SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2017
☐ |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from __________ to __________
Commission File Number 0-32565
RiceBran Technologies
(Exact Name of Registrant as Specified in its Charter)
California
|
|
87-0673375
|
(State or other jurisdiction of incorporation or organization)
|
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(I.R.S. Employer Identification No.)
|
2928 Ramco Street, Suite 120
West Sacramento, CA
|
|
95691
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Issuer’s telephone number, including area code: (602) 522-3000
Indicate
by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post
such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company, or an emerging company. See the definitions of “large
accelerated filer”, “accelerated filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☐
|
Smaller reporting company ☒
|
|
|
|
Emerging growth company ☐
|
If
an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule l2b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2017, shares of the registrant’s common stock outstanding totaled 16,884,017.
RiceBran Technologies
Form 10-Q
PART I. FINANCIAL INFORMATION
|
Page
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Item 1.
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3
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2.
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24
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Item 3.
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27
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Item 4.
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27
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PART II. OTHER INFORMATION
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Item 1.
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27
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Item 1A.
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27
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Item 2.
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28
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Item 3.
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28
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Item 4.
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28
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Item 5.
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28
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Item 6.
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28
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30
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Cautionary Note about Forward-Looking Statements
This
quarterly report on Form 10-Q contains “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state
securities laws, including, but not limited to, any projections of
earnings, revenue, liquidity or other financial items; any statements of
the plans, strategies and objectives of management for future
operations; any statements concerning proposed new services, products or
developments; any statements regarding future economic conditions or
performance; any statements of belief; and any statements of assumptions
underlying any of the foregoing. Forward-looking statements may
include the words “may,” “could,” “will,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar
words. The forward-looking statements contained herein reflect our
current views with respect to future events and are subject to certain
risks, uncertainties and assumptions. Actual results may differ
materially from those projected in such forward-looking statements due
to a number of factors, risks and uncertainties, including the factors
that may affect future results set forth in this Current Report on Form
10-Q and in our Annual Report on Form 10-K for the year ended December
31, 2016. We disclaim any obligation to update any forward looking
statements as a result of developments occurring after the date of this
quarterly report.
Unless
the context requires otherwise, references to “we,” “us,” “our” and
“the Company” refer to RiceBran Technologies and its consolidated
subsidiaries.
PART I. FINANCIAL INFORMATION
RiceBran Technologies
Condensed Consolidated
Statements of Operations
Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited) (in thousands, except share and per share amounts)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,445
|
|
|
$
|
3,249
|
|
|
$
|
10,206
|
|
|
$
|
9,748
|
|
Cost of goods sold
|
|
|
2,305
|
|
|
|
2,434
|
|
|
|
7,081
|
|
|
|
7,199
|
|
Gross profit
|
|
|
1,140
|
|
|
|
815
|
|
|
|
3,125
|
|
|
|
2,549
|
|
Selling, general and administrative expenses
|
|
|
2,495
|
|
|
|
3,140
|
|
|
|
7,428
|
|
|
|
9,428
|
|
Loss from operations
|
|
|
(1,355
|
)
|
|
|
(2,325
|
)
|
|
|
(4,303
|
)
|
|
|
(6,879
|
)
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(86
|
)
|
|
|
(352
|
)
|
|
|
(1,616
|
)
|
|
|
(1,484
|
)
|
Change in fair value of derivative warrant liabilities
|
|
|
(313
|
)
|
|
|
1,166
|
|
|
|
808
|
|
|
|
314
|
|
Loss on extinguishment of debt
|
|
|
(6,610
|
)
|
|
|
-
|
|
|
|
(8,290
|
)
|
|
|
-
|
|
Loss on conversion of preferred stock
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
(85
|
)
|
|
|
-
|
|
Gain on resolution of Irgovel purchase litigation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,598
|
|
Other income
|
|
|
157
|
|
|
|
132
|
|
|
|
194
|
|
|
|
132
|
|
Other expense
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(128
|
)
|
|
|
-
|
|
Total other (expense) income
|
|
|
(6,965
|
)
|
|
|
946
|
|
|
|
(9,117
|
)
|
|
|
560
|
|
Loss before income taxes
|
|
|
(8,320
|
)
|
|
|
(1,379
|
)
|
|
|
(13,420
|
)
|
|
|
(6,319
|
)
|
Income tax benefit
|
|
|
4,121
|
|
|
|
437
|
|
|
|
5,033
|
|
|
|
1,344
|
|
Loss from continuing operations
|
|
|
(4,199
|
)
|
|
|
(942
|
)
|
|
|
(8,387
|
)
|
|
|
(4,975
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
|
6,706
|
|
|
|
(608
|
)
|
|
|
6,823
|
|
|
|
(4,829
|
)
|
Net income (loss)
|
|
|
2,507
|
|
|
|
(1,550
|
)
|
|
|
(1,564
|
)
|
|
|
(9,804
|
)
|
Less - Net loss attributable to noncontrolling interest in discontinued operations
|
|
|
(792
|
)
|
|
|
(470
|
)
|
|
|
(1,359
|
)
|
|
|
(2,416
|
)
|
Net income (loss) attributable to RiceBran Technologies shareholders
|
|
|
3,299
|
|
|
|
(1,080
|
)
|
|
|
(205
|
)
|
|
|
(7,388
|
)
|
Less - Dividends on preferred stock, beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
778
|
|
|
|
551
|
|
Net income (loss) attributable to RiceBran Technologies common shareholders
|
|
$
|
3,299
|
|
|
$
|
(1,080
|
)
|
|
$
|
(983
|
)
|
|
$
|
(7,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.38
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.60
|
)
|
Discontinued operations
|
|
|
0.68
|
|
|
|
(0.01
|
)
|
|
|
0.77
|
|
|
|
(0.26
|
)
|
Basic earnings (loss) per common share - RiceBran Technologies
|
|
$
|
0.30
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.38
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.60
|
)
|
Discontinued operations
|
|
|
0.68
|
|
|
|
(0.01
|
)
|
|
|
0.77
|
|
|
|
(0.26
|
)
|
Diluted earnings (loss) per common share - RiceBran Technologies
|
|
$
|
0.30
|
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,129,781
|
|
|
|
9,397,255
|
|
|
|
10,644,372
|
|
|
|
9,281,942
|
|
Diluted
|
|
|
11,129,781
|
|
|
|
9,397,255
|
|
|
|
10,644,372
|
|
|
|
9,281,942
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
RiceBran Technologies
Condensed Consolidated
Statements of Comprehensive Income (Loss)
Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited) (in thousands)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,507
|
|
|
$
|
(1,550
|
)
|
|
$
|
(1,564
|
)
|
|
$
|
(9,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income - foreign currency translation, net of tax
|
|
|
(31
|
)
|
|
|
(165
|
)
|
|
|
131
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax
|
|
|
2,476
|
|
|
|
(1,715
|
)
|
|
|
(1,433
|
)
|
|
|
(9,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - Comprehensive loss attributable to noncontrolling interest, net of tax
|
|
|
(803
|
)
|
|
|
(330
|
)
|
|
|
(1,321
|
)
|
|
|
(1,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to RiceBran Technologies shareholders
|
|
$
|
3,279
|
|
|
$
|
(1,385
|
)
|
|
$
|
(112
|
)
|
|
$
|
(7,112
|
)
|
See Notes to Unaudited Condensed Consolidated Financial Statements
RiceBran Technologies
Condensed
Consolidated Balance Sheets
September 30, 2017 (Unaudited) and December 31, 2016
(in thousands, except share amounts)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,187
|
|
|
$
|
342
|
|
Restricted cash
|
|
|
775
|
|
|
|
-
|
|
Accounts receivable, net of allowance for doubtful accounts of $8 and $12
|
|
|
1,384
|
|
|
|
1,094
|
|
Inventories
|
|
|
758
|
|
|
|
933
|
|
Deposits and other current assets
|
|
|
359
|
|
|
|
824
|
|
Current assets held for sale
|
|
|
2,398
|
|
|
|
4,335
|
|
Total current assets
|
|
|
13,861
|
|
|
|
7,528
|
|
Property and equipment, net
|
|
|
7,123
|
|
|
|
7,025
|
|
Intangible assets, net
|
|
|
135
|
|
|
|
242
|
|
Noncurrent assets held for sale
|
|
|
11,785
|
|
|
|
14,050
|
|
Total assets
|
|
$
|
32,904
|
|
|
$
|
28,845
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, TEMPORARY EQUITY AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
261
|
|
|
$
|
714
|
|
Accrued salary, wages and benefits
|
|
|
605
|
|
|
|
496
|
|
Accrued expenses
|
|
|
309
|
|
|
|
1,288
|
|
Income taxes payable
|
|
|
268
|
|
|
|
-
|
|
Current maturities of long-term debt
|
|
|
19
|
|
|
|
3,063
|
|
Current liabilities held for sale
|
|
|
18,239
|
|
|
|
15,801
|
|
Total current liabilities
|
|
|
19,701
|
|
|
|
21,362
|
|
Long-term debt, less current portion
|
|
|
13
|
|
|
|
5,964
|
|
Derivative warrant liabilities
|
|
|
769
|
|
|
|
1,527
|
|
Deferred tax liability
|
|
|
29
|
|
|
|
29
|
|
Noncurrent liabilities held for sale
|
|
|
-
|
|
|
|
44
|
|
Total liabilities
|
|
|
20,512
|
|
|
|
28,926
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
|
|
|
|
|
|
Preferred stock, Series F, convertible, 20,000,000 shares authorized, 3,000 convertible shares issued and outstanding
|
|
|
-
|
|
|
|
551
|
|
Total temporary equity
|
|
|
-
|
|
|
|
551
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
Equity (deficit) attributable to RiceBran Technologies shareholders:
|
|
|
|
|
|
|
|
|
Preferred stock, 20,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series F, convertible, 3,000 shares authorized, 499 shares issued and outstanding
|
|
|
92
|
|
|
|
-
|
|
Series G, convertible, 3,000 shares authorized, 1,300 shares issued and outstanding
|
|
|
646
|
|
|
|
-
|
|
Common stock, no par value, 50,000,000 shares authorized, 16,551,350 and 10,790,351 shares issued and outstanding
|
|
|
278,079
|
|
|
|
264,232
|
|
Accumulated deficit
|
|
|
(260,802
|
)
|
|
|
(259,819
|
)
|
Accumulated deficit attributable to noncontrolling interest in discontinued operation
|
|
|
(1,370
|
)
|
|
|
(699
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,253
|
)
|
|
|
(4,346
|
)
|
Total equity (deficit) attributable to RiceBran Technologies shareholders
|
|
|
12,392
|
|
|
|
(632
|
)
|
