltd. represent 600,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Sandelman Partners, L.P. is the general partner of the fund and the natural person who has voting and dispositive power for these shares is Jonathan Sandelman, managing member of Sandelman Partners, L.P. Sandelman Partners, L.P. and Mr. Sandelman disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(16) | Securities beneficially owned by Alexandra Global Master Fund, LTD represent 800,000 shares of common stock underlying warrants exercisable as of August 17, 2007. Alexandra Investment Management, LLC is the investment advisor of the fund and the natural person who has voting and dispositive power for these shares is Mikhail Filimonov. Alexandra Investment Management, LLC and Mr. Filimonov disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(17) | Securities beneficially owned by Credit Suisse Securities (USA) LLC represent 800,000 shares of common stock underlying warrants exercisable as of August 17, 2007. The natural person who has voting and dispositive power for these shares is Jeff Andreski, Managing Director of Credit Suisse Securities (USA) LLC. Mr. Andreski disclaims beneficial ownership of the shares except for his pecuniary interest. The selling security holder has indicated to the issuer that it is a broker-dealer. The selling security holder has represented to the issuer that it did not receive the securities as compensation for investment banking services to the issuer and the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, the selling security holder had no agreements or understandings, directly or indirectly, with any party to distribute the securities. |
(18) | Securities beneficially owned by Silver Oak Capital, LLC represent 800,000 shares of common stock underlying warrants exercisable as of August 17, 2007. The natural persons who have voting and dispositive power for these shares are John M. Angelo and Michael L. Gordon. Messrs. Angelo and Gordon disclaim beneficial ownership of the shares except to the extent of each of their respective pecuniary interests. The selling security holder has indicated to the issuer that it may be an affiliate of a broker-dealer. The selling security holder has represented to the issuer that the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, the selling security holder had no agreements or understandings, directly or indirectly, with any party to distribute the securities. |
(19) | Thomas G. Pinou holds voting and/or dispositive power over the securities held by the selling stockholder. Rodman & Renshaw, LLC (“Rodman”) is a NASD member broker-dealer. We do not have any arrangement with Rodman for it to act as a broker-dealer for the sale of the shares included herein for the selling stockholders. Rodman may be deemed to be an underwriter with respect to its respective sales of shares to be offered by them by this registration statement. Rodman served as placement agent in connection with our financing in February 2007 pursuant to which the registration statement is being filed. Listed shares consist of 1,200,000 shares of common stock underlying warrants exercisable as of August 17, 2007 issued for compensation for services provided to us in connection with the February 2007 private placement. |
(20) | Securities beneficially owned by EXI International Inc. represent 50,000 shares of common stock underlying warrants which expire as of December 1, 2009 and 25,000 shares of common stock underlying warrants which expire as of December 1, 2009. The natural person who has voting and dispositive power for these shares is Akos Jankura. Mr. Jankura disclaims beneficial ownership of the shares except to his pecuniary interest. |
(21) | Securities beneficially owned by ITV Global, Inc. represent 100,000 shares of common stock underlying warrants which expire as of November 15, 2009, 150,000 shares of common stock underlying warrants which expire as of August 23, 2010, 50,000 shares of common stock underlying warrants which expire as of August 23, 2010 and 50,000 shares of common stock underlying warrants which expire as of August 23, 2010. The natural person who has voting and dispositive power for these shares is Christopher A. Wood, President of ITV Global, Inc. ITV Global and Mr. Wood disclaim beneficial ownership of the shares except to the extent of its or his pecuniary interest. |
(22) | Securities beneficially owned by White Sales and Marketing, Inc. represent 100,000 shares of common stock underlying warrants which expire as of January 10, 2009 and 100,000 shares of common stock underlying warrants which expire as of January 10, 2009. The natural person who has voting and dispositive power for these shares is Jeffrey R. White. Mr. White disclaims beneficial ownership of the shares except to his pecuniary interest. |
(23) | The natural person who has voting and dispositive power for these shares is Jeffrey R. White. Securities beneficially owned by Mr. White represent 75,000 shares of common stock underlying warrants which are exercisable after March 31, 2007. Mr. White disclaims beneficial ownership of the shares except for his pecuniary interest. |
(24) | Securities beneficially owned Wolfe Axelrod Weinberger Associates, LLC represent 50,000 shares of common stock underlying warrants which expire as of September 6, 2009. The natural person who has voting and dispositive power for these shares is Stephen D. Axelrod. Mr. Axelrod disclaims beneficial ownership of the shares except for his pecuniary interest. |
(25) | Securities beneficially owned by Bi-Coastal Pharmaceutical Corp. represent 100,000 shares of common stock underlying an outstanding warrant received subject to a service agreement. The natural person who has voting and dispositive power for these shares is Ralph Mess Jr. Mr. Messa disclaims beneficial ownership of the shares except for his pecuniary interest. |
Each of the selling shareholders, and any of their donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interestswarrants in sharesthe over-allotment option. To close out a short position, the underwriters may elect to exercise all or part of common stock received after the dateover-allotment option. The underwriters may also elect to stabilize the price of this prospectus from a selling shareholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares ofour common stock or interestsreduce any short position by bidding for, and purchasing, common stock in the open market. Since the warrants will not be listed and are not expected to trade, the underwriters cannot purchase the warrants in the open market and, as a result, the underwriters cannot and will not enter into naked short positions.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.
Finally, the underwriters may bid for, and purchase, shares of our common stock on any stock exchange,in market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailingmaking transactions, including “passive” market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices. A selling shareholder will act independently of NutraCea in making decisions with respect to the timing, manner and size of each sale.
A selling stockholder may use any one or more of the following methods when selling shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; |
| · | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
| · | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.described below.
our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on ______________, in the over-the-counter market, or otherwise.
In connection with this offering, the sale of theunderwriters and selling group members, if any, or their affiliates may engage in passive market making transactions in our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling stockholders and/or the purchasers. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each selling stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i) two years after the initial sale of the resale shares, (ii) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (iii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the distribution. Exchange Act. Rule 103 generally provides that:
| · | a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers; |
| · | net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and |
| · | passive market making bids must be identified as such. |
Other Terms
Commencing on August 6, 2013 and for a period of 12 months thereafter, we have agreed to pay Maxim Group LLC a monthly advisory fee of $10,000.
In addition, we have agreed to reimburse the selling stockholders willunderwriters for all reasonable out-of-pocket expenses up to $100,000, including but not limited to reasonable legal fees, incurred by the underwriters in connection with the offering. Any expenses in excess of $10,000, excluding fees for legal counsel, shall be subject to applicable provisionsthe prior approval of the Company, which such approval shall not be unreasonably withheld. The Company shall reimburse the underwriters for all such expenses regardless of whether the offering is consummated.
The underwriters and their affiliates may in the future provide various investment banking and other financial services for us, for which they may receive, in the future, customary fees. On August 6, 2013, we entered into an engagement agreement with Maxim Group LLC to provide advisory services related to potential mergers and acquisitions of the Company.
Indemnification
We have agreed to indemnify the underwriters against liabilities relating to the offering arising under the Securities Act and the Exchange Act, liabilities arising from breaches of some or all of the representations and warranties contained in the rulesunderwriting agreement, and regulations thereunder, including Regulation M, whichto contribute to payments that the underwriters may limitbe required to make for these liabilities.
Electronic Distribution
A prospectus in electronic format may be made available on a website maintained by the timingrepresentatives of purchasesthe underwriters and may also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters to underwriters that may make Internet distributions on the same basis as other allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses that are printable as Adobe® PDF will be used in connection with this offering.
The underwriters have informed us that they do not expect to confirm sales of shares of the common stockand warrants offered by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior toaccounts over which they exercise discretionary authority.
Other than the timeprospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of the sale (includingprospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by compliance with Rule 172 under the Securities Act).us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Weintraub GenshleaTobin Chediak Coleman Grodin Law Corporation will pass upon the validity of the securities offered hereby. Certain legal matters in connection with this offering will be passed upon for the validity of the shares of common stock offered hereby for us.underwriters by Ellenoff Grossman & Schole LLP.
The consolidated financial statements of NutraCea as of December 31, 2005, and for each of the years in the two-year period ended December 31, 2005,2012 and 2011 included in this prospectus and in this Registration Statement have been so included in the prospectus in reliance uponon the report of Malone & Bailey, PC,BDO USA, LLP, an independent auditor,registered public accounting firm, (the report on the Consolidated Financial Statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern) appearing elsewhere herein and in the Registration Statement, given upon the authority of said firm as experts in accounting and auditing.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The consolidated financial statements appearingNo expert or counsel named in this Prospectus and Registration Statement have been audited by Perry-Smith, LLP,prospectus as having prepared or certified any part of this prospectus or having given an independent registered public accounting firm, to the extent and for the periods indicated in their report appearing elsewhere herein, and are included in reliance upon such report andopinion upon the authorityvalidity of the securities being registered or upon other legal matters in connection with the registration or offering of the shares and warrants and its underlying securities was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such firmperson connected with the registrant or any of its parents or subsidiaries as experts in accounting and auditing.a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
WHEREWHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C., 20549, under the Securities Act of 1933, a registration statement on Form S-1 relating to the securities offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and the securities we are offering by this prospectus you should refer to the registration statement, including the exhibits and schedules thereto. You may inspect a copy of the registration statement without charge at the Public Reference Section of the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission's World Wide Web address is http://www.sec.gov.
We file annual, quarterly and specialperiodic reports, proxy statements and other information with the Securities and Exchange Commission. You may readCommission in accordance with requirements of the Exchange Act. These periodic reports, proxy statements and copy any reports, statements or other information are available for inspection and copying at the regional offices, public reference facilities and Internet site of the Securities and Exchange Commission referred to above. In addition, you may request a copy of any of our periodic reports filed with the Securities and Exchange Commission at no cost, by writing or telephoning us at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further informationfollowing address:
Investor Relations
RiceBran Technologies
6720 N. Scottsdale Road, Suite 390
Scottsdale, Arizona 85253
(602) 522-3000
Information contained on our website is not a prospectus and does not constitute a part of this prospectus.
You should rely only on the publicinformation contained in or incorporated by reference room. Our filingsor provided in this prospectus. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the SEC are also available tooffer is not permitted. You should not assume the public from commercial document retrieval services and at the SEC’s web site at “http://www.sec.gov.”
Thisinformation in this prospectus is partaccurate as of a registration statement we have filed withany date other than the SEC relating todate on the securities that may be offered by the selling shareholders. As permitted by SEC rules,front of this prospectus does not contain all of the information we have included in the registration statement and the accompanying exhibits and schedules we file with the SEC. You may refer to the registration statement, the exhibits and schedules for more information about our securities and us. The registration statement, exhibits and schedules are available at the SEC’s Public Reference Room.prospectus.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
RICEBRAN TECHNOLOGIES CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements
for the Three and Six Months Ended June 30, 2013and 2012 (unaudited)
Consolidated Financial Statements
for the Years Ended December 31, 2012 and 2011
| Page |
| F-24 | |
| F-25 | |
| F-26 | |
| F-27 | |
| F-28 | |
| | | F-7F-29 | |
| | | F-8F-30 | |
Condensed Consolidated Balance Sheets
June 30, 2013 and December 31, 2012
(Unaudited) (in thousands, except share amounts)
| | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 213 | | | $ | 1,040 | |
| Restricted cash | | | 1,919 | | | | 1,919 | |
| Accounts receivable, net of allowance for doubtful accounts of $409 and $518 (variable interest entity restricted $2,645 and $2,505) | | | 4,003 | | | | 3,487 | |
| Inventories | | | 1,731 | | | | 1,994 | |
| Deferred tax asset | | | 223 | | | | 234 | |
| Income and operating taxes recoverable | | | 523 | | | | 1,167 | |
| Deposits and other current assets | | | 846 | | | | 975 | |
| Total current assets | | | 9,458 | | | | 10,816 | |
| Property, net (variable interest entity restricted $5,245 and $5,757) | | | 25,909 | | | | 28,457 | |
| Goodwill | | | 4,374 | | | | 4,773 | |
| Intangible assets, net | | | 1,951 | | | | 2,575 | |
| Other long-term assets | | | 867 | | | | 385 | |
| Total assets | | $ | 42,559 | | | $ | 47,006 | |
| | | | | | | | |
| LIABILITIES, TEMPORARY EQUITY AND EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 3,623 | | | $ | 3,021 | |
| Accrued expenses | | | 4,744 | | | | 4,509 | |
| Current maturities of debt (variable interest entity nonrecourse $7,277 and $7,013) | | | 8,801 | | | | 8,003 | |
| Total current liabilities | | | 17,168 | | | | 15,533 | |
| Long-term liabilities: | | | | | | | | |
| Long-term debt, less current portion (variable interest entity nonrecourse $6,935 and $7,454 ) | | | 12,334 | | | | 11,581 | |
| Deferred tax liability | | | 559 | | | | 1,674 | |
| Derivative warrant liabilities | | | 6,782 | | | | 4,520 | |
| Total liabilities | | | 36,843 | | | | 33,308 | |
| | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | |
| Temporary Equity: | | | | | | | | |
| Redeemable noncontrolling interest in Nutra SA | | | 7,836 | | | | 9,262 | |
| Redeemable common stock (2,118,644 shares outstanding) | | | 178 | | | | - | |
| Total temporary equity | | | 8,014 | | | | 9,262 | |
| | | | | | | | |
| Equity: | | | | | | | | |
| Equity (deficit) attributable to RiceBran Technologies shareholders: | | | | | | | | |
| Preferred stock, 20,000,000 shares authorized and none issued | | | - | | | | - | |
| Common stock, no par value, 1,200,000,000 shares authorized, 220,300,654, and 207,616,097 shares issued and outstanding | | | 211,856 | | | | 210,396 | |
| Accumulated deficit | | | (212,200 | | | | (204,420 | ) |
| Accumulated other comprehensive loss | | | (1,954 | ) | | | (1,540 | ) |
| Total equity (deficit) attributable to RiceBran Technologies shareholders | | | (2,298 | ) | | | 4,436 | |
| Total liabilities, temporary equity and equity | | $ | 42,559 | | | $ | 47,006 | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands, except per share amounts)
| | Three Months Ended | | | Six Months Ended | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | |
| Revenues | | $ | 9,388 | | | $ | 9,711 | | | $ | 18,097 | | | $ | 19,457 | |
| Cost of goods sold | | | 8,110 | | | | 7,948 | | | | 15,853 | | | | 15,953 | |
| Gross profit | | | 1,278 | | | | 1,763 | | | | 2,244 | | | | 3,504 | |
| | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 2,355 | | | | 3,058 | | | | 5,261 | | | | 6,703 | |
| Professional fees | | | 223 | | | | 516 | | | | 730 | | | | 987 | |
| Impairment of property | | | - | | | | 1,069 | | | | 300 | | | | 1,069 | |
| Total operating expenses | | | 2,578 | | | | 4,643 | | | | 6,291 | | | | 8,759 | |
| | | | | | | | | | | | | | | | |
| Loss from operations | | | (1,300 | ) | | | (2,880 | ) | | | (4,047 | ) | | | (5,255 | ) |
| | | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 16 | | | | 16 | | | | 26 | | | | 63 | |
| Interest expense | | | (1,024 | ) | | | (387 | ) | | | (1,653 | ) | | | (805 | ) |
| Foreign currency exchange, net | | | (538 | ) | | | (576 | ) | | | (288 | ) | | | (782 | ) |
| Change in fair value of derivative warrant and conversion liabilities | | | 1,044 | | | | 2,868 | | | | (2,494 | ) | | | 506 | |
| Loss on extinguishment | | | (494 | ) | | | - | | | | (526 | ) | | | (2,986 | ) |
| Financing expense | | | (564 | ) | | | (20 | ) | | | (564 | ) | | | (1,544 | ) |
| Other income | | | 2 | | | | 3 | | | | 5 | | | | 7 | |
| Other expense | | | (223 | ) | | | (23 | ) | | | (348 | ) | | | (117 | ) |
| Total other income (expense) | | | (1,781 | ) | | | 1,881 | | | | (5,842 | ) | | | (5,658 | ) |
| | | | | | | | | | | | | | | | |
| Loss before income taxes | | | (3,081 | ) | | | (999 | ) | | | (9,889 | ) | | | (10,913 | ) |
| Income tax benefit | | | 571 | | | | 369 | | | | 1,081 | | | | 911 | |
| Net loss | | | (2,510 | ) | | | (630 | ) | | | (8,808 | ) | | | (10,002 | ) |
| Net loss attributable to noncontrolling interest in Nutra SA | | | 543 | | | | 429 | | | | 1,028 | | | | 972 | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (1,967 | ) | | $ | (201 | ) | | $ | (7,780 | ) | | $ | (9,030 | ) |
| | | | | | | | | | | | | | | | |
| Loss per share attributable to RiceBran Technologies shareholders | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.01 | ) | | $ | (0.00 | ) | | $ | (0.04 | ) | | $ | (0.04 | ) |
| Diluted | | $ | (0.01 | ) | | $ | (0.00 | ) | | $ | (0.04 | ) | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | |
| Weighted average number of shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | | 214,733 | | | | 204,589 | | | | 211,729 | | | | 203,634 | |
| Diluted | | | 214,733 | | | | 204,589 | | | | 211,729 | | | | 203,634 | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Comprehensive Loss
Three and Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands)
| | Three Months | | | Six Months | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | |
| Net loss | | $ | (2,510 | ) | | $ | (630 | ) | | $ | (8,808 | ) | | $ | (10,002 | ) |
| | | | | | | | | | | | | | | | |
| Other comprehensive loss - foreign currency translation, net of tax | | | (960 | ) | | | (1,584 | ) | | | (812 | ) | | | (1,237 | ) |
| | | | | | | | | | | | | | | | |
| Comprehensive loss, net of tax | | | (3,470 | ) | | | (2,214 | ) | | | (9,620 | ) | | | (11,239 | ) |
| | | | | | | | | | | | | | | | |
| Comprehensive loss attributable to noncontrolling interest, net of tax | | | 1,013 | | | | 1,205 | | | | 1,426 | | | | 1,578 | |
| | | | | | | | | | | | | | | | |
| Total comprehensive loss attributable to RiceBran Technologies shareholders | | $ | (2,457 | ) | | $ | (1,009 | ) | | $ | (8,194 | ) | | $ | (9,661 | ) |
See Notes to Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands)
| | 2013 | | | 2012 | |
| Cash flow from operating activities: | | | | | | |
| Net loss | | $ | (8,808 | ) | | $ | (10,002 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 1,999 | | | | 2,524 | |
| Provision for doubtful accounts receivable | | | 2 | | | | 292 | |
| Stock and share-based compensation | | | 336 | | | | 692 | |
| Change in fair value of derivative warrant and conversion liabilities | | | 2,494 | | | | (506 | ) |
| Loss on extinguishment | | | 526 | | | | 2,986 | |
| Financing expense | | | 564 | | | | 1,544 | |
| Impairment of property | | | 300 | | | | 1,069 | |
| Deferred tax benefit | | | (1,080 | ) | | | (911 | ) |
| Other | | | (20 | ) | | | 166 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (1,063 | ) | | | (766 | ) |
| Inventories | | | 243 | | | | 405 | |
| Accounts payable and accrued expenses | | | 1,173 | | | | (370 | ) |
| Pre-petition liabilities | | | - | | | | (1,615 | ) |
| Other | | | 469 | | | | 329 | |
| Net cash used in operating activities | | | (2,865 | ) | | | (4,163 | ) |
| | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchases of property | | | (1,250 | ) | | | (3,793 | ) |
| Proceeds from sale of property | | | 836 | | | | 276 | |
| Payment for license | | | (1,200 | ) | | | - | |
| Receipts on notes receivable | | | - | | | | 600 | |
| Restricted cash | | | - | | | | 200 | |
| Other | | | - | | | | (16 | ) |
| Net cash used in investing activities | | | (1,614 | ) | | | (2,733 | ) |
| | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Payments of debt | | | (6,511 | ) | | | (5,345 | ) |
| Proceeds from issuance of debt, net of issuance costs | | | 8,423 | | | | 7,052 | |
| Proceeds from issuance of convertible debt and related warrants | | | 537 | | | | 2,411 | |
| Proceeds from sale of membership interest in RBT PRO | | | 1,200 | | | | - | |
| Net cash provided by financing activities | | | 3,649 | | | | 4,118 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 3 | | | | (18 | ) |
| Net change in cash and cash equivalents | | | (827 | ) | | | (2,796 | ) |
| Cash and cash equivalents, beginning of period | | | 1,040 | | | | 3,329 | |
| Cash and cash equivalents, end of period | | $ | 213 | | | $ | 533 | |
| | | | | | | | |
| Supplemental disclosures: | | | | | | | | |
| Cash paid for interest | | $ | 1,278 | | | $ | 704 | |
| Cash paid for income taxes | | | - | | | | - | |
See Notes to Unaudited Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of RiceBran Technologies and subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted. The Interim Financial Statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2012. The report of our independent registered public accounting firm that accompanies the audited consolidated financial statements for the year ended December 31, 2012, included in that Annual Report on Form 10-K, contains a going concern explanatory paragraph in which our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern. We have experienced significant losses and negative cash flows and have an accumulated deficit in excess of $200 million as of June 30, 2013. Further, although we are focusing on raising additional funds to operate our business, there can be no assurances that these efforts will prove successful.
The interim results reported in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for the full fiscal year, or any other future period, and have been prepared assuming we will continue as a going concern based on the realization of assets and the satisfaction of liabilities in the normal course of business.
Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation with the current year.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are applicable to us and adoption of which could potentially have a material impact on our consolidated financial statements.
NOTE 2. BUSINESS
We are a human food ingredient and animal nutrition company focused on the procurement, bio-refining and marketing of numerous products derived from rice bran. We have proprietary and patented intellectual property that allows us to convert rice bran, one of the world’s most underutilized food sources, into a number of highly nutritious human food and animal nutrition products. Our target markets are human food and animal nutrition manufacturers and retailers, as well as natural food, functional food and nutraceutical supplement manufacturers and retailers, both domestically and internationally. We have developed a bio-refining approach to processing raw rice bran into various value added constituents such as stabilized rice bran (SRB), rice bran oil (RBO), defatted rice bran (DRB) and a variety of other valuable derivative products from each of these core products.
We have three reportable business segments: (i) Corporate; (ii) USA, which manufactures and distributes SRB in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; and (iii) Brazil, which extracts crude RBO and DRB from rice bran, which are then further processed into a number of valuable human food and animal nutrition products. The Corporate segment includes selling, general and administrative expenses including public company expenses, litigation, and other expenses not directly attributable to other segments. No Corporate allocations are made to the other segments. General corporate interest is not allocated.
The USA segment consists of two locations in California and two locations in Louisiana all of which can produce SRB. One of the two Louisiana SRB facilities, located in Lake Charles, has been idle since May 2009. The USA segment also includes our Dillon, Montana Stage II facility which produces RiSolubles (a highly nutritious, carbohydrate and lipid rich fraction of SRB), RiFiber (a fiber rich derivative of SRB) and RiBalance (a complete rice bran nutritional package derived from further processing SRB). The manufacturing facilities included in our USA segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into finished products. Approximately 50% of USA segment revenue is from sales of human food products and 50% is from sales of animal nutrition products.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Brazil segment consists of the consolidated operations of Nutra SA, LLC, whose only operating subsidiary is Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas, Brazil. Irgovel manufactures RBO and DRB products for both the human and animal food markets in Brazil and internationally. In refining RBO to an edible grade, several co-products are obtained. One such product is distilled fatty acids, a valuable raw material for the detergent industry. DRB is sold in bulk as animal feed and compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market. Approximately 46% of Brazil segment product revenue was from sales of RBO products and 54% was from sales of DRB products.
NOTE 3. LIQUIDITY AND MANAGEMENT’S PLAN
We continue to experience losses and negative cash flows from operations which raises substantial doubt about our ability to continue as a going concern. We currently have insufficient funds to support our operations and service our debt in the near term and have inadequate financing arrangements in place at this time. Although we believe that we will be able to obtain the funds necessary to operate our business, there can be no assurances that our efforts will prove successful. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
In the ongoing effort to improve profitability, significant emphasis will be placed on growing revenues. The growth of revenues is expected to include the following:
| · | growth in existing markets for stabilized rice bran (SRB), rice bran oil (RBO) and defatted rice bran (DRB); |
| · | expanding our product offerings and improving existing products; |
| · | aligning with strategic partners who can provide channels for additional sales of our products; and |
| · | implementing price increases. |
We may also monetize certain assets which could result in additional impairment of asset values. Asset monetization may include some or all of the following:
| · | sale of certain facilities; |
| · | sale of an interest in one or more subsidiaries; or |
| · | sale of surplus equipment. |
We continue to evaluate the possibility of raising funds through the issuance of additional subordinate debt or equity.
NOTE 4. LOSS PER SHARE (EPS)
Basic EPS is computed by dividing net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of common shares outstanding during all periods presented. Shares underlying options, warrants and convertible debt are excluded from the basic EPS calculation but are considered in calculating diluted EPS.
Diluted EPS is computed by dividing the net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. The dilutive effect of outstanding options and warrants is calculated using the treasury stock method. The dilutive effect of outstanding convertible debt is calculated using the if-converted method.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Below are reconciliations of the numerators and denominators in the EPS computations for the three and six months ended June 30, 2013 and 2012.
| | Three Months Ended | | | Six Months Ended | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| NUMERATOR (in thousands): | | | | | | | | | | | | |
| Basic and diluted - net loss attributable to RiceBran Technologies shareholders | | $ | (1,967 | ) | | $ | (201 | ) | | $ | (7,780 | ) | | $ | (9,030 | ) |
| | | | | | | | | | | | | | | | |
| DENOMINATOR: | | | | | | | | | | | | | | | | |
| Basic EPS - weighted average number of shares outstanding | | | 214,732,733 | | | | 204,588,939 | | | | 211,728,950 | | | | 203,633,571 | |
| Effect of dilutive securities outstanding | | | - | | | | - | | | | - | | | | - | |
| Diluted EPS - weighted average number of shares outstanding | | | 214,732,733 | | | | 204,588,939 | | | | 211,728,950 | | | | 203,633,571 | |
| | | | | | | | | | | | | | | | |
| 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 (average exercise price for the three and six months ended June 30, 2013 of $0.14 and $0.15) | | | 36,978,329 | | | | 38,821,934 | | | | 35,815,160 | | | | 39,335,617 | |
| Warrants (average exercise price for the three and six months ended June 30, 2013 of $0.09 and $0.11) | | | 146,254,823 | | | | 120,710,994 | | | | 153,804,297 | | | | 113,711,533 | |
| Convertible debt (average conversion price for the three and six months | | | 89,598,240 | | | | 49,300,000 | | | | 91,640,490 | | | | 44,529,813 | |
The impact of potentially dilutive securities outstanding at June 30, 2013 and 2012, was not included in the calculation of diluted EPS in 2013 and 2012 because to do so would be antidilutive. Those securities listed in the table above which were antidilutive in 2013 and 2012, which remain outstanding, could potentially dilute EPS in the future.
NOTE 5. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA
We hold a variable interest which relates to our equity interest in Nutra SA, LLC (Nutra SA). We are the primary beneficiary of Nutra SA, and as such, Nutra SA’s assets, liabilities and results of operations are included in our consolidated financial statements. The other equity holders’ interests are reflected in net loss attributable to noncontrolling interest in Nutra SA, in the consolidated statements of operations, and redeemable noncontrolling interest in Nutra SA, in the consolidated balance sheets. Our variable interest in Nutra SA is our Brazil segment. A summary of the carrying amounts of Nutra SA balances included in our consolidated balance sheets follows (in thousands).
| | | | | | |
| Cash and cash equivalents | | $ | 132 | | | $ | 562 | |
| Other current assets (restricted $2,645 and $2,505) | | | 4,836 | | | | 5,675 | |
| Property, net (restricted $5,245 and $5,757) | | | 18,155 | | | | 19,690 | |
| Goodwill and intangibles, net | | | 5,390 | | | | 6,215 | |
| Other noncurrent assets | | | 155 | | | | 54 | |
| Total assets | | $ | 28,668 | | | $ | 32,196 | |
| | | | | | | | |
| Current liabilities | | $ | 5,507 | | | $ | 5,141 | |
| Current portion of long-term debt (nonrecourse) | | | 7,277 | | | | 7,013 | |
| Long-term debt, less current portion (nonrecourse) | | | 6,935 | | | | 7,454 | |
| Other noncurrent liabilities | | | 559 | | | | 1,871 | |
| Total liabilities | | $ | 20,278 | | | $ | 21,479 | |
Nutra SA’s debt is secured by its accounts receivable and property. Our parent company and our non-Brazilian subsidiaries do not guarantee any of Nutra SA’s debt.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
A summary of changes in redeemable noncontrolling interest for the three and six months ended June 30, 2013 and 2012, follows (in thousands).
| | Three Months Ended | | | Six Months Ended | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| Redeemable noncontrolling interest in Nutra SA, beginning of period | | $ | 8,849 | | | $ | 9,545 | | | $ | 9,262 | | | $ | 9,918 | |
| Investors' interest in net loss of Nutra SA | | | (543 | ) | | | (429 | ) | | | (1,028 | ) | | | (972 | ) |
| Investors' interest in other comprehensive loss of Nutra SA | | | (470 | ) | | | (776 | ) | | | (398 | ) | | | (606 | ) |
| Redeemable noncontrolling interest in Nutra SA, end of period | | $ | 7,836 | | | $ | 8,340 | | | $ | 7,836 | | | $ | 8,340 | |
In December 2010, we entered into a membership interest purchase agreement (MIPA) with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (Investors). The Investors’ interest was 49.0% in all periods presented. The Investors’ share of Nutra SA’s net income (loss) increases (decreases) redeemable noncontrolling interest.
The Investors have the right to purchase from Nutra SA up to an additional 750,000 units for another $1.5 million. If immediately prior to such purchase Nutra SA and Irgovel have sufficient cash to complete certain projects, then the units will have no voting rights. In the second quarter of 2013, we transferred $0.7 million in cash from the Parent Company to Nutra SA. In exchange, title was returned to us for certain equipment contributed to Nutra SA in December 2012 with an historical cost of $0.2 million.
Redeemable noncontrolling interest in Nutra SA is recorded in temporary equity, above the equity section and after liabilities on our consolidated balance sheets, because the Investors have the right to force a sale of Nutra SA assets in the future (see Drag Along Rights described below). We have assessed the likelihood of the Investors exercising these rights as less than probable at June 30, 2013, in part because it is more likely the Investors will exercise other rights prior to January 2014. We will continue to evaluate the probability of the Investors exercising their Drag Along rights each reporting period. We will begin to accrete the redeemable noncontrolling interest up to fair value if and when it is probable the Investors will exercise these rights.
We are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the MIPA.
Under the limited liability company agreement for Nutra SA (LLC agreement), as amended, any units held by the Investors beginning January 1, 2014, accrue a yield at 8% (the Yield). Commencing with the first quarter of 2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors. Until March 31, 2014, or if at any time Nutra SA is past due on its obligations to pay the Investors the Yield, all amounts due to us for management fees or for shared employees as provided under the LLC Agreement shall be tolled and remain unpaid until all past due amounts, if any, owed to the Investors have been paid in full.
Following the payment of the Yield, Nutra SA must distribute all distributable cash (as defined in the LLC Agreement) to the members on March 31 of each year as follows: (i) first, to the Investors in an amount equal to 2.3 times the Investors’ capital contributions, less the aggregate amount of distributions paid to the Investors, (ii) second, to us in an amount equal to two times the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iii) third, to us and the Investors in proportion to our respective membership interests.
Under the LLC agreement, the business of Nutra SA is to be conducted by the manager, currently our CEO, subject to the oversight of the management committee. The management committee is comprised of three of our representatives and two Investor representatives. Upon an event of default or a qualifying event, we will no longer control the management committee and the management committee will include three Investor representatives and two of our representatives. In addition, following an event of default or a qualifying event, a majority of the members of the management committee may replace the manager of Nutra SA.
As of June 30, 2013, there have been no events of default. Events of default, as defined in the MIPA, are:
| · | A Nutra SA business plan deviation, defined as the occurrence, for either 2013 or 2014, of a 20% unfavorable variation in two out of three of the following: (i) revenue, (ii) earnings before interest, taxes, depreciation and amortization (EBITDA) or (iii) debt, |
| · | A Nutra SA EBITDA default, which is defined as the failure to achieve 85% of planned EBITDA for three consecutive quarters, or |
| · | A material problem, which is defined as a material problem in a facility (unrelated to changes in law, weather, etc.) likely to cause a Nutra SA business plan deviation or Nutra SA EBITDA default, which results in damages not at least 80% covered by insurance proceeds. |
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of June 30, 2013, there have been no qualifying events. The LLC agreement, defines a qualifying event as any event prior to September 16, 2014, which results, or will result in, (i) a person or group of persons exercising the right to appoint members to our board of directors holding one third or more of the votes of all board members, (ii) the sale, exchange, pledge or use as guarantee of one half or more of our ownership interest in Nutra SA to a third party or (iii) the bankruptcy of RiceBran Technologies or Nutra SA.
The Investors have certain rights, summarized below, under an investor rights agreement and the LLC agreement, as further defined in the agreements.
| · | Conversion Rights – The Investors may exchange units in Nutra SA for equity interests in Irgovel. After any exchange, the Investors would possess the same rights and obligations with respect to the securities of Irgovel, as they have in Nutra SA. |
| · | Global Holding Company (GHC) Roll-Up – If we form an entity, GHC, to hold our Brazil segment assets, the Investors may exchange units in Nutra SA for equity interests in GHC. The investors may exercise this right after the second anniversary of the formation of GHC or, if an event of default has occurred, after the GHC formation date. The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in GHC. |
| · | RiceBran Technologies Roll-Up – The Investors may exchange units in Nutra SA for our common stock.. This right is available upon the earlier of January 2014 or upon an event of default. We may elect to postpone our obligation to complete the roll-up to January 2015 if the roll-up would result in over 25% of our common stock being owned by the Investors. The appraised fair value of the Investors’ interest in Nutra SA and the market price of our stock would be used to determine the amount of ownership interest the Investors would receive. |
| · | Drag Along Rights – The Investors have the right to force the sale of all Nutra SA assets after the earlier of January 2014 or the date of an event of default or qualifying event. The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined). We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale. |
In evaluating whether we are the primary beneficiary of Nutra SA, we considered the matters which could be put to a vote of the members. Until there is an event of default or a qualifying event, the Investors’ rights and abilities, individually or in the aggregate, do not allow them to substantively participate in the operations of Nutra SA. The Investors do not currently have the ability to dissolve Nutra SA or otherwise force the sale of all its assets. They do have such rights in the future (Drag Along Rights as described above). We will continue to evaluate our ability to control Nutra SA each reporting period.
Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the LLC agreement.
NOTE 6. INVENTORIES
Inventories are composed of the following (in thousands):
| | | | | | |
| Finished goods | | $ | 1,211 | | | $ | 1,146 | |
| Work in process | | | 138 | | | | 330 | |
| Raw materials | | | 127 | | | | 255 | |
| Packaging supplies | | | 255 | | | | 263 | |
| Total inventories | | $ | 1,731 | | | $ | 1,994 | |
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 7. PROPERTY
Property consisted of the following (in thousands):
| | | | | | |
| Land | | $ | 390 | | | $ | 403 | |
| Furniture and fixtures | | | 357 | | | | 358 | |
| Plant | | | 15,023 | | | | 14,362 | |
| Computer and software | | | 1,400 | | | | 1,407 | |
| Leasehold improvements | | | 200 | | | | 189 | |
| Machinery and equipment | | | 15,402 | | | | 15,053 | |
| Construction in progress | | | 6,390 | | | | 9,118 | |
| Property | | | 39,162 | | | | 40,890 | |
| Less accumulated depreciation | | | 13,253 | | | | 12,433 | |
| Property, net | | $ | 25,909 | | | $ | 28,457 | |
Included in accounts payable at June 30, 2013, is $0.7 million related to amounts payable for capital expansion project additions.
NOTE 8. EQUITY METHOD INVESTMENT
In 2011, we entered into an agreement with a partner with the goal of developing technology to extract and concentrate protein from rice bran. In March 2013, the agreement was mutually terminated under terms whereby we each received (i) the right to separately develop, modify and improve the jointly developed technology owned by the partner and (ii) a nonexclusive, royalty free, perpetual license to that technology (License). We paid the partner $1.2 million as a lump sum in April 2013.
RBT PRO, LLC (RBT PRO) was a wholly owned subsidiary whose only asset was the License acquired in March 2013. In April 2013, we entered into a series of agreements with various affiliates of Wilmar International Limited (collectively Wilmar). In connection therewith, we sold a 50% membership interest in RBT PRO to Wilmar for $1.2 million. RBT PRO granted an exclusive, royalty free, perpetual sublicense of the License to Wilmar for use throughout China and to the Parent Company for use worldwide, excluding China.
We also entered into a cross license agreement with Wilmar. We agreed to license to Wilmar all of our intellectual property with respect to processing of rice bran and its derivatives for use in China. Wilmar agreed to license to us (i) its intellectual property with respect to processing of rice bran, and its derivatives, based on the intellectual property licensed to Wilmar under the License for use worldwide, excluding China and (ii) its other intellectual property with respect to processing of rice bran, and its derivatives, for use worldwide, excluding certain countries in Asia.
Under the agreements, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar. If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation. The exercise price for the option will equal 25% of the capital investment made in the entity, plus interest, as defined in the agreement.
There was no gain or loss recognized on these transactions because we entered the agreement with the partner in contemplation of the agreements with Wilmar. Our investment in RBT PRO is zero as of June 30, 2013 and RBT PRO has had no net income or loss since inception.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 9. DEBT
The following table summarizes current and long-term portions of debt (in thousands).
| | | | | | |
| Corporate segment: | | | | | | |
| Senior convertible revolving note, net | | $ | 1,291 | | | $ | - | |
| Senior convertible debentures, net | | | 198 | | | | 1,048 | |
| Subordinated convertible notes, net | | | 5,397 | | | | 4,041 | |
| Other | | | 38 | | | | 28 | |
| | | 6,924 | | | | 5,117 | |
| Brazil segment: | | | | | | | | |
| Capital expansion loans | | | 5,070 | | | | 5,555 | |
| Equipment financing | | | 175 | | | | 201 | |
| Working capital lines of credit | | | 3,726 | | | | 2,227 | |
| Advances on export letters of credit | | | 3,165 | | | | 3,953 | |
| Special tax programs | | | 2,075 | | | | 2,531 | |
| | | 14,211 | | | | 14,467 | |
| Total debt | | | 21,135 | | | | 19,584 | |
| Current portion | | | 8,801 | | | | 8,003 | |
| Long-term portion | | $ | 12,334 | | | $ | 11,581 | |
Corporate Segment
As of June 30, 2013, our convertible debt consists of the following components (in thousands):
| | Senior Convertible | | | Senior | | | Subordinated Convertible Notes | | | | |
| | Revolving Note | | | Convertible Debentures | | | Halpern Entities | | | Other Investors | | | Total | |
| Principal outstanding | | $ | (1,268 | ) | | $ | (195 | ) | | $ | (2,600 | ) | | $ | (3,373 | ) | | $ | (7,436 | ) |
| Discount | | | 58 | | | | 15 | | | | 511 | | | | 3,373 | | | | 3,957 | |
| Derivative conversion liabilities | | | (81 | ) | | | (18 | ) | | | (1,371 | ) | | | (1,937 | ) | | | (3,407 | ) |
| Debt | | $ | (1,291 | ) | | $ | (198 | ) | | $ | (3,460 | ) | | $ | (1,937 | ) | | $ | (6,886 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Debt - current portion | | $ | (1,291 | ) | | $ | (195 | ) | | $ | - | | | $ | - | | | $ | (1,486 | ) |
| Debt - long-term portion | | | - | | | | (3 | ) | | | (3,460 | ) | | | (1,937 | ) | | | (5,400 | ) |
Senior Convertible Revolving Note
Under a revolving credit facility with TCA Global Credit Master Fund, LP (TCA), effective May 2013, as amended July 2013, we may borrow up to $8 million, based on the amount of eligible accounts receivable we provide to secure the repayment of the amounts borrowed. We expect the amount of our eligible receivables will limit our ability to borrow under this facility, such that our outstanding borrowings at any time are less than approximately $2.4 million. Borrowings under the agreement are evidenced by a revolving note which accrues interest at the rate of 12% per year and is due in January 2014. We owe TCA various other fees under the agreement that are expected to average approximately 7% of average borrowings per year.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
USA segment accounts receivable collections are required to be directed to a TCA owned account. Collections TCA receives, in excess of amounts due for interest and fees, are treated as additional repayments and reduce amounts outstanding. Minimum cumulative repayments are $0.1 million as of October 2013, $0.2 million as of November 2013 and $0.3 million as of December 2013, or 15% of the total initially borrowed in each tranche, if greater. Until cumulative repayments equal the required minimum, TCA may withhold 20% of collections. We may request, on a weekly basis, that TCA advance us any amounts collected in excess of amounts (i) due for interest and fees and (ii) required to meet the minimum cumulative repayments.
In May 2013, we borrowed $1.4 million under the TCA revolving note (first tranche). The proceeds net of cash expenses totaled $1.2 million and were used to (i) pay down $0.4 million of debt, (ii) fund a $0.5 million investment in Nutra SA and (iii) for general corporate purposes. In addition to cash expenses, we issued TCA 2,118,644 shares of our common stock with a market value of $0.2 million ($0.08 per share) at issuance. We also issued equity warrants to investment bankers with a fair value of $0.1 million for the purchase of 1,200,000 shares of common stock, exercisable at $0.08 per share, through May 2018. The total $0.5 million costs incurred with the first tranche closing, consisting of $0.3 million of cash expenses and the $0.2 million fair values of the common stock and warrants are recorded as debt issuance costs in other long-term assets and are being amortized to interest expense over the term of the note. During the second quarter of 2013, amounts outstanding under the agreement averaged $1.3 million.
In July 2013, we borrowed an additional $0.6 million under the TCA revolving note (second tranche). The net proceeds of $0.6 million were used to make a $0.1 million investment in Nutra SA and for general corporate purposes. In addition to cash expenses, we issued TCA 4,000,000 shares of our common stock with a market value of $0.2 million ($0.08 per share) at issuance. We issued equity warrants to investment bankers with a fair value of less than $0.1 million for the purchase of 514,286 shares of common stock, exercisable at $0.08 per share, through July 2018. The total $0.3 million costs incurred with the second tranche closing, consisting of $0.1 million of cash expenses and the $0.2 million fair values of the common stock and warrants will also be recorded as debt issuance costs in other long-term assets and be amortized to interest expense over the remaining term of the note.
We have guaranteed that TCA will realize a minimum $0.08 per share when shares of our common stock issued in connection with the first tranche are sold and a minimum $0.07 per share when shares issued in connection with the second tranche are sold, if the shares are sold within the period beginning one year from the date of issuance and ending three years from the date of issuance. We are required to issue additional shares in the event of a shortfall, sufficient for TCA to realize the minimums. Or TCA may elect for us to redeem the shares for a cash amount equal to the minimum for the related tranche in January 2014. As of June 30, 2013, the 2,118,644 shares of common stock issued to TCA in May 2013 are recorded in temporary equity at $0.2 million, the fair value of the shares at issuance, which exceeds the redemption value of the shares at June 30, 2013. The 4,000,000 shares of common stock issued to TCA in July 2013, will also be carried in temporary equity at the greater of their fair value at issuance or their current redemption value, until the redemption feature lapses.
Upon an event of default, as defined in the agreement, TCA has the right to voluntarily convert all or any portion of the outstanding principal, interest and other amounts due under the agreement into shares of our common stock at a conversion price equal to 85% of the lowest daily volume weighted average price during the five trading days immediately prior to the conversion date. Because the conversion feature could require us to issue an indeterminate number of shares for settlement, the conversion feature is a derivative liability, classified as debt on our balance sheets. If TCA voluntarily converts, we have guaranteed that TCA will realize a minimum per share, when shares of our common stock issued in connection with the conversion are sold, equal to the volume weighted average price of our common stock during the five trading days immediately prior to the conversion date. As a result of the $0.1 million conversion liability associated with the first tranche, we recorded a debt discount at issuance of $0.1 million which is amortizing to interest expense over the term of the revolving note. At June 30, 2013, the conversion liability on the revolving note was $0.1 million.
During the term of the agreement, the Corporate and USA segments may not without TCA’s consent or approval, among other things, (i) enter into new debt (ii) make any new investments, except capital expenditures less than $0.3 million per year, (iii) issue or redeem stock, (iv) declare or pay dividends or make other distributions to shareholders, and (v) make loans and distributions of assets to any persons, including affiliates.
In connection with the TCA transaction, our factoring agreement was cancelled and we paid the $0.1 million outstanding balance on the agreement in the second quarter of 2013.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Senior Convertible Debentures
In the first and second quarter of 2013, the holder of the debentures converted $0.1 million and $0.3 million of the outstanding principal into 1,400,000 shares and 4,285,714 shares of our common stock, at a conversion price of $0.07. We recognized, for each conversion, a loss on extinguishment of $0.1 million, representing the difference between the market values of the shares of common stock issued and the $0.1 and $0.4 million carrying amounts of the debt (including the related derivative conversion liability), on the date of conversion.
Under a May 2013 amendment to the senior convertible debenture, we agreed to prepay $0.3 million of the of the outstanding principal and issue 1,714,286 shares of common stock to the holder, and the holder agreed to share its senior interest in its collateral pari passu with TCA. The remaining $0.2 million principal is payable in equal monthly installments from July 2013 through December 2013. Prior to the amendment, principal was due in equal monthly installments from June 2013 to January 2014. We expensed the $0.3 million fair value of the shares issued in connection with the amendment and $0.01 million cash amendment fees as loss on extinguishment.
Subordinated Convertible Notes
In the second quarter of 2013, we issued subordinated convertible notes and related warrants, which are described in the chart below.
Issuance | | Principal Amount of Notes (in thousands) | | Creditor's Debt Conversion Right | | Stated Annual Interest Rate on Debt | | Maturity Date of Debt | | Number of Shares Under Warrant | | Exercise Price of Warrant | | Expiration Date of Warrant |
| | | | | | | | | | | | | | |
| Subordinated Convertible Notes and Warrants | | $ | 538 | | Convertible immediately at $0.07 per share | | | 10 | % | July 2015 or July 2016 | | | 7,680,038 | | Exercisable immediately at $0.08 per share | | July 2017 or May 2018 |
The convertible debt and warrants listed in the table above contain full ratchet antidilution provisions and require the holders to provide us with 61 day notice prior to conversion or exercise if the holder would have a beneficial ownership interest in excess of 4.99% immediately after conversion or exercise. The $0.5 million of proceeds from issuance of the convertible notes and related warrants was used for repayment of debt and for general corporate purposes.
With regard to the issuances of convertible notes and related warrants listed in the table above, the total of (i) the $0.5 million fair value of the conversion features issued, (ii) the $0.5 million fair value of the liability warrants issued and (iii) the $0.1 million fair value of our common stock issued, exceeded the $0.5 million proceeds from these issuances, therefore we recorded financing costs of $0.6 million in the second quarter of 2013. The initial debt discounts recorded for the convertible notes equaled the principal amount of the notes at issuance. Because the fair value at issuance of the conversion features and warrants exceeded the proceeds from these issuances, in each case, under the effective interest method, this will result in the debt discount being expensed when the principal of the note matures or is redeemed, in proportion to the principal reduction.
In May 2013, we entered into agreements to allow each holder of existing subordinated convertible notes and warrants to invest in additional notes and related warrants and provided that each holder making an additional investment (i) receive 2.5 shares of our common stock for each dollar invested and (ii) agree to extend the maturity date for all of their notes to July 2016. Further, each holder of outstanding convertible notes could elect (PIK Election), in lieu of receiving cash interest payments otherwise payable though June 2014 on their existing convertible notes to receive (i) an increase in the number of shares of common stock underlying their notes (ii) an equity warrant to purchase shares of our common stock and (ii) 2.5 shares of our common stock for each dollar of interest otherwise payable through June 2014.
One holder made an additional investment in a subordinated convertible note and related warrant of $0.4 million in May 2013 (included in the issuances discussed two paragraphs above), and, as a result, (i) the maturity date on the holder’s outstanding convertible notes in the principal amount of $1.1 million was extended from July 2015 to July 2016 and (ii) we issued 1,000,000 shares of common stock. No gain or loss was recognized as a result of the extension of the maturity date of the existing notes as the terms were not substantially different.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Other holders of convertible notes in the principal amount of $0.3 million made the PIK Election, without making an additional investment. As a consequence, in the second quarter of 2013, we issued 605,255 shares of common stock with a fair value of $0.2 million and, in lieu of paying interest of $0.1 million accrued through June 30, 2013, we (i) increased the shares of common stock underlying the holders convertible notes 869,167 shares and (ii) issued equity warrants for the purchase of up to 869,167 shares of common stock, at an exercise price of $0.08 per share, and a May 2018 expiration. The equity warrants were recorded in equity, at their $0.1 million fair value as of the date of issuance. The change in fair value of the convertible notes from the increase in the underlying shares was less than $0.1 million. We recognized a loss on extinguishment for the difference between the fair value of the consideration issued and the accrued interest as of the date of the PIK election. Changes in fair value after the PIK elections, from increases in the shares of common stock underlying the PIK warrants and underlying the related convertible notes are recorded as interest expense.
Other Notes
In the second quarter of 2013, we also issued to Mr. Halpern a promissory note in the principal amount of $0.1 million, which was paid in full later in the quarter.
Brazil Segment
All Brazil segment debt is denominated in the Brazilian Real (R$), except advances on export letters of credit which are denominated in U.S. Dollars.
In the first quarter of 2013, Irgovel received R$2.0 million ($1.0 million) under a working capital line of credit agreement. The lending bank withheld R$1.0 million ($0.5 million) of the amount borrowed in a bank account, until the second quarter of 2013, when Irgovel had sufficient accounts receivable to withdraw the funds.
NOTE 10. PRE-PETITION LIABILITIES
On November 10, 2009, our parent company (formerly known as NutraCea) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Arizona in the proceeding entitled In re: NutraCea, Case No. 2:09-bk-28817-CGC. None of our subsidiaries were included in the bankruptcy filing. Creditors voted overwhelmingly in favor of an amended plan of reorganization which called for the payment in full of all allowed claims, and the plan became effective on November 30, 2010. In January 2012, we made our final $1.6 million distribution to the general unsecured creditors.
NOTE 11. EMPLOYEE BONUS PLAN
In 2010, our board of directors approved a cash incentive bonus plan. As of August 14, 2013, the plan, as amended, provides for payment of $0.6 million to employees, still employed at the time of payment, when (i) we are cash flow positive, defined by our board as earnings before interest, taxes, depreciation, amortization and certain non-cash charges, and (ii) cash is available for the payment as determined by our board at its sole discretion. In 2013, our board of directors approved an executive bonus plan which provides for payments of $0.3 million to employees, still employed at the time of payment, when cash is available for the payment as determined by our board at its sole discretion. Because the consolidated operating cash flow and cash availability conditions were not met as of June 30, 2013, and December 31, 2012, our board of directors has not approved payments and no accruals have been recorded for these bonuses.
NOTE 12. COMMITMENTS AND CONTINGENCIES
In addition to the matters discussed below, from time to time we are involved in litigation incidental to the conduct of our business. 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.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Litigation
On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining former Irgovel stockholders (Sellers), requesting: (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion. The amount of damage claimed by Mr. Resyng is approximately $3 million.
We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement). Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.
On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million. We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above. The Parent Company has not been served with any formal notices in regard to this matter. To date, only Irgovel has received formal legal notice. In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration. As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies. We believe any payout due to the lawsuit will be made out of the escrow account. As of June 30, 2013 and December 31, 2012, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets. There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of June 30, 2013 and December 31, 2012, totaling $1.3 million and $1.4 million. When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement. As of June 30, 2013, $0.7 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.4 million to settle any remaining contingencies. We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account. The Parent Company has agreed to pay ninety percent of any funds received from the escrow account to Nutra SA, with no resulting change in our Nutra SA voting rights.
NOTE 13. EQUITY, SHARE-BASED COMPENSATION AND LIABILITY WARRANTS
A summary of equity activity for the six months ended June 30, 2013, (in thousands, except share data) follows.
| Common Stock | | Accumulated | | | Accumulated Other Comprehensive | | | Total | |
| Shares | | Amount | | Deficit | | | Loss | | | Equity | |
| Balance, December 31, 2012 | | 207,616,097 | | $ | 210,396 | | $ | (204,420 | ) | | $ | (1,540 | ) | | $ | 4,436 | |
| Share-based compensation, options | | - | | | 234 | | | - | | | | - | | | | 234 | |
| Conversion of senior subordinated debenture | | 5,685,714 | | | 500 | | | - | | | | - | | | | 500 | |
| Common stock issued for fees and services | | 6,998,843 | | | 588 | | | - | | | | - | | | | 588 | |
| Warrants issued for fees and services | | - | | | 138 | | | - | | | | - | | | | 138 | |
| Foreign currency translation | | - | | | - | | | - | | | | (414 | ) | | | (414 | ) |
| Net loss | | - | | | - | | | (7,780 | ) | | | - | | | | (7,780 | ) |
| Balance June 30, 2013 | | 220,300,654 | | $ | 211,856 | | $ | (212,200 | ) | | $ | (1,954 | ) | | $ | (2,298 | ) |
In June 2013, our shareholders approved an increase in the number of our authorized shares of common stock from 500,000,000 to 1,200,000,000.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
A summary of stock option and warrant activity for the six months ended June 30, 2013, follows.
| Options | | Equity and Liability Warrants | |
| Shares Under Options | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Shares Under Warrants | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | |
| Outstanding, December 31, 2012 | | 33,850,895 | | | $ | 0.16 | | | 6.3 | | | 161,353,777 | | | $ | 0.12 | | | 3.5 | |
| Granted | | 5,750,000 | | | | 0.08 | | | | | | 9,749,205 | | | | 0.08 | | | | |
| Impact of anti-dilution clauses | | - | | | | - | | | | | | 416,437 | | | | - | | | | |
| Exercised | | - | | | | - | | | | | | - | | | | - | | | | |
| Forfeited, expired or cancelled | | (2,642,143 | ) | | | 0.41 | | | | | | (29,221,130 | ) | | | 0.33 | | | | |
| Outstanding, June 30, 2013 | | 36,958,752 | | | $ | 0.13 | | | 6.4 | | | 142,298,289 | | | $ | 0.08 | | | 3.8 | |
| Exercisable, June 30, 2013 | | 29,184,863 | | | $ | 0.13 | | | 5.8 | | | 142,298,289 | | | $ | 0.08 | | | 3.8 | |
Options
In April 2013, our board increased the number of shares of common stock that each non-employee director automatically receives annually each January 1 under our 2010 Equity Incentive Plan from 250,000 to 1,000,000 shares. In connection with the increase in the automatic director grant, in April 2013, our board granted each of our five non-employee directors a stock option to purchase up to 750,000 shares of common stock. Each option has an exercise price of $0.08 per share, vests in nine equal monthly installments ending December 31, 2013, and expires in April 2023. In January 2013, we issued each of those five non-employee directors an option for the purchase of up to 250,000 shares of common stock under the non-employee director automatic grant provision. Each option has an exercise price of $0.08 per share, vests in twelve equal monthly installments ending December 2013, and expires in January 2023.
In April 2013, the Board granted each of the two directors serving on the Strategic Committee and consulting special counsel a stock option to purchase up to 250,000 shares of common stock. Each option has an exercise price of $0.08 per share, vests in twelve equal monthly installments ending in March 2014 and expires in April 2018.
Warrants
We have outstanding warrants classified as equity (equity warrants) and as derivative warrant liability (liability warrants). We have certain warrant agreements in effect for outstanding liability warrants that contain antidilution clauses. Under the antidilution clauses, in the event of equity issuances, we may be required to lower the exercise price on liability warrants and increase the number of shares underlying liability warrants. Equity issuances may include issuances of our common stock, certain awards of options to employees, and issuances of warrants and/or other convertible instruments below a certain exercise price.
The April 2013 issuances of convertible debt and related warrants triggered the antidilution clauses in certain warrants and, as a result, we lowered the exercise price and increased the number of underlying shares on those liability warrants in April 2013. The affected warrants subsequently expired in April 2013 with 29,221,130 underlying shares.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes information related to outstanding warrants:
| | | | As of June 30, 2013 | | | As of December 31, 2012 | |
Range of Exercise Prices | | Type of Warrant | | Shares Under Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Shares Under Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | |
| $ | 0.07-$0.08 | | Liability | | | 139,077,938 | | | $ | 0.08 | | | | 3.8 | | | | 131,397,900 | | | $ | 0.08 | | | | 4.2 | |
| $ | 0.08 | | Equity | | | 2,069,167 | | | | 0.08 | | | | 4.9 | | | | - | | | | - | | | | - | |
| $ | 0.23 | | Equity | | | 605,730 | | | | 0.23 | | | | 3.4 | | | | 605,730 | | | | 0.23 | | | | 3.9 | |
| $ | 0.33 | | Liability | | | - | | | | - | | | | - | | | | 28,804,693 | | | | 0.33 | | | | 0.3 | |
| $ | 0.69 | | Equity | | | 545,454 | | | | 0.69 | | | | 0.3 | | | | 545,454 | | | | 0.69 | | | | 0.8 | |
| | | | | | | 142,298,289 | | | $ | 0.08 | | | | 3.8 | | | | 161,353,777 | | | $ | 0.12 | | | | 3.5 | |
NOTE 14. SEGMENT INFORMATION
The tables below present segment information for the periods identified and provide reconciliations of segment information to total consolidated information (in thousands).
| Three Months Ended June 30, 2013 | | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Revenues | | $ | - | | | $ | 3,125 | | | $ | 6,263 | | | $ | 9,388 | |
| Cost of goods sold | | | - | | | | 2,358 | | | | 5,752 | | | | 8,110 | |
| Gross profit | | | - | | | | 767 | | | | 511 | | | | 1,278 | |
| Depreciation and amortization (in selling, general and administrative) | | | (5 | ) | | | (118 | ) | | | (195 | ) | | | (318 | ) |
| Intersegment fees | | | (56 | ) | | | - | | | | 56 | | | | - | |
| Other operating expense | | | (1,219 | ) | | | (144 | ) | | | (897 | ) | | | (2,260 | ) |
| Loss from operations | | $ | (1,280 | ) | | $ | 505 | | | $ | (525 | ) | | $ | (1,300 | ) |
| | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (1,909 | ) | | $ | 505 | | | $ | (563 | ) | | $ | (1,967 | ) |
| Interest expense | | | 599 | | | | - | | | | 425 | | | | 1,024 | |
| Depreciation (in cost of goods sold) | | | - | | | | 233 | | | | 479 | | | | 712 | |
| Purchases of property | | | 2 | | | | 116 | | | | 416 | | | | 534 | |
| | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2013 | | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Revenues | | $ | - | | | $ | 6,034 | | | $ | 12,063 | | | $ | 18,097 | |
| Cost of goods sold | | | - | | | | 4,563 | | | | 11,290 | | | | 15,853 | |
| Gross profit | | | - | | | | 1,471 | | | | 773 | | | | 2,244 | |
| Depreciation and amortization (in selling, general and administrative) | | | (11 | ) | | | (239 | ) | | | (399 | ) | | | (649 | ) |
| Intersegment fees | | | - | | | | - | | | | - | | | | - | |
| Other operating expense | | | (2,335 | ) | | | (1,121 | ) | | | (2,186 | ) | | | (5,642 | ) |
| Loss from operations | | $ | (2,346 | ) | | $ | 111 | | | $ | (1,812 | ) | | $ | (4,047 | ) |
| | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (7,122 | ) | | $ | 411 | | | $ | (1,069 | ) | | $ | (7,780 | ) |
| Interest expense | | | 875 | | | | - | | | | 778 | | | | 1,653 | |
| Depreciation (in cost of goods sold) | | | - | | | | 458 | | | | 891 | | | | 1,349 | |
| Purchases of property | | | 6 | | | | 128 | | | | 1,116 | | | | 1,250 | |
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months Ended June 30, 2012 | | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Revenues | | $ | - | | | $ | 3,153 | | | $ | 6,558 | | | $ | 9,711 | |
| Cost of goods sold | | | - | | | | 2,154 | | | | 5,794 | | | | 7,948 | |
| Gross profit | | | - | | | | 999 | | | | 764 | | | | 1,763 | |
| Depreciation and amortization (in selling, general and administrative) | | | (43 | ) | | | (308 | ) | | | (35 | ) | | | (386 | ) |
| Intersegment fees | | | 56 | | | | - | | | | (56 | ) | | | - | |
| Impairment of property | | | - | | | | (1,069 | ) | | | - | | | | (1,069 | ) |
| Other operating expense | | | (1,447 | ) | | | (628 | ) | | | (1,113 | ) | | | (3,188 | ) |
| Loss from operations | | $ | (1,434 | ) | | $ | (1,006 | ) | | $ | (440 | ) | | $ | (2,880 | ) |
| | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | 1,259 | | | $ | (1,015 | ) | | $ | (445 | ) | | $ | (201 | ) |
| Interest expense | | | 166 | | | | 9 | | | | 212 | | | | 387 | |
| Depreciation (in cost of goods sold) | | | - | | | | 278 | | | | 421 | | | | 699 | |
| Purchases of property | | | - | | | | 64 | | | | 2,186 | | | | 2,250 | |
| | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2012 | | Corporate | | | USA | | | Brazil | | | Consolidated | |
| Revenues | | $ | - | | | $ | 6,564 | | | $ | 12,893 | | | $ | 19,457 | |
| Cost of goods sold | | | - | | | | 4,553 | | | | 11,400 | | | | 15,953 | |
| Gross profit | | | - | | | | 2,011 | | | | 1,493 | | | | 3,504 | |
| Depreciation and amortization (in selling, general and administrative) | | | (71 | ) | | | (639 | ) | | | (460 | ) | | | (1,170 | ) |
| Intersegment fees | | | 112 | | | | - | | | | (112 | ) | | | - | |
| Impairment of property | | | - | | | | (1,069 | ) | | | - | | | | (1,069 | ) |
| Other operating expense | | | (2,723 | ) | | | (1,297 | ) | | | (2,500 | ) | | | (6,520 | ) |
| Loss from operations | | $ | (2,682 | ) | | $ | (994 | ) | | $ | (1,579 | ) | | $ | (5,255 | ) |
| | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (7,009 | ) | | $ | (1,010 | ) | | $ | (1,011 | ) | | $ | (9,030 | ) |
| Interest expense | | | 321 | | | | 17 | | | | 467 | | | | 805 | |
| Depreciation (in cost of goods sold) | | | - | | | | 535 | | | | 819 | | | | 1,354 | |
| Purchases of property | | | - | | | | 66 | | | | 3,727 | | | | 3,793 | |
The tables below present segment information for selected balance sheet accounts (in thousands).
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
As of June 30, 2013 | | | | | | | | | | | | |
| Inventories | | $ | - | | | $ | 801 | | | $ | 930 | | | $ | 1,731 | |
| Property, net | | | 57 | | | | 7,697 | | | | 18,155 | | | | 25,909 | |
| Goodwill | | | - | | | | - | | | | 4,374 | | | | 4,374 | |
| Intangible assets, net | | | - | | | | 935 | | | | 1,016 | | | | 1,951 | |
| Total assets | | | 3,100 | | | | 10,791 | | | | 28,668 | | | | 42,559 | |
| | | | | | | | | | | | | | | | |
As of December 31, 2012 | | | | | | | | | | | | | | | | |
| Inventories | | | - | | | | 764 | | | | 1,230 | | | | 1,994 | |
| Property, net | | | 36 | | | | 8,731 | | | | 19,690 | | | | 28,457 | |
| Goodwill | | | - | | | | - | | | | 4,773 | | | | 4,773 | |
| Intangible assets, net | | | - | | | | 1,133 | | | | 1,442 | | | | 2,575 | |
| Total assets | | | 3,201 | | | | 11,609 | | | | 32,196 | | | | 47,006 | |
All changes in goodwill between December 31, 2012 and June 30, 2013, relate to foreign currency translation. Corporate segment total assets include cash, restricted cash, property and other assets.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents revenue by geographic area for the three and six months ended June 30, 2013 and 2012 (in thousands).
| | Three Months | | | Six Months | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| United States | | $ | 3,067 | | | $ | 2,787 | | | $ | 6,662 | | | $ | 5,816 | |
| Brazil | | | 5,526 | | | | 4,855 | | | | 9,797 | | | | 9,771 | |
| Other international | | | 795 | | | | 2,069 | | | | 1,638 | | | | 3,870 | |
| Total revenues | | $ | 9,388 | | | $ | 9,711 | | | $ | 18,097 | | | $ | 19,457 | |
NOTE 15. FAIR VALUE MEASUREMENT
The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities. As of June 30, 2013, the fair value of our USA segment debt is approximately $2.5 million higher than the carrying value of that debt, based on current market rates for similar debt with similar maturities. The fair value of our Brazil segment debt approximates the carrying value of that debt based on the 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:
| ● | Level 1 – inputs include quoted prices for identical instruments and are the most observable. |
| ● | Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves. |
| ● | 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.
The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):
| | | Level 1 | | Level 2 | | Level 3 | | Total | |
June 30, 2013 | | | | | | | | | | |
| Derivative warrant liabilities | (1) | | $ | - | | $ | - | | $ | (6,782 | ) | $ | (6,782 | ) |
| Derivative conversion liabilities | (2) | | | - | | | - | | | (3,407 | ) | | (3,407 | ) |
| Total liabilities at fair value | | | $ | - | | $ | - | | $ | (10,189 | ) | $ | (10,189 | ) |
| | | | | | | | | | | | | | |
December 31, 2012 | | | | | | | | | | | | | | |
| Derivative warrant liabilities | (1) | | $ | - | | $ | - | | $ | (4,520 | ) | $ | (4,520 | ) |
| Derivative conversion liabilities | (2) | | | - | | | - | | | (2,199 | ) | | (2,199 | ) |
| Total liabilities at fair value | | | $ | - | | $ | - | | $ | (6,719 | ) | $ | (6,719 | ) |
| (1) | These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations. The lattice model requires 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 is determined by reference to the treasury yield curve rate of instruments with the same term as the warrant. Additional assumptions that were used to calculate fair value follow. |
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | June 30, 2013 | | December 31, 2012 |
| Risk-free interest rate | | 0.0% - 1.4% | | 0.1% - 0.7% |
| | (1.0% weighted average) | | (0.6% weighted average) |
| Expected volatility | | 85% | | 93% |
| (2) | These conversion liabilities are valued using a lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations. The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current conversion price of the debt. The risk-free interest rate is determined by reference to the treasury yield curve rate of instruments with the same term as the underlying debt. Additional assumptions that were used to calculate fair value follow. |
| | June 30, 2013 | | December 31, 2012 |
| Risk-free interest rate | | 0.1-0.7% | | 0.2-0.3% |
| | (0.5% weighted average) | | (0.3% weighted average) |
| Expected volatility | | 85% | | 93% |
The following tables summarize the changes in level 3 items measured at fair value on a recurring basis (in thousands):
| | Fair Value as of Beginning of Period | | | Total Realized and Unrealized Gains (Losses) | | | Issuance of New Instruments | | | Net Transfers (Into) Out of Level 3 | | | Fair Value, at End of Period | | | Change in Unrealized Gains (Losses) on Instruments Still Held | |
| | | | | | (1 | ) | | | | | | (2 | ) | | | | | | |
Six Months Ended June 30, 2013 | | | | | | | | | | | | | | | | | | | | |
| Derivative warrant liability | | $ | (4,520 | ) | | $ | (1,724 | ) | | $ | (538 | ) | | $ | - | | | $ | (6,782 | ) | | $ | (1,724 | ) |
| Derivative conversion liability | | | (2,199 | ) | | | (770 | ) | | | (537 | ) | | | 99 | | | | (3,407 | ) | | | (896 | ) |
| Total Level 3 fair value | | $ | (6,719 | ) | | $ | (2,494 | ) | | $ | (1,075 | ) | | $ | 99 | | | $ | (10,189 | ) | | $ | (2,620 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative warrant liability | | $ | (1,296 | ) | | $ | (667 | ) | | $ | (4,969 | ) | | $ | 711 | | | $ | (6,221 | ) | | $ | (272 | ) |
| Derivative conversion liability | | | - | | | | 1,173 | | | | (3,686 | ) | | | - | | | | (2,513 | ) | | | 1,173 | |
| Total Level 3 fair value | | $ | (1,296 | ) | | $ | 506 | | | $ | (8,655 | ) | | $ | 711 | | | $ | (8,734 | ) | | $ | 901 | |
| (1) | Included in change in fair value of derivative warrant and conversion liabilities in our consolidated statements of operations. |
| (2) | Represents transfers to equity as a result of the exercise of a warrant in 2012 and conversion of debt in 2013. |
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables summarize the fair values by input hierarchy of items measured at fair value in our balance sheets on a nonrecurring basis (in thousands).
| | | | | | | | | | | 2013 | |
| | | As of June 30, 2013 | | Impairment | |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Losses | |
| | | | | | | | | | | (1) | |
| Property, net | (1) | | $ | - | | $ | - | | $ | 394 | | $ | 394 | | $ | 300 | |
| Property, net | | | $ | - | | $ | - | | $ | 394 | | $ | 394 | | $ | 300 | |
| | | | | | | | | | | 2012 | |
| | | As of December 31, 2012 | | Impairment | |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Losses | |
| | | | | | | | | | | (1) | |
| Property, net | (1) | | $ | - | | $ | - | | $ | 1,058 | | $ | 1,058 | | $ | 1,069 | |
| Property, net | | | $ | - | | $ | - | | $ | 1,058 | | $ | 1,058 | | $ | 1,069 | |
| (1) | Machinery and equipment not currently in use was evaluated for impairment and as a result was written down to estimated fair value in the first quarter of 2013 and the second quarter of 2012. Fair value is an estimate of net realizable value comprised of an estimate of proceeds from sale, based on an internal evaluation of market conditions, less estimated costs to sell. The estimate of net realizable value is subject to change. |
NOTE 16. RELATED PARTY TRANSACTIONS
Transactions with Director Baruch Halpern
In January 2012, Baruch Halpern became a member of our board of directors. Mr. Halpern is the principal in Halpern Capital, Inc. (HC). Under a February 2011 financial advisor agreement we were obligated to pay HC success fees ranging from 2.5% to 5.0% of the consideration received from certain equity, convertible securities or debt transactions. We were also required to issue warrants to purchase shares of common stock that equaled from 2.5% to 5.0% of the consideration received in those transactions, divided by either the market price of the common stock or the conversion price of the securities issued in the transaction. This agreement terminated April 1, 2012, however we remained obligated to pay HC success fees and issue HC warrants on any transaction with an investor introduced by HC though March 31, 2013.
During the three months ended March 31, 2012, in connection with the January 2012 issuances of the subordinated convertible notes and senior convertible note, and related warrants, HC received $0.1 million in cash fees under the financial advisor agreement. Mr. Halpern also received warrants exercisable for 712,500 shares of our common stock at $0.10 per share and warrants exercisable for 150,000 shares of our common stock at $0.15 per share, which were owed to HC under the financial advisor agreement. During the three months ended March 31, 2013, HC received no success fees or transaction warrants.
In January 2012, we agreed to extend the expiration dates on certain liability warrants, held by Mr. Halpern and his family, for the purchase of 5,166,520 shares of common stock at an exercise price of $0.10 per share from July 2014 to January 2017. The resulting $0.1 million change in the fair value of the warrants increased other income (expense).
Mr. Halpern held as of June 30, 2013 and December 31, 2012, $2.6 million of subordinated convertible notes. During the three and six months ended June 30, 2013, we accrued $0.1 million of interest on the convertible notes beneficially owned by Mr. Halpern, paid less than $0.1 million of interest and made no principal payments. During the three and six months ended June 30, 2012, we received $0.1 million of cash in connection with issuances of convertible debt and related warrants to entities beneficially owned by Mr. Halpern.