Total liabilities, temporary equity and equity (deficit)
|
|
$
|
32,904
|
|
|
$
|
28,845
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
RiceBran Technologies
Condensed
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2017 and 2016
(Unaudited) (in thousands)
|
|
2017
|
|
|
2016
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,564
|
)
|
|
$
|
(9,804
|
)
|
Income (loss) from discontinued operations
|
|
|
6,823
|
|
|
|
(4,829
|
)
|
Loss from continuing operations
|
|
|
(8,387
|
)
|
|
|
(4,975
|
)
|
Adjustments to reconcile net loss from continuing operation to activities of continuing operations:
|
|
|
|
|
|
net cash used in operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
571
|
|
|
|
694
|
|
Stock and share-based compensation
|
|
|
904
|
|
|
|
841
|
|
Change in fair value of derivative warrant and conversion liabilities
|
|
|
(808
|
)
|
|
|
(314
|
)
|
Loss on extinguishment of debt
|
|
|
8,290
|
|
|
|
-
|
|
Gain on resolution of Irgovel purchase litigation
|
|
|
-
|
|
|
|
(1,598
|
)
|
Interest accreted
|
|
|
1,000
|
|
|
|
497
|
|
Deferred taxes
|
|
|
(5,033
|
)
|
|
|
(1,344
|
)
|
Other
|
|
|
55
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(290
|
)
|
|
|
(182
|
)
|
Inventories
|
|
|
213
|
|
|
|
576
|
|
Accounts payable and accrued expenses
|
|
|
(1,310
|
)
|
|
|
3
|
|
Other
|
|
|
465
|
|
|
|
53
|
|
Net cash used in operating activities of continuing operations
|
|
|
(4,330
|
)
|
|
|
(5,749
|
)
|
Net cash provided by operating activities of discontinued operations
|
|
|
1,513
|
|
|
|
3,714
|
|
Net cash used in operating activities
|
|
|
(2,817
|
)
|
|
|
(2,035
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property
|
|
|
(596
|
)
|
|
|
(208
|
)
|
Net cash used in investing activities of continuing operations
|
|
|
(596
|
)
|
|
|
(208
|
)
|
Net cash provided by (used in) investing activities of discontinued operations
|
|
|
16,604
|
|
|
|
(252
|
)
|
Net cash provided by (used in) investing activities
|
|
|
16,008
|
|
|
|
(460
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(19,728
|
)
|
|
|
(24,124
|
)
|
Proceeds from issuance of debt, net of issuance costs
|
|
|
3,779
|
|
|
|
23,752
|
|
Proceeds from issuance of debt and warrants, net of issuance costs
|
|
|
5,518
|
|
|
|
300
|
|
Proceeds from issuance of preferred stock and warrants, net of issuance costs
|
|
|
1,747
|
|
|
|
2,554
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
2,778
|
|
|
|
-
|
|
Other
|
|
|
(23
|
)
|
|
|
(9
|
)
|
Net cash provided by (used in) financing activities of continuing operations
|
|
|
(5,929
|
)
|
|
|
2,473
|
|
Net cash provided by (used in) financing activities of discontinued operations
|
|
|
1,232
|
|
|
|
(551
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(4,697
|
)
|
|
|
1,922
|
|
Effect of exchange rate changes on cash and cash equivalents of discontinued operations
|
|
|
126
|
|
|
|
(182
|
)
|
Net change in cash and cash equivalents and restricted cash
|
|
$
|
8,620
|
|
|
$
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash, beginning of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
342
|
|
|
$
|
966
|
|
Restricted cash
|
|
|
-
|
|
|
|
1,921
|
|
Cash and cash equivalents and restricted cash, beginning of period
|
|
|
342
|
|
|
|
2,887
|
|
Cash and cash equivalents and restricted cash, end of period
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,187
|
|
|
|
2,132
|
|
Restricted cash
|
|
|
775
|
|
|
|
-
|
|
Cash and cash equivalents and restricted cash, end of period
|
|
|
8,962
|
|
|
|
2,132
|
|
Net change in cash and cash equivalents and restricted cash
|
|
$
|
8,620
|
|
|
$
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures, continuing operations:
|
|
|
|
|
|
|
|
|
Cash paid for interest of continuing operations
|
|
$
|
729
|
|
|
$
|
780
|
|
Cash paid for income taxes of continuing operations
|
|
|
-
|
|
|
|
20
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
In
the opinion of management, the accompanying unaudited condensed
consolidated financial statements (interim financial statements) of
RiceBran Technologies and 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 complete 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 audited financial statements and notes thereto in our
Annual Report on Form 10-K for the year ended December 31, 2016. The
report of our independent registered public accounting firm that
accompanies the audited consolidated financial statements for the year
ended December 31, 2016, 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. The
accompanying interim financial statements do not include any
adjustments that might be necessary if we are unable to continue as a
going concern.
The
results reported in these interim financial statements are not
necessarily indicative of the results to be expected for the full fiscal
year, or any other future period, and have been prepared 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.
NOTE 2. DISCONTINUED OPERATIONS
Healthy Natural (HN) Discontinued Operations
The
Company continuously assesses the composition of our business portfolio
to ensure it is aligned with our strategic objectives and positioned to
maximize growth and return to our shareholders. In the second
quarter of 2017, we began exploring strategic options for our
wholly-owned subsidiary, Healthy Natural, Inc. (HN). In
July 2017, we completed the sale of the assets of HN for $18.3 million
in cash. HN was reported as part of our Corporate and USA
segment. The selling price is subject to adjustment if the
estimated closing working capital with respect to the assets sold and
the liabilities assumed is different than the actual closing working
capital for those assets and liabilities. The sale agreement
contains customary indemnification provisions and provisions that
restrict us from engaging in a business conducted by HN for five years
from the date of closing. A $0.2 million working capital
adjustment escrow and a $0.6 million indemnity claim escrow were funded
from the proceeds. We are providing certain support services under
transition services agreement for a limited period of time. These
support services are not expected to have a material impact on our
consolidated statements of operations in 2017.
On
a preliminary basis, we estimate the proceeds, net of expenses, at
$16.7 million, the net carrying value of HN as of the date of sale at
$3.5 million and the third quarter 2017 gain on sale as $8.8 million,
net of a $4.3 million income tax provision. We currently expect to
obtain the amounts held in escrow without adjustment. The
following table summarizes the estimated carrying amount of HN as of the
July 2017 sale (in thousands).
Accounts receivable, net
|
|
$
|
871
|
|
Inventories
|
|
|
1,987
|
|
Other current assets
|
|
|
47
|
|
Property and equipment
|
|
|
871
|
|
Intangible
|
|
|
791
|
|
Other
|
|
|
24
|
|
Assets
|
|
|
4,591
|
|
Accounts payable
|
|
|
759
|
|
Accrued expenses
|
|
|
290
|
|
Liabilities
|
|
|
1,049
|
|
Net assets sold
|
|
$
|
3,542
|
|
We
determined that the disposal met the criteria for presentation as
discontinued operations in the second quarter of 2017.
Accordingly, HN results are presented as discontinued operations in our
consolidated statements of operations and are excluded from continuing
operations for all periods presented. In addition, the HN assets
and liabilities are classified as held for sale in our consolidated
balance sheets for all periods presented.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
The
operations of HN are included in our results though the July 14, 2017
date of sale. All following tables represent activity up to the
date of the sale.
The
following table summarizes the major line items included in the income
(loss) from discontinued operations for the divestiture of HN (in
thousands).
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
421
|
|
|
$
|
5,010
|
|
|
$
|
9,902
|
|
|
$
|
15,044
|
|
Cost of goods sold
|
|
|
(293
|
)
|
|
|
(3,330
|
)
|
|
|
(6,651
|
)
|
|
|
(9,991
|
)
|
Selling, general and administrative expenses
|
|
|
(19
|
)
|
|
|
(396
|
)
|
|
|
(462
|
)
|
|
|
(1,100
|
)
|
Income from operations, before income taxes
|
|
|
109
|
|
|
|
1,284
|
|
|
|
2,789
|
|
|
|
3,953
|
|
Income tax expense
|
|
|
(36
|
)
|
|
|
(437
|
)
|
|
|
(948
|
)
|
|
|
(1,344
|
)
|
Income from operations, net of tax
|
|
|
73
|
|
|
|
847
|
|
|
|
1,841
|
|
|
|
2,609
|
|
Gain on sale, net of $4.3 million income tax expense
|
|
|
8,845
|
|
|
|
-
|
|
|
|
8,845
|
|
|
|
-
|
|
Income from discontinued operations, net of tax
|
|
$
|
8,918
|
|
|
$
|
847
|
|
|
$
|
10,686
|
|
|
$
|
2,609
|
|
We
expect to have sufficient net operating losses to offset the taxable
gain related to the sale of HN and HN’s taxable operating income in
2017. Alternative minimum tax may be due on the sale of HN based
on the calculation of alternative minimum taxable income, which allows
taxable income to only be offset by 90% by net operating loss
carryforwards; thereby leaving residual taxable income of 10%, subject
to a rate of 20%. We currently estimate $0.3 million to be payable under
the alternative minimum tax but we will continue to evaluate the use of
additional current year operating losses to offset the taxable income.
The
following table summarizes the carrying amounts of major classes of HN
assets and liabilities classified as held for sale as of December 31,
2016 (in thousands).
|
|
|
|
Accounts receivable, net
|
|
$
|
592
|
|
Inventories
|
|
|
1,915
|
|
Other current assets held for sale
|
|
|
23
|
|
Property and equipment
|
|
|
1,019
|
|
Intangible
|
|
|
791
|
|
Other noncurrent assets
|
|
|
24
|
|
Total assets held for sale
|
|
$
|
4,364
|
|
Accounts payable
|
|
$
|
443
|
|
Accrued expenses
|
|
|
382
|
|
Long term liabilities
|
|
|
44
|
|
Total liabilities held for sale
|
|
$
|
869
|
|
The
following table summarizes the major line items included in cash flows
from discontinued operations of HN for the nine months ended September
30, 2017 and 2016 (in thousands).
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
2,803
|
|
|
$
|
3,701
|
|
Net cash provided by (used in) investing activities
|
|
|
16,719
|
|
|
|
(73
|
)
|
Net cash used in financing activities
|
|
|
(48
|
)
|
|
|
-
|
|
Net cash provided to continuing operations
|
|
$
|
(19,474
|
)
|
|
$
|
(3,628
|
)
|
In
2017, net cash provided by investing activities in the table above is
presented in our consolidated statements of cash flows in net cash
provided by (used in) investing activities of discontinued operations
and includes the $16.7 million net proceeds from the sale of HN.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes other data for HN (in thousands).
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Depreciation included in cost of goods sold
|
|
$
|
7
|
|
|
$
|
42
|
|
|
$
|
96
|
|
|
$
|
130
|
|
Depreciation included in selling, general and administrative expenses
|
|
|
4
|
|
|
|
20
|
|
|
|
49
|
|
|
|
58
|
|
Amortization included in selling, gneral and administrative expenses
|
|
|
-
|
|
|
|
204
|
|
|
|
-
|
|
|
|
659
|
|
Capital expenditures
|
|
|
3
|
|
|
|
22
|
|
|
|
18
|
|
|
|
95
|
|
Nutra SA Discontinued Operations
We
hold a variable interest in our equity interest in Nutra SA.