In April 2013, we issued a promissory note in the principal amount of $0.1 million to Mr. Halpern. The note bore interest at 10% and was repaid in full in May 2013.
During the three months ended March 31, 2012, we paid HC $0.4 million relevant to HC’s class 6 general unsecured creditor claim as part of our payment obligations under the Amended Plan of Reorganization. The claim represented payment for services rendered prior to the November 2009 bankruptcy petition filing.
RiceBran Technologies
Notes to Condensed Consolidated Financial Statements (Unaudited)
Other Transactions with Directors and Officer
W. John Short, CEO and director, invested $50 thousand in the January 2012 subordinated convertible notes and related warrants and $25 thousand in the April 2013 subordinated convertible notes and related warrants. During the three and six months ended June 30, 2013 and 2012, we paid less than $0.1 million of interest on the convertible notes. In June 2013, Mr. Short made a PIK Election for interest accruing under the notes from February 2013 through June 2014. In connection with the election, we issued to Mr. Short 16,490 shares of common stock and an equity warrant with 22,799 underlying shares and we increased the shares underlying Mr. Short’s convertible notes by 22,799 shares as payment for interest accruing under the convertible notes from February 2013 through June 2013.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
NutraCea and subsidiariesRiceBran Technologies
El Dorado Hills, CaliforniaScottsdale, Arizona
We have audited the accompanying consolidated balance sheetsheets of NutraCea and subsidiariesRiceBran Technologies (the “Company)Company) as of December 31, 2006,2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss),loss, changes in stockholders’ equity, and cash flows for the yearyears then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2006, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Perry-Smith LLP
Perry-Smith LLP
Sacramento, California
March 30, 2007
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors
NutraCea and subsidiaries
El Dorado Hills, California
We have audited the accompanying consolidated balance sheet of NutraCea as of December 31, 2005 and the related statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years then ended. These financial statements are the responsibility of NutraCea’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NutraCea as ofthe Company at December 31, 2005,2012 and 2011, and the results of its operations and its cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ MALONE & BAILEY, PCThe accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations resulting in an accumulated deficit of $204.4 million at December 31, 2012. Although the Company emerged from bankruptcy in November 2010, there continues to be substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ BDO USA, LLP | |
| |
| Phoenix, Arizona | |
| April 1, 2013 | |
MALONE & BAILEY, PCF-24
www.malone-bailey.com
Houston, Texas
March 15, 2006
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 2. GENERAL BUSINESS
We are a health-sciencehuman food ingredient and animal nutrition company focused on the developmentprocurement, bio-refining and distributionmarketing of numerous products based uponderived from rice bran. We have proprietary and patented intellectual property that allows us to convert rice bran, one of the useworld’s most underutilized food sources, into a number of highly nutritious human food and animal nutrition products. Our target markets are human food and animal nutrition manufacturers and retailers, as well as natural food, functional food and nutraceutical supplement manufacturers and retailers, both domestically and internationally. We have developed a bio-refining approach to processing raw rice bran into various value added constituents such as stabilized rice bran and proprietary(SRB), rice bran formulations. Riceoil (RBO), defatted rice bran (DRB) and a variety of other valuable derivative products from each of these core products.
We have three reportable business segments: (i) Corporate; (ii) USA, which manufactures and distributes SRB in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; and (iii) Brazil, which extracts crude RBO and DRB from rice bran, which are then further processed into a number of valuable human food and animal nutrition products. The Corporate segment includes selling, general and administrative expenses including public company expenses, litigation, and other expenses not directly attributable to other segments. No Corporate allocations are made to the other segments. General corporate interest is the outer layernot allocated.
The USA segment consists of brown ricetwo locations in California and two locations in Louisiana all of which until recently was a wasted by-productcan produce SRB. One of the commercial rice industry. These products include food supplementstwo Louisiana SRB facilities, located in Lake Charles, has been idle since May 2009. The USA segment also includes our Dillon, Montana Stage II facility which produces RiSolubles (a highly nutritious, carbohydrate and medical foods which provide health benefits for humanslipid rich fraction of SRB), RiFiber (a fiber rich derivative of SRB) and animals (known as "nutraceuticals") based on stabilizedRiBalance (a complete rice bran rice bran derivatives and the rice bran oils.
On October 4, 2005, we consummated the acquisition ofnutritional package derived from further processing SRB). The RiceX Company (“RiceX”) pursuant to the terms of an Agreement and Plan of Merger, dated April 4, 2005. RiceX survived the merger as a wholly-owned subsidiary of NutraCea. RiceX stockholders received .076799 of NutraCea common stock for each share of RiceX common stock. RiceX shareholders received 28,272,064 shares of NutraCea common stock, valued at $29,120,000 and NutraCea assumed the outstanding RiceX options and warrants to purchase 11,810,496 shares NutraCea common stock, valued at $11,422,000.
In December of 2006, a wholly-owned subsidiary of NutraCea, Nutramercials, became a member of Infomaxx, LLC. Upon formation of the LLC, each party received a 50% voting interest. The purpose of Infomaxx is to create and promote infomercials for the marketing of NutraCea’s and the other member’s products. All product net revenues will be spilt with Nutramercials expecting to receive 55% of net revenues. As of December 31, 2006, $464,042 of assets and $200,000of liabilities have beenmanufacturing facilities included in our auditedUSA segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into finished products. In 2012, approximately 50% of USA segment revenue was from sales of human food products and approximately 50% was from sales of animal nutrition products.
The Brazil segment consists of the consolidated balance sheetoperations of Nutra SA, whose only operating subsidiary is Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas, Brazil. Irgovel manufactures RBO and DRB products for both the human and animal food markets in Brazil and internationally. In refining RBO to an edible grade, several co-products are obtained. One such product is distilled fatty acids, a valuable raw material for the detergent industry. DRB is sold in bulk as animal feed and compounded with a resultnumber of determining Informaxx, LLC is a variable interest entityother ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in accordance with FIN 46 (R), “Consolidationthe Brazilian market. In 2012, approximately 46% of Variable Interest Entities, an InterpretationBrazil segment product revenue was from sales of ARB No. 51”RBO products and 54% was from sales of DRB products.
Due to the acquisition of RiceX, and the subsequent reorganization, NutraCea and its subsidiaries are operating as one segment.
Our corporate offices are located at 1261 Hawk's Flight Court, El Dorado Hills, California 95762. Our corporate offices are scheduled to be moved to Phoenix, Arizona on or about the first week of April 2007 (see Note 9).
NOTE 2 -3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - – The consolidated financial statements include the accounts of NutraCeaRiceBran Technologies (the Parent Company) and its wholly-ownedall subsidiaries NutraCea Technologies Incorporated, NutraGlo® incorporated, The RiceX Company, as well as Nutramercial’s interest in Infomaxx, LLC (collectively, the "Company").which we have a controlling interest. All significant inter-company accounts and transactions are eliminated in consolidation.
Revenue Recognition - We derive Noncontrolling interests in our revenue primarily from product sales. Product is shipped when an approved purchase order is received. Products shipped by ussubsidiaries are generally sold FOB Origin, with the customer taking titlerecorded net of tax as net earnings (loss) attributable to the product once it leaves our plant via common carrier. At this point, the price to the customer is fixed and determinable, and collectibility is reasonably assured. On occasion, we receive purchase orders for multiple product deliveries. In these situations, each delivery is individually evaluated to determine appropriate revenue recognition. Each delivery is generally considered to be a separate unit of accounting for the purposes of revenue recognition and, in all instances, persuasive evidence of an arrangement, delivery, pricing and collectibility must be determined or accomplished, as applicable, before revenue is recognized. In addition, if the purchase order includes customer acceptance provisions, no revenue is recognized until customer acceptance occurs. Revenue is accounted for at the point of shipment FOB Origin, unless accompanied by a memorandum of understanding detailing the requirement of customer acceptance in order to transfer title, in which case revenue is recognized at the time of such acceptance.
Occasionally, we will grant exclusive use of our labels by customers in specific territories in exchange for a nonrefundable fee. Under EITF 00-21, Revenue Recognition with Multiple Deliverables, each label licensing provision is considered to be a separate unit of accounting. Each grant is then individually evaluated to determine appropriate revenue recognition in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104)), SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for allowances and other adjustments are provided for in the same period the related sales are recorded. If all criteria are met, revenue is recognized in the period in which the sale occurred and recorded in the financial statements as label fees.
noncontrolling interests.
NUTRACEA AND SUBSIDIARIESForeign Currencies - The consolidated financial statements are presented in our reporting currency, U.S. Dollars. The functional currency for Irgovel is the Brazilian Real. Accordingly, the balance sheet of Irgovel is translated into U.S. Dollars using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded in accumulated other comprehensive income (loss) as foreign currency translation. Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign exchange gain or loss in the statements of operations.
Notes to Consolidated Financial Statements
Our royalty fees are generally recognized when it is probable that an economic benefit will flow to us, the amount of the benefit can be reliably measured and collectibility is reasonably assured.
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. As of December 31, 2006, the Company maintains its2012, we maintain our cash, including restricted cash, and cash equivalents, with a major investment firm and a major bank. At December 31, 2006, we have $1,000,000 in the form of an irrevocable letter of credit for one year as a security deposit for our new corporate headquarters in Phoenix, AZ.
Cash Concentration- banks. We maintain its cash in bank accounts, which at times may exceed federally insured limits. We have not experienced any losses on such accounts.
Short-Term Investments - As partF-31
RiceBran Technologies
Notes to Consolidated Financial Statements
Accounts Receivable and Allowance for Doubtful Accounts - – Accounts receivable consists ofrepresent amounts due from customers for product sales, net of an allowance for losses. We determine the allowance for doubtful accounts by reviewing each customer account and specifically identifying any potential for loss.receivable on trade accounts. The allowance for doubtful accounts at December 31, 2006 and 2005 is $20,000. Uncollected accounts are written off after the customer has been past due in excess of twelve months. Past due status is determined based on contractual terms. Actual losses related to collectionour assessment of the collectability of customer accounts and the aging of accounts receivablereceivable. 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 years ended December 31, 2006, 2005amount and 2004 were insignificant.timing of our provision for doubtful accounts. We continue to evaluate our credit policy to ensure that the customers are worthy of terms and support our business plans.
Marketable SecuritiesInventories - Marketable securitiesInventories are marked to market at each period end. Any unrealized gains and losses on the marketable securities are excluded from operating results and are recorded as a component of Other Comprehensive Income (Loss). If declines in value are deemed other than temporary, losses are reflected in Net Income (Loss).
Inventory - Inventory is stated at the lower of cost (first-in, first-out) or market, and consists of stabilized rice bran manufacturedwith cost determined by RiceX, and nutraceutical products manufactured by NutraCea. Wethe first-in, first-out method. In the USA segment, we employ a full absorption procedure using standard cost techniques. The standards are customarily reviewed and adjusted annually. Whileannually so that they are materially consistent with actual purchase and production costs. In the Company has anBrazil segment we use actual average purchase and production costs. Provisions for potentially obsolete or slow moving inventory are made based upon our analysis of these products, any significant prolonged shortage of these ingredients or of the supplies used to enhance these ingredients could materially adversely affect the Company's results of operations.inventory levels, historical obsolescence and future sales forecasts.
Long-Lived Assets, Intangible Assets and Goodwill – Long-lived assets, consisting primarily of property, intangible assets, and goodwill, comprise a significant portion of our total assets. Property and Equipment - Property and equipment areis stated at cost. The Company provides for depreciation usingcost less accumulated depreciation. Depreciation is computed on the straight-line methodbasis over the estimated useful lives as follows:
Furniture and equipment | 3-7 | | years |
Automobile | 5 | | years |
Software | 3 | | years |
Leasehold Improvements | 2.4-7 | | years |
Property and equipment | 7-10 | | years |
lives. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in the statements of operations. Intangible assets are stated at cost less accumulated amortization.
NUTRACEA AND SUBSIDIARIES
Notesproperty and intangible assets with finite lives are evaluated periodically in relation to Consolidated Financial Statements
Impairmentthe expected future cash flows of Long-Lived Assets- We assessthe underlying assets and monitored for other potential triggering events that might indicate impairment. Adjustments are made in the event that estimated undiscounted net cash flows estimated to be derived from the asset are less than the carrying value of long-lived assets which includes property, plantthe related asset. The cash flow projections are based on historical experience, management’s view of growth rates within the industry, and equipment, intangible assets and goodwill annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:anticipated future economic environment.
| ¡ | significant adverse change in legal factors or in the business climate; |
| ¡ | unanticipated competition |
| ¡ | significant changes in the manner of our use of the asset; |
| ¡ | significant negative industry or economic trends; and |
| ¡ | our market capitalization relative to net book value. |
AnnuallyWe are required to test goodwill for impairment at least annually (by policy December 31) and uponmore often if an event occurs or circumstances change that more likely than not reduce the existence of one or more of the above indicators of impairment, we would test such assets for a potential impairment. The carryingfair value of a reporting unit includingbelow its carrying value. In assessing the recoverability of goodwill, is considered impaired whenwe make estimates and assumptions about sales, operating margin, terminal growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. The fair value of a reporting unit has been determined using an income approach based on the present value of the future cash flows of each reporting unit. The goodwill impairment test compares the fair value of individual reporting units to the carrying value of these reporting units. If fair value is less than the asset’s carrying value. In that event, an impairment loss is recognized based on the amount by which the carrying value exceeds the fairthen goodwill impairment may be present. The market value of goodwill. Fair marketour common stock is an indicator of fair value is determined primarily using quoted market prices and cash flow projections. We have determined that there is no impairment as of December 31, 2006 and 2005.
Patents and Trademarks - In addition to patents filed and acquired directly by the Company, the Company owns several patents, which were acquired from independent third parties and a related party. All costs associated withconsideration in determining the patents are capitalized. Patents acquired from related parties are recorded at the carryover basisfair value of the transferor. The Company paid cash as consideration for all patents and trademarks acquired, except the Via-Bran registered trademark, which was acquired for 21,409 shares of common stock valued at $21,000.
In conjunction with the RiceX acquisition, NutraCea has been assigned five U.S. patents relating to the production or use of Nutraceutical or HVF products. The patents include:
| (1) | Patent Number 5,512,287 "PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT," which issued on April 30, 1996; |
| (2) | Patent Number 5,985,344 "PROCESS FOR OBTAINING MICRONUTRIENT ENRICHED RICE BRAN OIL," which issued on November 16, 1999; |
| (3) | Patent Number 6,126,943 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA, AND ATHEROSCLEROSIS," which issued on October 3, 2000; |
| (4) | Patent Number 6,303,586 B1 "SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND HYPOGLYCEMIA," which issued on October 15, 2001; and |
| (5) | Patent Number 6,350,473 B1 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS," which issued on February 26, 2002. |
We plan to apply for additional patents in the future as new products, treatments and uses are developed.
NUTRACEA AND SUBSIDIARIESRevenue Recognition – We recognize revenue for product sales when title and risk of loss pass to our customers, generally upon shipment for USA segment customers and Brazil segment international customers and upon customer receipt for Brazil segment domestic customers. Each transaction is evaluated to determine if all of the following four criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured. If any of the above criteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured. Changes in judgments and estimates regarding the application of the above mentioned four criteria might result in a change in the timing or amount of revenue recognized by such transactions.
Notes to Consolidated Financial Statements
PatentsWe make provisions for estimated returns discounts, and trademarksprice adjustments when they are stated at cost. Amortization is computedreasonably estimable. Revenues on the straight-line method basedstatements of operations are net of provisions for estimated returns, routine sales discounts, volume allowances and adjustments. Revenues on estimated useful livesthe statements of operations are also net of taxes collected from customers and remitted to governmental authorities.
Shipping and Handling Fees and Costs – Amounts billed to a customer in a sale transaction related to shipping costs are reported as follows:revenues and the related costs incurred for shipping are included in cost of goods sold.
Patents (Domestic) | 17 | | years |
Patents (International) | 20 | | years |
Trademarks (Domestic) | 10 | | years |
Trademarks (International) | 7 | | years |
Deferred Compensation - Deferred compensation at December 31, 2005 represents the intrinsic value of options previously issued to employees that have not been vested. All such options have vested as of December 31, 2005.
Fair Value of Financial Instruments - The fair value of the Company’s financial instruments approximated carrying value at December 31, 2006, 2005 and 2004. The Company’s financial instruments include cash, marketable securities and accounts receivables for which the carrying value amount approximates fair value due to the short maturity of the instrument.
Research and Development - – Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses and allocated facility costs.expenses. External expenses consist of costs associated with product development. All such costs are charged to expense in the period they are incurred.
RiceBran Technologies
Notes to Consolidated Financial Statements
Derivative Conversion Liabilities – We have certain convertible debt outstanding that contain antidilution clauses. Under these clauses, we may be required to lower the conversion price on the convertible debt based on future issuances of our common stock, awards of options to employees, additional issuance of warrants and/or other convertible instruments below certain conversion prices. We account for the conversion liabilities associated with these antidilution clauses as incurred.liability instruments, separate from the host debt. The conversion liabilities are classified as debt on our consolidated balance sheets. These conversion liabilities are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations in other income (expense).
StockDerivative Warrant Liabilities – We have certain warrant agreements in effect that contain antidilution clauses. Under these clauses, we may be required to lower the exercise price on these warrants and Warrants Issuedissue additional warrants based on future issuances of our common stock, awards of options to Third Partiesemployees, additional issuance of warrants and/or other convertible instruments below certain exercise prices. We account for the warrants with these antidilution clauses as liability instruments. These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations in other income (expense).
- If noneShare-Based Compensation – Share-based compensation expense for 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 requisite service period of the Company’s agreementsgrant. Forfeitures are 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. The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management’s judgment regarding market factors and trends. We treat options granted to employees of foreign subsidiaries as equity options. We will use alternative valuation models if grants have a disincentivecharacteristics that cannot be reasonably estimated using the Black-Scholes-Merton model.
We account for nonperformance, the Company records a charge forshare-based compensation awards granted to non-employees and consultants by determining the fair value of the stock and the portion of the warrants earned from the point in time when vesting of the stock or warrants becomes probable. The fair value of certain types of warrants issued to customers is recorded as a reduction of revenue to the extent of cumulative revenue recorded from that customer. The Company has not given any stock based consideration to a customer.
Stock-Based Compensation - Management estimatesawards granted at either the fair value of each option award as of the date of grant using a Black-Scholes-Merton option pricing model. Expected volatility is based onconsideration received or the historical volatility of the Company's common stock. The expected term represents the period that the stock-based awards are expected to be outstanding. The risk free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield was not considered in the option pricing formula because the Company has not paid cash dividends historically and had no plans to do so at the grant date. In addition to these assumptions, management makes estimates regarding pre-vesting forfeitures that will impact total compensation expense recognized under the Plan.
As of January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (R), Accounting for Stock-Based Compensation. Under the provisions of SFAS 123 (R), we are required to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That costequity instruments issued, whichever is more reliably measured. Generally we value options granted to non-employees and consultants using the Black-Scholes-Merton valuation model. 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 of stock awards issued to consultants or other third parties are recognized over the period during whichterm of service. In the event services are provided in exchange forterminated early or we require no specific future performance, the award, known asentire amount is expensed. The value is re-measured each reporting period over the requisite service period (usuallyperiod. Most non-employee awards have graded vesting schedules resulting in higher compensation expense recorded early in the vesting period). The Company applied the alternative transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies as provided by FSP FAS 123®-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB “Opinion” No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No 123, Accounting for Stock-Based Compensation.service period.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial StatementsIncome Taxes
– We have made the transition to SFAS 123 (R) using the modified prospective method. Under the modified prospective method, SFAS 123 (R) is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (such as unvested options) that are outstanding as of January 1, 2006 are being recognized over the period that the remaining requisite services are rendered. The compensation cost relating to unvested awards at January 1, 2006 is based on the grant-date fair value of those awards. Under this method of implementation, no restatement of prior periods has been made.
As a result of adopting Statement 123 (R) on January 1, 2006, the Company’s net income for the year ended December 31, 2006 is $1,907,711 lower than if it had continued to account for share-based compensation under Opinion 25. Basic and diluted earnings per share for the year ended December 31, 2006 would have been $(0.26), if the Company had not adopted Statement 123 (R), compared to reported basic and diluted earnings per share of $(0.29). Diluted earnings per share would not have changed. We have not recorded income tax benefits related to equity-based compensation expense as deferred tax assets are fully offset by a valuation allowance. As a result, the implementation of SFAS 123 (R) did not impact the Statement of Cash Flows for the year ended December 31, 2006.
The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of Statement 123 to options granted under the company’s stock option plans for the years ended December 31, 2005 and 2004. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.
| | | For the years ended December 31, | |
| | | 2005 | | 2004 | |
| | | | | | |
| Net loss, reported: | | $ | (3,872,000 | ) | $ | (23,583,000 | ) |
| Deduct: stock-based compensation expense included in reported net loss, net of $0 related tax benefits | | | 1,511,000 | | | 20,998,000 | |
| (Add): stock-based compensation determined under fair value based method for all awards, net of $0 related tax benefits | | | (387,000 | ) | | (2,372,000 | ) |
| | | | | | | | |
| Pro forma net loss | | $ | (2,748,000 | ) | $ | (4,957,000 | ) |
| | | | | | | | |
| Basic loss per common share (basic and diluted): | | | | | | | |
| As reported | | $ | (0.10 | ) | $ | (1.18 | ) |
| | | | | | | | |
| Pro forma | | $ | (0.07 | ) | $ | (0.25 | ) |
Shipping and Handling Expenses - All expenses relating to shipping and handling are expensed and reported as selling expenses.
Advertising Expense - The Company expenses all advertising costs, including direct response advertising, as they are incurred. Advertising expense for 2006, 2005 and 2004 was $307,000, $8,000 and $22,000, respectively.
Income Taxes - The Company accounts for its 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 bookfinancial 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 “moremore likely than not”not that the related tax benefits will not be realized.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial StatementsEstimates
Net Loss per Common Share - Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of stock options and warrants. Potentially dilutive shares are excluded from the computation if their effect is antidilutive. We had a net loss for 2005 and 2004 presented herein; therefore, none of the stock options and warrants outstanding during each of the periods presented, as discussed in Notes 12 and 13, were included in the computation of diluted loss per share as they were antidilutive. For 2006, the dilutive effect of 5,873,738 net share outstanding options, 14,666,449 net share outstanding warrants, 940,000 convertible Series B preferred stock, and 6,430,368 convertible Series C preferred stock is calculated using the treasury stock method. Additionally, 2,083,114 net shares outstanding warrants and options there is no dilutive effect because the average market price of the common stock during the period is less than the exercise price of the warrants and options for 2006.
Estimates -The– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. ActualBecause of the uncertainty inherent in such estimates, actual results could differ from those estimates.
Concentrations of Credit Risk and Major CustomersReclassifications - On August 24, 2005, NutraCea signed an agreement with a direct response marketing company to market and sell products through infomercials. The agreement is for two years and may be extended for an additional year. The agreement covers pricing of specific products at wholesale prices which will be private labeled for direct sale by the marketing company. During the term of the agreement, NutraCea will not sell its products through any other infomercials so long as the marketing company maintains minimum quarterly orders beginning October 1, 2005 of $500,000. Additionally, NutraCea granted the company an option to purchase 250,000 shares of restricted common stock at a price of $1.275 per share. The options vest 50,000 shares upon payment in full of the contract quarter minimum purchase orders during the term of the agreement. At December 31, 2006, 100,000 options are fully vested. For the year ended December 31, 2005, sales to this customer totaled $3,013,000 or 54% of total sales and receivables were $1,910,000, or 76% of total receivables. For the year ended December 31, 2006, sales to this customer totaled $8,057,000 or 48% of total sales and receivables were $3,516,000, or 49% of total receivables.
Reclassifications -– Certain reclassifications have been made to the prior year statement of operationsperiod amounts to conform to classifications adopted in the current year presentation.
Recently Issued Accounting Pronouncements - In June 2006, the FASB issued Interpretation No.48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return that results in a tax benefit. Additionally, FIN 48 provides guidance on de-recognition, statement of operations classification of interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007, as required. The Company has determined that there is no impact in adopting FIN 48.
presentation.
RiceBran Technologies
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
Accounting pronouncements that are applicable to us and could potentially have a material impact on our financial statements are discussed below.
In May 2011, the Financial Accounting Standards Board (FASB) amended guidance on fair value measurement and expanded the required disclosures related to fair value. The amendments, among other things, clarify that the highest and best use concept applies only to nonfinancial assets and addresses the appropriate premiums and discounts to consider in fair value measurement. We adopted the guidance prospectively, effective January 1, 2012. Adoption did not have a significant impact on our financial position or results of operations.
In September 2006,2011, the SEC staff issued Staff Accounting Bulletin No. 108 (SAB 108), “ConsideringFASB amended guidance on goodwill impairment testing. The amendments permit us to first assess qualitative factors to determine whether it is more likely than not that the Effectsfair value of Prior Year Misstatements when Quantifying Misstatementsa reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Previous guidance required us to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments, we are not required to calculate the fair value of a reporting unit unless we determine that it is more likely than not that its fair value is less than its carrying amount. We adopted the amendments effective for annual and interim goodwill impairment tests (if required) performed after January 1, 2012. Adoption had no impact on our financial position or results of operations.
NOTE 4. LOSS PER SHARE (EPS)
Basic EPS is computed by dividing net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of common shares outstanding during all periods presented. Shares underlying options, warrants and convertible notes payable are excluded from the basic EPS calculation but are considered in Current Year Financial Statements,” which addresses how uncorrected errors in previous years should be considered when quantifying errors in current-year financial statements. SAB 108 requires companiescalculating diluted EPS.
Diluted EPS is computed by dividing the net income (loss) attributable to considerRiceBran Technologies shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. The dilutive effect of all carry overoutstanding options and reversing effectswarrants is calculated using the treasury stock method. The dilutive effect of prior-year misstatements when quantifying errorsoutstanding convertible debt is calculated using the if converted method.
Below are reconciliations of the numerators and denominators in current-year financial statements and the related financial statement disclosures. SAB 108 must be applied to annual financial statements for the first fiscal year ending after November 15, 2006. EPS computations.
| | 2012 | | | 2011 | |
| NUMERATOR (in thousands): | | | | | | |
| Basic and diluted - net loss attributable to RiceBran Technologies shareholders | | $ | (9,509 | ) | | $ | (10,099 | ) |
| | | | | | | | |
| DENOMINATOR: | | | | | | | | |
| Basic EPS - weighted average number of shares outstanding | | | 204,682,397 | | | | 198,370,369 | |
| Effect of dilutive securities outstanding | | | - | | | | - | |
| Diluted EPS - weighted average number of shares outstanding | | | 204,682,397 | | | | 198,370,369 | |
| | | | | | | | |
| 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 (average exercise price of $0.24 and $0.29 ) | | | 38,237,372 | | | | 39,575,663 | |
| Warrants (average exercise price of $0.31 and $1.13) | | | 147,350,570 | | | | 42,952,934 | |
| Convertible notes (average conversion price of $0.08 and $0.21) | | | 66,941,605 | | | | 5,159,808 | |
The impact of adopting SAB 108 is in Note 3.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement”, (FAS 157). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principlespotentially dilutive securities outstanding at December 31, 2012 and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We have not determined the effect that the adoption of FAS 157 will have on our consolidated results of operations, financial condition or cash flows.
NOTE 3 - IMPLEMENTATION OF STAFF ACCOUNTING BULLETIN NO. 108
In preparing the financial statements management undertook an evaluation for the purposes of implementing Staff Accounting Bulletin No. 108 (SAB 108). During this evaluation, management identified an uncorrected misstatement in its 2004 financial statements. Management had incorrectly classified impairment in an investment as temporary impairment due to incomplete evaluation of the facts and circumstances existing at that time. Management evaluated the error and determined that while it is significant quantitatively, in relation to the significant loss incurred in that period, it2011, was not considered material. In accordance withincluded in the guidance outlinedcalculation of diluted EPS in SAB 108, at2012 and 2011 because to do so would be antidilutive. Those securities which were antidilutive in 2012 and 2011, which remain outstanding, could potentially dilute EPS in the beginning of the current fiscal year, we have increased accumulated other comprehensive income by $2,090,000 and we have reduced beginning retained earnings by $2,090,000.
NOTE 4 - MARKETABLE SECURITIES
On September 8, 2004, NutraCea purchased 1,272,026 shares of Langley Park Investment Trust, PLC, a United Kingdom closed-end mutual fund, which is actively traded on a London Stock Exchange. NutraCea paid with 7,000,000 shares of its own common stock. Per the Agreement, NutraCea may sell 636,013 shares of Langley at any time, and the remaining 636,013 shares of Langley and the 7,000,000 shares of NutraCea are escrowed for a 2-year period. At the end of the period, Langley’s NutraCea shares are measured for any loss in market value and if so, NutraCea must give up that pro-rata portion of its Langley shares up to the escrowed 636,013 shares.
future.
RiceBran Technologies
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA
We hold a variable interest which relates to our equity interest in Nutra SA, LLC (Nutra SA). We are the primary beneficiary of Nutra SA, and as such, Nutra SA’s assets, liabilities and results of operations are included in our consolidated financial statements. The other equity holders’ interests are reflected in net loss attributable to noncontrolling interest in Nutra SA, in the consolidated statements of operations, and redeemable noncontrolling interest in Nutra SA, in the consolidated balance sheets. Our variable interest in Nutra SA is our Brazil segment. A summary of the carrying amounts of Nutra SA balances included in our consolidated balance sheets follows (in thousands).
| | December 31, | |
| | 2012 | | | 2011 | |
| Cash and cash equivalents | | $ | 562 | | | $ | 3,290 | |
| Other current assets (restricted $2,505 at December 31, 2012) | | | 5,675 | | | | 6,641 | |
| Property, net (restricted $5,757 at December 31, 2012) | | | 19,690 | | | | 15,833 | |
| Goodwill and intangibles, net | | | 6,215 | | | | 7,556 | |
| Other noncurrent assets | | | 54 | | | | 21 | |
| Total assets | | $ | 32,196 | | | $ | 33,341 | |
| | | | | | | | |
| Current liabilities | | $ | 5,141 | | | $ | 3,851 | |
| Current portion of long-term debt (nonrecourse $7,013 at December 31, 2012) | | | 7,013 | | | | 5,469 | |
| Long-term debt, less current portion (nonrecourse $7,454 at December 31, 2012) | | | 7,454 | | | | 6,361 | |
| Other noncurrent liabilities | | | 1,871 | | | | 3,766 | |
| Total liabilities | | $ | 21,479 | | | $ | 19,447 | |
Nutra SA’s debt is secured by its accounts receivable and property. Our parent company and our non-Brazilian subsidiaries do not guarantee any of Nutra SA’s debt.
A summary of changes in redeemable noncontrolling interest in Nutra SA follows (in thousands):
| | Investors' Ownership Interest After Transaction | | | 2012 | | | 2011 | |
| Redeemable noncontrolling interest in Nutra SA, beginning of period | | | | | $ | 9,918 | | | $ | - | |
| Investors' purchase of initial units - first quarter 2011 | | | 35.6 | % | | | - | | | | 7,725 | |
| Investors' purchase of additional units - second quarter 2011 | | | 45.2 | % | | | - | | | | 3,000 | |
| Investors' purchase of additional units - third quarter 2011 | | | 49.0 | % | | | - | | | | 900 | |
| Investors' purchase of additional units - fourth quarter 2012 | | | 49.0 | % | | | 1,500 | | | | - | |
| Investors' interest in net loss of Nutra SA | | | | | | | (1,627 | ) | | | (776 | ) |
| Investors' interest in accumulated other comprehensive income of Nutra SA | | | | | | | (529 | ) | | | (931 | ) |
| Redeemable noncontrolling interest in Nutra SA, end of period | | | | | | $ | 9,262 | | | $ | 9,918 | |
In December 2010, we entered into a membership interest purchase agreement (MIPA) with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (Investors). The transaction closed in January 2011. The Investors agreed to purchase units in Nutra SA for an aggregate purchase price of $7.7 million. Prior to the transaction, Nutra SA was our wholly owned subsidiary. Nutra SA owns 100% of Irgovel. Initially after the closing, effective in January 2011, we owned a 64.4% interest in Nutra SA, and the Investors owned a 35.6% interest in Nutra SA. The Parent Company received $4.0 million of the January 2011 proceeds. The remaining $3.7 million, less $0.5 million retained by Nutra SA for administrative expenses, was invested in Irgovel for capital improvements and working capital needs.
We agreed to use $2.2 million of the funds received from the January 2011 transaction closing to repay amounts owed to the Class 6 general unsecured creditors in accordance with the Amended Plan. The remaining $1.8 million was used for general corporate purposes, other unsecured creditor claims and administrative expenses associated with the Chapter 11 Reorganization.
RiceBran Technologies
Notes to Consolidated Financial Statements
We received in 2011 an additional $3.9 million from the Investors - $1.9 million for the purchase of outstanding units in Nutra SA from us, which was used by the Corporate and USA segments for working capital, and $2.0 million for the purchase of new units in Nutra SA, which were used by the Brazil segment to fund a capital expansion. These purchases increased the Investors’ interest in Nutra SA to a 49.0% interest as of December 31, 2011.
In December 2012, we received an additional $1.5 million from the Investors for the purchase of new units in Nutra SA, which were used by the Brazil segment to fund a capital expansion. We made additional capital contributions valued at $1.5 million under the agreement, consisting of the right to use certain proprietary equipment and forgiveness of fees Nutra SA owed us. We must deliver and install the equipment at our expense, within 90 days after requested by either the Investors or Irgovel. The Investors’ interest remained 49.0% interest as of December 31, 2012.
The Investors have the right to subsequently purchase from Nutra SA up to an additional 750,000 units for another $1,500,000. If immediately prior to such purchase Nutra SA and Irgovel have sufficient cash to complete certain projects, then the units will have no voting rights.
We determined that we continued to control Nutra SA after each of the membership interest sale transactions and should continue to consolidate Nutra SA. We treated each transaction similar to an equity transaction, with no gain or loss recognized in consolidated net loss or comprehensive loss. The $0.3 million historical cost of the equipment we contributed in December 2012, is reflected in Nutra SA’s balance sheet, in the Brazil segment, as of December 31, 2012. The Investors’ share of Nutra SA’s net income (loss) increases (decreases) redeemable noncontrolling interest.
Redeemable noncontrolling interest in Nutra SA is recorded in temporary equity, above the equity section and after liabilities on our consolidated balance sheets, because the Investors have the right to force a sale of Nutra SA assets in the future (see Drag Along Rights described below). We have assessed the likelihood of the Investors exercising these rights as less than probable at December 31, 2012, in part because it is more likely the Investors will exercise other rights prior to January 2014. We will continue to evaluate the probability of the Investors exercising their Drag Along rights each reporting period. We will begin to accrete the redeemable noncontrolling interest up to fair value if and when it is probable the Investors will exercise these rights.
We are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the MIPA.
In connection with the December 2012 capital contributions, we amended the limited liability company agreement for Nutra SA (LLC agreement). Pursuant to this amendment, among other things, any units held by the Investors after January 1, 2014, accrue a yield at 4% if a certain milestone condition is satisfied, and at 8% if the milestone condition is not satisfied (the Yield). The milestone condition relates to Nutra SA having performed all of the following: obtaining additional back financing, completion of the capital expansion project within certain spending limitations, and operation of the plant post expansion at targeted processing levels. Commencing with the first quarter of 2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors. Until March 31, 2014, or if at any time Nutra SA is past due on its obligations to pay the Investors the Yield, all amounts due to us for management fees or for shared employees as provided under the LLC Agreement shall be tolled and remain unpaid until all past due amounts, if any, owed to the Investors have been paid in full.
Following the payment of the Yield, Nutra SA must distribute all distributable cash (as defined in the LLC Agreement) to the members on March 31 of each year as follows: (i) first, to the Investors in an amount equal to 2.3 times the Investors’ capital contribution, less the aggregate amount of distributions paid to the Investors, (ii) second, to us in an amount equal to two times the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iii) third, to us and the Investors in proportion to our respective membership interests.