Nutra SA’s only operating subsidiary is Industria Riograndens De Oleos
Vegetais Ltda. (Irgovel), located in Pelotas, Brazil. We are the
primary beneficiary of Nutra SA, and as such, Nutra SA’s assets,
liabilities and results of operations are included in the condensed
consolidated financial statements. In the second quarter of 2017,
we determined that our plans to divest our investment in Nutra SA met
the criteria for presentation as discontinued operations.
Accordingly, the Nutra SA operating results are presented as
discontinued operations in our condensed consolidated statements of
operations and are excluded from continuing operations for all periods
presented. In addition, Nutra SA consolidated assets and
liabilities are classified as held for sale in our consolidated balance
sheets for all periods presented. Other equity holders’
(Investors) interests in Nutra SA are reflected in net loss attributable
to noncontrolling interest in discontinued operations in the condensed
consolidated statements of operations and accumulated deficit
attributable to noncontrolling interest in discontinued operations in
the condensed consolidated balance sheets.
The
following table summarizes the major line items included in income
(loss) from discontinued operations for Nutra SA in the three and nine
months ended September 30, 2017 and 2016 (in thousands).
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
3,226
|
|
|
$
|
563
|
|
|
$
|
9,589
|
|
|
$
|
4,627
|
|
Cost of goods sold
|
|
|
(3,539
|
)
|
|
|
(1,154
|
)
|
|
|
(9,814
|
)
|
|
|
(6,103
|
)
|
Selling, general and administrative expenses
|
|
|
(1,541
|
)
|
|
|
(509
|
)
|
|
|
(2,572
|
)
|
|
|
(1,891
|
)
|
Goodwill impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,024
|
)
|
Other expense
|
|
|
(358
|
)
|
|
|
(355
|
)
|
|
|
(1,066
|
)
|
|
|
(1,047
|
)
|
Loss from discontinued operations, before income taxes
|
|
|
(2,212
|
)
|
|
|
(1,455
|
)
|
|
|
(3,863
|
)
|
|
|
(7,438
|
)
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(2,212
|
)
|
|
$
|
(1,455
|
)
|
|
$
|
(3,863
|
)
|
|
$
|
(7,438
|
)
|
The
following table summarizes the carrying amounts of major classes of
Nutra SA assets and liabilities classified as held for sale (in
thousands).
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
54
|
|
|
$
|
109
|
|
Accounts receivable, net (restricted)
|
|
|
781
|
|
|
|
398
|
|
Inventories
|
|
|
1,237
|
|
|
|
925
|
|
Other current asssets
|
|
|
326
|
|
|
|
373
|
|
Property and equipment, net (restricted $2,662 and $2,599)
|
|
|
10,464
|
|
|
|
10,889
|
|
Other noncurrent assets
|
|
|
1,321
|
|
|
|
1,327
|
|
Total assets held for sale
|
|
$
|
14,183
|
|
|
$
|
14,021
|
|
Accounts payable
|
|
$
|
2,338
|
|
|
$
|
2,553
|
|
Accrued expenses
|
|
|
8,274
|
|
|
|
5,607
|
|
Current maturities of long-term debt (nonrecourse)
|
|
|
7,627
|
|
|
|
6,816
|
|
Total liabilities held for sale
|
|
$
|
18,239
|
|
|
$
|
14,976
|
|
Cash
provided by Nutra SA operations are generally unavailable for
distribution to our Corporate and USA segment pursuant to the terms of
the LLC Agreement. Therefore Nutra SA’s consolidated cash is
classified as held for sale in our consolidated balance sheets.
Nutra SA’s debt is secured by Irgovel’s accounts receivable and
property. The non-Brazilian entities within the consolidated
ownership group do not guarantee any of Nutra SA’s debt.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
The
following table summarizes the major line items included in cash flows
from Nutra SA discontinued operations for the nine months ended
September 30, 2017 and 2016 (in thousands).
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(1,345
|
)
|
|
$
|
(9
|
)
|
Net cash used in investing activities
|
|
|
(115
|
)
|
|
|
(157
|
)
|
Net cash provided (used) by financing activities
|
|
|
1,280
|
|
|
|
(551
|
)
|
Net cash provided by continuing operations
|
|
|
-
|
|
|
|
863
|
|
Effect of exchange rate changes
|
|
|
125
|
|
|
|
(183
|
)
|
Net change in cash and cash equivalents
|
|
|
(55
|
)
|
|
|
(37
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
109
|
|
|
|
104
|
|
Cash and cash equivalents, end of period
|
|
$
|
54
|
|
|
$
|
67
|
|
The following table summarizes other data for Nutra SA (in thousands).
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Depreciation included in cost of goods sold
|
|
$
|
274
|
|
|
$
|
246
|
|
|
$
|
792
|
|
|
$
|
672
|
|
Depreciation included in selling, general and administrative expenses
|
|
|
15
|
|
|
|
16
|
|
|
|
46
|
|
|
|
42
|
|
Capital expenditures
|
|
|
22
|
|
|
|
1
|
|
|
|
115
|
|
|
|
157
|
|
Nutra SA’s debt consists of the following (in thousands):
|
|
|
|
|
|
|
Capital expansion loans
|
|
$
|
2,635
|
|
|
$
|
2,454
|
|
Working capital lines of credit
|
|
|
1,081
|
|
|
|
401
|
|
Advances on customer export orders
|
|
|
785
|
|
|
|
1,113
|
|
Special tax programs
|
|
|
3,014
|
|
|
|
2,767
|
|
Other
|
|
|
112
|
|
|
|
81
|
|
|
|
$
|
7,627
|
|
|
$
|
6,816
|
|
As
of September 30, 2017, Irgovel had approximately $0.4 million (USD) of
debt installment payments in arrears. The banks have not called
these loans in default, and management continues to work with the
lenders to renegotiate payment terms, however, all Nutra SA debt has
been classified as current liabilities held for sale in the accompanying
condensed consolidated balance sheet as of September 30, 2017. As
of September 30, 2017, Irgovel had approximately $9.3 million of tax
and tax related payments in arrears. Approximately $0.2
million of the tax payments in arrears is related to certain unpaid
employer tax from April 2017 through September 2017. All tax and
tax related payments in arrears, other than the certain unpaid employer
tax, can be included in a new Brazil tax amnesty program, but to qualify
to do so, an entrance fee of approximately $0.4 million must be paid
prior to November 15, 2017. At this time it is not certain Irgovel
will qualify for the new Brazil tax amnesty. If Irgovel is unable
to qualify for the new Brazil tax amnesty, Irgovel will likely petition
the tax authorities seeking a favorable payment plan but it is likely
the installment payments will not exceed 60 monthly payments. All
Nutra SA debt is denominated in the Brazilian Real (R$), except advances
on customer export orders which are denominated in U.S. Dollars.
The fair value of Nutra SA debt (Level 3 measurement) approximates the
carrying value of that debt based on the current market rates for
similar debt with similar maturities.
Cash
provided by operations in our Brazil segment is generally unavailable
for distribution to our Corporate and USA segment pursuant to the terms
of the limited liability company agreement of Nutra SA (LLC Agreement).
A
summary of changes in redeemable noncontrolling interest in Nutra SA,
reflected as accumulated deficit attributable to noncontrolling interest
in discontinued operations, in the accompanying condensed consolidated
balance sheets, for the three and nine months ended September 30, 2017
and 2016 (in thousands) follows.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Redeemable noncontrolling interest in Nutra SA, beginning of period
|
|
$
|
(567
|
)
|
|
$
|
(1,599
|
)
|
|
$
|
(699
|
)
|
|
$
|
69
|
|
Investors' interest in net loss of Nutra SA
|
|
|
(792
|
)
|
|
|
(470
|
)
|
|
|
(1,359
|
)
|
|
|
(2,416
|
)
|
Investors' interest in other comprehensive loss of Nutra SA
|
|
|
(11
|
)
|
|
|
(60
|
)
|
|
|
38
|
|
|
|
218
|
|
Investors purchase of additional membership interest
|
|
|
-
|
|
|
|
200
|
|
|
|
650
|
|
|
|
200
|
|
Redeemable noncontrolling interest in Nutra SA, end of period
|
|
$
|
(1,370
|
)
|
|
$
|
(1,929
|
)
|
|
$
|
(1,370
|
)
|
|
$
|
(1,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors' average interest in Nutra SA during the period
|
|
|
35.8
|
%
|
|
|
32.5
|
%
|
|
|
35.5
|
%
|
|
|
32.2
|
%
|
Investors' interest in Nutra SA at the end of the period
|
|
|
35.8
|
%
|
|
|
32.7
|
%
|
|
|
35.8
|
%
|
|
|
32.7
|
%
|
The
Investors have drag along rights which provide the Investors the
ability to force a sale of Nutra SA assets after January 1, 2018.
The right terminates upon the occurrence of certain events (a $50
million Nutra SA initial public offering or a change of control, as
defined in the LLC Agreement). We may elect to exercise a right of
first refusal to purchase the Investors’ interest instead of proceeding
to a sale. We have assessed the likelihood of the Investors
exercising these rights as less than probable at September 30,
2017. 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 to fair value if and when it is probable the Investors will
exercise these rights.
As
the result of an amendment effective March 31, 2017, the Investors
right to elect to exchange units in Nutra SA for our common stock
terminated. In exchange for the termination of this right, we paid the Investors $0.1 million.
Under
the LLC Agreement, the business of Nutra SA is to be conducted by the
manager, currently our EVP of Special Projects, subject to the oversight
of the management committee. The management committee is
comprised of three of our representatives and two of Investors’
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 Investors’ 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 September 30, 2017, there have been no unwaived events of
default. Events of default, as defined in the Membership Interest
Purchase Agreement (MIPA) and the October 2013 amendment of investment
agreements, are the failure of Irgovel to meet minimum annual processing
targets or to achieve EBITDA on a local currency basis of at least
R$4.0 million annually.
As
of September 30, 2017, there have been no qualifying events. The
LLC Agreement defines a qualifying event as the bankruptcy of RiceBran
Technologies or Nutra SA.
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.
However, the Investors do have drag along rights in the future. We
will continue to evaluate whether we are the primary beneficiary of
Nutra SA each reporting period.
NOTE 3. LIQUIDITY, GOING CONCERN AND MANAGEMENT’S PLAN
Our
cash position has improved since December 31, 2016, as a result of a
debt and equity raise in February 2017, the sale of HN in July 2017 and
an equity raise in September 2017. However, our continued
operations continued to experience losses and negative cash flows from
operations which raises substantial doubt about our ability to continue
as a going concern for a period of one year from the issue date of these
financial statements.
In
February 2017, as discussed further in Note 8, we received net proceeds
of $7.2 million from the sale and issuance of preferred stock, senior
debentures and related warrants. The net proceeds were used in
part to pay in full amounts owing our previous senior lender ($3.8
million) and to pay principal and accrued interest on our subordinated
notes ($0.5 million). In July 2017, as discussed further in Note
2, we received cash proceeds, net of expenses, of $16.7 million from the
sale of HN a portion of which was used to pay off our senior debentures
($6.6 million) and subordinated notes ($6.0 million). In
September 2017, as discussed further in Note 8, we received net proceeds
of $2.7 million from the sale and issuance of common stock. We
continue to believe that we will be able to obtain additional funds to
operate our business, should it be necessary; however, there can be no
assurances that our efforts will prove successful. The
accompanying financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
Beginning
in the second quarter of 2016 and through the third quarter of 2017,
Irgovel experienced severe cash shortages resulting in an increase in
accrued expenses and payroll related tax obligations. In 2016, our
minority partners (the Investors) contributed $1.7 million to Nutra SA
and an additional $0.7 million through September 30, 2017. In
2016, we invested $1.1 million in Nutra SA. Our board has
determined we will not contribute any additional funds to Nutra SA.
NOTE 4. RECENT ACCOUNTING GUIDANCE
Recent accounting standards not yet adopted
In
May 2014, the Financial Accounting Standards Board (FASB) issued
guidance on revenue from contracts with customers to clarify the
principles for recognizing revenue and develop a common revenue standard
for GAAP and International Financial Reporting Standards. Under
the new guidance, an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services, applying the following steps: (i)
identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in
the contract; and (v) recognize revenue when (or as) the entity
satisfies a performance obligation. An entity may choose to adopt
the new standard either retrospectively or through a cumulative effect
adjustment as of the start of the first period for which it applies the
new standard. The guidance is effective for our annual and interim
periods beginning in 2018, however, early adoption is permitted.
We have begun to evaluate the impact that adoption of this guidance will
have on our consolidated financial statements but have not completed
the evaluation and implementation process. We expect to transition
through a cumulative effect adjustment as of January 1, 2018.
Under the modified retrospective method adoption will have no impact on
reported results of operations, financial position and cash flows of
discontinued operations, with respect to HN, because we no longer
reflect HN operations in our consolidated results after the sale of HN
in July 2017. Similarly, if we dispose of Nutra SA, before
December 31, 2017, we expect adoption will have no impact on reported
results of operations, financial position and cash flows of discontinued
operations, with respect to Nutra SA as well.
In
February 2016, the FASB issued guidance which changes the accounting
for leases. Under prior GAAP, the recognition, measurement and
presentation of expenses and cash flows arising from a lease for us as a
lessee depend primarily on the lease’s classification as a finance or
operating lease. For both types of leases, lessees will recognize a
right-of-use asset and a lease liability. For capital or finance
leases, lessees will recognize amortization of the right-of-use asset
separately from interest expense on the lease liability. The
guidance is effective for our annual and interim periods beginning in
2019 and must be adopted on a modified retrospective approach.
Early adoption is allowed. We have not yet determined the impact
that the new guidance will have on our results of operations, financial
position and cash flows and have not yet determined if we will early
adopt the standard.
Recently adopted accounting standards
In
May 2017, the FASB issued guidance that clarifies the scope of asset
derecognition guidance and accounting for partial sales of nonfinancial
assets. We adopted the standard early, as of January 1, 2017, with
no effect on our financial position or results of operations.
In
February 2017, the FASB issued guidance on which changes to the terms
or conditions of a share-based payment award require an entity to apply
modification accounting. We adopted the standard early, as of
January 1, 2017, with no effect on our financial position or results of
operations.
In
January 2017, the FASB issued a new goodwill impairment standard that
simplifies the goodwill impairment testing methodology. The new
standard eliminates Step 2 of the goodwill impairment test, in which an
entity determines the fair value at the test date of its assets and
liabilities using the procedure that would be required in determining
the fair value of assets acquired and liabilities assumed in a business
combination. We adopted the standard early, as of January 1, 2017,
with no effect on our financial position or results of operations.
In
November 2016, the FASB issued guidance that requires that the
statement of cash flows explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. We were required
to adopt the guidance for our annual and interim periods beginning in
2018. We early adopted the standard in the third quarter of 2017
on a retrospective basis. As a result, changes in restricted
cash reported in 2016 as cash flows from investing activities are no
longer reported as such.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
In
August 2016, the FASB issued guidance intended to reduce diversity in
practice in how certain transactions are classified in the statement of
cash flow, including the classification of (i) payments to extinguish
debt and (ii)
payments for the settlement of debt instruments with coupon interest
rates that are insignificant in relation to the effective interest rate
of the borrowing. We were required to adopt the guidance for our
annual and interim periods beginning in 2018. We early adopted the
standard in the third quarter of 2017 on a retrospective basis.
This change did not have an effect on the presentation of our cash
flows, as our presentation in previously reported periods had complied
with the new guidance.
In
March 2016, the FASB issued new guidance that changes the accounting
for certain aspects of share-based payments to employees. The new
guidance requires excess tax benefits and tax deficiencies to be
recorded in the income statement when the awards vest or are
settled. In addition, cash flows related to excess tax benefits
will no longer be separately classified as a financing activity apart
from other income tax cash flows. The guidance also allows us to
repurchase more of an employee’s shares for tax withholding purposes
without triggering liability accounting, clarifies that all cash
payments made on an employee’s behalf for withheld shares should be
presented as a financing activity on our cash flows statement, and
provides an accounting policy election to account for forfeitures as
they occur. We adopted the standard in the first quarter of 2017
and changed our accounting policy to recognize forfeitures as they
occur. This change did not have a material effect on our results
of operations as we previously did not apply an estimated forfeiture
rate to restricted stock awards to our officers and directors.
Additionally, most of our outstanding stock option awards vest on a
monthly basis over the vesting period (generally three or four
years). As these awards do not have performance conditions, the
expense is recognized each month on a straight-line basis and excludes
the effect of the estimated forfeiture rate as there was no risk of
expensing awards that would be subsequently forfeited prior to vesting.
NOTE 5. LOSS PER SHARE (EPS)
Basic
EPS is calculated under the two-class method under which all earnings
(distributed and undistributed) are allocated to each class of common
stock and participating securities based on their respective rights to
receive dividends. Our outstanding convertible preferred stocks
are considered participating securities as the holders may participate
in undistributed earnings with holders of common shares and are not
obligated to share in our net losses.
Diluted
EPS is computed by dividing the net income 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 effects of
outstanding options, warrants, nonvested shares and restricted stock
units that vest solely on the basis of a service condition are
calculated using the treasury stock method. The dilutive effects
of the outstanding preferred stock are calculated using the if-converted
method.
Below
are reconciliations of the numerators and denominators in the
continuing operations EPS computations for the three and nine months
ended September 30, 2017 and 2016.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
NUMERATOR (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted - loss from continuing operations
|
|
$
|
(4,199
|
)
|
|
$
|
(942
|
)
|
|
$
|
(8,387
|
)
|
|
$
|
(4,975
|
)
|
Dividend on preferred stock--beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
(778
|
)
|
|
|
(551
|
)
|
Basic and diluted - adjusted loss from continuing operations
|
|
$
|
(4,199
|
)
|
|
$
|
(942
|
)
|
|
$
|
(9,165
|
)
|
|
$
|
(5,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS - weighted average number of common shares outstanding
|
|
|
11,129,781
|
|
|
|
9,397,255
|
|
|
|
10,644,372
|
|
|
|
9,281,942
|
|
Effect of dilutive securities outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted EPS - weighted average number of shares outstanding
|
|
|
11,129,781
|
|
|
|
9,397,255
|
|
|
|
10,644,372
|
|
|
|
9,281,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
629,969
|
|
|
|
340,037
|
|
|
|
473,498
|
|
|
|
350,203
|
|
Warrants
|
|
|
22,824,888
|
|
|
|
10,842,006
|
|
|
|
21,306,727
|
|
|
|
10,132,045
|
|
Nonvested stock
|
|
|
1,301,725
|
|
|
|
1,114,747
|
|
|
|
1,236,241
|
|
|
|
1,038,019
|
|
Convertible preferred stock
|
|
|
2,128,180
|
|
|
|
2,000,000
|
|
|
|
3,020,739
|
|
|
|
1,611,722
|
|
Restricted stock unit awards
|
|
|
1,175,000
|
|
|
|
-
|
|
|
|
406,066
|
|
|
|
-
|
|
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
The
impact of potentially dilutive securities outstanding at September 30,
2017 and 2016, was not included in the calculation of the continuing
operations diluted EPS for the three and nine months ended September 30, 2017 and 2016 because to do so would be antidilutive. Those securities listed in the table above which were antidilutive for the periods presented, which remain outstanding, could potentially dilute EPS in the future.
NOTE 6. CONCENTRATIONS OF RISK
Our
trade accounts receivable subject us to significant concentrations of
credit risk. We perform ongoing credit evaluations on our
customers’ financial condition and generally do not require collateral.
Revenues
and accounts receivable from certain significant customers are stated
below as a percent of continuing operations total revenue for the nine months ended September 30, 2017 and 2016.
|
|
% of Total Revenue
Nine Months Ended
|
|
|
% of Total Accounts Receivable
Nine Months Ended
|
|
Customer
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Customer 1
|
|
|
17
|
%
|
|
|
12
|
%
|
|
|
31
|
%
|
|
|
28
|
%
|
Customer 2
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
*
|
|
|
|
*
|
|
Customer 3
|
|
|
*
|
|
|
|
12
|
%
|
|
|
*
|
|
|
|
*
|
|
Customer 4
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer 5
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
Others
|
|
|
68
|
%
|
|
|
61
|
%
|
|
|
69
|
%
|
|
|
61
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than 10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
by continuing operations from certain significant suppliers are stated
below as a percent of total purchases for the nine months ended September 30, 2017 and 2016.
|
|
% of Total Purchases
Nine Months Ended
|
|
Supplier
|
|
2017
|
|
|
2016
|
|
Supplier 1
|
|
|
*
|
|
|
|
13
|
%
|
Supplier 2
|
|
|
*
|
|
|
|
*
|
|
Supplier 3
|
|
|
*
|
|
|
|
*
|
|
Supplier 4
|
|
|
*
|
|
|
|
*
|
|
Supplier 5
|
|
|
*
|
|
|
|
*
|
|
Others
|
|
|
100
|
%
|
|
|
87
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
* Less than 10%
|
|
|
|
|
|
|
|
|
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7. DEBT
The following table summarizes current and long-term portions of debt (in thousands):
|
|
|
|
|
|
|
Senior debentures, net, maturing in February 2019, principal $6.6 million
|
|
$
|
-
|
|
|
$
|
-
|
|
Subordinated notes, net, maturing in May 2019, principal $5.9 million
|
|
|
-
|
|
|
|
6,310
|
|
Other
|
|
|
32
|
|
|
|
75
|
|
Senior revolving loan
|
|
|
-
|
|
|
|
1,725
|
|
Senior term loan, net
|
|
|
-
|
|
|
|
917
|
|
|
|
|
32
|
|
|
|
9,027
|
|
Current portion
|
|
|
19
|
|
|
|
3,063
|
|
Long-term portion
|
|
$
|
13
|
|
|
$
|
5,964
|
|
We
issued senior debentures in the principal amount of $6.6 million and
related warrants in a private placement, in February 2017. In
connection with the senior debenture private placement, in February
2017, we also entered into agreements that resulted in (i) a reduction
in the annual interest rate on the subordinated notes from 11.75% to 7%,
(ii) an extension of the maturity date of the subordinated notes to May
2019 from May 2018 and (iii) our first quarter 2017 payment of $0.2
million of note principal and $0.3 million of accrued note
interest. The transactions, and the accounting therefore, are described further in Note 8.