Under the LLC agreement, the business of Nutra SA is to be conducted by the manager, currently our CEO, subject to the oversight of the management committee. The management committee is comprised of three of our representatives and two Investor representatives. Upon an event of default or a qualifying event, we will no longer control the management committee and the management committee will include three Investor representatives and two of our representatives. In addition, following an event of default or a qualifying event, a majority of the members of the management committee may replace the manager of Nutra SA.
RiceBran Technologies
Notes to Consolidated Financial Statements
As of December 31, 2012, there have been no events of default. Events of default, as defined in the MIPA, are: | · | A Nutra SA business plan deviation, defined as the occurrence, in either 2012, 2013 or 2014, of a 20% unfavorable variation in two out of three of the following: (i) revenue, (ii) earnings before interest, taxes, depreciation and amortization (EBITDA) or (iii) debt, |
| · | A Nutra SA EBITDA default, which is defined as the failure to achieve 85% of planned EBITDA for three consecutive quarters, or |
| · | A material problem, which is defined as a material problem in a facility (unrelated to changes in law, weather, etc.) likely to cause a Nutra SA business plan deviation or Nutra SA EBITDA default, which results in damages not at least 80% covered by insurance proceeds. |
As of December 31, 2006,2012, there have been no qualifying events. The LLC agreement, defines a qualifying event as any event prior to September 16, 2014, which results, or will result in, (i) a person or group of persons exercising the NutraCea shares hadright to appoint members to our board of directors holding one third or more of the votes of all board members, (ii) the sale, exchange, pledge or use as guarantee of one half of our ownership interest in Nutra SA to a third party or (iii) the bankruptcy of RiceBran Technologies or Nutra SA.
The Investors have certain rights, summarized below, under an investor rights agreement and the LLC agreement, as further defined in the agreements.
| · | Conversion Rights – The Investors may exchange units in Nutra SA for equity interests in Irgovel. After any exchange, the Investors would possess the same rights and obligations with respect to the securities of Irgovel, as they have in Nutra SA. |
| · | Global Holding Company (GHC) Roll-Up – If we form an entity, GHC, to hold our Brazil segment assets, the Investors may exchange units in Nutra SA for equity interests in GHC. The investors may exercise this right after the second anniversary of the formation of GHC or, if an event of default has occurred, after the later of January 2013 and the GHC formation date. The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in GHC. |
| · | RiceBran Technologies Roll-Up – The Investors may exchange units in Nutra SA for our common stock.. This right is available upon the earlier of January 2014 or, if an event of default has occurred, January 2013. We may elect to postpone our obligation to complete the roll-up to January 2015 if the roll-up would result in over 25% of our common stock being owned by the Investors. The appraised fair value of the Investors’ interest in Nutra SA and the market price of our stock would be used to determine the amount of ownership interest the Investors would receive. |
| · | Drag Along Rights – The Investors have the right to force the sale of all Nutra SA assets after the earlier of (i) January 2014, (ii) January 2013 if an event of default occurs, or (iii) the date of a qualifying event. The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined). We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale. |
In evaluating whether we are the primary beneficiary of Nutra SA, we considered the matters which could be put to a vote of the members. Until there is an event of default or a qualifying event, the Investors’ rights and abilities, individually or in the aggregate, do not lost any value. However,allow them to substantively participate in the Langley sharesoperations of Nutra SA. The Investors do not currently have the ability to dissolve Nutra SA or otherwise force the sale of all its assets. They do have such rights in the future (Drag Along Rights as described above). We will continue to evaluate our ability to control Nutra SA each reporting period.
Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the LLC agreement.
NOTE 6. INVENTORIES
Inventories are marked downcomposed of the following (in thousands):
| | | As of December 31, | |
| | 2012 | | | 2011 | |
| Finished goods | | $ | 1,146 | | | $ | 906 | |
| Work in process | | | 330 | | | | 804 | |
| Raw materials | | | 255 | | | | 353 | |
| Packaging supplies | | | 263 | | | | 234 | |
| Total inventories | | $ | 1,994 | | | $ | 2,297 | |
RiceBran Technologies
Notes to their fair marketConsolidated Financial Statements
NOTE 7. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of trade accounts receivable and notes receivable. We perform ongoing credit evaluations on our customers’ financial condition and generally do not require collateral.
One customer accounted for approximately 10% and 20% of our sales in 2012 and 2011 and approximately 9% and 16% of our accounts receivable balances at December 31, 2012 and 2011. A second customer accounted for approximately 11% and 6% of our sales in 2012 and 2011 and approximately 30% and 14% of our accounts receivable balances at December 31, 2012 and 2011. A third customer accounted for approximately 7% and 6% of our sales in 2012 and 2011 and approximately 9% and 5% of our accounts receivable balances at December 31, 2012 and 2011.
NOTE 8. PROPERTY
Property consists of the following (in thousands):
| | | As of December 31, | | | |
| | 2012 | | | 2011 | | Estimated Useful Lives | |
| Land | | $ | 403 | | | $ | 420 | | | |
| Furniture and fixtures | | | 358 | | | | 363 | | 5-10 years | |
| Plant | | | 14,362 | | | | 14,122 | | 25-30 years, or life of lease | |
| Computer and software | | | 1,407 | | | | 1,352 | | 3-5 years | |
| Leasehold improvements | | | 189 | | | | 189 | | 3-7 years or life of lease | |
| Machinery and equipment | | | 15,053 | | | | 17,249 | | 5-10 years | |
| Construction in progress | | | 9,118 | | | | 5,710 | | | |
| Subtotal | | | 40,890 | | | | 39,405 | | | |
| Less accumulated depreciation | | | 12,433 | | | | 11,410 | | | |
| Property, net | | $ | 28,457 | | | $ | 27,995 | | | |
Our Lake Charles, Louisiana facility was built at a cost of $3.8 million to process rice bran from a rice milling company adjacent to the facility. The facility is built on leased land which is owned by the rice milling company. The facility was idled in May 2009 due to lack of orders. We recorded a $2.3 million impairment loss on the facility in 2009. The facility is not classified as held for sale due to potential alternative uses and because we are not aggressively marketing the property. We evaluated, and continue to evaluate, alternate uses of the facility. Depreciation on the facility has continued after the facility was idled. As of December 31, 2012, the net book value of $368,000. Atthe idled facility included in property, net, was $1.7 million.
We also own equipment purchased in 2009 for use in the Lake Charles, Louisiana facility. In 2012 and 2011, we recorded impairments of $1.1 million and $0.6 million on the Lake Charles equipment.
Property includes machinery and equipment that has never been installed or operated, which totals $1.4 million at December 31, 2005,2012.
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 9. INTANGIBLE ASSETS
Intangible assets consist of the Langleyfollowing (in thousands):
| | USA Segment | | | | | | Brazil Segment | | | Total | |
| | Patents | | | Trademarks | | | Customer Lists | | | Trademarks | | | Customer Lists | | | Intangible Assets | |
December 31, 2012 | | | | | | | | | | | | | | | | | | |
| Cost | | $ | 1,697 | | | $ | 48 | | | $ | 2,677 | | | $ | 3,418 | | | $ | 1,250 | | | $ | 9,090 | |
| Accumulated amortization | | | (1,029 | ) | | | (38 | ) | | | (2,222 | ) | | | (2,362 | ) | | | (864 | ) | | | (6,515 | ) |
| Net book value | | $ | 668 | | | $ | 10 | | | $ | 455 | | | $ | 1,056 | | | $ | 386 | | | $ | 2,575 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2011 | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | $ | 1,768 | | | $ | 48 | | | $ | 2,677 | | | $ | 3,751 | | | $ | 1,372 | | | $ | 9,616 | |
| Accumulated amortization | | | (957 | ) | | | (35 | ) | | | (1,888 | ) | | | (2,056 | ) | | | (752 | ) | | | (5,688 | ) |
| Net book value | | $ | 811 | | | $ | 13 | | | $ | 789 | | | $ | 1,695 | | | $ | 620 | | | $ | 3,928 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated useful lives | | 17 years | | | 7 years | | | 7 years | | | 7 years | | | 7 years | | | | | |
We purchased no intangible assets in 2012 or 2011. All changes in the cost of Brazil segment intangibles are due to foreign currency translation. Amortization expense is expected to be $1.1 million in 2013, $1.0 million in 2014, $0.3 million in 2015, $0.1 million in 2016, $0.1 million in 2017 and $0.1 million thereafter.
In 2011, we wrote off patents with a net book value of $0.7 million. We determined the projected future cash flows were inadequate to recover the net book value of these patents.
NOTE 10. DEBT
The following table summarizes current and long-term portions of debt (in thousands):
| | | As of December 31, | |
| | 2012 | | | 2011 | |
| Corporate and USA segments: | | | | | | |
| Senior convertible debentures, net | | $ | 1,048 | | | $ | - | |
| Subordinated convertible notes, net | | | 4,041 | | | | 2,126 | |
| Factoring agreement | | | 28 | | | | 262 | |
| Other | | | - | | | | 507 | |
| | | 5,117 | | | | 2,895 | |
| Brazil segment: | | | | | | | | |
| Working capital lines of credit | | | 2,227 | | | | 1,778 | |
| Capital expansion loans | | | 5,555 | | | | 3,789 | |
| Equipment financing | | | 201 | | | | 214 | |
| Advances on export letters of credit | | | 3,953 | | | | 2,838 | |
| Special tax programs | | | 2,531 | | | | 3,211 | |
| | | 14,467 | | | | 11,830 | |
| Total debt | | | 19,584 | | | | 14,725 | |
| Current portion | | | 8,003 | | | | 6,792 | |
| Long-term portion | | $ | 11,581 | | | $ | 7,933 | |
RiceBran Technologies
Notes to Consolidated Financial Statements
Required future minimum payments on our debt as of December 31, 2012, follow (in thousands).
| | | Corporate and USA Segments | | | Brazil Segment | | | Total | |
| 2013 | | $ | 1,219 | | | $ | 7,013 | | | $ | 8,232 | |
| 2014 | | | 108 | | | | 1,283 | | | | 1,391 | |
| 2015 | | | 5,375 | | | | 1,086 | | | | 6,461 | |
| 2016 | | | - | | | | 983 | | | | 983 | |
| 2017 | | | - | | | | 976 | | | | 976 | |
| Thereafter | | | - | | | | 3,126 | | | | 3,126 | |
| | $ | 6,702 | | | $ | 14,467 | | | $ | 21,169 | |
Corporate and USA Segments
Factoring Agreement
In January 2011, we entered into a domestic factoring agreement which provides for a $1.0 million credit facility with a bank. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility automatically renews for another year on December 31, 2013, unless proper termination notice is given. The bank charges the greater of $2,000 per month or a 2.0% fee on any borrowing. The 2.0% fee increases incrementally for any qualified account with a balance that remains outstanding in excess of 45 days. The average borrowings under this agreement totaled $0.1 million in 2012 and 2011.
Convertible Debt Outstanding as of December 31, 2012
Convertible debt instruments outstanding as of December 31, 2012, are listed below.
| Issuance | | Issuance Date of Debt | | Principal Amount of Debt (in thousands) | | Creditor's Debt Conversion Right | | Stated Annual Interest Rate on Debt | | Maturity Date of Debt | |
| Senior Convertible Debentures | | July 2012 | | $ | 1,299 | | Convertible January 2013 at $0.07 per share | | NA | | January 2014 | |
| Subordinated Convertible Note | | August 2012 | | | 150 | | Convertible immediately at $0.07 per share | | 10% | | July 2015 | |
| Subordinated Convertible Notes | | July 2012 | | | 850 | | Convertible immediately at $0.07 per share | | 10% | | July 2015 | |
| Subordinated Convertible Note | | May 2012 | | | 50 | | Convertible immediately at $0.07 per share | | 10% | | July 2015 | |
| Subordinated Convertible Notes | | January 2012 | | | 4,325 | | Convertible immediately at $0.07 per share | | 10% | | July 2015 | |
All of the convertible debt instruments listed above contain full ratchet antidilution provisions and require the holders to provide us with at least 61 days notice prior to conversion or exercise to the extent the holder would have a beneficial ownership interest in our common stock in excess of 4.99% of our outstanding common stock immediately after conversion or exercise.
In January 2012, we issued a senior convertible debenture and related warrant for $0.8 million, a $0.1 million discount from the debenture’s stated principal amount. We received cash proceeds of $0.6 million, net of cash financing costs. In the third quarter of 2012, this January 2012 debenture was exchanged for a July 2012 debenture with a stated principal amount of $1.0 million, representing the original principal amount plus interest which will accrue through the replacement debenture’s January 2014 maturity. In July 2012, we also issued a new senior convertible debenture and related warrant and received $0.2 million in proceeds, net of financing costs. Each of the July 2012 debentures is convertible immediately at $0.07 per share. Commencing February 2013, we are required to redeem 1/12th of the $1.3 million combined principal each month until the January 2014 maturity date. In lieu of a cash redemption we may elect to redeem the debentures by issuing a number of shares of common stock equal to the monthly redemption amount divided by the lesser of (i) the current debenture conversion price or (ii) 80% of the 20-day volume weighted average trading price of our common stock or (iii) the volume weighted average trading price of our common stock on the day immediately prior to the redemption date less $0.01. The number of shares delivered may not exceed 20% of the number of shares traded in the 20-day trading period prior to payment. The debentures are secured by a senior interest in substantially all of our assets, excluding our interest in Nutra SA. Pursuant to the terms of the debentures, we may not pay any dividends while the debenture is outstanding. Under the terms of the original January 2012 debenture, we had been required to redeem 1/12th of the $0.9 million principal each month commencing August 2012 until the July 2013 maturity date.
RiceBran Technologies
Notes to Consolidated Financial Statements
The January and May 2012 subordinated convertible notes with a face amount of $4.4 million, and the related warrants, were
issued in exchange for $1.8 million cash, net of issuance costs, and surrender of then outstanding convertible notes with original principal totaling $2.3 million and a related warrant (old notes and old warrant). Interest is payable monthly at an annual rate of 10%. The notes are secured by a junior interest in substantially all of our assets, excluding our interest in Nutra SA. The old notes and old warrant were held by Baruch Halpern, who became a director concurrent with the January 2012 transaction. In exchange for surrendering the old notes and old warrant and an additional $0.1 million cash investment, we issued a $2.5 million subordinated convertible note and related warrant to a trust beneficially owned by Mr. Halpern (the Halpern Trust).
The July and August 2012 subordinated convertible notes with a face amount of $1.0 million, and the related warrants, were issued in exchange for $0.9 million cash, net of issuance costs. The notes are also secured by a junior interest in substantially all of our assets, excluding our interest in Nutra SA. The notes and warrants were issued to four investors who had purchased January and May 2012 subordinated convertible notes and warrants. We issued a $0.1 million subordinated convertible note and related warrant to an entity beneficially owned by Mr. Halpern (together with the Halpern Trust referred to as the Halpern Entities).
As of December 31, 2012, our convertible debt consists of the following components (in thousands):
| | | | | Notes | | | | |
| | Debentures | | | Halpern Entities | | | Other Investors | | | | Total | |
| Principal outstanding | | $ | (1,299 | ) | | $ | (2,600 | ) | | $ | (2,775 | ) | | $ | (6,674 | ) |
| Discount | | | 422 | | | | 587 | | | | 2,775 | | | | 3,784 | |
| Derivative conversion liabilities | | | (171 | ) | | | (980 | ) | | | (1,048 | ) | | | (2,199 | ) |
| Debt | | $ | (1,048 | ) | | $ | (2,993 | ) | | $ | (1,048 | ) | | | (5,089 | ) |
| | | | | | | | | | | | | | | | |
| Debt - current portion | | $ | (962 | ) | | $ | - | | | $ | - | | | $ | (962 | ) |
| Debt - long-term portion | | | (86 | ) | | | (2,993 | ) | | | (1,048 | ) | | | (4,127 | ) |
The discount recorded on the subordinated convertible note held by the Halpern Trust and the replacement senior convertible debenture, and the related deferred finance costs are amortized to interest expense under the effective interest method. As a result we are recognizing interest expense on the Halpern Trust subordinated convertible note at an effective interest rate of 20.9% and on the replacement senior convertible debenture at an effective interest rate of 25.1%.
The debt discounts on the other senior convertible debentures and subordinated convertible notes are also being amortized to interest expense under the effective interest method. However, because the fair value at issuance of the conversion features and warrants exceeded the proceeds from these issuances, in each case, under the effective interest method, this will result in the debt discount being expensed when the principal of the convertible debt matures or is redeemed, in proportion to the principal reduction. Deferred finance costs are also being amortized to interest expense under the effective interest method, in a similar fashion.
During 2012 and 2011, we recognized $0.3 million and $0.2 million of accreted interest on the convertible debt. We made no principal payments on convertible debt during 2012 or 2011.
RiceBran Technologies
Notes to Consolidated Financial Statements
2012 Convertible Debt Issuances
A summary of the allocation of the proceeds from the 2012 issuances of the senior convertible debenture, subordinated convertible notes and related warrants follows (in thousands).
| | First and Second Quarter of 2012 | | | Third Quarter of 2012 | | | | |
| | Debenture | | | Notes and Warrants | | | Debentures and Warrants | | | Notes and Warrants | | | | |
| | and Warrant | | | Halpern Entities | | | Other Investors | | | New | | | Replace- ment | | | Halpern Entities | | | Other Investors | | | Total | |
| (Increases) decreases in: | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt - principal | | $ | (870 | ) | | $ | (2,500 | ) | | $ | (1,875 | ) | | $ | (290 | ) | | $ | (139 | ) | | $ | (100 | ) | | $ | (900 | ) | | $ | (6,674 | ) |
| Debt - discount | | | 870 | | | | 630 | | | | 1,875 | | | | 290 | | | | (661 | ) | | | 100 | | | | 900 | | | | 4,004 | |
| Debt - derivative conversion liabilities | | | (296 | ) | | | (1,942 | ) | | | (1,448 | ) | | | (128 | ) | | | (105 | ) | | | (69 | ) | | | (583 | ) | | | (4,571 | ) |
| Derivative warrant liabilities | | | (648 | ) | | | (2,473 | ) | | | (1,848 | ) | | | (273 | ) | | | (907 | ) | | | (88 | ) | | | (746 | ) | | | (6,983 | ) |
| Debt (carrying amount of old note) | | | - | | | | 2,152 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,152 | |
| Equity | | | - | | | | 1,089 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,089 | |
| Loss on extinguishment | | | - | | | | 2,986 | | | | - | | | | - | | | | 1,955 | | | | - | | | | - | | | | 4,941 | |
| Financing expense | | | 168 | | | | - | | | | 1,376 | | | | 141 | | | | 27 | | | | 59 | | | | 413 | | | | 2,184 | |
| Other long -term assets -deferred finance costs | | | 144 | | | | 65 | | | | 134 | | | | 23 | | | | (148 | ) | | | 4 | | | | 73 | | | | 295 | |
| Proceeds, net of finance costs | | | 632 | | | | (7 | ) | | | 1,786 | | | | 237 | | | | (22 | ) | | | 94 | | | | 843 | | | | 3,563 | |
We accounted for the July 2012 issuance of the replacement senior convertible debenture in the principal amount of $1.0 million and related warrant as a significant modification to the January 2012 debenture and related warrant. We recognized a loss on extinguishment for the difference between the fair value of the senior convertible debenture and warrant issued and the total of (i) the fair values of the conversion features embedded in the January 2012 debenture (ii) the carrying amount of the old debenture (zero) and (iii) the proceeds received, net of issue costs.
We accounted for the January 2012 issuance of the $2.5 million subordinated convertible note and related warrant to the Halpern Trust as a significant modification to the old notes and warrant held by Mr. Halpern. We recognized a loss on extinguishment for the difference between the fair value of the subordinated convertible note and warrant issued, and the total of (i) the fair values of the conversion features embedded in the old notes, (ii) the fair value of the old warrant, (iii) the carrying amount of the old notes and (iv) the proceeds received, net of issue costs. The old notes’ embedded conversion features and the old warrant did not qualify as separate derivative liabilities and, therefore, we reduced equity by the January 2012 fair value of the embedded conversion features and warrant.
The other issuances of senior convertible debentures, subordinated convertible notes and related warrants were not accounted for as significant modifications and the $3.6 million proceeds from those issuances were allocated to convertible debt and warrants. In each case, the fair value of the warrants and embedded conversion features exceeded the proceeds received, which resulted in the recognition of financing expense on the date of issuance.
Changes in the fair value of the derivative conversion and warrant liabilities subsequent to issuance are recognized in change in fair value of derivative warrant and conversion liabilities in the statement of operations. The changes in fair value of derivative liabilities as a result of the July 2012 amendment to the January 2012 and May 2012 subordinated convertible notes and related warrants, are also included in change in fair value of derivative warrant and conversion liabilities in the statement of operations. As a result of a July 2012 amendment, the exercise price on the warrants related to the January 2012 and May 2012 subordinated convertible notes decreased from $0.12 per share to $0.08 per share and the number of underlying shares was increased proportionately. In addition the terms of all of the subordinated convertible notes outstanding, were modified such that the maturity date was extended from January and May 2015 to July 2015.
The $2.4 million of the $3.6 million in proceeds from the 2012 issuances of convertible debt and related warrants were used to make the final distributions to the unsecured creditors in January 2012 and the remainder was used for general corporate purposes.
RiceBran Technologies
Notes to Consolidated Financial Statements
2011 Convertible Debt Issuances
During 2011, we issued several convertibles notes, with related warrants to our financial advisor, who became a director of RiceBran Technologies in January 2012. Below is a summary of the transactions.
| Transaction | | | | Principal amount of Note(s) (in thousands) | | | Stated Annual Interest Rate on Note(s) | | | Per Share Note Conversion Price | | | Cash Received in Transaction (in thousands) | | | Number of Shares Under Equity Warrant(s) | | | Average Exercise Price of Warrant(s) | |
| First quarter 2011 | | (1 | ) | $ | 500 | | | | 10% | | | $ | 0.20 | | | $ | 500 | | | | 500,000 | | | $ | 0.25 | |
| Second quarter 2011 | | (2 | ) | | 730 | | | | 10% | | | | 0.23 | | | | 230 | | | | 730,000 | | | | 0.23 | |
| Third quarter 2011, event A | | (2 | ) | | 270 | | | | 10% | | | | 0.23 | | | | 270 | | | | 270,000 | | | | 0.23 | |
| Third quarter 2011, event B | | (2 | ) | | 730 | | | | 10% | | | | 0.23 | | | | 730 | | | | 730,000 | | | | 0.23 | |
| Fourth quarter 2011 | | (3 | ) | | 2,323 | | | | 10% | | | | 0.20 | | | | 550 | | | | 2,323,186 | | | | 0.22 | |
| Total in 2011 | | | | | | | | | | | | | | | | $ | 2,280 | | | | 4,553,186 | | | | | |
| (1) | The convertible note and the related warrant issued in the first quarter of 2011, were terminated and cancelled in the second quarter of 2011 when the second quarter transaction occurred. |
| (2) | The convertible notes and related warrants issued in the second and third quarters of 2011, were terminated and cancelled in the fourth quarter of 2011 when the fourth quarter transaction occurred. |
| (3) | The convertible notes and related warrants issued in the fourth quarter of 2011, were terminated and cancelled in the first quarter of 2012, when a subordinated convertible note was issued to the Halpern Entities, as described further below. |
The proceeds received from these transactions were allocated to convertible notes and warrants. We concluded in each case that the warrants were indexed to our common stock and should be recorded as equity. We determined the fair value of each warrant. We then determined the fair value of each convertible note as the total of (i) the fair value of the note, determined by discounting cash flows of the payments due under the note at 25%, plus (ii) the fair value of the related conversion feature. Based on the relative fair values, we allocated the proceeds to the convertible note and equity for the warrant portion. In each case, we concluded that the embedded conversion feature need not be accounted for as a derivative since it was indexed to our common stock. We then determined whether the conversion feature was a beneficial conversion feature based on the effective conversion price. If there was a beneficial conversion feature, the amount of that feature was recorded in equity with an offsetting increase in debt discount for that convertible note.
We recognized no gain or loss as a result of the 2011 refinancing of any of the convertible notes. During 2011, we received a total of $2.3 million from issuance of the notes and related warrants. We recorded in equity $0.5 million for the warrants and the beneficial conversion features, $0.1 million to other assets and $1.9 million to debt.
Brazil Segment
All Brazil segment debt is denominated in the Brazilian Real (R$), except advances on export letters of credit which are denominated in U.S. Dollars.
Capital Expansion Loans
In December 2011, Irgovel entered into agreements with the Bank of Brazil. Under the agreements, Irgovel may borrow up to R$2.8 million on one agreement and R$6.7 million on another agreement (a total of $4.7 million based on the December 31, 2012 exchange rate). The annual interest rate on the loans is 6.5%. Interest is payable quarterly on the amounts outstanding and the maturity date of the loans is December 2021. Irgovel must make monthly principal payments under each of the loans with the first payment due on January 2014. Irgovel used R$1.5 million of the proceeds for working capital purposes and the remainder for the purchase of equipment and machinery.
RiceBran Technologies
Notes to Consolidated Financial Statements
In July 2012, Irgovel entered into a third agreement with the bank under which it borrowed R$1.7 million ($0.9 million based on the December 31, 2012 exchange rate) for the purchase of certain equipment at an annual interest rate of 5.5%. Interest is payable quarterly on the amounts outstanding and the maturity date of the loans is July 2019. Irgovel must make monthly principal payments under the loan with the first payment due August 2015. The loan is secured by the related equipment.
Irgovel has entered into certain equipment financing arrangements with annual interest rates that range from 13.5% to 21.5%, and average 16.2%. Interest and principal on this debt is payable monthly and payments extend through March 2016. This debt is secured by the related equipment.
Working Capital Lines of Credit
Irgovel has working capital lines of credit secured by accounts receivable. The total amount of borrowing capacity is R$3.6 million ($1.8 million based on the December 31, 2012, exchange rate) but cannot exceed 40%-100% of the collateral, depending on the agreement. The annual interest rates on this debt range from 12.4% to 44.5%, and average 23.3%. Principal maturities of amounts outstanding at December 31, 2012, extend through May 2014.
Advances on Export Letters of Credit
Irgovel obtains advances against certain accounts receivable backed by export letters of credit. The annual interest rates on these advances range from 3.7% to 8.0%, and average 5.6%. Principal maturities of amounts outstanding at December 31, 2012, extend through July 2013.
Special Tax Programs
Irgovel has unsecured notes payable for Brazilian federal and social security taxes under a special Brazilian government tax program. Amounts due under the special tax program are part of an amnesty program relative to unpaid taxes that existed prior to our acquisition of Irgovel in 2008. Principal and interest payments are due monthly through 2022. Interest on the notes is payable monthly at the Brazilian SELIC target rate, which was 7.3% at December 31, 2012.
Irgovel qualified for a modification of one of its special tax program debts. The debt was lowered by $0.3 million in the second quarter of 2011 in exchange for a reduction in available net operating losses for Brazil tax purposes valued at their fair market value$0.3 million. We recorded no gain or loss on the transaction. Prior to the modification the maturities on this debt ranged from 2011 through 2017. As modified, debt maturities range from 2011 through 2022.
NOTE 11. EQUITY AND SHARE-BASED COMPENSATION
We have never declared or paid dividends on our common stock and have no plans to pay dividends in the foreseeable future. Pursuant to the terms of $290,000.the senior convertible debentures, we may not pay any dividends while a debenture is outstanding. Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA.
In lieu of paying cash to non-employee board members for board retainer fees for the last three quarters of 2011, we issued 1,207,049 shares of common stock.
RiceBran Technologies
Notes to Consolidated Financial Statements
A summary of stock option and warrant activity for 2012 and 2011 follows. | | Options | | | Equity and Liability Warrants | |
| | Shares Under Options | | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Shares Under Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | |
| Outstanding, January 1, 2011 | | | 45,485,111 | | | $ | 0.30 | | | | 6.8 | | | | 40,429,578 | | | $ | 1.27 | | | | 2.3 | |
| Granted | | | 5,204,224 | | | | 0.22 | | | | | | | | 5,158,916 | | | | 0.23 | | | | | |
| Impact of anti-dilution clauses | | | - | | | | NA | | | | | | | | 6,303,255 | | | | NA | | | | | |
| Exercised | | | - | | | | NA | | | | | | | | - | | | | NA | | | | | |
| Forfeited, expired or cancelled | | | (12,100,614 | ) | | | 0.36 | | | | | | | | (5,102,385 | ) | | | 0.74 | | | | | |
| Outstanding, December 31, 2011 | | | 38,588,721 | | | | 0.27 | | | | 6.3 | | | | 46,789,364 | | | | 1.04 | | | | 1.7 | |
| Granted | | | 5,812,148 | | | | 0.15 | | | | | | | | 84,756,427 | | | | 0.10 | | | | | |
| Impact of anti-dilution clauses | | | - | | | | NA | | | | | | | | 103,744,062 | | | | NA | | | | | |
| Impact of amendment | | | - | | | | NA | | | | | | | | 15,642,859 | | | | NA | | | | | |
| Exercised | | | - | | | | NA | | | | | | | | (5,003,038 | ) | | | 0.10 | | | | | |
| Forfeited, expired or cancelled | | | (10,549,974 | ) | | | 0.34 | | | | | | | | (84,575,897 | ) | | | 0.43 | | | | | |
| Outstanding, December 31, 2012 | | | 33,850,895 | | | $ | 0.16 | | | | 6.3 | | | | 161,353,777 | | | $ | 0.12 | | | | 3.5 | |
| Exercisable, December 31, 2012 | | | 28,704,256 | | | $ | 0.17 | | | | 5.9 | | | | 142,793,777 | | | $ | 0.13 | | | | 3.3 | |
Options
Our board of directors adopted our 2010 Equity Incentive Plan (2010 Plan) in February 2010. A total of 25,000,000 shares of common stock were initially reserved for issuance under the 2010 Plan. The amount reserved increases annually each January 1st by 5% of the outstanding shares as of the prior December 31st. Additionally, in 2011 the board approved an 8,000,000 increase in the number of shares of common stock reserved under the plan. Under the terms of the 2010 Plan, we may grant options to purchase common stock and shares of common stock 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 2010 Plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients. The options granted under the 2010 Plan have terms of up to 10 years.
| | December 31, 2012 | |
| | | | |
| Initially reserved | | | 25,000,000 | |
| Additionally reserved - annual increases | | | 19,831,186 | |
| Additionally reserved - board action | | | 8,000,000 | |
| Options granted since inception, net of forfeited, expired or cancelled | | | (22,977,927 | ) |
| Stock granted since inception | | | (12,056,309 | ) |
| Available for issuance under the 2010 Plan | | | 17,796,950 | |
Our board of directors adopted the 2005 Equity Incentive Plan (2005 Plan) in May 2005 and our shareholders approved the 2005 Plan in September 2005. Under the terms of the 2005 Plan, we could grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services on such terms as are determined by the board of directors. Options granted under the 2005 Plan have terms of up to 10 years. There are no longer any shares reserved for future issuance under the 2005 Plan.
We have outstanding a total of 3,415,282 options awarded to current and former directors, employees and consultants at various times beginning in 2004 through 2009 that do not fall under the plans described above. Expiration periods, typically ten years, and other terms of these non-plan specific options are not materially different from those issued under the 2010 Plan and 2005 Plan.
RiceBran Technologies
Notes to Consolidated Financial Statements
Share-based compensation expenses related to options are included in selling, general and administrative expenses in the statements of operations, and consisted of the following (in thousands):
| | 2012 | | | 2011 | |
| Consultants | | $ | 42 | | | $ | 14 | |
| Directors | | | 285 | | | | 280 | |
| Employees | | | 152 | | | | 112 | |
| Executive officers | | | 444 | | | | 501 | |
| Total share-based compensation expense, options | | $ | 923 | | | $ | 907 | |
The following table summarizes option activity during 2012 and 2011:
Any unrealized holding gains | | Employees and Directors | | | Consultants | | | | |
| | Weighted | | | | | | Weighted | | | | | | | |
| | Average | | | Shares | | | Average | | | Shares | | | Total | |
| | Exercise | | | Under | | | Exercise | | | Under | | | Number of | |
| | Price | | | Options | | | Price | | | Options | | | Options | |
| Outstanding, January 1, 2011 | | $ | 0.41 | | | | 43,761,576 | | | $ | 1.46 | | | | 1,723,535 | | | | 45,485,111 | |
| Granted | | | 0.21 | | | | 4,404,224 | | | | 0.31 | | | | 800,000 | | | | 5,204,224 | |
| Forfeited, expired or cancelled | | | 0.34 | | | | (12,067,079 | ) | | | 10.00 | | | | (33,535 | ) | | | (12,100,614 | ) |
| Exercised | | NA | | | | - | | | NA | | | | - | | | | - | |
| Outstanding, December 31, 2011 | | | 0.24 | | | | 36,098,721 | | | | 0.76 | | | | 2,490,000 | | | | 38,588,721 | |
| Granted | | | 0.13 | | | | 5,612,148 | | | | 0.08 | | | | 200,000 | | | | 5,812,148 | |
| Forfeited, expired or cancelled | | | 0.29 | | | | (10,049,974 | ) | | | 1.33 | | | | (500,000 | ) | | | (10,549,974 | ) |
| Exercised | | NA | | | | - | | | NA | | | | - | | | | - | |
| Outstanding, December 31, 2012 | | $ | 0.13 | | | | 31,660,895 | | | $ | 0.53 | | | | 2,190,000 | | | | 33,850,895 | |
| | | | | | | | | | | | | | | | | | | | |
| Exercisable, December 31, 2012 | | $ | 0.14 | | | | 26,830,930 | | | $ | 0.56 | | | | 1,873,326 | | | | 28,704,256 | |
| Exercisable, December 31, 2011 | | $ | 0.26 | | | | 25,914,194 | | | $ | 0.95 | | | | 1,773,330 | | | | 27,687,524 | |
The following are the weighted-average assumptions used in valuing stock options:
| | 2012 | | | 2011 | |
| | | | | | |
| Fair value of options granted | | $ | 0.10 | | | $ | 0.19 | |
| Volatility | | | 109.2% | | | | 101.5% | |
| Risk free interest rate | | | 0.9% | | | | 0.8% | |
| Expected life of options (in years) | | | 6.1 | | | | 5.2 | |
| Expected dividends | | | - | | | | - | |
| Forfeiture rate | | | 5% | | | | 5% | |
RiceBran Technologies
Notes to Consolidated Financial Statements
The following table summarizes information related to outstanding and
losses onexercisable options:
| | | As of December 31, 2012 | |
| | | Outstanding | | | Exercisable | |
Range of Exercise Prices | | | Shares Under Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Shares Under Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | |
| | | | | | | | | | | | | | | | | | | |
| $ | 0.08 | | | | 22,042,441 | | | $ | 0.08 | | | | 7.0 | | | | 17,212,476 | | | $ | 0.08 | | | | 6.7 | |
| $ | 0.14 | | | | 708,075 | | | | 0.14 | | | | 9.2 | | | | 708,075 | | | | 0.14 | | | | 9.2 | |
| $ | 0.20 | | | | 6,812,879 | | | | 0.20 | | | | 5.6 | | | | 6,812,879 | | | | 0.20 | | | | 5.6 | |
| $ | 0.30 | | | | 3,000,000 | | | | 0.30 | | | | 2.0 | | | | 3,000,000 | | | | 0.30 | | | | 2.0 | |
| $ | 0.37 | | | | 687,500 | | | | 0.37 | | | | 8.2 | | | | 370,826 | | | | 0.37 | | | | 8.2 | |
| $ | 1.21 | | | | 100,000 | | | | 1.21 | | | | 3.0 | | | | 100,000 | | | | 1.21 | | | | 3.0 | |
| $ | 1.50 | | | | 500,000 | | | | 1.50 | | | | 0.4 | | | | 500,000 | | | | 1.50 | | | | 0.4 | |
| $ | 0.08 to $1.5 | | | | 33,850,895 | | | | 0.16 | | | | 6.3 | | | | 28,704,256 | | | | 0.17 | | | | 5.9 | |
In 2012, we issued 3,004,308 shares of common stock to retiring directors in exchange for the marketable securities are excluded from operating results and are recognized as other comprehensive income.surrender of vested stock options exercisable for 4,741,905 shares of common stock. The fair value of the securities is determined basedoptions surrendered on prevailing market pricesthe date of the stock issuances was $0.3 million and fair value of the stock at issuances was $0.3 million.