Until July 2017, when we repaid the senior debentures and the subordinated notes in full with the proceeds from the sale of HN in July 2017, we accreted interest on the debentures at an effective rate of 160.6% per year and on the subordinated notes at 15.0% per year. Upon extinguishment in July 2017, we recognized a loss on extinguishment of $6.6 million for the differences between (i) the $0.6 million carrying
amount of the senior debentures and the $6.6 million face value paid
and (ii) the $5.3 million carrying amount of the subordinated notes and
the $6.0 million face value paid.
In
February 2017, we used the net proceeds from the senior debenture
private placement discussed further in Note 8 to pay the senior
revolving loan and the senior term loan in full.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS (in thousands)
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Deficit
Attributable to
Non-controlling
|
|
|
Accumulated
Other Comp-
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Accumulated
|
|
|
Interest in
|
|
|
rehensive
|
|
|
Equity
|
|
|
|
Series F
|
|
|
Series G
|
|
|
Common
|
|
|
Stock
|
|
|
Stock
|
|
|
Deficit
|
|
|
Nutra SA
|
|
|
Loss
|
|
|
(Deficit)
|
|
Balance, December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
10,790,351
|
|
|
$
|
-
|
|
|
$
|
264,232
|
|
|
$
|
(259,819
|
)
|
|
$
|
(699
|
)
|
|
$
|
(4,346
|
)
|
|
$
|
(632
|
)
|
Issuance of common stock awards under equity incentive plans
|
|
|
-
|
|
|
|
-
|
|
|
|
642,839
|
|
|
|
-
|
|
|
|
817
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
817
|
|
Dividend on preferred stock - beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
778
|
|
|
|
(778
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Modification of senior debenture holder warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
582
|
|
Modification of subordinated note holder warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
Change in classification of preferred stock to equity from liability
|
|
|
3,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
1,545
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,545
|
|
Change in classification of warrants to equity from liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,851
|
|
Conversion of preferred stock into common stock
|
|
|
(2,501
|
)
|
|
|
(700
|
)
|
|
|
2,331,627
|
|
|
|
(807
|
)
|
|
|
807
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from sale of common stock, net of costs
|
|
|
-
|
|
|
|
-
|
|
|
|
2,654,732
|
|
|
|
-
|
|
|
|
2,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,730
|
|
Exercise of warrant
|
|
|
-
|
|
|
|
-
|
|
|
|
103,008
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
28,793
|
|
|
|
-
|
|
|
|
64
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64
|
|
Proceeds from sale of membership interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
650
|
|
|
|
-
|
|
|
|
650
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38
|
|
|
|
93
|
|
|
|
131
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(205
|
)
|
|
|
(1,359
|
)
|
|
|
-
|
|
|
|
(1,564
|
)
|
Balance, September 30, 2017
|
|
|
499
|
|
|
|
1,300
|
|
|
|
16,551,350
|
|
|
$
|
738
|
|
|
$
|
278,079
|
|
|
$
|
(260,802
|
)
|
|
$
|
(1,370
|
)
|
|
$
|
(4,253
|
)
|
|
$
|
12,392
|
|
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
A summary of warrant activity for the nine months ended September 30, 2017, follows.
|
|
Equity Warrants
|
|
|
Liability Warrants
|
|
|
|
Shares
Underlying
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Shares
Underlying
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Outstanding, December 31, 2016
|
|
|
6,364,110
|
|
|
$
|
5.77
|
|
|
|
2.4
|
|
|
|
4,474,868
|
|
|
$
|
1.82
|
|
|
|
3.3
|
|
Issued
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
|
|
11,783,163
|
|
|
|
0.96
|
|
|
|
5.0
|
|
Impact of repricing debenture purchaser warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to repricing
|
|
|
(875,000
|
)
|
|
|
5.49
|
|
|
|
2.1
|
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
After repricing
|
|
|
875,000
|
|
|
|
0.96
|
|
|
|
5.5
|
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
Impact of repricing subordinated note holder warants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to repricing
|
|
|
(289,669
|
)
|
|
|
5.25
|
|
|
|
3.3
|
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
After repricing
|
|
|
289,669
|
|
|
|
0.96
|
|
|
|
3.3
|
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
Impact of anti-dilution clauses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to impact
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
|
|
(1,489,868
|
)
|
|
|
1.50
|
|
|
|
0.8
|
|
After impact
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
|
|
2,327,919
|
|
|
|
0.96
|
|
|
|
0.8
|
|
Transfer from liability to equity
|
|
|
14,468,163
|
|
|
|
1.16
|
|
|
|
4.8
|
|
|
|
(14,468,163
|
)
|
|
|
1.16
|
|
|
|
4.8
|
|
Exercised
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
|
|
(781,252
|
)
|
|
|
0.96
|
|
|
|
-
|
|
Forfeited, expired or cancelled
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
|
|
-
|
|
|
NA
|
|
|
NA
|
|
Outstanding, September 30, 2017
|
|
|
20,832,273
|
|
|
$
|
2.32
|
|
|
|
3.6
|
|
|
|
1,846,667
|
|
|
$
|
1.06
|
|
|
|
0.7
|
|
Exercisable, September 30, 2017
|
|
|
20,832,273
|
|
|
$
|
2.32
|
|
|
|
3.6
|
|
|
|
1,846,667
|
|
|
$
|
1.06
|
|
|
|
0.7
|
|
Common Stock
In
February 2017, shareholders approved and we filed an amendment to our
articles of incorporation increasing our authorized shares of common
stock from 25,000,000 to 50,000,000.
On
February 14, 2017, we issued a former employee 108,696 shares of our
common stock, in lieu of paying $100,000 cash for a 2016 bonus.
In
June 2017, we issued 96,372 shares of common stock as transitional
director compensation to the chairman of our board, who was awarded
transitional director compensation in the amount of (i) $10,000 or 7,035
shares per month for July 2016 through December 2016 and (ii) $8,333 or
9,027 shares per month for January 2017 through March 2017. The
amount was payable in either cash or stock at the chairman’s
election. The chairman elected to receive shares of common stock.
In
June 2017, we issued 345,205 shares of common stock to our directors at
a grant date fair value of $0.90 per share. In August 2017, we
issued 35,336 shares of common stock to a director at a grant date fair
value of $1.09 per share. The restricted stock awards vest on the
earlier of June 2018 or one day before the date of the next annual
shareholder meeting.
In
the second quarter of 2017, we issued 220,439 shares of common stock
upon conversion of 315 shares of Series F preferred stock and 11 shares
of Series G preferred stock. We reclassified the $0.1 million
carrying value of the related preferred stock to common stock.
In
September 2017, we issued and sold 2,654,732 shares of common stock for
$1.08 per share. The net proceeds from the offering of $2.8
million, after deducting commissions and other cash offering expenses of
$0.1 million, are included in common stock. We used the
proceeds for general corporate purposes.
In
the third quarter of 2017, we issued 2,111,188 shares of common stock
upon conversion of 2,186 shares of Series F preferred stock and 689
shares of Series G preferred stock. We reclassified the $0.7
million carrying value of the related preferred stock to common stock.
In the fourth quarter of 2017, through the date of this filing,
we issued 332,667 shares of common stock upon conversion of 499 shares
of Series F preferred stock, with a $0.1 million carrying value.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
Share Sequencing
From June 2015 until March 2017, the minority interest holders in Nutra SA could elect to exchange units in Nutra SA for shares of our common stock,
the number of common stock and warrants issuable upon this election,
was variable and indeterminate. For accounting purposes, we were
not able to conclude that we had sufficient authorized and unissued
shares to settle all contracts subject to the GAAP derivative guidance
during the period the minority interest holders had this right, which
terminated March 31, 2017. Our adopted sequencing approach (Share
Sequencing) was based on earliest issuance date, therefore, we were
required to carry warrants issued between June 2015 and March 2017, at
fair value, as derivative warrant liabilities, and preferred stock issued between June 2015 and March 2017, in
temporary equity. We reclassified the affected warrants from
derivative liability to equity (deficit) at an amount equal to the
warrants’ fair value on March 31, 2017, and we reclassified the amounts
related to the 3,000 shares of Series F preferred stock and 2,000 shares
of Series G preferred stock from temporary equity to equity (deficit)
at the preferred stocks’ carrying amount on March 31, 2017.
Transactions with Preferred Stock Holders.
In
February 2017, we issued and sold 2,000 shares of Series G preferred
stock. The Series G preferred stock is non-voting and may be
converted into a total of 1,897,983 shares of our common stock at the
holders’ election at any time, subject to certain beneficial ownership
limitations, at a ratio of 1 preferred share for 948.9915 shares of
common stock. The Series G preferred stock is entitled to receive
dividends if we pay dividends on our common stock, in which case the
holders of Series G preferred stock are entitled to receive the amount
and form of dividends that they would have received if they held the
common stock that is issuable upon conversion of the Series G preferred
stock. If we are liquidated or dissolved, the holders of Series G
preferred stock are entitled to receive, before any amounts are paid in
respect of our common stock, an amount per share of Series G preferred
stock equal to $1,000, plus any accrued but unpaid dividends thereon.
In
February 2017, in conjunction with the sale of the Series G preferred
stock, we also sold warrants to purchase 1,423,488 shares of common
stock (exercise price of $0.96 per share, exercisable beginning in
February 2017 and expiring in February 2022). A subordinated note
holder exchanged subordinated notes with a principal and carrying value
of $0.1 million and cash for 180 shares of the Series G preferred stock
and related warrants, which was treated as an extinguishment of
debt. The net cash proceeds from the sale was $1.7 million, after
deducting allocated cash offering expenses of $0.1 million. On the
date of issuance, we allocated $1.0 million of the proceeds to
derivative warrant liability, to record the warrants at fair value,
recorded a $0.1 million loss on extinguishment and reduced debt $0.1
million related to the subordinated noteholders exchange, and recorded
$1.2 million as preferred stock. We recorded a $0.8 million
dividend on preferred stock for the preferred stock beneficial
conversion feature equal to the proceeds allocated to the preferred
stock issued to purchases who did not exchange debt, as the fair value
of the common stock underlying the convertible preferred stock at
issuance exceeded the amount recorded in preferred stock.
Transactions with Senior Debenture Holders
In
February 2017, we sold and issued in a private placement, for an
aggregate subscription amount of $6.0 million: (i) senior debentures in
the principal amount of $6.6 million and (ii) warrants to purchase an
aggregate of 6,875,000 shares of common stock (exercise price of $0.96
per share, exercisable beginning February 2017 and expiration February
2022). We received aggregate net proceeds of $5.5 million, after
deducting placement agent fees and allocated expenses of $0.5
million. Concurrently, we amended existing warrants, held by the
debenture purchasers, for the purchase of up to 875,000 shares to (i)
reduce the exercise prices from an average $5.49 per share to $0.96 per
share, providing the warrants are not exercisable until August 2017, and
(ii) change the expiration dates to August 2022, which increased the
average remaining term of the warrants from 2.1 years to 5.5
years. We recorded $4.6 million as an increase to derivative
warrant liabilities, to record the warrants at their fair value on the
date of issuance, the $0.5 million as an increase in common stock to
record the change in fair value of existing warrants and the remaining
$0.4 million to debt, debt issuance costs and debt discount. We
used the net proceeds from the offering to (i) pay off the senior
revolving loan and term loan debt totaling $3.8 million and (ii) pay
$0.2 million of principal and $0.3 million of interest due on
subordinated notes and (iii) for working capital and general corporate
purposes. We filed a registration statement on Form S-3, which
became effective in May 2017, to register the shares under the warrants
issued to the senior debenture purchasers.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
Transaction with Subordinated Note Holders
In
connection with the February 2017 senior debenture private placement,
we entered into agreements which resulted in (i) a reduction in the
annual interest rate on the subordinated notes from 11.75% to 7%
(ii) an extension of the maturity date of the subordinated notes
to May 2019 from May 2018 (iii) the payment of an aggregate amount equal
to $0.5 million on the subordinated notes; (iv) the issuance of
warrants to purchase up to 3,484,675 shares of our common stock
(exercise price of $0.96 per share, expiration February 2022); and
(v) the amendment of existing warrants held by the subordinated note
holders for the purchase 289,669 shares of common stock to reduce the
exercise price from $5.25 per share to $0.96 per share. We
accounted for the transaction as an extinguishment of debt and issuance
of new debt. In February 2017, we (i) recorded a loss on
extinguishment of debt of $1.5 million, (ii) adjusted subordinated notes
payable debt down by $0.9 million, to its fair value as of the
transaction date, (iii) increased derivative liability $2.3 million,
representing the fair value of the newly issued warrants, and (iv)
increased common stock equity by $0.1 million for the change in the fair
value of the existing warrants.
Full Ratchet Anti-Dilution
As
a result of the February 2017 transactions described above, the
exercise price of certain warrants that contain full ratchet
anti-dilution provisions was reduced from $1.50 per share to $0.96 per
share and the number of shares of common stock underlying these warrants
increased from 1,489,868 shares to 2,327,919 shares. In the third
quarter of 2017, the holder exercised one of the warrants, for the
purchase 781,252 shares, into common stock.
Equity Incentive Plan
In
June 2017, shareholders approved a 1,700,000 increase in the authorized
shares issuable under the 2014 Equity Incentive Plan (the 2014
Plan). The total shares authorized under the 2014 Plan is now
3,300,000 shares.
Option Issuances
In
the first quarter of 2017, we granted our chief executive officer an
option to purchase 100,000 shares of our common stock at an exercise
price of $0.76 per share. The option vested as to 25,000 shares in
August 2017, the remaining shares in monthly installments through
August 2020 and the option had a grant date fair value of $0.56 per
share.
In
the second quarter of 2017, we granted options to purchase an aggregate
355,500 shares of our common stock to executive officers and employees
at an average exercise price of $0.85 per share. The options vest
in four equal annual installments beginning in the second quarter of
2018 and had a grant date fair value of $0.62 per share.
In
the third quarter of 2017, we granted an option to purchase an
aggregate 20,000 shares of our common stock to an employee at an
exercise price of $1.09 per share. The option vests in four equal
annual installments beginning in the third quarter of 2018 and had a
grant date fair value of $0.77 per share.
Restricted Stock Unit Awards
In
late June 2017, we issued restricted stock units (RSUs), under the 2014
Plan, to our executive officers covering a total of 1,175,000 shares of
our common stock. The shares subject to the RSUs vest based upon a
vesting price equal to the volume weighted average trading price of our
common stock over sixty-five consecutive trading days. Each RSU’s
shares vest (i) 10% if the vesting price equals or exceeds $5.00 per
share, (ii) 30% if the vesting price equals or exceeds $10.00 per share
and (iv) 60% if the vesting price equals or exceeds $15.00 per
share. The shares had a grant date fair value of $0.2 million
which is being expensed ratably over a 3.5-year period beginning in July
2017.
Warrants
In
July 2017, the holder of a liability warrant to purchase 781,252
shares, at an exercise price of $0.96 per share, exercised the warrant
into common stock with a fair value on the date of the conversion of
$0.98 per share. We issued 103,008 shares of common stock to the
holder in a cashless transaction and recorded a $0.1 million loss on the
conversion equal to the difference between the fair value of the
liability and the fair value of the common stock on the date of the
conversion.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes information related to outstanding warrants as September 30, 2017 and December 31, 2016:
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Range of
Exercise Prices
|
|
Type of
Warrant
|
|
Shares
Under
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Shares Under
Warrants,
Exercisable
Cashless
|
|
|
Shares
Under
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.96
|
|
Liability (1)
|
|
|
1,546,667
|
|
|
$
|
0.96
|
|
|
|
0.4
|
|
|
|
1,546,667
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
$
|
0.96
|
|
Equity
|
|
|
12,947,832
|
|
|
|
0.96
|
|
|
|
4.6
|
|
|
|
3,774,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
1.50
|
|
Liability (2)
|
|
|
300,000
|
|
|
|
1.60
|
|
|
|
2.9
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
1.50 to $1.60
|
|
Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,789,868
|
|
|
|
1.52
|
|
|
|
1.3
|
|
$
|
2.00
|
|
Liability (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,660,000
|
|
|
|
2.00
|
|
|
|
4.6
|
|
$
|
2.00
|
|
Equity
|
|
|
2,660,000
|
|
|
|
2.00
|
|
|
|
4.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
$
|
5.25
|
|
Liability (3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
5.25
|
|
|
|
3.6
|
|
$
|
5.25 to $5.87
|
|
Equity
|
|
|
3,156,670
|
|
|
|
5.33
|
|
|
|
2.2
|
|
|
|
359,536
|
|
|
|
4,296,339
|
|
|
|
5.36
|
|
|
|
2.7
|
|
$
|
6.55 to $16.80
|
|
Equity
|
|
|
2,067,771
|
|
|
|
6.61
|
|
|
|
1.5
|
|
|
|
190,899
|
|
|
|
2,067,771
|
|
|
|
6.61
|
|
|
|
2.0
|
|
|
|
|
|
|
|
22,678,940
|
|
|
$
|
2.21
|
|
|
|
3.6
|
|
|
|
6,171,446
|
|
|
|
10,838,978
|
|
|
$
|
4.14
|
|
|
|
2.8
|
|
|
(1) |
Includes
one warrant which contains full ratchet anti-dilution provisions and is
classified as derivative warrant liabilities in our balance sheet.
Under the anti-dilution clause contained in this warrant, in the event
of equity issuances (i.e. issuances of our common stock, certain awards
of stock options to employees, and issuances of warrants and/or other
convertible instruments) at prices below the exercise price of this
warrant, we are required to lower the exercise price on this warrant and
increase the number of shares underlying this warrant.
|
|
(2) |
Includes a
warrant to purchase of 300,000 shares of our common stock which contains
a most favored nations anti-dilution provision. Under that
provision, in the event we issue warrants and/or other convertible
instruments with anti-dilution provisions with respect to the exercise
price of the warrant or the conversion price of the convertible
instrument, we will be required to provide the same anti-dilution
provision in this warrant and may be required to lower the exercise
price on this warrant and/or increase the number of shares underlying
this warrant.
|
|
(3) |
The
warrants were classified as derivative warrant liabilities in our
balance sheets due to the Share Sequencing as of December 31, 2016, and
were reclassified to equity (deficit) effective March 31, 2017.
|
|
(4) |
Under the
terms of certain outstanding warrants, the holders may elect to exercise
the warrants under a cashless exercise feature. The shares
listed, represent the shares holders could exercise cashless as of
September 30, 2017. If we register for resale the shares subject
to warrants, the holders of some of the warrants may no longer have the
right to elect a cashless exercise. Should we fail to maintain a
registration statement for the resale of shares under certain other
warrant, the shares under those warrants may be exercisable using a
cashless exercise feature.
|
NOTE 9. FAIR VALUE MEASUREMENTS
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 September 30, 2017, the fair value of
our debt (Level 3 measurement) approximated its carrying value, based on
current market rates for similar debt with similar maturities.
Fair
value is based on the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Certain assets and
liabilities are presented in the financial statements at fair
value. Assets and liabilities measured at fair value on a
recurring basis include derivative warrant and conversion
liabilities. Assets and liabilities measured at fair value on a
non-recurring basis may include property.
We
assess the inputs used to measure fair value using a three-tier
hierarchy based on the extent to which inputs used in measuring fair
value are observable in the market:
|
● |
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.
|
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
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 condensed
consolidated balance sheets (in thousands).
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Total liabilities at fair value, as of September 30, 2017 - derivative warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
769
|
|
|
$
|
769
|
|
Total liabilities at fair value, as of December 31, 2016 - derivative warrant liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,527
|
|
|
$
|
1,527
|
|
Warrants
accounted for as derivative liabilities are valued using the lattice
model each reporting period and the resultant change in fair value is
recorded in the consolidated 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.
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Risk-free interest rate
|
|
|
1.2%
|
|
|
|
0.6% -1.9%
|
|
|
|
(1.2% weighted average)
|
|
|
(1.6% weighted average)
|
|
Expected volatility
|
|
|
67%-72%
|
|
|
|
64%
|
|
|
|
(71% weighted average)
|
|
|
(64% weighted average)
|
|
The following tables summarize the changes in Level 3 items measured at fair value on a recurring basis (in thousands):
Total Level 3 Fair Value
|
|
Fair Value
as of
Beginning of
Period
|
|
|
Total
Realized and
Unrealized
Gains
(Losses)
|
|
|
Issuance of
New
Instruments
|
|
|
Reclassify to
(Deficit)
Equity
|
|
|
Conversion
to Common
Stock
|
|
|
Fair Value,
at End of
Period
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017, derivative warrant liabilities
|
|
$
|
(1,527
|
)
|
|
$
|
808
|
|
|
$
|
(7,917
|
)
|
|
$
|
7,851
|
|
|
$
|
16
|
|
|
$
|
(769
|
)
|
Nine Months Ended September 30, 2016, derivative warrant liabilities
|
|
$
|
(678
|
)
|
|
$
|
314
|
|
|
$
|
(2,474
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,838
|
)
|
|
(1) |
Included in change in fair value of derivative warrant liabilities in our consolidated statements of operations.
|
NOTE 10. 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 in the
USA and Brazil. These matters may relate to employment and labor
claims, patent and intellectual property claims, claims of alleged
non-compliance with contract provisions and claims related to alleged
violations of laws and regulations. When applicable, we record
accruals for contingencies when it is probable that a liability will be
incurred and the amount of loss can be reasonably estimated. While
the outcome of lawsuits and other proceedings against us cannot be
predicted with certainty, in the opinion of management, individually or
in the aggregate, no such lawsuits are expected to have a material
effect on our financial position or results of operations. Defense
costs are expensed as incurred and are included in professional fees.