On September 8, 2006,For 2012, our non-employee directors agreed to accept stock options in lieu of cash representing one half of the Company filedboard retainer fees to which they otherwise would have been entitled. As a complaint in the United States District Courtresult, we issued options for the Eastern Districtpurchase of California, Sacramento Division, against Langley for, among other causes1,217,889 shares of action, securities fraud, breachcommon stock in 2012, at an exercise price of contract and rescission relating to this transaction,$0.14 per share. The company also filed a placeholder complaintstock options vested in the State of New York to preserve its rights relative to venue and jurisdictional issues.installments during 2012. The Company is seeking rescission$0.2 million grant date fair value of the Stock Purchase Agreement and return of all ofoptions equaled the Company’s shares issuedcash fees to and held by Langley, in addition to injunctive relief to preventwhich the transfer of the shares held by Langley. The Company is also seeking compensatory damages representing the loss in value as well as attorneys’ fees and costs incurred in the litigation.
On March 27, 2007, NutraCea and Langley settled this matter. Pursuant to the settlement, NutraCea will receive $1,250,000 from Langley and NutraCea will retain all 1,272,026 shares of Langley common stock.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
| | | 2006 | | 2005 | |
| | | | | | |
| Land | | $ | 9,000 | | $ | 5,000 | |
| Furniture and equipment | | | 916,000 | | | 697,000 | |
| Automobile | | | 73,000 | | | 73,000 | |
| Software | | | 389,000 | | | 367,000 | |
| Leasehold improvements | | | 430,000 | | | 396,000 | |
| Property and plant | | | 4,197,000 | | | 4,511,000 | |
| Construction in progress | | | 4,392,000 | | | 0 | |
| Subtotal | | | 10,406,000 | | | 6,049,000 | |
| Less accumulated depreciation | | | 1,445,000 | | | 556,000 | |
Total | | $ | 8,961,000 | | $ | 5,493,000 | |
Depreciation expense was $889,000, $241,000 and $315,000 for 2006, 2005 and 2004 respectively.directors were otherwise entitled.
NUTRACEA AND SUBSIDIARIES
Notesreceiving their full salary in cash. Our three executive officers received cash equal to Consolidated Financial Statements
NOTE 6 - PATENTS AND TRADEMARKS
Patentseither 83.3% or 90.0% of their stated contract salary, as detailed in their employment agreements, and trademarks consisted of the following at December 31:
| | | 2006 | | 2005 | |
| | | | | | |
| Patents | | $ | 2,540,000 | | $ | 2,457,000 | |
| Trademarks | | | 2,787,000 | | | 80,000 | |
| Subtotal | | | 5,327,000 | | | 2,537,000 | |
| Less Accumulated Amortization | | | 430,000 | | | 119,000 | |
Total | | $ | 4,897,000 | | $ | 2,418,000 | |
Amortization expense was $302,000 and $70,000 for 2006 and 2005, respectively. Amortization expensethese officers were collectively issued stock options for the next five years will be approximately $1,555,000.
NOTE 7 - NOTES RECEIVABLE
At December 31, 2006, we have seven secured promissory notes outstandingpurchase of up to the Company with an aggregate amount of $2,376,000, $1,694,000 reported as current and $682,000 reported as long-term. These secured promissory notes bear interest at annual rates of either five (5%) or eight (8%) with the principals and all accrued interest due and payable to us at dates ranging from February 2007 to October 2012.
We determined the note receivable of 5% to bear an interest rate that is lower than the current market rate. Therefore, we have recorded a discount on this note of $5,500, assuming market rate of 8.5%, and is accreting this discount using the effective interest method over the life of the note.
NOTE 8 - NOTES PAYABLE
In December 2004 we executed three promissory notes to third party investors totaling $2,400,000. The notes were for a one year term, bear interest at 7% interest compounded quarterly and were secured by all of our assets. The holders were issued warrants to purchase a total of 2,400,000852,592 shares of our common stock at an exercise price of $0.30equal to $0.12 per share. The warrants are immediately exercisable and expireoptions vested in seven yearsinstallments during 2012. The $0.1 million grant date fair value of the options equaled the officers’ salary forbearance.
In 2012, we lowered the exercise price on outstanding options held by certain employees for the purchase of up to 21,717,441 shares of common stock to $0.08 per share from an average exercise price of $0.19 per share. The stock price on the date of issuance. A discount on the debt of $786,000re-pricing was recorded for these warrants and was being amortized over the life$0.07 per share. No other terms of the notes. At October 4, 2005,options were modified. We recorded expense of less than $0.1 million in 2012, representing the principledifference between the fair value of the options before and interest onafter the three promissory notes weremodification. Total unrecognized compensation increased less than $0.1 million as a result of the modification.
In 2011, we entered into amendments to employment agreements with each of our four executive officers. Twenty percent of each officer’s salary for the last six months of 2011 was paid in
full.stock options instead of in cash. The options vested and became exercisable in installments during 2011. Under the amendments we issued options to purchase 2,116,726 shares of common stock, at an average exercise price of $0.20, and an average initial term of 1.6 years.
NUTRACEA AND SUBSIDIARIES
NotesMr. Brad Edson, our former chief executive officer. The agreement was subject to Consolidated Financial Statements
NOTE 9 - INCOME TAXES
Income tax expense is reportedthe approval of the Bankruptcy Court and became effective upon court approval in 2011. Mr. Edson agreed to return to NutraCea $0.4 million, representing a bonus earned in 2008. We recorded a receivable for the return of the bonus. The corresponding income reduced selling, general and administrative expenses in the first quarter of 2011. As partial payment of the receivable, Mr. Edson forfeited 6,000,000 options granted in 2004 and consistsreturned 35,000 shares of $5,000, $2,400common stock in payment of $0.3 million of his obligation. The options had an exercise price of $0.30 per share and $2,400were outstanding and exercisable as of December 31, 2010. We reduced the receivable from Mr. Edson, reduced equity by $0.3 million, and cancelled the options in 2011, when the Bankruptcy Court approved the agreement. The remaining $0.1 million receivable remains unpaid and reserved for due to uncertainty with regard to the collectability of the receivable as of December 31, 2012.
RiceBran Technologies
Notes to Consolidated Financial Statements
In 2011, we reached an agreement to settle all potential claims associated with the employment of Mr. Todd Crow, our former chief financial officer. As part of the settlement, Mr. Crow was required to forfeit 1,662,942 options and return 9,666 shares of common stock held. The agreement was subject to the approval of the Bankruptcy Court and became effective upon court approval in 2011. We cancelled the stock and options in 2011. The options had an average exercise price of $0.37 per share and were outstanding and exercisable as of December 31, 2010. No value was assigned to the cancelled stock or options because we transferred no cash or other assets in exchange. In connection with the settlement, Mr. Crow agreed to withdraw his $0.2 million bankruptcy claim.
Warrants
We have outstanding warrants classified as equity (equity warrants) and as warrant liability (liability warrants).
| | Equity Warrants | | | Liability Warrants | |
| | Shares Under Equity Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Shares Under Liability Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | |
| Balance, January 1, 2011 | | | 545,454 | | | $ | 0.69 | | | | 2.8 | | | | 39,884,124 | | | $ | 1.28 | | | | 2.3 | |
| Granted | | | 5,158,916 | | | | 0.23 | | | | | | | | - | | | | | | | | | |
| Impact of antidilution clauses | | | - | | | | | | | | | | | | 6,303,255 | | | | | | | | | |
| Exercised | | | - | | | | | | | | | | | | - | | | | | | | | | |
| Forfeited, expired or cancelled | | | (2,230,000 | ) | | | 0.23 | | | | | | | | (2,872,385 | ) | | | 1.13 | | | | | |
| Balance, December 31, 2011 | | | 3,474,370 | | | | 0.30 | | | | 3.5 | | | | 43,314,994 | | | | 1.10 | | | | 1.5 | |
| Granted | | | - | | | | - | | | | | | | | 84,756,427 | | | | 0.10 | | | | | |
| Impact of antidilution clauses | | | - | | | | - | | | | | | | | 103,744,062 | | | NA | | | | | |
| Impact of amendment | | | - | | | | - | | | | | | | | 15,642,859 | | | NA | | | | | |
| Exercised | | | - | | | | - | | | | | | | | (5,003,038 | ) | | | 0.10 | | | | | |
| Forfeited, expired or cancelled | | | (2,323,186 | ) | | | 0.22 | | | | | | | | (82,252,711 | ) | | | 0.44 | | | | | |
| Outstanding, December 31, 2012 | | | 1,151,184 | | | $ | 0.45 | | | | 2.4 | | | | 160,202,593 | | | $ | 0.12 | | | $ | 3.5 | |
| Exercisable, December 31, 2012 | | | 1,151,184 | | | $ | 0.45 | | | | 2.4 | | | | 141,642,593 | | | $ | 0.12 | | | $ | 3.3 | |
During the first quarter of 2012, the holder of a liability warrant to purchase 5,003,038 shares of common stock exercised the warrant on a cashless basis and, as a result, we issued the holder 1,552,667 shares of our common stock. We transferred the $0.7 million fair value of the liability warrant as of the date of exercise into equity.
The following table summarizes information related to outstanding and exercisable warrants:
| | | | As of December 31, 2012 | |
| | | | Outstanding | | | Exercisable | |
Range of Exercise Prices | | Type of Warrant | | Shares Under Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (Years) | | | Shares Under Warrants | | | Exercise Price | | | Remaining Contractual Life (Years) | |
| $ | 0.07-$0.08 | | Liability | | | 131,397,900 | | | $ | 0.08 | | | | 4.2 | | | | 112,837,900 | | | $ | 0.08 | | | | 4.1 | |
| $ | 0.23 | | Equity | | | 605,730 | | | | 0.23 | | | | 3.9 | | | | 605,730 | | | | 0.23 | | | | 3.9 | |
| $ | 0.33 | | Liability | | | 28,804,693 | | | | 0.33 | | | | 0.3 | | | | 28,804,693 | | | | 0.33 | | | | 0.3 | |
| $ | 0.69 | | Equity | | | 545,454 | | | | 0.69 | | | | 0.8 | | | | 545,454 | | | | 0.69 | | | | 0.8 | |
| | | | | | | 161,353,777 | | | $ | 0.12 | | | | 3.5 | | | | 142,793,777 | | | $ | 0.13 | | | | 3.3 | |
We have certain warrant agreements in effect for outstanding liability warrants that contain antidilution clauses. Under the antidilution clauses, in the event of equity issuances, we may be required to lower the exercise price on liability warrants and increase the number of shares underlying liability warrants. Equity issuances may include issuances of our common stock, certain awards of options to employees, and issuances of warrants and/or other convertible instruments below a certain exercise price.
RiceBran Technologies
Notes to Consolidated Financial Statements
Common stock and warrant issuance to Buyer (Note 12), convertible note and warrant issuances (Note 10), in 2012 and 2011 triggered the antidilution clauses in certain liability warrants and, as a result, we were required to lower the exercise price and increase the number of shares underlying certain liability warrants. In addition, certain amendments required us to lower the exercise price and increase the numbers of shares underlying certain warrants.
NOTE 12. SETTLEMENT WITH HERBAL SCIENCE
In March 2010, Herbal Science Singapore Pte. Ltd. (HS) filed a proof of claim against the Parent Company in the amount of $1.5 million in the Chapter 11 Reorganization. In November 2010, we entered into a stipulated settlement agreement with HS and certain affiliates, which was subsequently approved by the Bankruptcy Court. The stipulation, as amended, provided that we would pay HS $0.9 million.
During 2011, we paid $0.4 million of our obligation to HS. In the second quarter of 2011, HS sold their receivable due from us to a third party (Buyer). In settlement of our remaining $0.5 million obligation to Buyer we issued to Buyer 2,576,775 shares of common stock and a warrant to purchase 605,730 shares, at $0.23 per share, expiring in November 2016, in a noncash transaction. The fair value of the common stock and warrant issued to Buyer exceeded our obligation to the Buyer by $0.2 million. This excess was recorded as a transaction cost in other expense in the second quarter of 2011. The stock had a fair value, based on the closing price of our stock, of $0.6 million. The warrant had a fair value of $0.1 million, determined using Black-Scholes valuation methodology.
As a result of the settlement of our obligation to HS in 2011, we became the sole member of Rice Rx, LLC (RRX) and Rice Science, LLC (RS), each Delaware limited liability companies formed with HS in December 2007. Our ownership interest in RRX, increased from 50% to 100% and our ownership interest in RS increased from 80% to 100%. In addition, we were assigned all interests in the patentable pharmaceuticals, SRB isolates and related intellectual property derived from the preliminary research and development activities of RRX and RS.
The $0.9 million settlement was comprised of $0.6 million for the years ended December 31, 2006, 2005satisfaction of liabilities RRX and 2004, respectively.RS had payable to HS, $0.1 million for interest expense on those liabilities, $0.1 million for reimbursement of HS attorney fees, and $0.1 million for the additional ownership interests in RRX and RS. We used cash to satisfy our obligation to pay the $0.1 million for the ownership interests and $0.3 million of the liabilities to RRX and RS and settled the remainder of the liabilities, interest and attorneys fees, with issuance of the shares of common stock and the warrant to the Buyer.
We had a controlling interest in RS prior to the transaction, therefore no gain or loss was recorded with the purchase of the additional RS ownership interests. We recorded the indicated loss, representing the cash paid for the RS ownership interests and the noncontrolling interest derecognized with the transaction, of $0.3 million in equity in 2011. RS had no loss from operations in 2012 or 2011.
We increased our interest in RRX from a noncontrolling interest to a controlling interest. Consequently, in the second quarter of 2011, we recorded a loss on the transaction, equal to the cash paid for the RRX ownership interests and the net RRX liabilities assumed, of $0.1 million. The $0.1 million loss on acquisition of the additional interest in RRX is included in other income (expense). RXX had no loss from operations in 2012 or 2011.
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 13. INCOME TAXES
Deferred tax assets (liabilities) are comprised of the following at December 31:(in thousands):
| | As of December 31, | |
| | 2012 | | | 2011 | |
| United States | | | | | | |
| Net operating loss carryforwards | | $ | 41,374 | | | $ | 42,008 | |
| Gain on sale of membership interests in Nutra SA | | | 374 | | | | 374 | |
| Stock options and warrants | | | 1,144 | | | | 3,000 | |
| Intangible assets | | | 960 | | | | 577 | |
| Property | | | 5,651 | | | | 4,372 | |
| Capitalized expenses | | | 715 | | | | 1,217 | |
| Convertible debt | | | (399 | ) | | | - | |
| Other | | | 86 | | | | 283 | |
| Deferred tax assets | | | 49,905 | | | | 51,831 | |
| Less: Valuation allowance | | | (49,905 | ) | | | (51,831 | ) |
| Net deferred tax asset | | | - | | | | - | |
Brazil | | | | | | | | |
| Intangible assets | | | (490 | ) | | | (904 | ) |
| Property | | | (2,165 | ) | | | (2,927 | ) |
| Net operating loss carryforwards | | | 960 | | | | 14 | |
| Other | | | 255 | | | | 209 | |
| Net deferred tax liability | | | (1,440 | ) | | | (3,608 | ) |
| | $ | (1,440 | ) | | $ | (3,608 | ) |
| | | | | | | | |
| Deferred tax asset - current | | $ | 234 | | | $ | 159 | |
| Deferred tax liability - long-term | | | (1,674 | ) | | | (3,767 | ) |
| | $ | (1,440 | ) | | $ | (3,608 | ) |
| | | 2006 | | 2005 | |
| | | | | | |
| Net operating loss carryforward | | $ | 14,860,000 | | $ | 10,330,000 | |
| Marketable securities | | | 801,000 | | | 833,000 | |
| Stock options and warrants | | | - | | | 587,000 | |
| Other | | | 39,000 | | | 14,000 | |
| Intangible assets | | | (275,000 | ) | | 10,000 | |
| Property and equipment | | | (1,341,000 | ) | | (1,790,000 | ) |
| | | | 14,084,000 | | | 9,984,000 | |
| Less valuation allowance | | | (14,084,000 | ) | | (9,984,000 | ) |
| | | $ | - | | $ | - | |
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes.
At December 31, 2006 and 2005, managementWe have determined
it is more likely than not that
realizationsome portion or all of
these benefits isthe deferred tax assets will not
assured and hasbe realized. Accordingly we have provided a valuation allowance for
deferred tax assets. Our valuation allowance is on U.S. deferred tax assets. The change in valuation allowance of $1.9 million in 2012 is due to (i) $1.7 million in net operating loss and other deferred changes from 2012 operations, offset by (ii) the
entire amount$1.5 million impact of
such benefits. At December 31, 2006,expiring net operating losses and (iii) the $2.1 million impact of adjustments to capitalized expenses and stock option compensation. The change in valuation allowance of $1.3 million in 2011 is primarily due to (i) $3.4 million in net operating loss and other deferred changes from 2011 operations, offset by (ii) the $0.4 million impact for state rate changes and (iii) a $1.7 million adjustment of net operating loss carryforwards
were approximately $25,018,000to the returns filed.
As of December 31, 2012, net operating loss carryforwards for U.S. federal tax purposes thattotaled $110.7 million and expire at various dates from 20112018 through 2020 and $12,230,0002032. Net operating loss carryforwards for state tax purposes thattotaled $70.3 million as of December 31, 2012, and expire in 2010at various dates from 2013 through 2015.
The Company has an income tax benefit2032. As of $14,100,000 resulting from the exercise of options and warrants during 2006. This benefit can only be recognized if theDecember 31, 2012, net operating losses are used in future periods or if net operating losses expireloss carryforwards for Brazil tax purposes totaled $2.8 million and will be recorded in equity.do not expire.
Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended and similar state regulations. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.
The provisionWe are subject to taxation in the U.S. and various states. 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 2008 and, generally, by U.S. state tax jurisdictions after 2007. We are open for audit by the Brazilian tax authorities for years after 2008.
RiceBran Technologies
Notes to Consolidated Financial Statements
Loss before income taxes differs fromis comprised of the following (in thousands):
| | 2012 | | | 2011 | |
| | | | | | |
| Foreign | | $ | (5,051 | ) | | $ | (2,277 | ) |
| Domestic | | | (8,020 | ) | | | (8,943 | ) |
| Loss before income taxes | | $ | (13,071 | ) | | $ | (11,220 | ) |
Foreign earnings are assumed to be permanently reinvested. U.S. federal income taxes have not been provided on undistributed earnings of our foreign subsidiary.
The income tax benefit of $1.9 million in 2012 and $0.3 million in 2011 is all foreign deferred tax benefit. We have no U.S. tax provision or benefit in 2012 or 2011.
Reconciliations between the amount computed by applying the U.S. federal statutory tax rate (34%) to loss before income taxes, and income tax benefit follows (in thousands):
| | 2012 | | | 2011 | |
| | | | | | |
| Income tax benefit at federal statutory rate | | $ | (4,444 | ) | | $ | (3,815 | ) |
| Increase (decrease) resulting from: | | | | | | | | |
| State tax benefit, net of federal tax effect | | | (251 | ) | | | (347 | ) |
| Change in valuation allowance | | | (1,926 | ) | | | 1,313 | |
| Adjustment to U.S. net operating losses | | | - | | | | 1,694 | |
| Adjustment to capitalized costs deferred balances | | | 443 | | | | - | |
| Adjustment to stock option compensation deferred balances | | | 1,602 | | | | - | |
| Reduction in deferred balances for forfeited, expired or cancelled options | | | 602 | | | | - | |
| Expiration of U.S. net operating losses | | | 1,460 | | | | 115 | |
| Nontaxable fair value adjustment | | | (1,843 | ) | | | (113 | ) |
| Nondeductible convertible debt issuance expenses | | | 2,285 | | | | - | |
| Impact of state rate changes | | | - | | | | 437 | |
| Nondeductible expenses | | | 10 | | | | 18 | |
| Foreign taxes | | | 6 | | | | (6 | ) |
| Adjustments to Brazil deferred balances | | | (222 | ) | | | 429 | |
| Adjustments to U.S. deferred balances | | | 343 | | | | (70 | ) |
| Income tax benefit | | $ | (1,935 | ) | | $ | (345 | ) |
We have not identified any uncertain tax positions requiring a reserve as followsof December 31, 2012 or 2011.
NOTE 14. RECOVERIES FROM FORMER CUSTOMERS
In 2011, pursuant to a settlement agreement with a former customer, we received $0.8 million in connection with a 2007 transaction with that customer. We shipped products in 2007 to the customer and no revenue was recognized for the year ended December 31:transaction under revenue recognition rules. The customer had not remitted payment prior to the settlement. The $0.8 million received is included in recoveries from former customers in the statements of operations for 2011.
In 2007, we closed on the sale of certain products to a customer. The applicable criteria for revenue recognition were not met at that time. The $1.0 million deposit we received in the transaction was carried as an other long-term liability on our balance sheet since 2007 until the fourth quarter of 2011, when we eliminated the liability upon the resolution of certain legal matters associated with the transaction. We recognized a reduction in operating expenses in the amount of $1.0 million, which is recorded in recoveries from former customers in the statements of operations for 2011.
RiceBran Technologies
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | 2006 | | 2005 | | 2004 | |
| | | | | | | | |
| Income tax expense (benefit) at federal statutory rate | | $ | 541,000 | | $ | (1,316,000 | ) | $ | (8,017,000 | ) |
| Increase (decrease) resulting from: | | | | | | | | | | |
| State franchise tax expense (benefit), net of federal tax effect | | | 92,000 | | | (224,000 | ) | | (1,368,000 | ) |
| Change in valuation allowance | | | (608,000 | ) | | (3,202,000 | ) | | 8,584,000 | |
| Other, net | | | (25,000 | ) | | 32,000 | | | 801,000 | |
| RiceX acquisition | | | - | | | 4,710,000 | | | - | |
| | | | | | | | | | | |
| | | $ | - | | $ | - | | $ | - | |
NOTE 10 -15. COMMITMENTS AND CONTINGENCIES
Employment contractsContracts
Minimum futureWe have entered into employment and other agreements with certain executives and other employees that provide for compensation and certain other benefits. These agreements provide for severance payments for key employees asunder certain circumstances.
In the normal course of December 31are as follows:
| 2007 | | $ | 1,126,000 | |
| 2008 | | | 272,000 | |
Total | | $ | 1,398,000 | |
Generally, ifbusiness, we terminateperiodically 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 agreements without cause or the employee resignsindemnification provisions. No amounts have been recorded in our financial statements with good reason, as defined, we will pay the employees' salaries, bonuses, and benefits payable for the remainder of the term of therespect to any obligations under such agreements.
Leases
We lease our office, laboratory and warehouse space in El Dorado Hills, Californiacertain properties under avarious operating lease agreementarrangements that expire over the next twenty one years. These leases generally provide us with Roebbelen that expires in February 2007 and requires monthly payments of $6,442. We also lease warehouse spaces in West Sacramento, California which expire in July of 2007 for $5,440 per month. RiceX leases office space in Burley, Idaho at a rate of $550 per month, expiring in May of 2009.
On November 14, 2006, NutraCea signed a 63-month lease with Transwestern for 26,147 square fee of office space at 5090 North 40th Street, Phoenix, Arizona in anticipation of moving our corporate headquartersthe option to Phoenix, Arizona in early 2007. The monthly lease payments escalate from $58,830.75 to $67,546.42 duringrenew the lease term.
Theat the end of the lease for the 26,147 square-foot office expires in 2012 with escalating monthly lease payments from $59,000 to $68,000.term. Future minimum payments under these leases atcommitments as of December 31, 2006 were2012, are as follows:
Year Ending December 31, | | | |
| | | | |
| 2007 | | $ | 605,000 | |
| 2008 | | | 729,000 | |
| 2009 | | | 750,000 | |
| 2010 | | | 775,000 | |
| 2011 | | | 801,000 | |
| 2012 | | | 371,000 | |
Total | | $ | 4,031,000 | |
$0.4 million in 2012 and $0.5 million in 2011.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Rent expense was $124,000, $111,000 and $65,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
Litigation
On July 16, 2002, the Company was summoned to answer a Complaint filed by Faraday Financial, Inc. (“Faraday”) in District Court, County of Salt Lake, Utah (Case No. 020906477). The Complaint alleges that the Company issued convertible promissory notes totaling $450,000 and a promissory note totaling $50,000. On December 13, 2001, Faraday entered into a settlement agreement with the Company, whereby Faraday agreed to cancel the promissory notes in exchange for 735,730 shares of preferred stock. Faraday claims that the settlement agreement required that the Company effect a registration statement covering the preferred stock by June 30, 2002, which the Company failed to do, and demands the Company immediately forfeit to Faraday 735,730 shares of common stock owned by the Chief Executive Officer of the Company. Faraday has filed its fourth claim for relief for a judgment against the Company for $500,000, plus accrued, but unpaid interest, attorneys’ fees and costs, and other such costs. A Settlement Agreement was executed on December 10, 2003. In consideration for the mutual releases, Faraday converted 735,730 preferred into 735,730 common shares and $90,000 of accrued preferred dividends into 1,201,692 common shares. Within the next year, if Faraday cannot realize $552,000 and approximately $10,000 in legal expenses from the sale of the common shares, NutraCea will make up any deficiency. If stock sale exceeds $562,000, Faraday is entitled to keep any excess. Subsequent to December 31, 2003, the Company issued an additional 250,000 shares to Faraday. Concurrently, with the executed Settlement Agreement, a joint stipulated motion to stay all proceedings was filed with the Court. After all the above conditions are met, if Faraday has not lifted the stay within 18 months of December 10, 2003, NutraCea shall deliver to Faraday an executed stipulation for dismissal with prejudice of the Complaint and Counterclaim. In 2005, we issued the final 97,000 shares, valued at $98,000, to Faraday to settle in full the executed Settlement Agreement.
NutraCea commenced a lawsuit on September 8, 2006 against Langley Park Investments, PLC, a United Kingdom Corporation (“Langley”) in the United States District Court for the Eastern District of California, Sacramento Division. The factual basis underlying that case involved a private-placement transaction in which NutraCea exchanged 7 million restricted shares of its common stock for 1,272,026 ordinary shares of Langley common stock (the “Langley Shares”), half of which were immediately saleable by NutraCea and half of which were placed in escrow subject to certain conditions. After the commencement of the litigation, the parties entered into a Pre-Settlement/Escrow Agreement, pursuant to which they agreed that the proceeds from Langley’s sale of certain NutraCea shares, totaling $2.5 million, would be deposited into an escrow account. The matter has now been settled. Pursuant to the settlement, NutraCea will receive $1.25 million from the $2.5 million held in escrow (Langley will receive the remainder), and NutraCea will retain all of the Langley Shares.
In addition to the mattermatters discussed above,below, from time to time we are involved in litigation incidental to the conduct of our business. 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.
NOTE 11- THE RICEX ACQUISITIONDefense costs are expensed as incurred and are included in professional fees.
Irgovel Stockholders Lawsuit
On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining former Irgovel stockholders (Sellers), requesting: (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion. The amount of damage claimed by Mr. Resyng is approximately $3 million.
We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement). Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.
RiceBran Technologies
Notes to Consolidated Financial Statements
On October 4, 2005, NutraCea merged with RiceX. The stockholders of RiceX received 28,272,064 shares of NutraCea common stock in exchange for 100%February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the sharessecond installment of RiceX common stock,the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million. We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above. The Parent Company has not been served with any formal notices in regard to this matter so far. To date, only Irgovel has received formal legal notice. In addition, the Purchase Agreement requires that all disputes between us and NutraCea assumed the outstanding optionsSellers be adjudicated through arbitration. As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies. We believe any payout due to the lawsuit will be made out of the escrow account. As of December 31, 2012 and 2011, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets. There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of December 31, 2012 and 2011 totaling $1.4 million and $1.9 million. When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement. As of December 31, 2012, $0.6 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.4 million to settle any remaining contingencies. We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.
NOTE 16. EMPLOYEE BONUS PLAN
In 2010, our board of directors approved a cash incentive bonus plan. As of December 31, 2012, the plan provided for payment of $0.5 million to employees, employed at the time of payment, if all of the following conditions are met: (i) court approval of our Plan of Reorganization and successfully exiting the Chapter 11 bankruptcy process, (ii) being cash flow positive, defined by our board as earnings before interest, taxes, depreciation, amortization and certain non-cash charges, and (iii) cash availability as determined by our board at its sole discretion. Because the consolidated operating cash flow condition and cash availability condition were not met as of December 31, 2012 and 2011, our board of directors has not approved payments and no accruals have been recorded.
NOTE 17. RELATED PARTY TRANSACTIONS
Transactions with Director Baruch Halpern
In January 2012, Baruch Halpern became a member of our board of directors. Mr. Halpern is the principal in Halpern Capital, Inc. (HC). Under a February 2011 financial advisor agreement we are obligated to pay HC success fees ranging from 2.5% to 5.0% of the consideration received from certain equity, convertible securities or debt transactions. We must also issue warrants to purchase 11,810,496 shares of RiceX common stock.stock that equal from 2.5% to 5.0% of the consideration received in those transactions, divided by either the market price of the common stock or the conversion price of the securities issued in the transaction. This agreement terminated April 1, 2012, however, we remain obligated to pay HC success fees and issue HC warrants on any transaction with an investor introduced by HC occurring though March 31, 2013.
In connection with the issuance of convertible debt in 2012 we issued the transactional warrants listed below under the terms of our financial advisor agreement with HC.
Date of Warrants | | Number of Shares Under Warrants | | Exercise Price of Warrant | | Expiration Date of Warrant | |
| | | | (1) | | | |
| January 2012 | | 250,000 | | Exercisable immediately at $0.15 per share (2) | | January 2017 | |
| January 2012 | | 1,112,500 | | Exercisable immediately at $0.10 per share (2) | | January 2017 | |
| May 2012 | | 12,500 | | Exercisable immediately at $0.10 per share (2) | | May 2017 | |
| July 2012 | | 142,142 | | Exercisable immediately at $0.07 per share | | July 2017 | |
| August 2012 | | 53,571 | | Exercisable immediately at $0.07 per share | | August 2017 | |
| (1) | All of the transactional warrants contain full ratchet antidilution provisions and require the holders to provide us with at least 61 days notice prior to conversion or exercise to the extent the holder would have a beneficial ownership interest in our common stock in excess of 4.99% of our outstanding common stock immediately after conversion or exercise. |
| (2) | As a result of the July 31, 2012, issuances of convertible debt and related warrants, the exercise prices on these transactional warrants were reduced under the full ratchet antidilution provisions included in the transactional warrants, to $0.07 per share and the number of underlying shares increased to equal the number of original underlying shares times the initial exercise price divided by $0.07 per share. |
RiceBran Technologies
Notes to Consolidated Financial Statements
Other transactions with Mr. Halpern, HC and Halpern Entities are summarized below (in thousands):On October 4, 2005,
| | 2012 | | | 2011 | |
| Success fees earned by HC under financial advisor agreement payable in cash | | $ | 164 | | | $ | 26 | |
| Proceeds received from Mr. Halpern and Halpern Entities upon issuance of convertible debt and related warrants | | | 213 | | | | 1,739 | |
| Interest earned by Halpern Entities on convertible debt | | | 302 | | | | 225 | |
| Payments to HC relevant to HC's class 6 general unsecured creditor claim | | | 256 | | | | 754 | |
As of December 31, 2012 and 2011, there was less than $0.1 million in accounts payable or accrued expenses due to Mr. Halpern, HC or the Halpern Entities.
In January 2012, we agreed to extend the expiration dates on certain investors purchased an aggregateliability warrants held by Mr. Halpern and others, for the purchase of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share. Additionally, the investors were issued warrants to purchase an aggregate 7,850,0005,166,520 shares of common stock at an exercise price of $0.70$0.10 per share. An advisor forshare from July 2014 to January 2017. The resulting $0.1 million change in the financing receivedfair value of the warrants was expensed in other income (expense).
As a customary fee based on aggregate gross proceeds receivedresult of the amendment discussed in Note 10, the terms of Mr. Halpern’s January 2012 subordinated convertible note were modified such that the maturity date was extended from the investors and a warrantJanuary to purchase 1,099,000 shares of common stock at anJuly 2015, the exercise price on the related warrant was reduced from $0.12 per share to $0.08 per share and the number of $0.50underlying shares on those warrants was increased from 25,000,000 to 35,714,286. Had the warrant not been amended, the exercise price would have reduced to $0.07 per share.share under the antidilution provisions in the warrant.
Transactions with Other Directors
NUTRACEA AND SUBSIDIARIESIn April 2012, Henk Hoogenkamp became a member of our board of directors.
NotesIn 2011, Mr. Hoogenkamp performed consulting services for us under an independent contractor agreement. Under the agreement, as amended, we agreed to Consolidated Financial Statements
The acquisition was accountedpay Mr. Hoogenkamp a total of $0.1 million as compensation for using the purchase method of accounting. The purchase price allocation included within these Consolidated Financial Statements is based on a purchase price of $40,542,000 calculated as follows:
| NutraCea shares issued | | | 28,272,064 | |
| Price per share (NutraCea closing price, October 4, 2005) | | $ | 1.03 | |
| Aggregate value of NutraCea common stock consideration | | $ | 29,120,000 | |
| Value of the RiceX warrants and options assumed | | | 11,422,000 | |
| | | | | |
| Total consideration | | $ | 40,542,000 | |
| | | | | |
| Fair value of identifiable net assets acquired: | | | | |
| Estimate of fair value adjustment of property, plant and equipment | | $ | 5,600,000 | |
| Acquired other net tangibles assets | | | 611,000 | |
| Estimate of fair value adjustment of RiceX intellectual property | | | 2,000,000 | |
| Goodwill | | | 32,331,000 | |
Total | | $ | 40,542,000 | |
The purchase price allocation is based on estimates and assumptions. This information is presented for informational purposes only.
The accompanying unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2005 is presented for illustrative purposes only and does not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of NutraCea and RiceX’s operations.services in 2011. In addition, actual results may be different from the projections set forth in this unaudited pro forma condensed combined consolidated statement of operations.
Unaudited Pro Forma Condensed Combined Consolidated | |
Statement of Operations | |
Year Ended December 31, 2005 | |
| | | HISTORICAL | | PRO FORMA | |
Income Statement | | NutraCea | | RiceX | | Adjustment | | | | Combined | |
| | | | | | | | | | | | |
| Revenues | | | | | | | | | | | |
| Net sales | | $ | 4,569,000 | | $ | 3,838,000 | | $ | (325,000 | ) | | (a) | | $ | 8,082,000 | |
| | | | | | | | | | | | | | | | | |
| Total Revenues | | $ | 4,569,000 | | $ | 3,838,000 | | $ | (325,000 | ) | | | | $ | 8,082,000 | |
| | | | | | | | | | | | | | | | | |
| COGS | | $ | 2,523,000 | | $ | 1,533,000 | | $ | (325,000 | ) | | (b) | | $ | 3,731,000 | |
| | | | | | | | | | | | | | | | | |
| Gross Profit | | $ | 2,046,000 | | $ | 2,305,000 | | $ | - | | | | | $ | 4,351,000, | |
| | | | | | | | | | | | | | | | | |
| Sales, General and Administrative | | $ | 2,853,019 | | $ | 5,085,000 | | $ | (55,000 | ) | | (c) | | $ | 7,883,019 | |
| Research and Development | | $ | 262,000 | | $ | 267,000 | | | | | | | | $ | 529,000 | |
| Stock, Option and Warrant Expense | | $ | 1,511,000 | | $ | - | | | | | | | | $ | 1,511,000 | |
| Investor Relations | | $ | - | | $ | 41,000 | | | | | | | | $ | 41,000 | |
| Professional Fees | | $ | 109,000 | | $ | 914,029 | | | | | | | | $ | 1,023,029 | |
| Loss From Operations | | $ | (2,689,019 | ) | $ | (4,002,029 | ) | $ | (55,000 | ) | | | | $ | (6,636,048 | ) |
| | | | | | | | | | | | | | | | | |
| Interest Income | | $ | - | | $ | 10,000 | | $ | - | | | | | $ | 10,000 | |
| Interest Expense | | $ | (878,000 | ) | | | | | | | | | | $ | (878,000 | ) |
| Provision for income tax | | $ | - | | $ | (2,000 | ) | | | | | | | $ | (2,000 | ) |
| Total other income (expense) | | $ | (878,000 | ) | $ | 8,000 | | $ | - | | | | | $ | (870,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net Loss | | $ | (3,567,019 | ) | $ | (3,994,029 | ) | $ | 55,000 | | | | | $ | (7,506,048 | ) |
| | | | | | | | | | | | | | | | | |
| Cumulative Preferred dividends | | $ | - | | $ | - | | | | | | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Net Loss Available to Common Shareholders | | $ | (3,567,019 | ) | $ | (3,994,029 | ) | $ | 55,000 | | | | | $ | (7,506,048 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and Diluted Loss per share | | $ | (0.10 | ) | | (0.01 | ) | | | | | | | $ | (0.11 | ) |
| | | | | | | | | | | | | | | | | |
| Basic Shares Outstanding | | | 38,830,015 | | | | | | 28,272,064 | | | (d) | | | 67,102,079 | |
NUTRACEA AND SUBSIDIARIES
Noteswe issued to Consolidated Financial Statements
(a) Represents the elimination of intercompany sales
(b) Represents the elimination of intercompany cost of sales
(c) Represents the elimination of intercompany rent expense of sublease
(d) Represents the net change in total combined common stock outstanding
NOTE 12 - PREFERRED AND COMMON STOCK
Convertible, Redeemable Series A Preferred Stock
Our Series A preferred stock was convertible at the option of the holder at $1 per share into our common stock, subject to certain anti-dilution provisions. In addition, the Series A preferred stock will automatically convert into common stock in the event of a qualified public trading benchmark, which is defined as (i) the common stock is listed on a national exchange at twice its conversion price or (ii) the common stock is quoted on the over-the-counter bulletin board at an average bid price of at least $1.25 per share over any 30-day trading period. At December 31, 2004, all the outstanding preferred stock was either repurchased or converted under option (ii) above.