Irgovel Litigation
Irgovel
is a defendant in several labor claims, mainly related to overtime,
illnesses allegedly contracted at work and work-related injuries and
salary related matters for periods prior to the acquisition of Irgovel
by RiceBran. The labor suits are mainly in the lower courts, and
for the majority of the cases a decision for the dismissal of the claims
has been granted. None of these labor claims is individually
significant. Management believes it’s unlikely there will be a
judgment against Irgovel, however, in the event the court does issue a
judgment against Irgovel, it could be approximately $1.1 million.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
Irgovel
accrues for losses on tax and other legal contingencies when it has a
present obligation, formalized or not, as a result of a past event, it
is probable that an outflow of resources will be required to settle the
obligation and the amount of the obligation can be reliably estimated.
Irgovel is a party to several other pending litigations and
administrative proceedings at the Federal, State and Municipal
level. The assessment of the likelihood of an unfavorable outcome
in these litigations and proceedings includes the analysis of the
evidence available, the hierarchy of the applicable laws, available
former court decisions, as well as the most recent court decisions and
their importance to the Brazilian legal system, as well as the opinions
of our external and in-house legal counsels. We record amounts
considered sufficient by our management to cover probable losses based
on these elements.
In
addition to the above items, Irgovel has a contingent liability of
approximately $0.3 million for amounts claimed to be owed in connection
with a loan agreement entered into in April 2007 between Irgovel and a
former shareholder of Irgovel. In April 2014, the former
shareholder filed an enforcement action against Irgovel to collect such
amounts. In June 2014, Irgovel filed a motion to annul the
enforcement proceedings. The enforcement proceedings were
dismissed in September 2015. In May 2016, the court found in favor
of the former shareholder to appeal the stay of execution that was
previously granted.
Irgovel - Events of Default
As
further described in Note 2, Irgovel is required to meet minimum annual
processing targets or to achieve EBITDA on a local currency basis of at
least R$4.0 million annually. If not achieved, this would result in an
event of default under our existing agreements with the Investors.
It is possible that an event of default may be triggered as of December
31, 2017, and a waiver of non-compliance may not be obtained from the
Investors.
Employment Contracts and Severance Payments
We
have employment contracts with certain officers and key management that
include provisions for potential severance payments in the event of
without-cause terminations or terminations under certain circumstances
after a change in control. In addition, vesting of outstanding
unvested equity grants held by these individuals would accelerate
following a change in control.
NOTE 11. INCOME TAXES
We
expect to have sufficient net operating losses to offset the taxable
gain related to the sale of HN and HN’s taxable operating income in
2017. Alternative minimum tax may be due on the sale of HN based
on the calculation of alternative minimum taxable income, which allows
taxable income to only be offset 90% by net operating loss
carryforwards; thereby potentially leaving residual taxable income of
10%, subject to a rate of 20%. We currently estimate $0.3 million
to be payable under the alternative minimum tax but we will continue to
evaluate the use of additional current year operating losses to offset
the taxable income. We have determined that a Section 382
ownership change occurred in September 2017 and our ability to
carryforward remaining net operating losses subsequent to the most
recent change in ownership will be severely limited. The Internal
Revenue Service rules in this area are complex and our estimates are
subject to change.
NOTE 12. RELATED PARTY TRANSACTIONS
Prior
to 2017, entities beneficially owned by Baruch Halpern, a director,
invested in our subordinated notes and related warrants prior to
2014. As of September 30, 2017, and throughout the first six
months of 2017, Mr. Halpern beneficially held approximately 43% of our
outstanding subordinated notes and related warrants. See Note 8
for information related to the modification of the subordinated notes,
repricing of related warrants and the issuance of warrants to
subordinated note holders in February 2017. The notes were paid in
full in July 2017 from the proceeds of the sale of HN. In the
three months ended September 30, 2017 and 2016, we expensed $0.1 million
of interest on the subordinated notes beneficially owned by Mr.
Halpern. In the nine months ended September 30, 2017 and 2016, we
expensed $0.2 million of interest on the subordinated notes.
As
discussed in Note 8, in September 2017, we issued and sold 2,654,732
shares of common stock to Continental Grain Company (CGG). Our
director, Ari Gendason is an employee and senior vice president
-corporate investments of CGG. As of the date of this filing, CGG owns approximate 16% of our outstanding common stock. We have agreed
that in connection with each annual or special meeting of our
shareholders at which members of our board of directors are to be
elected, or any written consent of our shareholders pursuant to which
members of the board of directors are to be elected, CGC shall have the
right to designate one nominee to our board of directors.
RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 13. FAILURE TO COMPLY WITH NASDAQ LISTING REQUIREMENTS
On
August 18, 2016, we received a notification letter from The Nasdaq
Stock Market LLC (Nasdaq) indicating that we have failed to comply with
the minimum stockholders’ equity requirement of Nasdaq Listing Rule
5550(b)(1). Nasdaq Listing Rule 5550(b)(1) requires that companies
listed on the Nasdaq Capital Market maintain a minimum of $2.5 million
in stockholders’ equity for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). As of September 30, 2016, we reported stockholders’ deficit of $36,000.
We submitted our plan to regain compliance in October 2016. On
November 15, 2016, Nasdaq granted us a 180-day extension to February
14, 2017 to evidence compliance with the minimum stockholders’ equity
requirement. On February 16, 2017, we received a determination
letter from Nasdaq stating that we had not regained compliance with the
minimum stockholders’ equity requirement. The letter also stated
our common stock would be delisted from The Nasdaq Capital Market at the
opening of business on February 27, 2017 unless we request a hearing
before the Nasdaq Hearing Panel.
We
requested and were granted a hearing before the panel to appeal the
determination letter on March 30, 2017. After that hearing, on
April 24, 2017, we received a decision letter from Nasdaq stating that
the panel granted the request we made at the hearing for continued
listing provided that, on or before May 15, 2017, we have announced that
our equity is over $2.5 million (it was $7.9 million as of March 31,
2017). As reported herein our equity is $12.4 million and exceeds
the minimum as of September 30, 2017.
On
March 10, 2017, we received a notification letter from Nasdaq
indicating that we have failed to comply with the minimum bid price
requirement of Nasdaq List Rule 5550(a)(2) because our common stock failed to meet the closing bid price of $1.00 or more for 30 consecutive trading days.
Nasdaq rules allowed for a compliance period of 180 calendar days, or
until September 6, 2017, in which to regain compliance. On
August 1, 2017, we received a notification letter from Nasdaq that we
regained compliance with Nasdaq List Rule 5550(a)(2) minimum bid price
requirement by meeting the closing bid price of $1.00 or more for 10
consecutive trading days on July 31, 2017.
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
See
Note 2 of our Notes to Unaudited Condensed Consolidated Financial
Statements for a discussion of divestitures and discontinued operations.
See
Note 3 of our Notes to Unaudited Condensed Consolidated Financial
Statements for a discussion of going concern considerations and
management’s plans.
Results of Operations
During the second quarter of 2017, we began to separately report the results of our wholly-owned subsidiary, Healthy Natural, Inc. (HN) and our investment in Nutra SA
as discontinued operations in our consolidated statements of operations
and present the related assets and liabilities as held for sale in the
consolidated balance sheets. These changes have been applied for all
periods presented. Unless otherwise noted, amounts and percentages for
all periods discussed below reflect the results of operations and
financial condition from our continuing operations. Refer to Note 2
to our consolidated financial statements for additional information on
discontinued operations.
|
|
Three Months Ended
|
|
|
Change
|
|
|
Nine Months Ended
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
%
|
|
|
2017
|
|
|
2016
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,445
|
|
|
$
|
3,249
|
|
|
|
6.0
|
|
|
$
|
10,206
|
|
|
$
|
9,748
|
|
|
|
4.7
|
|
Cost of goods sold
|
|
|
2,305
|
|
|
|
2,434
|
|
|
|
5.3
|
|
|
|
7,081
|
|
|
|
7,199
|
|
|
|
1.6
|
|
Gross profit
|
|
|
1,140
|
|
|
|
815
|
|
|
|
39.9
|
|
|
|
3,125
|
|
|
|
2,549
|
|
|
|
22.6
|
|
Gross profit %
|
|
|
33.1
|
%
|
|
|
25.1
|
%
|
|
|
|
|
|
|
30.6
|
%
|
|
|
26.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating selling, general and administrative expenses
|
|
|
2,495
|
|
|
|
3,140
|
|
|
|
20.5
|
|
|
|
7,428
|
|
|
|
9,428
|
|
|
|
21.2
|
|
Loss from operations
|
|
|
(1,355
|
)
|
|
|
(2,325
|
)
|
|
|
41.7
|
|
|
|
(4,303
|
)
|
|
|
(6,879
|
)
|
|
|
37.4
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(86
|
)
|
|
|
(352
|
)
|
|
|
|
|
|
|
(1,616
|
)
|
|
|
(1,484
|
)
|
|
|
|
|
Change in fair value of derivative warrant liabilities
|
|
|
(313
|
)
|
|
|
1,166
|
|
|
|
|
|
|
|
808
|
|
|
|
314
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(6,610
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(8,290
|
)
|
|
|
-
|
|
|
|
|
|
Loss on conversion of preferred stock
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
|
|
Gain on resolution of Irgovel purchase litigation
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
1,598
|
|
|
|
|
|
Other income net
|
|
|
129
|
|
|
|
132
|
|
|
|
|
|
|
|
66
|
|
|
|
132
|
|
|
|
|
|
Total other (expense) income
|
|
|
(6,965
|
)
|
|
|
946
|
|
|
|
|
|
|
|
(9,117
|
)
|
|
|
560
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(8,320
|
)
|
|
$
|
(1,379
|
)
|
|
|
|
|
|
$
|
(13,420
|
)
|
|
$
|
(6,319
|
)
|
|
|
|
|
THREE MONTHS ENDED SEPTEMBER 30, 2017 and 2016
Revenues
increased $0.2 million, or 6.0%, quarter over quarter. Animal
nutrition product revenues increased 13% over prior year levels driven
by the supply and cooperation agreement entered into with Kentucky
Equine Research (KER) at the end of December 2015. Food product
revenues remained relatively constant with an increase of approximately
1.0%, quarter over quarter. The increase in food product revenue was
offset primarily due to decreased buying from specialty ingredients
accounts.
Gross profit percentage increased eight percentage points for the third quarter of 2017 versus the prior year quarter. In
the third quarter of 2017, our production of raw bran processing volume
increased 6% quarter over quarter. Additionally, raw bran prices
decreased approximately 11% when comparing quarter over quarter, leading
to improved margin performance during the quarter.
Operating
selling, general and administrative expenses (SG&A) were $1.0
million for the third quarter of 2017, compared to $1.3 million for the
third quarter of 2016, a decrease of $0.4 million. The decrease is
related to our continued strategic effort to manage costs and
expenses. Due to the reduction of staff and outside sales
consultants, the SG&A salary, bonus, wages and benefit related
expenses decreased $0.2 million. Marketing and tradeshow related
expenses decreased $0.1 million and travel and entertainment expenses
decreased $0.1 million.
Corporate
SG&A expenses in the third quarter of 2017 were $1.5 million, a
decrease of $0.3 million over the prior year quarter that was primarily
due to expenses during the third quarter of 2016 as a result of the $0.7
million settlement with former chief executive officer, W. John Short.
On August 27, 2016, Mr. Short’s employment as our chief executive
officer was terminated. At September 30, 2016, we included the estimated
severance payments in the amount of $0.7 million in accrued salary,
wages and benefits in our condensed consolidated balance sheets.
Other
income (expense) was $7.0 million of other expense for the third
quarter of 2017 compared to $0.9 million of other income for the third
quarter of 2016. The $7.9 million increase in expense is primarily
related to the $6.6 million loss on extinguishment of debt related to
accreting the senior debentures and subordinated notes (see Note 7) to
face value when the notes were fully paid off in July 2017 from the HN
divestiture proceeds. The payoff of the notes also reduced
interest expense of $0.3 million during the third quarter compared to
the prior year quarter. Additionally, a $1.5 million increase in
other expense is related to the fair value of derivative warrant
liabilities in the third quarter compared to the prior year quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2017 and 2016
Revenues
increased $0.5 million, or 4.7%, in the nine months ended September 30,
2017 compared to the nine months ended September 30, 2016. Animal feed
product revenues increased 10%. Animal nutrition revenue growth was
driven by the supply and cooperation agreement entered into with
Kentucky Equine Research (KER) at the end of December 2015. Food
product revenues remained relatively constant period over period.
Gross profit percentage increased 4.5 percentage points to 30.6% in
the first nine months of 2017, from 26.1% in the first nine months of
2016. The increase in gross profit was primarily attributable to
the approximately 2.3% decrease in raw bran prices during the first nine
months of 2017 compared to the same period of the previous year.
Additionally, the improvement in gross profit was attributable to a
decrease in obsolete inventory during the first nine months of 2017
compared to the prior year same period.
Operating
expenses were $2.9 million for the first nine months of 2017, compared
to $3.9 million for the first nine months of 2016, a decrease of $1.0
million, or 26%. The decrease is related to our continued
strategic effort to manage costs and expenses. Due to the
reduction of staff and outside sales consultants, the SG&A salary,
bonus, wages and benefit related expenses decreased $0.7 million.
Additionally, travel expenses and marketing expenses decreased $0.4
million.
Corporate
SG&A expenses decreased $1.0 million, or 18%, in the first nine
months of 2017 compared to the prior year same period. This was
primarily related to the additional expenses during the second quarter
of 2016 incurred as a result of the proxy contest in connection with the
2016 Annual Shareholder Meeting. Additionally, the additional
expenses during the third quarter of 2016 incurred as a result of the
settlement related to the termination of the former chief executive
officer, as described above.
Other
expense increased $9.7 million in the first nine months of 2017
compared to the prior year period. The $9.7 million increase in
expense is primarily related to $6.6 million loss on extinguishment of
debt related to accreting the senior debentures and subordinated notes
(see Note 7) to face value when the notes were fully paid off in July
2017 from the HN divestiture proceeds and to $1.7 million loss on
extinguishment of debt related to the extinguishment and replacement of
subordinated notes in February 2017 (see Note 8). Additionally, a
$1.6 million increase in expense is associated with the gain on
resolution of Irgovel purchase litigation recognized in the prior year
period.
Liquidity, Going Concern and Capital Resources
See Note 3 of our Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of going concern considerations and management’s plans.
Cash
used in operating activities of continuing operations for the nine
months ended September 30, 2017 and 2016, is presented below (in
thousands).
|
|
2017
|
|
|
2016
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(8,387
|
)
|
|
$
|
(4,975
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
571
|
|
|
|
694
|
|
Stock and share-based compensation
|
|
|
904
|
|
|
|
841
|
|
Change in fair value of derivative warrant and conversion liabilities
|
|
|
(808
|
)
|
|
|
(314
|
)
|
Loss on extinguishment of debt
|
|
|
8,290
|
|
|
|
-
|
|
Gain on resolution of Irgovel purchase litigation
|
|
|
-
|
|
|
|
(1,598
|
)
|
Interest accreted
|
|
|
1,000
|
|
|
|
497
|
|
Deferred taxes
|
|
|
(5,033
|
)
|
|
|
(1,344
|
)
|
Other
|
|
|
55
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(290
|
)
|
|
|
(182
|
)
|
Inventories
|
|
|
213
|
|
|
|
576
|
|
Accounts payable and accrued expenses
|
|
|
(1,310
|
)
|
|
|
3
|
|
Other
|
|
|
465
|
|
|
|
53
|
|
Net cash used in operating activities of continuing operations
|
|
$
|
(4,330
|
)
|
|
$
|
(5,749
|
)
|
We
used $4.3 million of operating cash during the first nine months of
2017, compared to using $5.7 million of operating cash in the first nine
months of 2016. We funded the use of cash with available cash on
hand derived from the sale of the assets of HN for $16.7 million in cash, net of assumed liabilities (see Note 2 of our Notes to Unaudited Condensed Consolidated Financial Statements
for additional information). The net proceeds from the HN
divestiture were used in part to pay in full amounts of senior
debentures ($6.6 million) and to pay principal and accrued interest on
our subordinated notes ($6.0 million) (see Note 7).
Additionally, we funded the use of cash from the debt
and equity raise in February 2017 (February 2017 Transactions).
We received net proceeds of $7.2 million from the sale and issuance of
preferred stock, senior debentures and related warrants from the
February 2017 Transactions. The net proceeds were used in part to
pay in full amounts owing our previous senior lender ($3.8 million) and
to pay principal and accrued interest on our subordinated notes ($0.5
million). See Note 8 of our Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
As of September 30, 2017, our cash and cash equivalents balance is $8.2 million and our restricted cash balance is $0.8 million (see Note 2), compared to $0.3 million as of December 31, 2016.
Off-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 risk, 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 to us.
Critical Accounting Policies
Our
discussion and analysis of our financial condition and results of
operations are based upon unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of financial statements requires management to make
estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses and disclosures on the date of the
financial statements. On an ongoing basis, we evaluate the
estimates, including, but not limited to, those related to revenue
recognition. We use authoritative pronouncements, historical
experience and other assumptions as the basis for making
judgments. Actual results could differ from those estimates.
For
further information about other critical accounting policies, see the
discussion of critical accounting policies in our Annual Report on Form
10-K for the fiscal year ended December 31, 2016.
Recent Accounting Pronouncements
See Note 4 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion.
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk
|
Not applicable
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
to provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required financial
disclosures.
We
evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period
covered by this report.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision
and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as
of December 31, 2016 based on the guidelines established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO 2013). Our internal
control over financial reporting includes policies and procedures that
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
reporting purposes in accordance with U.S. generally accepted accounting
principles.
Changes in Internal Control over Financial Reporting
During
the most recently completed fiscal quarter, there have been no changes
in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. |
Legal Proceedings
|
See
Note 10 in the Notes to Unaudited Condensed Consolidated Financial
Statements for information regarding certain legal proceedings to which
we are a party.
We
are involved in or subject to, or may become involved in or subject to,
routine litigation, claims, disputes, proceedings and investigations in
the ordinary course of business. While the outcome of lawsuits
and other proceedings against us cannot be predicted with certainty, in
the opinion of management, individually or in the aggregate, no such
lawsuits are expected to have a material effect on our financial
position, results of operations or cash flows. We record accruals
for contingencies when it is probable that a liability will be incurred
and the amount of loss can be reasonably estimated.
In
addition to the above items, Irgovel has a contingent liability of
approximately $0.3 million for amounts claimed to be owed in connection
with a loan agreement entered into in April 2007 between Irgovel and a
former shareholder of Irgovel. In April 2014, the former
shareholder filed an enforcement action against Irgovel to collect such
amounts. In June 2014, Irgovel filed a motion to annul the
enforcement proceedings. The enforcement proceedings were
dismissed in September 2015. In May 2016, the court found in favor
of the former shareholder to appeal the stay of execution that was
previously granted.
In
addition to the other information set forth in this Quarterly Report
and the risk factor set forth below, you should carefully consider the
factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2016, which could
materially affect our business, financial condition, liquidity or future
results. The risks described in our Annual Report on Form 10-K
are not the only risks facing our company. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition, liquidity or future results.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
During
the quarter ended September 30, 2017, we issued the securities
described below without registration under the Securities Act. The
description below does not include issuances that were disclosed
previously on Current Reports on Form 8-K. Unless otherwise
indicated below, the securities were issued pursuant to the private
placement exemption provided by Section 4(a)(2) of the Securities Act of
1933, as amended. All issuances below were made without any
public solicitation, to a limited number of persons and were acquired
for investment purposes only.
During the quarter ended September 30, 2017, we issued 2,111,188 shares
of common stock upon the conversion of 2,186 shares of Series F
convertible preferred stock and 689 shares of Series G convertible
preferred stock. These issuances were exempt from registration
pursuant to Section 3(a)(9) of the Securities Act of 1933.
Item 3. |
Defaults upon Senior Securities
|
None
Item 4. |
Mine Safety Disclosures
|
None
Item 5. |
Other Information
|
None
The following exhibits are attached hereto and filed herewith:
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
Number
|
|
Filing/Effective
Date
|
|
Filed
Here-
with
|
|
|
Asset
Purchase Agreement dated July 14, 2017, among the Registrant, Healthy
Natural, Inc. and United Laboratories Manufacturing, LLC
|
|
8-K
|
|
001-36245
|
|
2.1
|
|
July 17, 2017
|
|
|
|
|
Form of Common Stock Purchase Agreement dated September 13, 2017
|
|
8-K
|
|
001-36245
|
|
10.1
|
|
September 13., 2017
|
|
|
|
|
Form of Registration Rights Agreement dated September 13, 2017
|
|
8-K
|
|
001-36245
|
|
10.2
|
|
September 13., 2017
|
|
|
|
|
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
X
|
|
|
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
Certification by CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
101.INS (1)
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
X
|
101.SCH (1)
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
|
X
|
101.CAL (1)
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
|
X
|
101.DEF (1)
|
|