During the year ended December 31, 2004, we:
Repurchased 130,000 shares of preferred stock for $130,000;
Converted 540,000 shares of preferred stock into 630,000 shares of common stock valued at $348,000; and,
Issued 5,759 shares of common stock in payment of preferred stock dividends due in the amount of $6,000.
Convertible, Series B Preferred Stock
On October 4, 2005, certain investors purchased an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share pursuant to the Purchase Agreement. The preferred shares can be converted to shares of common stock at a conversion rate of 2,000 shares of common stock for each preferred share issued in the transaction. Additionally, pursuant to the Purchase Agreement, the investors were issued warrants to purchase an aggregate 7,850,000 shares of common stock at an exercise price of $0.70 per share, valued at $7,690,000. The warrants have a term of five years and are immediately exercisable.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
An advisor for the financing received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 1,099,000 shares of common stock at an exercise price per share of $0.50 per share valued at $1,086,000
During the year ended December 31, 2006, fourteen Series B shareholders converted 7,380 shares of preferred stock into 14,760,000 shares of common stock. The preferred shares converted at a conversion rate of 2,000 shares of common stock for each preferred shares.
Convertible, Series C Preferred Stock
On May 12, 2006, we sold an aggregate of 17,560 shares of our Series C Convertible Preferred Stock at a price of $1,000.00 per share in connection with a private placement for aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net after offering and related expenses). The Series C preferred shares can be converted toMr. Hoogenkamp 150,000 shares of our common stock at a conversion ratewhich fully vested on December 31, 2011. In June 2011, we entered into an amendment to the independent contractor agreement, which reduced the scope of approximately 1,176 sharesthe consulting services and reduced his compensation during the last six months of common2011. Mr. Hoogenkamp agreed to be paid less than $0.1 million for his consulting services in 2011 and we agreed to extend the exercise period for certain stock options issued to Mr. Hoogenkamp for each preferred share. Additionally, the investors were issued warrantspurchase of up to purchase an aggregate of 10,329,412440,000 shares of our common stock at an exercise price of $1.35 per share. to June 30, 2015. The warrants have a term of five years and are immediately exercisable.
Halpern Capital, Inc. acted as advisor and placement agent for the financing and received a customary fee based on aggregate gross proceeds received from the investors and a warrant to purchase 500,000 shares of NutraCea’s common stock at an exercise price per share of $1.35. The warrants have a five-year term and are immediately exercisable.
During the year ended December 31, 2006, thirty Series C Shareholders converted 12,092 shares of preferred stock into 14,225,854 shares of common stock. The preferred shares converted at a conversion rate of 1,176 shares of common stock for each preferred shares.
Common Stock
On March 25, 2004, we established the NutraCea Patent Incentive Plan, which grants 15,000 shares of common stock to each named inventor on each granted patent, which is assigned to NutraCea. Under the terms of this plan during the year ended December 31, 2004, NutraCea issued 180,000 shares of common stock valued at $239,000. During the year ended December 31, 2005, the Company issued 30,000 shares of common stock valued at $13,000.
During the year ended December 31, 2004, we:
Issued 280,000 shares of common stock to two consultantschange in settlement of contractual agreements valued at $478,000;
Issued 5,500,000 shares of common stock valued at $8,360,000 to Patricia McPeak, our former Chief Executive Officer for services and cancellation of indebtedness;
Repurchased 344,956 shares of common stock valued at $230,000 from Patricia McPeak the former Chief Executive Officer of NutraCea pursuant to a repurchase agreement;
Converted preferred dividends in the amount of $6,000 into 5,759 shares of common stock;
Issued 3,767,950 shares of common stock to consultants for services rendered valued at $2,542,000;
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Issued 640,000 shares of common stock to officers and directors for services rendered valued at $928,000;
Issued 168,626 shares of common stock to vendors in payment of accounts payable totaling $58,000;
Issued 6,579,323 shares of common stock pursuant to the exercise of stock options for cash totaling $2,776,000; and
Converted 540,000 shares of preferred stock to 630,000 shares of common stock pursuant to the Mandatory Conversion paragraph of the Private Placement Memorandum dated November 9, 2001.
On September 8, 2004, NutraCea and Langley Park Investments PLC (“Langley”) signed a Stock Purchase Agreement under which NutraCea agreed to sell 7,000,000 shares of its common stock to Langley. The transaction will close at the time that Langley’s shares are trading on the London Stock Exchange for anticipated consideration to NutraCea (i) immediately following the closing of approximately $1,190,000 U.S.D. in Langley stock, and (ii) additional consideration of that number of Langley shares which, as of the closing, will have a value of approximately $1,190,000 (the “Langley Shares”). NutraCea has agreed to hold the Langley Shares in escrow for two years from the date of closing. After the two-year holding period, the Langley Shares will be subject to possible reduction in number if NutraCea’s common shares are trading at a value of less than $0.34 U.S.D. After such reduction, if any, the remaining Langley Shares may be sold by NutraCea at their then current value. Pursuant to the Purchase Agreement, Langley has agreed that it will not sell, transfer or assign any or all of the NutraCea shares for a period of two years following the closing without the prior written consent of NutraCea, which consent may be withheld by NutraCea in its sole discretion.
During the year ended December 31, 2005, we:
Issued 1,904,805 shares of common stock to seven consultants for services rendered, valued at $907,000;
Issued 70,000 shares of common stock to two officers and directors, valued at $30,000;
Issued a total of 30,000 shares of common stock to two consultants under the Patent Incentive Plan, valued at $13,000; and
Issued 97,000 shares of common stock, valued at $98,000, to Faraday, which was the last required payment to Faraday under the Settlement Agreement dated December 10, 2003.
During the year ended December 31, 2006, we:
Issued 29,999 shares of common stock to a consultant for services rendered, valued at $30,000;
Issued 1,742,723 shares of common stock for the cashless exercise of options/warrants.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Issued 14,156,443 shares of common stock to thirty Series C shareholders converting 12,092 shares of preferred stock.
NOTE 13 - STOCK OPTIONS AND WARRANTS
Expense for stock options and warrants issued to consultants is calculated at fair value using the Black-Scholes valuation method.
On October 31, 2003, the Board of Directors approved and adopted the 2003 Stock Compensation Plan and authorized the President of the Company to execute a registration statement under the Securities Act of 1933 for 10,000,000 shares of common stock. As of December 31, 2005, 9,966,208 shares of common stock and no options have been granted under the 2003 Stock Compensation Plan. As of December 31, 2006, 9,996,207 shares of common stock and no options have been granted under the 2003 Stock Compensation Plan.
The expense, if any, of stock options issued to employees is recognized over the shorter of the term of service or vesting period. The expense of stock options issued to consultants or other third parties are recognized over the term of service. In the event services are terminated early or no specific future performance is required by the Company, the entire amount is recognized.
During the year ended December 31, 2004, we:
Issued 6,998,493 warrants with exercise prices between $0.001 and $5.00 per share to consultants, which were valued at $7,762,000, which expire at varying times between six months and five years;
Issued 25,000 employee stock options with an exercise price of $0.20, which expire in five years;
Issued 8,000,000 stock options to two officers with an exercise price of $0.30, expiring in 10 years; and
Issued 2,400,000 warrants with an exercise price of $0.30, in conjunction with notes payable issued by us during the quarter. The warrants are immediately exercisable and expire seven years from the date of issuance. A total of $786,000 of accrued debt discount expense was recorded relating to the issue of these warrants and was amortized over the term of the notes payable.
During the year ended December 31, 2005, we:
Assumed 11,810,496 options and warrants with exercise prices between $0.15 and $1.66 per share relating to the acquisition of RiceX. The warrants expire at varying times between 9 months and 10 years;
Issued 1,305,000 options and warrants to purchase common stock to ten consultants valued at $349,000; The warrants expire from three-five years, and have exercise prices between $0.30 and $1.275 per share;
Issued 1,099,000 warrants to purchase common stock valued at $1,086,000, for commissions to the underwriter relating to the private placement of Series B preferred stock. The warrants have an exercise price of $0.50 and expire in five years;
Issued 7,850,000 warrants to purchase common stock to 17 investors in conjunction with the Series B preferred stock private placement, valued at $7,690,000, exercisable for $0.70 and expiring in five years;
Issued 2,200,000 options to 3 employees, which are exercisable between $0.30 and $0.46 per share, expiring in ten years;
Exercised 531,000 options and warrants for common stock for cash in the amount of $105,000; and,
Issued 66,666 shares of common stock in exchange for 100,000 options and warrants for a cash less exercise.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the year ended December 31, 2006, we:
Issued 17,560 shares of our Series C convertible Preferred Stock at a price of $1,000 per share in connection with a private placement for aggregate gross proceeds of approximately $17,560,000 ($15,934,000 net, after offering and related expenses).
Issued 10,329,411 warrants to purchase common stock to 33 investors in conjunction with the series C preferred stock private placement, valued at $13,524,000, immediately exercisable for $1.35 and expiring in five years;
Issued 500,000 warrants to purchase common stock, valued at $655,000, for commissions relating to private placement of series C preferred stock. The warrants are immediately exercisable at $1.35 and expire in five years;
Issued a total of 1,600,000 options to purchase common stock to 17 employees, non-employee directors and a medical advisor to the board of directors, vesting from immediately to 2 years, expiring in 3-10 years, with exercise prices of $1.00 to $2.50 per share;
Issued a total of 700,000 warrants to purchase common stock to 12 consultants, vesting from immediately to performance contingencies, expiring in 3-4 years, with exercise prices of $1.00 to $2.40 per share;
Canceled and/or expired 869,150 options and warrants, including 626,030 RiceX options.
Exercised 5,635,064 options and warrants for common stock for cash in the amount of $5,784,000; and
Issued 1,842,723 shares of common stock in exchange for 2,520,000 options and warrants for a cashless exercise.
Issued 297,108 shares of common stock in connection with our equine feed assets purchase, valued at $350,000;
Issued 5,635,064 shares of common stock for the exercise of options and warrants for cash in the amount of $5,784.000;
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company’s stock options and warrants outstanding, exercisable, exercised and forfeited are as follows:
| | | Options Employee, Directors | | Warrants Consultants, Investors | |
| Stock option and warrant transactions: | | Weighted Average Exercise Price | | Number of shares | | Weighted Average Exercise Price | | Number of shares | |
| | | | | | | | | | |
| Outstanding balance January 1, 2004 | | $ | 0.56 | | | 764,700 | | $ | 0.98 | | | 3,196,819 | |
| Granted | | $ | 0.30 | | | 8,025,000 | | $ | 0.62 | | | 9,598,493 | |
| Expired or canceled | | $ | - | | | - | | $ | 4.94 | | | (220,833 | ) |
| Exercised | | $ | 0.01 | | | (500,000 | ) | $ | 0.43 | | | (6,479,323 | ) |
| Outstanding balance December 31, 2004 | | $ | 0.34 | | | 8,289,700 | | $ | 0.85 | | | 6,095,156 | |
| Exercisable balance December 31, 2004 | | $ | 0.34 | | | 8,289,700 | | $ | 0.85 | | | 5,846,156 | |
| | | | | | | | | | | | | | |
| Outstanding balance January 1, 2005 | | $ | 0.34 | | | 8,289,700 | | $ | 0.85 | | | 6,095,156 | |
| Granted | | $ | 0.31 | | | 2,200,000 | | $ | 0.67 | | | 10,554,000 | |
| Expired or canceled | | $ | - | | | - | | $ | 0.01 | | | (135,004 | ) |
| Exercised | | $ | - | | | - | | $ | 0.12 | | | (531,000 | ) |
| Outstanding balance December 31, 2005 | | $ | 0.34 | | | 10,489,700 | | $ | 0.75 | | | 15,983,152 | |
| Exercisable balance December 31, 2005 | | $ | 0.35 | | | 16,837,465 | | $ | 0.74 | | | 19,115,894 | |
| | | | | | | | | | | | | | |
| Outstanding balance January 1, 2006 | | $ | 0.34 | | | 10,489,700 | | $ | 0.75 | | | 15,983,152 | |
| Granted | | $ | 1.36 | | | 1,600,000 | | $ | 1.35 | | | 11,629,411 | |
| Expired or canceled | | $ | 0.32 | | | (693,244 | ) | $ | 0.54 | | | (175,906 | ) |
| Exercised | | $ | - | | | - | | $ | 0.65 | | | (8,155,064 | ) |
| Outstanding balance December 31, 2006 | | $ | 0.43 | | | 11,396,456 | | $ | 1.03 | | | 19,281,593 | |
| Exercisable balance December 31, 2006 | | $ | 0.35 | | | 17,589,504 | | $ | 1.01 | | | 22,443,726 | |
The Company determines fair value at grant date using the Black-Scholes option pricing model that takes into account the stock price at the grant date, the exercise price, and the expected life of the option, the volatility of the underlying stock and the expected dividend yield and the risk-free interest rate over the expected life of the option.
The weighted average assumptions used in the pricing model are noted in the table below. The expected term of options is derived using the simplified method, which is based on the average period between vesting term and expiration term of the options. The risk free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based on the historical volatility of the Company’s stock over a period commensurate with the expected term of the options. The Company believes that historical volatility is indicative of expectations about its future volatility over the expected term of the options.
For options granted after January 1, 2006, and valued in accordance with FAS 123R, the Company expenses the fair value of the option on a straight-line basis over the vesting period for each separately vesting portion of the award. The Company estimates forfeitures and only recognizes expense for those shares expected to vest. Based upon historical evidence, the Company has determined that an expected forfeitures rate ranging from 5% to 10%.
In the years ended December 31, 2005 and 2004, the fair value of compensation expense relating to non-employees stock option grantswarrants was estimated on the date of the grant in accordance with FAS123, using
The Black-Scholes option-pricing model and the following weighted average assumptions:
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | 2006 | | 2005 | | 2004 | |
| Weighted average fair value of options granted | | $ | 1.35 | | $ | .54 | | $ | .69 | |
| Risk-free interest rate (2005 & 2004) | | | | | | 2.0 | % | | 2.0 | % |
| Federal reserve treasury rates (2006) | | | 3.83-5.08 | % | | | | | | |
| Expected life (years) | | | 2-5 | | | 2-10 | | | 3-8 | |
| Expected volatility | | | 124-305 | % | | 112-166 | % | | 77-251 | % |
| Expected dividends | | | 0 | | | 0 | | | 0 | |
A summary of option activity under our equity-based compensation plans as of December 31, 2006, and changes during the year then ended is presented below:
| | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value | |
| | | | | | | | | | |
| Outstanding at January 1 , 2006 | | | 38,283,359 | | $ | 0.55 | | | 4.99 | | $ | 7,556,294 | |
| | | | | | | | | | | | | | |
| Granted | | | 13,229,411 | | $ | 1.35 | | | | | | | |
| Exercised | | | 8,155.064 | | $ | 0.65 | | | | | | | |
| Forfeited/Expired | | | 869,150 | | $ | 0.36 | | | | | | | |
| | | | | | | | | | | | | | |
| Outstanding at December 31, 2006 | | | 42,488,556 | | $ | 0.76 | | | 4.86 | | $ | 79,110,887 | |
| | | | | | | | | | | | | | |
| Exercisable at December 31, 2006 | | | 40,033,230 | | $ | 0.72 | | | 4.35 | | $ | 74,146,637 | |
Shares issued to non-employees reflected in the table above include 19,745,894 outstanding atEffective January 1, 2006, 11,629,411 granted, 175,906 forfeited or canceled, and 8,155,064 exercised during the year ended December 31, 2006, resulting in 23,044,335 shares outstanding and 22,443,721 exercisable at December 31, 2006.
The weighted-average grant-date fair value of options granted during 2006 was $1.35. The weighted-average grant-date fair value of options calculated in accordance with FAS 123 granted during 2005 and 2004 was $0.67 and $0.47, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005, and 2004 was $6,329,380, $575,364, and $1,297,178, respectively. The total fair value of options vested during the years ended December 21, 2006, 2005, and 2004 was $733,000, $479,000, and $7,762,000, respectively.
Non-vested shares relating to non-employees reflected are 630,000 shares outstanding at January 1, 2006, 432,500 shares granted, 181,886 vested shares, 280,000 forfeited or expired shares during the year ended December 31, 2006, resulting in 600,614 non-vested shares outstanding at December 31, 2006.
As of December 31, 2006, there was $1,799,000 of total unrecognized compensation cost related to non-vested options granted2012, under the plans. That cost is expected to be recognized over a weighted average period of one year.
Cash received from warrant and stock options exercises for the years ended December 31, 2006, 2005, and 2004 was $5,780,000, $105,000, and $2,776,000, respectively.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
There is no tax effect on the exercise of options in the statement of cash flows because the Company has a full valuation allowance against its deferred income tax assets.
The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions listed above represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the Company’s recorded stock-based compensation expense could have been materially different from that previously reported in proforma disclosures. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from the estimate, the share-based compensation expense could be materially different.
NOTE 13 - RELATED PARTY TRANSACTIONS
In November 2004, the Board of Directors resolved to purchase a new automobile valued at $73,000 for use by Patricia McPeak, the former Chief Executive Officer. Ms. McPeak waived a car allowance in exchange for use of the automobile.
In 2004, two directors received 100,000 shares of common stock each, to serve as the Chairman of the Medical Advisory Board and the Corporate Medical Director.
Also, in 2004, a director-owned partnership received 300,000 shares of common stock and options to purchase 300,000 shares of common stock, exercisable at $1.00, with 100,000 options vesting immediately and the remaining 200,000 options vesting at 50,000 options per year.
In the first quarter of 2005, 70,000 shares of common stock, valued at $30,000, were issued to two directors.
In April 2005, a direct response marketing company agreed to compensate our former Chief Executive Officer, Patricia McPeak, whereby she will receive a royalty per unit sold resulting from infomercials that will demonstrate specific products of ours. Pursuant to thisone-year independent contractor consulting agreement, Ms. McPeak should have earned approximately $1,176,000 and $270,000 in 2006 and 2005, respectively from this direct marketing company. The agreement provides for royalty payments to be made for two years by the direct response marketing company and is not an obligation of ours.
In February 2006, we issued a warrant to purchase 100,000 shares of common stock to a member of our Board of Directors for services rendered. The warrant expires in five years, has an exercise price of $1.00 per share, and was charged to stock, stock option and warrant expense in the amount of $100,000.
In May 2006, we issued to each of our six non-employee directors an option to purchase 35,000 shares (totaling 210,000 option shares). The options expire in ten years, have an exercise price of $1.14 per share, vest on a twelve-month prorated basis and were charged to stock, option and warrant expense in the amount of $119,000 for the year ending December 31, 2006.
In May 2006, we issued 381,996 shares of common stock to a customer in an asset purchase agreement related to their trademarks associated with the equine market valued at $450,000.
In December 2006, we issued 75,000 warrant shares of common stock to a member our limited liability company, contingent upon certain performance. A portion of these warrants were deemed to be probable of vesting. The value of the 25,000 probable vesting warrant shares was $16,000 and had an exercise price of $2.38. They will expire in December of 2009.
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14 - 401(K) PROFIT SHARING PLAN
At the time of the merger with RiceX, we adopted RiceX’s 401(k) profit sharing plan (the "Plan") for the exclusive benefit of eligible employees and their beneficiaries. Substantially all employees are eligible to participate in the Plan. Safe harbor contributions to the Plan are a mandatory 3% of the qualified employees' gross salary, whether or not the employee is a participant in the Plan. Also, in addition to any safe harbor contributions, the Company may contribute to the Plan matching contributions, discretionary profit sharing contributions and Qualified Non-Elective Contributions. For 2006, 2005 and 2004, we made matching contributions of $69,000, $41,000 and $16,000 respectively.
NOTE 15 - SUBSEQUENT EVENTS
Preferred Stock Conversion
In January of 2007, three Series B shareholders converted 250 shares of preferred stock into 500,000 shares of common stock at a rate of 1 preferred share to 2,000 common shares.
In January of 2007, fourteen Series C shareholders converted 1,266 shares of preferred stock into 1,488,816 shares of common stock at a rate of 1 preferred share to 1,176 common shares.
In February of 2007, one Series B shareholder converted 220 shares of preferred stock into 440,000 shares of common stock at a rate of one preferred share to 2,000 common shares.
In February of 2007, three Series C shareholders converted 4,200 shares of preferred stock into 4,941,175 shares of common stock at a rate of one preferred share to 1,176 common shares.
At March 2, 2007, the number of Series B preferred Stock outstanding was zero and the number of Series C Preferred outstanding was two.
Note Receivable
On February 6, 2007, we signed with the direct response marketing company, the Eighth Amendment to the Private Supply and Strategic Alliance Agreement, dated August 24, 2005. The parties agreed to consolidate the terms of payment under this agreement and a Promissory Note into a single Restated Promissory Note in the amount of $3,966,000, at an annual rate of 7% payable over a period of approximately one year. The note is current with payments as scheduled.
Private Placement
On February 16, 2007 we sold an aggregate of 20,000,000Mr. Hoogenkamp 1,000,000 shares of our common stock, at a price of $2.50 per sharewhich were to vest in twelve equal monthly installments during 2012. In April 2012, in connection with a private placement for aggregate gross proceedsMr. Hoogenkamp’s appointment to the Board of $50,000,000. Additionally,Directors, we terminated the investors were issued warrantsindependent contractor agreement and agreed to purchase an aggregateimmediately vest all of 10,000,000the 1,000,000 shares of our common stock at an exercise price of $3.25 per share. The warrants have a term of five yearspreviously granted. During 2012 and are immediately exercisable.
Rodman & Renshaw, LLC acted as advisor2011, we paid and placement agentexpensed less than $0.1 million for cash fees owed under the financingindependent contractor agreements. We expensed $0.1 million in both 2012 and received a 6% cash-fee based on aggregate gross proceeds received from2011 for common stock issued under the investors, and reasonable expenses. They also received warrants to purchase 6% of the aggregate number of shares placed in the Offering, at an exercise price per share of $3.25. The warrants have a five-year term and are immediately exercisable.
Warrants Exercisedindependent contractor agreements.
In January of 2007, we issued 75,000 warrants to purchase common stock to one individual at an exercise price of $2.38, expiring in 3 years, vesting after March 31, 2007,W. John Short (CEO and valued at $130,000. Also, five warrant holders exercised 477,547 common shares for cashdirector), Zanesville Partners Fund, LLC, which is beneficially owned by James C. Lintzenich (former director), and the Edward L. McMillan Revocable Trust, which is beneficially owned by Edward L. McMillan (former director), collectively invested $0.1 million in the amount of $374,000.January 2012 subordinated convertible notes and related warrants issuance. During 2012, we paid and expensed less than $0.1 million for interest on these three subordinated convertible notes.
NOTE 18. SEGMENT INFORMATION
We have three reportable business segments: (i) Corporate; (ii) USA, which manufactures and distributes SRB in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; and (iii) Brazil, which extracts crude RBO and DRB from rice bran, which are then further processed into a number of valuable human food and animal nutrition products. The Corporate segment includes selling, general and administrative expenses including public company expenses, litigation, and other expenses not directly attributable to other segments. No Corporate allocations are made to the other segments. General corporate interest is not allocated. RiceBran Technologies
NUTRACEA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below presents segment information for the years identified and provides a reconciliation of segment information to total consolidated information (in thousands).
| | 2012 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| | | | | | | | | | | | |
| Revenues | | $ | - | | | $ | 12,633 | | | $ | 25,090 | | | $ | 37,723 | |
| Cost of goods sold | | | - | | | | 8,946 | | | | 22,705 | | | | 31,651 | |
| Gross profit | | | - | | | | 3,687 | | | | 2,385 | | | | 6,072 | |
| Intersegment fees | | | 347 | | | | - | | | | (347 | ) | | | - | |
| Depreciation and amortization (in selling, general and administrative) | | | (197 | ) | | | (1,006 | ) | | | (859 | ) | | | (2,062 | ) |
| Impairment of property | | | - | | | | (1,069 | ) | | | - | | | | (1,069 | ) |
| Other operating expenses | | | (4,768 | ) | | | (2,364 | ) | | | (4,496 | ) | | | (11,628 | ) |
| Loss from operations | | $ | (4,618 | ) | | $ | (752 | ) | | $ | (3,317 | ) | | $ | (8,687 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (7,046 | ) | | $ | (770 | ) | | $ | (1,693 | ) | | $ | (9,509 | ) |
| Interest expense | | | (743 | ) | | | (17 | ) | | | (1,166 | ) | | | (1,926 | ) |
| Depreciation (in cost of goods sold) | | | - | | | | (899 | ) | | | (1,651 | ) | | | (2,550 | ) |
| Purchases of property | | | 1 | | | | 150 | | | | 6,331 | | | | 6,482 | |
| Property, net, end of period | | | 36 | | | | 8,731 | | | | 19,690 | | | | 28,457 | |
| Goodwill, end of period | | | - | | | | - | | | | 4,773 | | | | 4,773 | |
| Intangible assets, net, end of period | | | - | | | | 1,133 | | | | 1,442 | | | | 2,575 | |
| Total assets, end of period | | | 3,201 | | | | 11,609 | | | | 32,196 | | | | 47,006 | |
Also
| | 2011 | |
| | Corporate | | | USA | | | Brazil | | | Consolidated | |
| | | | | | | | | | | | |
| Revenues | | $ | - | | | $ | 10,700 | | | $ | 26,257 | | | $ | 36,957 | |
| Cost of goods sold | | | - | | | | 7,566 | | | | 21,820 | | | | 29,386 | |
| Gross profit | | | - | | | | 3,134 | | | | 4,437 | | | | 7,571 | |
| Intersegment fees | | | (439 | ) | | | - | | | | 439 | | | | - | |
| Depreciation and amortization (in selling, general and administrative) | | | (119 | ) | | | (1,306 | ) | | | (1,226 | ) | | | (2,651 | ) |
| Impairment of intangibles and property | | | (240 | ) | | | (1,352 | ) | | | - | | | | (1,592 | ) |
| Recoveries from former customers | | | - | | | | 1,800 | | | | - | | | | 1,800 | |
| Other operating expenses | | | (5,556 | ) | | | (3,728 | ) | | | (5,428 | ) | | | (14,712 | ) |
| Loss from operations | | $ | (6,354 | ) | | $ | (1,452 | ) | | $ | (1,778 | ) | | $ | (9,584 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss attributable to RiceBran Technologies shareholders | | $ | (6,875 | ) | | $ | (1,631 | ) | | $ | (1,593 | ) | | $ | (10,099 | ) |
| Interest expense | | | (619 | ) | | | (180 | ) | | | (964 | ) | | | (1,763 | ) |
| Depreciation (in cost of goods sold) | | | - | | | | (993 | ) | | | (1,336 | ) | | | (2,329 | ) |
| Purchases of property | | | - | | | | 98 | | | | 6,769 | | | | 6,867 | |
| Property, net, end of period | | | 263 | | | | 11,899 | | | | 15,833 | | | | 27,995 | |
| Goodwill, end of period | | | - | | | | - | | | | 5,240 | | | | 5,240 | |
| Intangible assets, net, end of period | | | - | | | | 1,612 | | | | 2,316 | | | | 3,928 | |
| Total assets, end of period | | | 4,672 | | | | 14,219 | | | | 33,341 | | | | 52,232 | |
All changes in February, 2007, 25 warrant holders exercised 2,544,412 common shares for cash in the amountgoodwill between December 31, 2012 and December 31, 2011, relate to foreign currency translation.
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
| | 2006 | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| Revenues | | $ | 3,782,000 | | $ | 4,166,000 | | $ | 4,946,000 | | $ | 5,196,000 | |
| Operating income (loss) | | | (254,000 | ) | | 290,000 | | | 460,000 | | | 552,000 | |
| Net Income (loss) | | | (233,000 | ) | | 399,000 | | | 641,000 | | | 778,000 | |
| Basic net income (loss) per common share | | | 0.00 | | | 0.01 | | | 0.01 | | | 0.01 | |
| Diluted net income (loss) per common share | | | 0.00 | | | 0.01 | | | 0.01 | | | 0.01 | |
| | | | | | | | | | | | | | |
| | | 2005 | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| Revenues | | $ | 459,000 | | $ | 299,000 | | $ | 302,000 | | $ | 4,504,000 | |
| Operating income (loss) | | | (643,000 | ) | | (1,658,000 | ) | | (801,000 | ) | | 108,000 | |
| Net Income (loss) | | | (865,000 | ) | | (1,810,000 | ) | | (1,036,000 | ) | | (161,000 | ) |
| Basic net income (loss) per common share | | | (0.02 | ) | | (0.05 | ) | | (0.03 | ) | | 0.00 | |
| Diluted net income (loss) per common share | | | (0.02 | ) | | (0.05 | ) | | (0.03 | ) | | 0.00 | |
The quarterly presentation is made because of the 2005 fourth quarter significant event, merger with The RiceX Company. Quarter information for 2005 represent four quarterly performance for NutraCea and one quarter performance for The RiceX Company.
NOTE 17 - GEOGRAPHIC OPERATIONS
For purposes of geographic reporting, revenues are attributed to the geographic location of the sales organization. The following table presents net revenues and long-lived assetsdata by geographic area:area (in thousands):
| | 2012 | | | 2011 | |
| | | | | | |
| United States | | $ | 16,177 | | | $ | 9,178 | |
| Brazil | | | 18,266 | | | | 19,141 | |
| Other international | | | 3,280 | | | | 8,638 | |
| Total revenues | | $ | 37,723 | | | $ | 36,957 | |
NOTE 19. FAIR VALUE MEASUREMENT
The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities. As of December 31, 2012, the fair value of our USA segment debt is approximately $2.5 million higher than the carrying value of that debt, based on current market rates for similar debt with similar maturities. The fair value of our Brazil segment debt approximates the carrying value of that debt based on the 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:
| ● | Level 1 – inputs include quoted prices for identical instruments and are the most observable. |
| ● | Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves. |
| ● | 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.
The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
December 31, 2012 | | | | | | | | | | | | | |
| Derivative warrant liabilities | (1 | ) | $ | - | | | $ | - | | | $ | (4,520 | ) | | $ | (4,520 | ) |
| Derivative conversion liabilities | (2 | ) | | - | | | | - | | | | (2,199 | ) | | | (2,199 | ) |
| Total liabilities at fair value | | | $ | - | | | $ | - | | | $ | (6,719 | ) | | $ | (6,719 | ) |
| | | | | | | | | | | | | | | | | |
December 31, 2011 | | | | | | | | | | | | | | | | | |
| Derivative warrant liabilities | (1 | ) | $ | - | | | $ | - | | | $ | (1,296 | ) | | $ | (1,296 | ) |
| Total liabilities at fair value | | | $ | - | | | $ | - | | | $ | (1,296 | ) | | $ | (1,296 | ) |
| (1) | These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations. The lattice model requires 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 is determined by reference to the treasury yield curve rate of instruments with the same term as the warrant. Additional assumptions that were used to calculate fair value follow. |
| Fiscal Year Ended December 31, | | 2006 | | 2005 | | 2004 | |
| | | | | | | | |
| Net revenue from customers: | | | | | | | |
| United States | | $ | 17,748,000 | | $ | 5,545,000 | | $ | 1,010,000 | |
| International | | | 342,000 | | | - | | | - | |
| | | | | | | | | | | |
| Total reveunes | | $ | 18,090,000 | | $ | 5,545,000 | | $ | 1,010,000 | |
| | | | | | | | | | | |
| Property, plant and equipment, net: | | | | | | | | | | |
| United States | | $ | 8,961,000 | | $ | 5,493,000 | | $ | 120,000 | |
| Other countries | | | - | | | - | | | - | |
| | | | | | | | | | | |
| Total property, plant and equipment | | $ | 8,961,000 | | $ | 5,493,000 | | $ | 120,000 | |
RiceBran Technologies
PART II
INFORMATION NOT REQUIRED IN PROSPECTUSNotes to Consolidated Financial Statements
| | | December 31, 2012 | | December 31, 2011 |
| Risk-free interest rate | | 0.1% - 0.7% | | 0.1% - 0.8% |
| | (0.6% weighted average) | | (0.2% weighted average) |
| Expected volatility | | 93% | | 84% |
| (2) | These conversion liabilities are valued using a lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations. The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current conversion price of the debt. The risk-free interest rate is determined by reference to the treasury yield curve rate of instruments with the same term as the underlying debt. Additional assumptions that were used to calculate fair value follow. |
| Item 13:
| December 31, 2012 |
| Risk-free interest rate | | 0.2-0.3% |
| Other Expenses
| (0.3% weighted average) |
| Expected volatility | | 93% |
The following tables summarize the changes in level 3 items measured at fair value on a recurring basis (in thousands):
| | | Fair Value as of Beginning of Period | | | Total Realized and Unrealized Gains (Losses) | | | Issuance of New Instruments | | | Net Transfers (Into) Out of Level 3 | | | | Fair Value, at End of Period | | | Change in Unrealized Gains (Losses) on Instruments Still Held | |
2012 | | | | | | (1) | | | | | | | | | | | | | | |
| Derivative warrant liability | | $ | (1,296 | ) | | $ | 3,048 | | | $ | (6,983 | ) | | $ | 711 | | (2 | ) | $ | (4,520 | ) | | $ | 3,320 | |
| Derivative conversion liability | | | - | | | | 2,372 | | | | (4,466 | ) | | | (105 | ) | (3 | ) | | (2,199 | ) | | | 2,372 | |
| Total Level 3 fair value | | $ | (1,296 | ) | | $ | 5,420 | | | $ | (11,449 | ) | | $ | 606 | | | | $ | (6,719 | ) | | $ | 5,692 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2011 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative warrant liability | | $ | (1,628 | ) | | $ | 332 | | | $ | - | | | $ | - | | | | $ | (1,296 | ) | | $ | 332 | |
| Total Level 3 fair value | | $ | (1,628 | ) | | $ | 332 | | | $ | - | | | $ | - | | | | $ | (1,296 | ) | | $ | 332 | |
| (1) | Included in change in fair value of Issuancederivative warrant and Distributions.conversion liabilities in our consolidated statements of operations. |
| (2) | Represents transfers to equity as a result of a holder exercising a warrant. |
| (3) | Represents an adjustment to loss on extinguishment as a result of issuing the replacement senior convertible debenture. |
The estimated expensesfollowing tables summarize the fair values by input hierarchy of items measured at fair value in our balance sheets on a nonrecurring basis (in thousands):
| | | | | | | | | | | | | | | 2012 | |
| | | As of December 31, 2012 | | | Impairment | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Losses | |
| | | | | | | | | | | | | | | | (1) | |
| Property, net | (1 | ) | $ | - | | | $ | - | | | $ | 1,058 | | | $ | 1,058 | | | $ | 1,069 | |
| Property, net | | | $ | - | | | $ | - | | | $ | 1,058 | | | $ | 1,058 | | | $ | 1,069 | |
| (1) | During 2012, machinery and equipment not currently in use was evaluated for impairment and as a result was written down to estimated fair value. Fair value is an estimate of net realizable value comprised of an estimate of proceeds from sale, based on an internal evaluation of market conditions, less estimated costs to sell. The estimate of net realizable value is subject to change. |
RiceBran Technologies
Notes to Consolidated Financial Statements
NOTE 20. SUBSEQUENT EVENTS
In 2011, we entered into a joint research and development agreement with a partner with the goal of developing technology to extract and concentrate protein from rice bran. In March 2013, the agreement was mutually terminated. We each received (i) the right to separately develop, modify and improve the jointly developed technology and (ii) nonexclusive, nonroyalty-bearing license rights to separately exploit the technology. We agreed to pay the partner a total of $1.3 million, which is payable in four equal quarterly installments beginning June 2013, or, alternatively, $1.2 million as a lump sum in June 2013.
In March 2013, W. John Short (CEO and director) and Baruch Halpern (director) loaned us collectively $0.1 million.
In March 2013, our board of directors agreed to defer receipt of their cash board fees for an indeterminate period of time.
No dealer, salesman or any other person has been authorized to give any information or to make any representation not contained in this prospectus in connection with the offer made by this prospectus. If given or made, such information or representation must not be relied upon as having been authorized by RiceBran. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by any person in any jurisdiction in which such an offer or solicitation is not authorized or is unlawful. Neither delivery of this prospectus nor any sale made hereunder shall under any circumstances create an implication that information contained herein is correct as of any time subsequent to the date of this prospectus.
Until [_________], 2013 (___ days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
RICEBRAN TECHNOLOGIES
__________ SHARES OF COMMON STOCK AND
__________ WARRANTS
____________________________
PROSPECTUS
____________________________
Maxim Group LLC
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Expenses of the Registrant in connection with the issuance and distribution of the securities being registered, are estimated as follows:
| Registration Fee | | $ | 3,000 | |
| Blue Sky Fees | | | 2,500 | |
| Printing | | | 2,000 | |
| Legal Fees and Expenses | | | 40,000 | |
| Accounting Fees and Expenses | | | 25,000 | |
| Miscellaneous | | | 4,000 | |
| | | | | |
| Total | | $ | 76,500 | |
| SEC Registration Fee | | $ | 2,046.00 | |
| Blue Sky Fees | | $ | | |
| FINRA Filing Fee | | $ | | |
| NASDAQ Filing Fee | | $ | | |
| Printing and Engraving Expenses | | $ | | |
| Edgarizing Costs | | $ | | |
| Transfer Agent Fees and Expenses | | $ | | |
| Legal Fees and Expenses | | $ | | |
| Accountants' Fees and Expenses | | $ | | |
| Miscellaneous Costs | | $ | | |
| Total | | $ | | |
Item 14:
| Item 14. Indemnification of Directors and Officers. |
The California General Corporation Law and our Restated Articles of Incorporation and Bylaws provide that we may indemnify our officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in our best interest. This means that if indemnity is determined by the Board of Directors to be appropriate in any case we and not the individual might bear the cost of any suit that is filed by a shareholder against the individual officer, director or employee unless the court determines that the individual acted in bad faith. These provisions are sufficiently broad to permit the indemnification of such persons in certain circumstances against liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers, and to persons controlling our company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 15:
| Item 15. Recent Sales of Unregistered Securities. |
The following issuancesIn the three years preceding the filing of stock, warrants, and other equity securities were made without any public solicitation to a limited number of investors or related individuals or entities in separately negotiated transactions. Each investor represented to us thatthis Registration Statement, we issued the securities described below that were being acquired for investment purposes only and not with an intention to resell or distribute such securities. Each ofregistered under the individuals or entities had access to information about our business and financial condition and was deemed capable of protecting their own interests. The stock, warrants and otherSecurities Act. Unless otherwise indicated above, the above securities were issued pursuant to the private placement exemption provided by Section 4(2) or Section 4(6) of the Securities Act of 1933. These are deemed to be “restricted securities” as defined in Rule 144 under the 1933 Act and the warrant certificates and the stock certificates bear a legend limiting the resale thereof.
(a) | During 2004 we issued an aggregate of 168,626 shares of our common stock to three venders in payment of $57,944 in accounts payable for goods and services. |
(b) | During 2004 we issued an aggregate of 280,000 shares of our common stock to two consultants in settlement of $477,816 of contractual payments. |
(c) | In January 2004, the Company sold an aggregate of 1,897,143 shares of its common stock to eight individuals for total proceeds to the Company of $656,221. |
(d) | In February 2004, the Company sold an aggregate of 616,452 shares of its common stock to four individuals for total proceeds to the Company of $272,614. |
(e) | In March 2004, the Company sold an aggregate of 1,539,262 shares of its common stock to five individuals for total proceeds to the Company of $810,143. |
(f) | On March 24, 2004, we issued 5,500,000 shares of common stock to our then Chief Executive Officer, Ms. Patricia McPeak, in exchange for services rendered. |
(g) | In April 2004, the Company sold an aggregate of 1,347,299 shares of its common stock to four individuals for total proceeds to the Company of $514,973. |
(h) | In May 2004, the Company sold an aggregate of 125,000 shares of its common stock to two individuals for total proceeds to the Company of $12,475. |
(i) | In September 2004, the Company sold an aggregate of 25,000 shares of its common stock to one individual for total proceeds to the Company of $4,500. |
(j) | On September 8, 2004, the Company and Langley Park Investments PLC (“Langley”) signed a Stock Purchase Agreement under which the Company agreed to sell 7,000,000 shares of its common stock to Langley. The transaction will close at the time that Langley’s shares are trading on the London Stock Exchange for anticipated consideration to NutraCea (i) immediately following the closing of approximately $1,190,000 in Langley stock, and (ii) additional consideration of that number of Langley shares which, as of the closing, will have a value of approximately $1,190,000. |
(k) | In December 2004, the Company sold an aggregate of 25,000 shares of its common stock to one individual for total proceeds to the Company of $5,000. There were no underwriting discounts or commissions associated with this sale. |
(l) | In December 2004, the Company issued warrants to purchase an aggregate of 2,400,000 shares of the Company’s common stock in connection with a Promissory Note and Warrant Purchase Agreement entered into with three investors for an aggregate purchase amount of $2,400,000. A commission of $242,846 as paid to Sandgrain Securities upon consummation of the financing and a finders fee of $25,000 was paid. |
(m) | During 2004, we issued 3,048,315 shares of our common stock to 15 consultants in lieu of contractual payments in the amount of $2,192,013 pursuant to consulting contracts. |
(n) | During 2004, we issued warrants to purchase 9,598,493 shares of our common stock valued at $7,761,516 to 14 consultants pursuant to consulting agreements. The warrants are exercisable at prices between $.01 and $5.00 per share and expire at varying times between six months and five years from the date of issuance. |
(o) | During the year ended December 31, 2005, we: |
| · | issued 70,000 shares of common stock to two officers and directors, valued at $30,100; |
| · | issued a total of 30,000 shares of common stock to two consultants under the Patent Incentive Plan, valued at $12,600; |
| · | issued 97,000 shares of common stock, valued at $97,655, to Faraday, which was the last required payment to Faraday under the Settlement Agreement dated December 10, 2003; and |
| · | issued 33,000 shares of common stock to three consultants, valued at $21,800. |
(p) | During 2005, we issued options and warrants to purchase an aggregate of 700,000 shares of our common stock to seven consultants, valued at $301,598. |
(q) | During 2005, we issued options to purchase an aggregate of 2,200,000 shares of our common stock to three employees, valued at $130,000 and exercisable at between $0.30 and $0.46 per share. These options expire in ten years. |
(r) | During the quarter ended June 30, 2005, NutraCea issued 29,786 shares of its common stock valued at $15,000 to a web design consultant in respect of unpaid fees. |
(s) | During the quarter ended June 30, 2005, NutraCea issued 1,222,222 shares of its common stock to repurchase technology and marketing rights valued at $550,000. |
(t) | During the quarter ended June 30, 2005, NutraCea issued 359,183 shares of common stock to a consulting company for patent and license analysis. One half of the shares vested upon signing of the agreement while the balance will vest upon certain milestones being achieved. The vested shares are valued at $110,000. |
(u) | During the quarter ended June 30, 2005, NutraCea issued options to purchase 360,000 shares of its common stock to a technology firm for assistance in developing an internet marketing system for NutraCea. The options have an exercise price of $0.60 per share and became exercisable over 21 months. The option was valued at $118,165 and expires in five years. The contract was terminated on August 31, 2005 with 105,000 option shares vested. |
(v) | On August 24, 2005, NutraCea entered into a Private Label Supply Agreement and Strategic Alliance (“Supply Agreement”). In connection with the Supply Agreement and in return for an agreement to purchase a minimum of $500,000 in NutraCea products, NutraCea issued to ITV Global, Inc. an option to acquire up to 250,000 shares of the Company’s common stock. |
(w) | On October 4, 2005, NutraCea completed a private placement of its securities to certain investors for aggregate gross proceeds of approximately $7,850,000. NutraCea issued an aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price of $1,000 per share, which may be converted to shares of NutraCea common stock at a conversion rate of 2,000 shares of commons stock for each Preferred Share. Additionally, NutraCea issued warrants to purchase an aggregate of 7,850,000 share of NutraCea common stock at an exercise price of $0.70 per share. The placement agent for the transaction, Halpern Capital, Inc., was paid a commission consisting of $549,500 and warrants to purchases up to an aggregate of 1,099,000 shares of NutraCea common stock at an exercise price of $0.50 per share. |
(x) | In January and February 2006, we issued options to purchase and aggregate of 410,000 shares of our common stock to four consultants and one director, valued at $168,394. |
(y) | In February 2006, we issued options to purchase an aggregate of 530,000 shares of our common stock to two employees valued at $10,000. |
(z) | On May 12, 2006, NutraCea completed a private placement of its securities to certain investors for aggregate gross proceeds of approximately $17,560,000. NutraCea issued an aggregate of 17,560 shares of Series C Convertible Preferred Stock at a price of $1,000 per share, which may be converted to shares of NutraCea common stock at a conversion rate of approximately 1,176 shares of commons stock for each Preferred Share. Additionally, NutraCea issued warrants to purchase an aggregate of 10,329,412 share of NutraCea common stock at an exercise price of $1.35 per share. The placement agent for the transaction, Halpern Capital, Inc., was paid a commission consisting of $1.35 and warrants to purchases up to an aggregate of 500,000 shares of NutraCea common stock at an exercise price of $1.35 per share. |
(aa) | In May 2006, NutraCea entered into a Supply Agreement and Asset Purchase Agreement (collectively, the “Agreements”) with Natural Glo Investors, L.P. In connection with the Agreement, NutraCea issued to certain affiliates of Natural Glo Investors, L.P. 369,761 shares, some of which are subject to forfeiture. |
(bb) | During the quarter ended June 30, 2006, NutraCea issued to a consultant a warrant to purchase 25,000 shares of common stock for consulting services. The warrant has a per share exercise price of $1.35 and a term of three years. |
(cc) | In May 2006, NutraCea issued options to purchase 25,000 shares to each of six non-employee directors (totaling 210,000 option shares). Each of these options expire in 10 years, has an exercise price of $1.14 per share and vests over 12 months. |
(dd) | During the quarter ended September 30, 2006, NutraCea issued 381,996 shares of common stock in connection with its acquisition of the equine feed supplement business. |
(ee) | During the quarter ended September 30, 2006, NutraCea issued to a consultant a warrant to purchase 50,000 shares of common stock. The warrant vests over 12 months and has a per share exercise price of $1.20 and a term of three years. |
(ff) | During the quarter ended September 30, 2006, NutraCea issued to one employee an option to purchase 50,000 shares of common stock, which starts to vest 90 days after the date of employment over a two year period. The option expires 10 years from the date of grant and has a per share exercise price of $1.20. |
(gg) | During the quarter ended December 31, 2006, NutraCea issued to a consultant a warrant to purchase 25,000 shares of common stock. The warrant vests over 5 months and has a per share exercise price of $2.30 and a term of three years. |
(hh) | During the quarter ended December 31, 2006, NutraCea issued to three entities incentive and performance warrants to purchase 275,000 shares of common stock. The shares will vest at various intervals when certain benchmarks are achieved. The warrants expire three years from the date of grant and have a per share exercise price ranging from $2.31 to $2.38. |
(ii) | During the quarter ended December 31, 2006, NutraCea issued to six employee options to purchase an aggregate 370,000 shares of common stock, which start to vest 90 days after their employment dates over a two year period. The options expire 10 years from the date of grant and have a per share exercise price ranging from $1.39 to $2.38. |
(jj) | During the quarter ended December 31, 2006, NutraCea issued to a medical advisor to the board of directors an option to purchase 240,000 shares of common stock. The shares will vest monthly over a 12 month period and have a per share exercise price of $1.63 and a term of three years. |
The following issuances of stock were made without any public solicitation upon exercise of options and warrants. Each holder of an option or warrant represented to us that the securities were being acquired for investment purposes only and not with an intention to resell or distribute such securities. Each of the individuals or entities had access to information about our business and financial condition and was deemed capable of protecting their own interests. As such, the stock was issued pursuant to the private placement exemption provided by Section 4(2) of the Securities Act of 1933. These are deemedAll issuances above were made without any public solicitation, to be “restricted securities” as defined in Rule 144 under the 1933 Acta limited number of persons and the stock certificates bear a legend limiting the resale thereof.were acquired for investment purposes only.
We issued options as described in the table which follows. | Date of Issuance | | Recipient | | Number of Underlying Shares of Common Stock | | Exercise Price | | Vesting Period | | Expiration | | In Connection With | |
| November 15, 2010 | | Employee | | 133,629 | | 0.21 | | Immediate | | November 15, 2020 | | Employment | |
| January 1, 2011 | | Directors | | 1,500,000 | | 0.20 | | One Year | | January 1, 2021 | | Board Service | |
| February 28, 2011 | | Consultant | | 500,000 | | 0.37 | | Five Years | | February 28, 2021 | | Consulting Services | |
| March 31, 2011 | | Director | | 187,500 | | 0.37 | | Nine Months | | March 31, 2021 | | New Director Grant | |
| June 9, 2011 | | Employees | | 100,000 | | 0.20 | | Four Years | | June 9, 2021 | | Employment | |
| July 15, 2011 | | Employees | | 1,161,782 | | 0.20 | | Six and One Half Months | | July 15, 2012 | | In Lieu of Cash Salaries | |
| July 15, 2011 | | Employees | | 605,600 | | 0.20 | | Six and One Half Months | | July 15, 2013 | | In Lieu of Cash Salaries | |
| July 15, 2011 | | Employees | | 349,342 | | 0.20 | | Six and One Half Months | | July 15, 2014 | | In Lieu of Cash Salaries | |
| August 24, 2011 | | Employee | | 500,000 | | 0.20 | | Three Years | | August 24, 2021 | | Employment | |
| December 6, 2011 | | Consultant | | 300,000 | | 0.20 | | One Year | | December 6, 2021 | | Consulting Services | |
| January 3, 2012 | | Directors | | 1,250,000 | | 0.20 | | One Year | | January 3, 2022 | | Board Service | |
| January 18, 2012 | | Director | | 229,167 | | 0.20 | | Eleven Months | | January 18, 2022 | | New Director Grant | |
| March 1, 2012 | | Employees | | 500,000 | | 0.20 | | Two Years and Ten Months | March 1, 2022 | | Employment | |
| March 27, 2012 | | Employees | | 1,250,000 | | 0.20 | | Two Years and Nine Months | March 27, 2022 | | Employment | |
| March 27, 2012 | | Directors | | 1,096,505 | | 0.20 | | Nine Months | | March 27, 2022 | | Board Service | |
| April 2, 2012 | | Director | | 187,500 | | 0.14 | | Nine Months | | April 2, 2022 | | New Director Grant | |
| April 2, 2012 | | Director | | 121,384 | | 0.20 | | Nine Months | | April 2, 2022 | | Board Service | |
| April 25, 2012 | | Employees | | 852,592 | | 0.12 | | Eight Months | | April 25, 2022 | | Employment | |
| October 3, 2012 | | Director | | 62,500 | | 0.08 | | Three Months | | October 3, 2022 | | New Director Grant | |
| October 4, 2012 | | Director | | 62,500 | | 0.08 | | Three Months | | October 4, 2022 | | New Director Grant | |
| November 7, 2012 | | Consultants | | 200,000 | | 0.08 | | Immediate | | November 7, 2015 | | Consulting Services | |
| January 2, 2013 | | Directors | | 1,250,000 | | 0.08 | | One Year | | January 3, 2022 | | Board Service | |
| April 18, 2013 | | Directors | | 3,750,000 | | 0.08 | | Eight Months | | April 18, 2023 | | Board Service | |
| April 18, 2013 | | Directors | | 500,000 | | 0.08 | | One Year | | April 18, 2023 | | Board Service | |
| April 18, 2013 | | Consultant | | 250,000 | | 0.08 | | One Year | | April 18, 2023 | | Consulting Services | |
| July 29, 2013 | | Employee | | 1,000,000 | | 0.08 | | Four Years | | July 29, 2023 | | Employment | |
| August 19, 2013 | | Employee | | 750,000 | | 0.08 | | Three Years | | August 19, 2023 | | Employment | |
Upon termination of employment, under the terms of our stock option agreements, employees are generally allowed a three-month grace period during which they may exercise options vested prior to termination of employment. We extended the grace period on the vested options of certain employees when the employees terminated employment as summarized in the table which follows.
(a) Date of Transaction | During 2004, we issued an aggregate | Shares of 509,323 shares of our common stock upon exercise of outstanding options and warrants.Common Stock Underlying Impacted Stock Options | | Date to Which Grace Period Extended |
| April 5, 2011 | | 271,562 | | April 5, 2013 |
| July 1, 2011 | | 275,000 | | July 1, 2013 |
| September 2, 2011 | 52,500 | | August 31, 2013 |
| September 2, 2011 | 538,654 | | August 31, 2012 |
| October 6, 2011 | | 278,000 | | September 30, 2013 |
We issued the following shares of common stock under agreements with consultants and vendors as summarized in the table which follows.
| Date of Issuance | | Shares of Common Stock | | Vesting Period |
| November 30, 2010 | 2,000,000 | | | Immediate |
| December 22, 2010 | 268,929 | | | Immediate |
| January 1, 2011 | | 150,000 | | | Six Months |
| March 31, 2011 | | 318,626 | | | Immediate |
| June 30, 2011 | | 62,730 | | | Immediate |
| August 1, 2011 | | 600,000 | | | Immediate |
| August 1, 2011 | | 400,000 | | | Six Months |
| September 8, 2011 | 500,000 | | | Immediate |
| December 14, 2011 | 135,000 | | | Immediate |
| February 1, 2012 | (1) | 1,000,000 | | | Eleven Months |
| March 27, 2012 | | 72,000 | | | Immediate |
| March 31, 2012 | | 67,500 | | | Immediate |
| June 30, 2012 | | 67,500 | | | Immediate |
| September 17, 2012 | 250,000 | | | Immediate |
| September 30, 2012 | 67,500 | | | Immediate |
| December 31, 2012 | 168,750 | | | Immediate |
| October 3, 2012 | | 101,250 | | | Immediate |
| January 31, 2013 | | 250,000 | | | Immediate |
| March 31, 2013 | | 168,750 | | | Immediate |
| April 30, 2013 | | 250,000 | | | Immediate |
| June 30, 2013 | | 153,409 | | | Immediate |
| July 31, 2013 | | 250,000 | | | Immediate |
(b)(1) | During 2005, we issued an aggregateThe agreement was terminated April 2, 2012, and under the terms of 531,000the termination agreement all shares of our common stock upon exercise of outstanding options and warrants.became fully vested. |
We issued shares of common stock to retiring directors in exchange for the surrender of options as summarized in the table below.
| Date of Transaction | | Shares of Common Stock Issued | | | Shares of Common Stock Underlying Stock Options Surrendered | |
| January 18, 2012 | | | 809,648 | | | | 1,454,596 | |
| November 7, 2012 | | | 1,126,818 | | | | 1,676,074 | |
| November 9, 2012 | | | 1,067,842 | | | | 1,611,235 | |
On April 7, 2011, we issued 2,576,775 shares of our common stock and a warrant to purchase 605,730 shares of our common stock at an exercise price of $0.23 per share in satisfaction of $515,355 of outstanding debt. The warrant became exercisable on June 2, 2011 and expires in November 2016. These issuances were made after a fairness hearing pursuant to an exemption provided by Section 3(a)(10) of the Securities Act.
In lieu of paying cash to non-employee board members for board retainer fees for the last three quarters of 2011, we issued the board members 1,207,049 shares of common stock on July 15, 2011: 534,519 shares vested immediately, 336,250 vested September 30, 2011, and 336,250 shares vested December 31, 2011.
On January 31, 2012, the holder of a warrant to purchase 5,003,038 shares of common stock exercised the warrants on a cashless basis and, as a result, we issued the holder 1,552,667 shares of our common stock.
We issued several convertible notes to Mr. Halpern and to the Shoshana Shapiro Halpern Revocable Trust, a trust beneficially owned by Mr. Halpern (the Trust). In connection with the issuance of the convertible notes, we also issued warrants to Mr. Halpern and the Trust. The transactions are summarized below.
| Date of Note and Warrant | | | Principal Amount of Note | | | Interest Rate on Note | | | Conversion Rate on Note | | Maturity Date of Note | | Shares of Common Stock Underlying Warrant | | | Exercise Price of Warrant | | Expiration Date of Warrant | | Cash We Received for Note and Warrant ($) | |
| Feb. 14, 2011 | (1) | | $ | 500,000 | | | | 8.5 | | | $ | 0.25 | | Feb. 13, 2013 | | | 500,000 | | | $ | 0.25 | | Feb. 13, 2015 | | $ | 500,000 | |
| June 29, 2011 | (2) | | | 739,052 | | | | 10.0 | | | | 0.21 | | June 30, 2014 | | | 730,000 | | | | 0.23 | | Dec. 14, 2014 | | | 230,000 | |
| July 15, 2011 | (2) | | | 270,000 | | | | 10.0 | | | | 0.21 | | June 30, 2014 | | | 270,000 | | | | 0.23 | | Dec.14, 2014 | | | 270,000 | |
| Aug. 31, 2011 | (2) | | | 730,000 | | | | 10.0 | | | | 0.21 | | June 30, 2014 | | | 730,000 | | | | 0.23 | | June 30, 2015 | | | 730,000 | |
| Oct. 7, 2011 | (3) | | | 1,773,186 | | | | 10.0 | | | | 0.20 | | Oct. 7, 2014 | | | | | | | | | | | | - | |
| Oct. 7, 2011 | (3) | | | 550,000 | | | | 10.0 | | | | 0.20 | | Oct. 7, 2014 | | | 2,323,186 | | | | 0.22 | | June 30, 2015 | | | 550,000 | |
(c)(1) | FromThe convertible note and warrant issued to Mr. Halpern February 14, 2011, were cancelled in connection with issuance of the June 29, 2011 and July 15, 2011, convertible notes and warrants to Mr. Halpern. |
| (2) | The convertible notes and warrants issued to Mr. Halpern June 29, 2011, July 15, 2011, and August 31, 2011, were cancelled in connection with the issuance of the October 7, 2011, convertible notes and warrants to the Trust. |
| (3) | The convertible notes and warrants issued to the Trust October 7, 2011, were cancelled in connection with the issuance of a January 1, 200618, 2012, subordinated convertible notes and warrants to March 3, 2006, we issued 42,576the Trust, in the principal amount of $2,500,000, the issuance of related warrants for the purchase of up to 25,000,000 shares of our common stock upon the cashless exercise of outstanding options and warrants.$112,523. |
(d) | From March 4, 2006 to May 23, 2006, we issued 1,214,051 shares of our common stock upon the cashless exercise of outstanding options and warrants. |
On January 17, 2012, we entered into a securities purchase agreement. Under the agreement we issued to a $870,000 original issue discount senior secured convertible debenture, convertible into common stock at $0.15 per share with interest at an annual rate of 10.0%, and a warrant to purchase up to a total of 6,250,000 shares of common stock at an exercise price of $0.12 per share and a term of five years.
(e) | From April 1, 2006 to June 30, 2006, we issued an aggregate of 655,610 shares of our common stock upon the cashless exercise of outstanding options and warrants. |
On January 18, 2012, we entered into a note and warrant purchase agreement. Under the agreement, on January 18, 2012, we issued to creditors subordinated convertible notes in the principal amount of $4,325,000 (including notes in the principal amount of $2,500,000 to the Trust), convertible into common stock at $0.10 per share with interest at an annual rate of 10.0%, and warrants to purchase up to a total of 43,250,000 shares of common stock (including warrants for the purchase of up to 2,500,000 shares of common stock to the Trust), at an exercise price of $0.12 per share, expiring January 18, 2017.
(f) | From July 1, 2006 to September 30, 2006, we issued an aggregate of 300,000 shares of our common stock upon exercise of outstanding options and warrants for the aggregate exercise price of $172,500. |
As part of the consideration for the concurrent issuances, effective January 18, 2012, we extended from July 1, 2014 to January 18, 2017 the expiration date of warrants for the purchase of 2,839,100 shares of our common stock at a $0.20 exercise price. The warrants were originally issued July 1, 2009.
(g) | From October 1, 2006 to December 31, 2006, we issued an aggregate of 5,335,064 shares of our common stock upon exercise of outstanding warrants for the aggregate exercise price of $5,611,588. |
On May 17, 2012, we issued a creditor a subordinated convertible note in the principal amount of $50,000, convertible into common stock at $0.10 per share with interest at an annual rate of 10.0%, and a warrant to purchase up to a total of 500,000 shares of common stock at an exercise price of $0.12 per share and expiring July 31, 2017.
Effective July 31, 2012, we issued creditors subordinated convertible notes in the principal amount of $850 thousand, which are convertible into common stock at $0.07 per share and bears interest at an annual rate of 10.0%, and warrants to purchase up to a total of 12,142,857 shares of common stock at an exercise price of $0.8 per share, expiring July 31, 2017.
Effective July 31, 2012, the senior convertible debenture issued in January 17, 2012, in the principal amount of $870,000 was exchanged for a senior convertible debenture dated July 31, 2012 in the principal amount of $1,009,200 million. In addition, we issued that creditor a convertible debenture in the principal amount of $290,000, convertible into common stock at $0.07 per share with and annual interest rate of 10.0%, and a warrant to purchase up to a total of 18,560,000 shares of common stock at an exercise price of $0.08 per share. We received $250,000 in proceeds from the transaction.
In connection with July 31, 2012, issuances of convertible debt and related warrants described above, effective July 31, 2012, (i) the terms of subordinated convertible notes outstanding with a face amount of $4.4 million were modified such that the maturity dates were extended from January 18, 2012 and May 17, 2012 to July 31, 2015 and (ii) the conversion price of these subordinated convertible notes was lowered from $0.10 per share to $0.07 per share under their anti-dilution provisions.
The followingIn connection with July 31, 2012, issuances of convertible debt and related warrants described above, effective July 31, 2012, the exercise price on warrants issued with an initial 36,500,000 underlying shares was reduced from $0.12 per share to $0.08 per share, the number of underlying shares was increased to 52,142,859 and the expiration date of the warrants were extended from January 18, 2017 and May 17, 2017 to July 31, 2017.
On August 31, 2012, we issued a creditor a subordinated convertible note in the principal amount of $150,000, which is convertible into common stock at $0.7 per share and bears interest at an annual rate of 10.0%, and a warrant to purchase up to a total of 2,142,857 shares of common stock at an exercise price of $0.08 per share.
On April 1, 2013, April 5, 2013, April 9, 2013, we issued to creditors convertible notes with principal amounts totaling $137,603, which are convertible into common stock at $0.07 per share and bear interest at an annual rate of 10.0%, and related warrants to purchase up to a total of 1,965,753 shares of common stock at an exercise price of $0.08 per share, expiring July 31, 2017.
As a result of concurrently dated issuances previously described, we issued the transactional warrants listed in the table below under the terms of a financial advisor agreement. All of the transactional warrants contain full ratchet anti-dilution provisions and require the holders to provide us with at least 61 days notice prior to conversion or exercise to the extent the holder would have a beneficial ownership interest in our common stock in excess of 4.99% of our outstanding common stock immediately after conversion or exercise.
| Date of Warrants | | Shares Underlying Warrant | | | Exercise Price of Warrant at Issuance | | Expiration Date of Warrant |
| Jan. 17, 2012 | | | 250,000 | | | $ | 0.15 | | Jan. 17, 2017 |
| Jan. 18, 2012 | | | 1,112,500 | | | | 0.10 | | Jan. 18, 2017 |
| May 17, 2012 | | | 12,500 | | | | 0.10 | | May 17, 2017 |
| Jul. 31, 2012 | | | 482,142 | | | | 0.07 | | Jul. 31, 2017 |
| Aug. 31, 2012 | | | 53,571 | | | | 0.07 | | Aug. 31, 2017 |
On February 4, 2013 and May 24, 2013, the holder of our senior convertible debentures converted $98,000 and $300,000 of the outstanding principal on the debentures into 1,400,000 shares and 4,285,714 shares of our common stock, at a conversion price of $0.07.
Under a May 24, 2013, amendment to our senior convertible debentures, we agreed to prepay $300,000 of the outstanding principal and issue 4,571,429 shares of common stock to the holder, and the holder agreed to share its senior interest in its collateral pari passu with TCA. The terms were changed for the $194,861 million principal remaining under a debenture such that it would be payable in equal monthly installments from July 1, 2013 through December 1, 2013. Prior to the amendment, principal was due in equal monthly installments from June 1, 2013 to January 1, 2014.
On May 24, 2013, we entered into agreements to allow each holder of existing subordinated convertible notes and warrants to invest in additional notes and related warrants and provided that each holder making an additional investment (i) receive 2.5 shares of our common stock for each dollar invested and (ii) agree to extend the maturity date for all of their convertible notes to July 2016. Further, each holder of outstanding convertible notes could elect (PIK Election), in lieu of cash interest payments otherwise payable though June 2014 on their existing notes to receive (i) an increase in the number of shares of common stock underlying their notes (ii) a warrant to purchase shares of our common stock and (iii) 2.5 shares of our common stock for each dollar of interest otherwise payable through June 2014. On May 24, 2013, one subordinate convertible note holder made an additional investment of $0.4 million under the agreements in a subordinated convertible note in the principal amount of $0.4 million, which is convertible into common stock at $0.07 per share and bear interest at an annual rate of 10.0%, and warrants to purchase up to a total of 5,714,285 shares of common stock at an exercise price of $0.08 per share and a May 24, 2018 expiration. As a result, (i) the maturity date on existing notes in the principal amount of $1.1 million was extended from July 31, 2015 to July 31, 2016 and (ii) we issued 1,000,000 shares of common stock. In addition, on May 24, 2013, we issued 496,644 shares of common stock, and in lieu of paying interest accrued through June 30, 2013 on all of the holder’s outstanding notes, (i) increased the shares of common stock underlying the holder’s outstanding notes 695,108 shares and (ii) issued equity warrants for the purchase of up to 695,108 shares of common stock, at an exercise price of $0.08 per share and a May 24, 2018 expiration date.
On June 19, 2013, two holders of subordinated convertible notes and warrants made a PIK Election. As a consequence, we issued to these holders 108,611 shares of common stock, and in lieu of paying interest accrued through June 30, 2013, (i) increased the shares of common stock underlying their convertible notes by 174,059 shares and (ii) issued warrants for the purchase of 174,059 shares of common stock, at an exercise price of $0.08 per share and a May 31, 2018 expiration.
Senior Secured Revolving Credit Facility Agreement
Under a revolving credit facility with TCA Global Credit Master Fund, LP (TCA), effective May 24, 2013, as amended July 18, 2013, we may borrow up to $8 million, based on the amount of eligible accounts receivable we provide to secure the repayment of the amounts borrowed. Borrowings under the agreement are evidenced by a revolving note which accrues interest at the rate of 12% per year and is due in January 2014. We owe TCA various other fees under the agreement that are expected to average approximately 7% of average borrowings per year.
USA segment accounts receivable collections are required to be directed to a TCA owned account. Collections TCA receives, in excess of amounts due for interest and fees, are treated as additional repayments and reduce amounts outstanding. Minimum cumulative repayments are $0.1 million as of October 2013, $0.2 million as of November 2013 and $0.3 million as of December 2013, or 15% of the total initially borrowed in each tranche, if greater. Until cumulative repayments equal the required minimum, TCA may withhold 20% of collections. We may request, on a weekly basis, that TCA advance us any amounts collected in excess of amounts (i) due for interest and fees and (ii) required to meet the minimum cumulative repayments.
On May 24, 2013, we borrowed $1,400,000 under the TCA revolving note (first tranche). In addition to cash expenses we issued TCA 2,118,644 shares of our common stock. We also issued equity securitieswarrants to investment bankers for the purchase of 1,200,000 shares of common stock, exercisable at $0.08 per share, through May 24, 2018.
On July 18, 2013, we borrowed an additional $600,000 under the TCA revolving note (second tranche). In addition to cash expenses, we issued TCA 4,000,000 shares of our common stock. We issued equity warrants to investment bankers for the purchase of 514,286 shares of common stock, exercisable at $0.08 per share, through July 18, 2018.
We have guaranteed that TCA will realize a minimum $0.08 per share when shares of our common stock issued in connection with the first tranche are sold and a minimum $0.07 per share when shares issued in connection with the second tranche are sold, if the shares are sold within the period beginning one year from the date of issuance and ending three years from the date of issuance. We are required to issue additional shares in the event of a shortfall, sufficient for TCA to realize the minimums. Or TCA may elect for us to redeem the shares for a cash amount equal to the minimum for the related tranche in January 2014.
Upon an event of default, as defined in the agreement, TCA has the right to voluntarily convert all or any portion of the outstanding principal, interest and other amounts due under the agreement into shares of our common stock at a conversion price equal to 85% of the lowest daily volume weighted average price during the five trading days immediately prior to the conversion date. Because the conversion feature could require us to issue an indeterminate number of shares for settlement, the conversion feature is a derivative liability, classified as debt on our balance sheets. If TCA voluntarily converts, we have guaranteed that TCA will realize a minimum per share, when shares of our common stock issued in connection with the conversion are sold, equal to the volume weighted average price of our common stock during the five trading days immediately prior to the conversion date.
Changes to Warrants Issued in Prior Equity Financings Resulting from Warrant Anti-dilution Provision
As a result of convertible debt, warrant and equity issuances described herein, we adjusted the exercise price and increased the number of shares underlying certain existing warrants to purchase common stock, issued to the investors and advisors in prior equity financings pursuant to the anti-dilution provisions contained in the respective warrants. The changes are described in the tables which follow. All of the changes were exchangedto warrants held by us with our existing securitywarrant holders exclusively in transactions in whichwithout additional consideration pursuant to the terms of the respective financings, and no commission or other remuneration was paid or given directly or indirectly to any person. As such,person in connection therewith. The changes to the issuance ofexisting warrants, as summarized in the following securities wastable below, were exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended.1933.
| | | | | | Before Event | | | After Event | | | | |
| Triggering Events | | | | Financing | | Shares Under Warrants | | | Exercise Price | | | Shares Under Warrants | | | Exercise Price | | | Increase in Shares Under Warrants | |
| | | | | | | | | | | | | | | | | | | |
| February 14, 2011 | | (1 | ) | May 12, 2006 | | | 2,816,855 | | | $ | 1.15 | | | | 2,840,005 | | | $ | 1.14 | | | | 23,150 | |
| | (2 | ) | February 16, 2007 | | | 17,794,023 | | | | 2.04 | | | | 18,545,515 | | | | 1.96 | | | | 751,492 | |
| | (3 | ) | April 24, 2008 | | | 9,565,964 | | | | 1.00 | | | | 9,642,966 | | | | 0.99 | | | | 77,002 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| April 7, 2011 | | (1 | ) | May 12, 2006 | | | 2,840,005 | | | | 1.14 | | | | 2,872,386 | | | | 1.13 | | | | 32,381 | |
| | (2 | ) | February 16, 2007 | | | 18,545,515 | | | | 1.96 | | | | 19,376,281 | | | | 1.87 | | | | 830,766 | |
| | (3 | ) | April 24, 2008 | | | 9,642,966 | | | | 0.99 | | | | 9,751,194 | | | | 0.98 | | | | 108,228 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| June 29, 2011 | | (2 | ) | February 16, 2007 | | | 19,376,281 | | | | 1.87 | | | | 20,163,801 | | | | 1.80 | | | | 787,520 | |
| | (3 | ) | April 24, 2008 | | | 9,751,194 | | | | 0.98 | | | | 9,850,433 | | | | 0.97 | | | | 99,239 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| July 15, 2011 | | (2 | ) | February 16, 2007 | | | 20,163,801 | | | | 1.80 | | | | 20,752,694 | | | | 1.75 | | | | 588,893 | |
| | (3 | ) | April 24, 2008 | | | 9,850,433 | | | | 0.97 | | | | 9,902,252 | | | | 0.97 | | | | 51,819 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2011 | | (2 | ) | February 16, 2007 | | | 20,752,694 | | | | 1.75 | | | | 21,591,715 | | | | 1.68 | | | | 839,021 | |
| | (3 | ) | April 24, 2008 | | | 9,902,252 | | | | 0.97 | | | | 10,041,442 | | | | 0.95 | | | | 139,190 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| October 7, 2011 | | (2 | ) | February 16, 2007 | | | 21,591,715 | | | | 1.68 | | | | 23,247,655 | | | | 1.56 | | | | 1,655,940 | |
| | (3 | ) | April 24, 2008 | | | 10,041,442 | | | | 0.95 | | | | 10,360,057 | | | | 0.92 | | | | 318,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| January 17, 2012 and | | (2 | ) | February 16, 2007 | | | 23,247,655 | | | | 1.56 | | | | 37,166,157 | | | | 0.98 | | | | 13,918,502 | |
January 18, 2012 | | (3 | ) | April 24, 2008 | | | 10,360,057 | | | | 0.92 | | | | 15,020,013 | | | | 0.64 | | | | 4,659,956 | |
| | | | May 7, 2009 | | | 6,818,182 | | | | 0.20 | | | | 13,636,362 | | | | 0.10 | | | | 6,818,180 | |
| | | | July 1, 2009 | | | 2,889,100 | | | | 0.20 | | | | 5,778,200 | | | | 0.10 | | | | 2,889,100 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| May 17, 2012 | | (2 | ) | February 16, 2007 | | | 37,166,157 | | | | 0.98 | | | | 38,239,172 | | | | 0.95 | | | | 1,073,015 | |
| | (3 | ) | April 24, 2008 | | | 15,020,013 | | | | 0.64 | | | | 15,075,369 | | | | 0.64 | | | | 55,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| July 31, 2012 | | (2 | ) | February 16, 2007 | | | 38,239,172 | | | | 0.95 | | | | 82,252,711 | | | | 0.44 | | | | 44,013,539 | |
| | (3 | ) | April 24, 2008 | | | 15,075,369 | | | | 0.64 | | | | 28,804,694 | | | | 0.33 | | | | 13,729,325 | |
| | | | May 7, 2009 | | | 8,633,327 | | | | 0.10 | | | | 12,333,324 | | | | 0.07 | | | | 3,699,997 | |
| | | | July 1, 2009 | | | 5,778,200 | | | | 0.10 | | | | 8,254,571 | | | | 0.07 | | | | 2,476,371 | |
| | | | May 17, 2012 | | | 12,500 | | | | 0.10 | | | | 17,857 | | | | 0.07 | | | | 5,357 | |
| | | | January 17, 2012 | | | 6,500,000 | | | | 0.12 | | | | 11,250,000 | | | | 0.07 | | | | 4,750,000 | |
| | | | January 18, 2012 | | | 8,362,500 | | | | 0.12 | | | | 14,017,860 | | | | 0.07 | | | | 5,655,360 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| April 1, 2013, April 5, 2013 and April 9, 2013 | | (3 | ) | April 24, 2008 | | | 28,804,694 | | | | 0.33 | | | | 29,221,131 | | | | 0.33 | | | | 416,437 | |
(a)(1) | During 2004,The warrants issued to the Company issued 5,759 shares of common stock in payment of preferred dividendsinvestors in the amount of $5,986.May 12, 2006 financing expired on May 12, 2011. |
| (2) | The warrants issued to the investors in the February 16, 2007 financing expired on August 16, 2012. |
| (3) | The warrants issued to the investors in the April 24, 2008 financing expired on April 24, 2013. |
Item 16. Exhibits
The following is a list of exhibits filed as a part of this registration statement:
(b) | During 2004, we issued an aggregate of 540,000 shares of our common stock pursuant to the conversion provisions of 630,000 shares of our Series A Preferred Stock. |
(c) | In February of to March 3, 2006, we issued a total of 1,200,000 shares of our common stock upon conversion our 600 shares of our Series B Convertible Preferred Stock. From March 4, 2006 to May 23, 2006, we issued a total of 2,250,000 shares of our common stock upon conversion our 1,125 shares of our Series B Convertible Preferred Stock. |
(d) | From April 1, 2006 to June 30, 2006, we issued a total of 2,100,000 shares of our common stock upon conversion of 1,050 shares of our Series B Convertible Preferred Stock. |
(e) | From July 1, 2006 to September 30, 2006, we issued a total of 4,550,000 shares of our common stock upon conversion of 2,275 shares of our Series B Convertible Preferred Stock. |
(f) | From July 1, 2006 to September 30, 2006, we issued 8,053,513 shares of our common stock upon conversion of 6,854 shares of our Series C Convertible Preferred Stock. |
(g) | From October 1, 2006 to December 31, 2006, we issued 5,360,000 shares of our common stock upon conversion of 2,680 shares of our Series B Convertible Stock. |
(h) | From October 1, 2006 to December 31, 2006, we issued 6,162,341 shares of our common stock upon conversion of 5,238 shares of our Series C Convertible Preferred Stock. |
The following issuances of stock and assumption of options and warrants were made pursuant to an exemption provided by Section 3(a)(10) of the Securities Act of 1933 after a fairness hearing before the California Department of Corporations.
(a) | On October 4, 2005, NutraCea completed its merger with The RiceX Company. In connection with the merger, NutraCea issued 28,272,064 shares of its common stock to holders of RiceX common stock. In addition, NutraCea assumed each outstanding option and warrant to purchase RiceX common stock and converted those options and warrants into options and warrants to purchase an aggregate of 11,810,507 shares of NutraCea common stock. |
Exhibit Number | | Exhibit Description |
| 1.01 * | Number
| | Form of Underwriting Agreement |
| 2.01 | | Quotas Purchase and Sale Agreement, dated January 31, 2008, with Quota Holders of Irgovel - Industria Riograndens De Oleos Begetais Ltda (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2008 and on Registrant’s Annual Report on Form 10-K, filed on March 17, 2008) |
2.01(1)2.02 | | First Amended Plan and Agreement of Exchange.Reorganization (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 2, 2010) |
| 2.03 | | Second Amendment to Exhibit 1 to First Amended Plan of Reorganization (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 2, 2010) |
2.02(2)3.01.1 | | Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and among the NutraCea, The RiceX Company and Red Acquisition Corporation. |
| | |
3.01.1(3) | | Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December 13, 2001.2001 (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002) |
| 3.01.2 | | |
3.01.2(4) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003.2003 (incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on November 18, 2005) |
| 3.01.3 | | |
3.01.3(5) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003.2003 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003) |
| 3.01.4 | | |
3.01.4(4) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005 (incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on November 18, 2005) |
| 3.01.5 | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 20, 2007 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on August 14, 2007) |
3.02(6)3.01.6 | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on June 30, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 5, 2011) |
| 3.01.7 | | Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of California on July 12, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 3.02 | | Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001.2001 (incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002) |
| 3.03 | | |
3.03(7) | | Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005.2005 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005) |
| 3.04 | | |
3.04(8) | | Certificate of Determination, Preferences and Rights of Series C Convertible Preferred Stock as filed with the Secretary of State of California on May 10, 2006. |
| | |
3.05(23) | | Bylaws of NutraCea. |
| | |
4.01(7) | | Form of warrant issued to subscribers in connection with NutraCea’s October 2005 private placement. |
| | |
4.02(8) | | Form of warrant issued to subscribers in connection with NutraCea’s May 2006 private placement. |
| | |
4.03(25) | | Form of warrant issued to subscribers in connection with NutraCea’s February 2007 private placement |
| | |
5.1* | | Opinion of Weintraub Genshlea Chediak Law Corporation |
10.01(9) | | NutraCea 2003 Stock Compensation Plan |
| | |
10.02(4) | | NutraCea 2005 Equity Incentive Plan |
| | |
10.03(7) | | Securities Purchase Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein. |
| | |
10.04(7) | | Registration Rights Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein. |
| | |
10.05(8) | | Securities Purchase Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein. |
| | |
10.06(8) | | Registration Rights Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein. |
| | |
10.07(10)± | | Private Label Supply Agreement and Strategic Alliance between NutraCea and ITV Global. |
| | |
10.08(4) | | Employment Agreement between NutraCea and Patricia McPeak. |
| | |
10.09(4) | | Restricted Stock Agreement between NutraCea and Patricia McPeak |
| | |
10.10(11) | | Executive Employment Agreement between NutraCea and Bradley D. Edson. |
| | |
10.11(11) | | Executive Employment Agreement between NutraCea and Margie D. Adelman. |
| | |
10.12(4) | | Executive Employment Agreement between The RiceX Company and Todd C. Crow. |
| | |
10.13(4) | | Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company. |
| | |
10.14(4) | | Executive Employment Agreement between The RiceX Company and Ike E. Lynch. |
| | |
10.15(4) | | Amendment No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and The RiceX Company. |
| | |
10.16(12) | | Form of Affiliate Agreement between certain affiliates of RiceX and NutraCea dated April 4, 2005 |
| | |
10.17(11)± | | W.F. Young Distribution Agreement. |
| | |
10.18(11)± | | W.F. Young Technology Agreement. |
| | |
10.19(13) | | Stock Purchase Agreement between NutraCea and Langley Park Investments PLC |
| | |
10.20(4)± | | Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A. |
| | |
10.21(4)± | | Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea |
| | |
10.22(4)± | | Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea |
| | |
10.23(4) | | Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea |
10.24(4)± | | Supply and Distribution Agreement dated November 4, 2005 between NutraCea and T. Geddes Grant. |
| | |
10.25(14) | | Commercial Lease and Deposit Receipt between Roebbelen Land Company and The RiceX Company dated December 23, 1991. |
| | |
10.26(14) | | First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated January 19, 1994. |
| | |
10.27(14) | | Second Amendment of Lease between Roebbelen Land Company and The RiceX Company dated July 11, 1996. |
| | |
10.28(14) | | Third Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998. |
| | |
10.29(14) | | Lease Agreement between Roebbelen Land Company and The RiceX Company dated July 11, 1996. |
| | |
10.30(14) | | First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated September 1996. |
| | |
10.31(14) | | Second Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998. |
| | |
10.32(15) | | Agreement on Exclusive Distribution in Europe between The RiceX Company and KREGLINGER EUROPE N.V. dated October 1, 2002.
|
| | |
10.33(16)± | | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and The RiceX Company dated May 1, 2002. |
| | |
10.34(17) | | The RiceX Company 1997 Stock Option Plan |
| | |
10.35(14) | | Form of Directors Stock Option Agreement for The RiceX Company. |
| | |
10.36(14) | | Form of Non-statutory Stock Option Agreement not issued under The RiceX Company 1997 Stock Option Plan, governing options granted to The RiceX Company employees. |
| | |
10.37(18) | | Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and The RiceX Company employees dated October 1, 1999. |
| | |
10.37(18) | | Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and Ike Lynch dated November 1, 1999. Identical Agreements with Daniel McPeak, Jr. and Todd C. Crow. |
| | |
10.39(19) | | Form of Board Member Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and the Board Members of the RiceX Company dated February 22, 2001, September 23 and 29, 2001. |
| | |
10.40(16) | | Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and employees dated January 2, 2000. |
| | |
10.41(20) | | Form of Non-statutory Stock Option Agreement issued September 23, 2002 between The RiceX Company and the members of The RiceX Company’s Board of Directors. |
10.42(20) | | Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan. |
| | |
10.43(21) | | Form of Non-statutory Stock Option Agreement issued October 18, 2004 between The RiceX Company and two members of The RiceX Company Board Directors. |
| | |
10.44(22) | | Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005. |
| | |
10.45(22) | | Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005. |
| | |
10.46(4) | | Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan. |
| | |
10.47(4) | | Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options. |
| | |
10.48(4) | | Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company. |
| | |
10.49(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of Todd C. Crow and Ike E. Lynch. |
| | |
10.50(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of James Lintzenich, Edward McMillan and Steven Saunders. |
| | |
10.51(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David Bensol. |
| | |
10.52(10) | | Warrant Agreement between NutraCea and Steven Saunders dated February 27, 2006. |
| | |
10.53(24) | | Form of non-statutory Stock Option Agreement between NutraCea and the non-employee members of the Board of Directors dated May 23, 2006. |
| | |
10.54(25) | | Securities Purchase Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein. |
| | |
10.55(25) | | Registration Rights Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein. |
| | |
10.56(26) | | Employment Agreement between NutraCea and Kody Newland. |
| | |
21.01 | | List of subsidiaries |
| | |
23.1 | | Consent of Malone & Bailey, PC, Independent Registered Public Accounting Firm. |
| | |
23.2 | | Consent of Perry-Smith LLP, Independent Registered Public Accounting Firm. |
| | |
24.1 | | Power of Attorney (See signature page.) |
| | |
± | Confidential treatment granted as to certain portions. |
| |
* | To be filed by amendment. |
(1) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 19, 2001. |
| |
(2) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 4, 2005. |
| |
(3) | incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002. |
| |
(4) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on November 18, 2005. |
| |
(5) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003. |
| |
(6) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002. |
| |
(7) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005. |
| |
(8) | incorporated(incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on May 15, 2006.2006) |
| 3.05 | |
(9) | incorporated herein by reference to exhibits previouslyCertificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock, as filed with the Secretary of State of California on Registrant’s Registration Statement on Form S-8, filed on November 18, 2003. |
| |
(10) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on May 15, 2006. |
| |
(11) | incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on March 31, 2005. |
| |
(12) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 8-K, filed on April 4, 2005. |
| |
(13) | incorporatedOctober 17, 2008 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on September 14, 2004.October 20, 2008) |
| 3.06 | |
(14) | incorporatedCertificate of Determination, Preferences and Rights of the Series E Convertible Preferred Stock, as filed with the Secretary of State of California on May 7, 2009 (incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement No. 000-24285,Registrant’s Current Report on Form 8-K, filed on May 18, 1998.8, 2009) |
| 3.07.1 | |
(15) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 31, 2003. |
| |
(16) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 12, 2002. |
| |
(17) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement Number Statement No. 000-24285, filed on May 18, 1998. |
| |
(18) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2000. |
| |
(19) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 10, 2001. |
(20) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on November 15, 2003. |
| |
(21) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2005. |
| |
(22) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on May 16, 2005. |
| |
(23) | incorporatedBylaws (incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 12, 2006.2006) |
| 3.07.2 | |
(24) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on August 14, 2006. |
| |
(25) | incorporatedAmendment of Bylaws effective June 19, 2007 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on February 20, 2007.June 25, 2007) |
| 3.07.3 | | Amendment of Bylaws effective December 4, 2009 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on December 10, 2009) |
| 3.08 | | Certificate of Ownership dated October 3, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on October 10, 2012) |
(26)4.05 | Incorporated | Common Stock Warrant issued to Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 4.06 | | Form of warrant to purchase shares issued to holders of secured convertible promissory notes (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 4.07 | | Common Stock Warrant issued to Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 4.08* | | Form of Warrant |
| 5.1* | | Form of Opinion of counsel as to legality of securities being registered |
| 10.07 | | Employment Agreement with W. John Short (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on July 10, 2009) |
| 10.08 | | First Amendment of Employment Agreement with W. John Short (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on July 10, 2009) |
| 10.09 | | Second Amendment of Employment Agreement with W. John Short (incorporated herein by reference to previously filed Form 10-Q, filed on May 11, 2011) |
| 10.10 | | Third Amendment to Employment Agreement with W. John Short dated July 2, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on Registrant’s Current Report on Form 8-K, filed on July 8, 2010) |
| 10.11 | | Fourth Amendment to Employment Agreement with W. John Short dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011) |
| 10.15 | | Employment Agreement with Jerry Dale Belt dated June 8, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on Registrant’s Current Report on Form 8-K, filed on June 8, 2010) |
| 10.16 | | First Amendment to Employment Agreement with Jerry Dale Belt dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011) |
| 10.17 | | Second Amendment to Employment Agreement with Jerry Dale Belt dated February 14, 2012 (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2007.2012) |
| 10.18 | | Employment Agreement with Colin Garner dated September 1, 2010 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on January 5, 2011) |
| 10.19 | | First Amendment to Employment Agreement with Colin Garner dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011) |
| 10.20 | | 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Form SB-2, filed on November 18, 2005) |
| 10.21 | | Form of Non-Employee Director Stock Option Agreement under the 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 17, 2008) |
| 10.22 | | Form of Stock Option Agreement for 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on May 12, 2008) |
| 10.23 | | Form of Restricted Stock Grant Agreement for 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on August 11, 2008) |
| 10.28 | | Asset Purchase Agreement with Kerry Inc. dated February 11, 2010 (incorporated herein by reference to exhibit 10.77 previously filed on Registrant’s Annual Report on Form 10-K, filed on February 24, 2011) |
| 10.29 | | Stipulation and Agreement of Settlement dated May 17, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on Registrant’s Current Report on Form 8-K, filed on May 18, 2010) |
| 10.30 | | Nutra SA, LLC Membership Interest Purchase Agreement dated December 29, 2010 (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K/A, filed on August 10, 2011) |
| 10.31 | | Form of Investor Rights Agreement (incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on January 5, 2011) |
| 10.32 | | Form of Amended and Restated Limited Liability Company Agreement for Nutra SA, LLC (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on February 24, 2011) |
| 10.33 | | 2010 Equity Incentive Plan (incorporated herein by reference to previously filed Form 10-Q, filed on May 11, 2011) |
| 10.34 | | Form of Non-Employee Director Stock Option Agreement under the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2012) |
| 10.35 | | Form of Stock Option Agreement for the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2012) |
| 10.36 | | Form of Restricted Stock Grant Agreement for the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2012) |
| 10.37 | | Form of Indemnification Agreement for officers and directors (incorporated by reference to previously filed Form 10-Q, filed on May 11, 2011) |
| 10.38 | | Loan agreement between Industria Riograndens De Oleos Vegetais Ltd. and Banco do Brasil S.A. in the amount of R$2,784,838, respectively, with a Brazilian bank dated December 15, 2011, English translation from the original Portuguese (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2012) |
| 10.39 | | Loan agreement between Industria Riograndens De Oleos Vegetais Ltd. and Banco do Brasil S.A. in the amount of R$6,676,012 dated December 15, 2011, English translation from the original Portuguese (incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2012) |
| 10.40 | | Securities Purchase Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.41 | | Security Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.42 | | Subsidiary Guarantee dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.43 | | Form of Original Issue Discount Senior Secured Convertible Debenture Due July 1, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.44 | | Note and Warrant Purchase Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.45 | | Form of Secured Convertible Promissory Note (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.46 | | Security Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.47 | | Form of Subordination Agreement (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012) |
| 10.48 | | Securities Purchase Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.49 | | Security Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.50 | | Subsidiary Guarantee dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.51 | | $1,009,200 Original Issue Discount Senior Secured Convertible Debenture Due January 1, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.52 | | $290,000 Original Issue Discount Senior Secured Convertible Debenture Due January 1, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.53 | | Securities Exchange Agreement dated July 31, 2012 with Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.54 | | Amendment to Loan Documents dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.55 | | Subordination Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012) |
| 10.56 | | Contribution and Subscription Agreement dated December 24, 2012 regarding Nutra SA, LLC (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 31, 2012) |
| 10.57 | | Second Amended and Restated Limited Liability Agreement for Nutra SA, LLC dated December 24, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 31, 2012) |
| 10.58 | | License Agreement dated March 14, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 20, 2013) |
| 10.59 | | Membership Interest Purchase Agreement dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013) |
| 10.60 | | Sublicense Agreement with RBT PRO LLC and Wilmar (Shanghai) Biotechnology Research Development Center Co., Ltd. dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013) |
| 10.61 | | Sublicense Agreement with RBT PRO LLC dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013) |
| 10.62 | | Cross License Agreement with Wilmar (Shanghai) Biotechnology Research Development Center Co., Ltd. dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013) |
| 10.63 | | Amended and Restated Limited Liability Company Agreement for RBT PRO LLC, dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013) |
| 10.64 | | Senior Secured Revolving Credit Facility Agreement with TCA Global Credit Master Fund, LP, dated as of April 30, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.65 | | Promissory Note issued to TCA Global Credit Master Fund, LP, dated as of April 30, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.66 | | Form of Guaranty Agreement by Subsidiary Guarantors in favor of TCA Global Credit Master Fund, LP, dated as of April 30, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.67 | | Security Agreement with TCA Global Credit Master Fund, LP, dated as of April 30, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.68 | | Form of Security Agreement, dated as of April 30, 2013, by Subsidiary Guarantors and TCA Global Credit Master Fund, LP (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.69 | | Form of Pledge with TCA Global Credit Master Fund, LP, dated as of April 30, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.70 | | Amendment and Waiver Agreement with Hillair Capital Investments L.P., dated as of May 24, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013) |
| 10.71 | | Amended and Restated Security Agreement dated as of May 24, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 10.72 | | Amended and Restated Note and Warrant Purchase Agreement dated as of May 24, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 10.73 | | Restated Subordination Agreement dated as of May 24, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 10.74 | | Amendment 1 to Senior Secured Revolving Credit Facility Agreement with TCA Global Credit Master Fund, LP dated July 18, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 10.75 | | Promissory Note issued to TCA Global Credit Master Fund, LP dated July 18, 2013 (incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013) |
| 10.76 | | Acquisition and Stock Purchase Agreement by and among RiceBran Technologies and the Shareholders of H&N Distribution, Inc. dated September 24, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on September 26, 2013) |
| | List of subsidiaries. |
| | Consent of Independent Registered Public Accounting Firm. |
| 23.2 | * | Consent of Weintraub Tobin Chediak Coleman Grodin Law Corporation |
| 24.1 | | Power of Attorney (See signature page). |
| 101.INS* | @ | XBRL Instance Document |
| 101.SCH* | @ | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | @ | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | @ | XBRL Taxonomy Extension Calculation Definition Linkbase Document |
| 101.LAB* | @ | XBRL Taxonomy Extension Calculation Label Linkbase Document |
| 101.PRE* | @ | XBRL Taxonomy Extension Calculation Presentation Linkbase Document |
| ± | Confidential treatment granted as to certain portions. |
| * | To be filed by amendment. |
| @ | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial Item 17:bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| (i) | If the registrant is relying on Rule 430B: |
| (A) | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| (B) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial Undertakingsbona fide offering thereof. .Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or |
| (ii) | If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: |
The undersigned registrant will:
(1) File, during any periodundertakes that in which it offers or sellsa primary offering of securities a post-effective amendmentof the undersigned registrant pursuant to this registration statement, to:
(i) include any prospectus required by Section 10(a)(3)regardless of the Securities Act;
(ii) reflect, in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof), which, individually or in the aggregate, represent a fundamental change in the information in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuantunderwriting method used to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement ofsell the securities offered, andto the offering ofpurchaser, if the securities at that timeare offered or sold to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registrationsuch purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities that remain unsold at the end of the offering.to such purchaser:
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. | (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (6) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
| (7) | The undersigned registrant hereby undertakes that: |
| (1) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
SIGNATURES
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submitPursuant to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, theretothereunto duly authorized, in the City of El Dorado Hill,Scottsdale, State of California,Arizona, on this 30th27th day of March, 2007.September, 2013.
RICEBRAN TECHNOLOGIES
| Date: September 27, 2013 | NUTRACEA By: | /s/ W. John Short | |
| | | W. John Short, | |
| BY: | President and Chief Executive Officer | |
| | (Principal Executive Officer) | |
| Date: September 27, 2013 | By: | /s/ Bradley D. EdsonJerry Dale Belt | |
| | | Bradley D. EdsonJerry Dale Belt, | |
| | Chief Financial Officer and Secretary | |
| | | Chief Executive(Principal Financial Officer and Principal Accounting Officer) | |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears below constitutesWe, the undersigned directors of RiceBran Technologies, hereby severally constitute and appoints Bradley D. Edsonappoint W. John Short and Todd C. Crow,Jerry Dale Belt, and eachboth or either one of them, hisour true and lawful attorneys-in-fact and agents, each with thefull power of substitution and re-substitution in for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendmentsamendments) to this Registration Statement, and any subsequent registration statements filed pursuant to Rule 462 of the Securities Act) to this Registration Statement, and all post-effective amendments thereto,Act, and to file the same, with all exhibits thereto and allother documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated.
SignatureDate: September 27, 2013 | By: | Title/s/ W. John Short | | Date |
| | | | | |
PrincipalW. John Short, Director, President and Chief Executive Officer:
| | | Officer | |
| | | | |
| Date: September 27, 2013 | By: | /s/ David Goldman | |
/s/ Bradley D. Edson | | President, Chief Executive Officer and Director | | March 30, 2007 |
Bradley D. Edson | | | | |
Principal Financial Officer
and Principal Accounting Officer:
/s/ Todd C. Crow | | Chief Financial Officer | | March 30, 2007 |
Todd C. Crow | | | David Goldman, Director | |
| | | | |
| Date: September 27, 2013 | By: | /s/ Baruch Halpern | |
Additional Directors:
| | | Baruch Halpern, Director | |
| | | | |
| Date: September 27, 2013 | By: |
/s/ David Bensol | | Director | | March 30, 2007 |
David Bensol | | | Henk W. Hoogenkamp | |
| | | | Henk W. Hoogenkamp, Director | |
/s/ James C. Lintzenich | | Director | | March 30, 2007 |
JamesDate: September 27, 2013 | By: | /s/ Robert C. Lintzenich | | | Schweitzer | |
| | | | | |
/s/ Edward L. McMillan | | Robert C. Schweitzer, Director | | March 30, 2007 |
Edward L. McMillan | | | | |
| | | | |
| | Director | | |
Patricia McPeak | | | | |
| | | | |
/s/ Steven W. Saunders | | Director | | March 30, 2007 |
Steven W. Saunders | | | | |
| | | | |
/s/ Kenneth L. Shropshire | | Director | | March 30, 2007 |
Kenneth L. Shropshire | | | | |
Exhibit
| | Exhibit Description
|
Number
| | |
| | |
2.01(1) | | Plan and Agreement of Exchange. |
| | |
2.02(2) | | Agreement and Plan of Merger and Reorganization, dated as of April 4, 2005, by and among the NutraCea, The RiceX Company and Red Acquisition Corporation. |
| | |
3.01.1(3) | | Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December 13, 2001. |
| | |
3.01.2(4) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003. |
| | |
3.01.3(5) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003. |
| | |
3.01.4(4) | | Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005 |
| | |
3.02(6) | | Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001. |
| | |
3.03(7) | | Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005. |
| | |
3.04(8) | | Certificate of Determination, Preferences and Rights of Series C Convertible Preferred Stock as filed with the Secretary of State of California on May 10, 2006. |
| | |
3.05(23) | | Bylaws of NutraCea. |
| | |
4.01(7) | | Form of warrant issued to subscribers in connection with NutraCea’s October 2005 private placement. |
| | |
4.02(8) | | Form of warrant issued to subscribers in connection with NutraCea’s May 2006 private placement. |
| | |
4.03(25) | | Form of warrant issued to subscribers in connection with NutraCea’s February 2007 private placement |
| | |
5.1* | | Opinion of Weintraub Genshlea Chediak Law Corporation |
| | |
10.01(9) | | NutraCea 2003 Stock Compensation Plan |
| | |
10.02(4) | | NutraCea 2005 Equity Incentive Plan |
| | |
10.03(7) | | Securities Purchase Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein. |
| | |
10.04(7) | | Registration Rights Agreement, dated September 28, 2005, by and among NutraCea and the investors named therein. |
10.05(8) | | Securities Purchase Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein. |
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10.06(8) | | Registration Rights Agreement, dated May 12, 2006, by and among NutraCea and the investors named therein. |
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10.07(10)± | | Private Label Supply Agreement and Strategic Alliance between NutraCea and ITV Global. |
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10.08(4) | | Employment Agreement between NutraCea and Patricia McPeak. |
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10.09(4) | | Restricted Stock Agreement between NutraCea and Patricia McPeak |
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10.10(11) | | Executive Employment Agreement between NutraCea and Bradley D. Edson. |
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10.11(11) | | Executive Employment Agreement between NutraCea and Margie D. Adelman. |
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10.12(4) | | Executive Employment Agreement between The RiceX Company and Todd C. Crow. |
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10.13(4) | | Amendment No. 1 to Employment Agreement between NutraCea, Todd C. Crow and The RiceX Company. |
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10.14(4) | | Executive Employment Agreement between The RiceX Company and Ike E. Lynch. |
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10.15(4) | | Amendment No. 1 to Employment Agreement between NutraCea, Ike E. Lynch and The RiceX Company. |
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10.16(12) | | Form of Affiliate Agreement between certain affiliates of RiceX and NutraCea dated April 4, 2005 |
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10.17(11)± | | W.F. Young Distribution Agreement. |
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10.18(11)± | | W.F. Young Technology Agreement. |
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10.19(13) | | Stock Purchase Agreement between NutraCea and Langley Park Investments PLC |
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10.20(4)± | | Production Facility Development and Rice Bran Supply and Purchase Agreement dated September 13, 2005 between NutraCea and Food Trading Company Dominicana, S.A. |
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10.21(4)± | | Assignment dated April 12, 2005 from W.F. Young, Inc. to NutraCea |
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10.22(4)± | | Distribution Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea |
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10.23(4) | | Manufacturing Agreement dated April 12, 2005 between W.F. Young, Inc. and NutraCea |
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10.24(4)± | | Supply and Distribution Agreement dated November 4, 2005 between NutraCea and T. Geddes Grant. |
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10.25(14) | | Commercial Lease and Deposit Receipt between Roebbelen Land Company and The RiceX Company dated December 23, 1991. |
10.26(14) | | First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated January 19, 1994. |
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10.27(14) | | Second Amendment of Lease between Roebbelen Land Company and The RiceX Company dated July 11, 1996. |
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10.28(14) | | Third Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998. |
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10.29(14) | | Lease Agreement between Roebbelen Land Company and The RiceX Company dated July 11, 1996. |
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10.30(14) | | First Amendment of Lease between Roebbelen Land Company and The RiceX Company dated September 1996. |
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10.31(14) | | Second Amendment of Lease Agreement between Roebbelen Land Company and The RiceX Company dated February 1, 1998. |
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10.32(15) | | Agreement on Exclusive Distribution in Europe between The RiceX Company and KREGLINGER EUROPE N.V. dated October 1, 2002.
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10.33(16)± | | Stabilized Rice Bran Processing, Sales, and Marketing Agreement between Farmers' Rice Cooperative and The RiceX Company dated May 1, 2002. |
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10.34(17) | | The RiceX Company 1997 Stock Option Plan |
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10.35(14) | | Form of Directors Stock Option Agreement for The RiceX Company. |
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10.36(14) | | Form of Non-statutory Stock Option Agreement not issued under The RiceX Company 1997 Stock Option Plan, governing options granted to The RiceX Company employees. |
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10.37(18) | | Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and The RiceX Company employees dated October 1, 1999. |
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10.37(18) | | Form of non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and Ike Lynch dated November 1, 1999. Identical Agreements with Daniel McPeak, Jr. and Todd C. Crow. |
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10.39(19) | | Form of Board Member Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and the Board Members of the RiceX Company dated February 22, 2001, September 23 and 29, 2001. |
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10.40(16) | | Form of Non-statutory Stock Option Agreement issued under The RiceX Company 1997 Stock Option Plan between The RiceX Company and employees dated January 2, 2000. |
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10.41(20) | | Form of Non-statutory Stock Option Agreement issued September 23, 2002 between The RiceX Company and the members of The RiceX Company’s Board of Directors. |
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10.42(20) | | Form of Non-statutory Stock Option Agreement issued July 1, 2004 between The RiceX Company and Edward McMillan. |
10.43(21) | | Form of Non-statutory Stock Option Agreement issued October 18, 2004 between The RiceX Company and two members of The RiceX Company Board Directors. |
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10.44(22) | | Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain non-employee RiceX Directors dated March 31, 2005. |
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10.45(22) | | Form of Non-statutory Stock Option Agreement issued under the 1997 Stock Option Plan between The RiceX Company and certain employees of RiceX dated March 31, 2005. |
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10.46(4) | | Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed Options granted under The RiceX Company 1997 Stock Option Plan. |
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10.47(4) | | Form of Option Assumption Agreement between NutraCea and Option Holders relating to assumed non-plan RiceX Options. |
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10.48(4) | | Form of Option Assumption Agreement between NutraCea and former Directors of The RiceX Company. |
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10.49(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of Todd C. Crow and Ike E. Lynch. |
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10.50(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of James Lintzenich, Edward McMillan and Steven Saunders. |
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10.51(4) | | Form of Resale Restriction Agreement entered into between NutraCea and each of Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell and David Bensol. |
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10.52(10) | | Warrant Agreement between NutraCea and Steven Saunders dated February 27, 2006. |
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10.53(24) | | Form of non-statutory Stock Option Agreement between NutraCea and the non-employee members of the Board of Directors dated May 23, 2006. |
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10.54(25) | | Securities Purchase Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein. |
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10.55(25) | | Registration Rights Agreement, dated February 15, 2007, by and among NutraCea and the investors named therein. |
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10.56(26) | | Employment Agreement between NutraCea and Kody Newland. |
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| | List of subsidiaries |
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| | Consent of Malone & Bailey, PC, Independent Registered Public Accounting Firm. |
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| | Consent of Perry-Smith LLP, Independent Registered Public Accounting Firm. |
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24.1 | | Power of Attorney (See signature page.) |
± | Confidential treatment granted as to certain portions. |
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* | To be filed by amendment. |
(1) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on November 19, 2001. |
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(2) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on April 4, 2005. |
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(3) | incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on April 16, 2002. |
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(4) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on November 18, 2005. |
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(5) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on November 19, 2003. |
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(6) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 4, 2002. |
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(7) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on October 4, 2005. |
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(8) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on May 15, 2006. |
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(9) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form S-8, filed on November 18, 2003. |
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(10) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on May 15, 2006. |
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(11) | incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-KSB, filed on March 31, 2005. |
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(12) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 8-K, filed on April 4, 2005. |
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(13) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on September 14, 2004. |
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(14) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement No. 000-24285, filed on May 18, 1998. |
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(15) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 31, 2003. |
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(16) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 12, 2002. |
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(17) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Registration Statement Number Statement No. 000-24285, filed on May 18, 1998. |
(18) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2000. |
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(19) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on August 10, 2001. |
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(20) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on November 15, 2003. |
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(21) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-KSB, filed on March 30, 2005. |
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(22) | incorporated herein by reference to exhibits previously filed on The RiceX Company’s Report on Form 10-QSB, filed on May 16, 2005. |
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(23) | incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-2, filed on June 12, 2006. |
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(24) | incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-QSB, filed on August 14, 2006. |
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(25) | incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on February 20, 2007. |
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(26) | Incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 30, 2007. |
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