RiceBran Technologies - Quarter Report: 2021 March (Form 10-Q)

 

 

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

         

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FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2021

 

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

 

For the transition period from __________ to __________

 

Commission File Number 001-36245

RiceBran Technologies

(Exact Name of Registrant as Specified in its Charter)

 

California (State or other jurisdiction of incorporation or organization)	87-0673375 (I.R.S. Employer Identification No.)
1330 Lake Robbins Drive, Suite 250 The Woodlands, TX  (Address of Principal Executive Offices)	77380 (Zip Code)

(281) 675-2421

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
			Emerging growth company ☐

 

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

 

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

 

As of April 28, 2021, there were 45,451,966 shares of common stock outstanding.

 

 

 

RiceBran Technologies

Index

Form 10-Q

 

PART I. FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	3
		Condensed Consolidated Balance Sheets as of March 31, 2021, and December 31, 2020	4
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
	Item 4.	Controls and Procedures	16
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	17
	Item 1A.	Risk Factors	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
	Item 3.	Defaults Upon Senior Securities	17
	Item 4.	Mine Safety Disclosures	17
	Item 5.	Other Information	17
	Item 6.	Exhibits	18
Signatures			19

 

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, 2020. 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.

 

 

		Three Months Ended March 31,
		2021				2020
Revenues		$	8,605			$	8,330
Cost of goods sold			7,933				8,735
Gross profit (loss)			672				(405	)
Selling, general and administrative expenses			1,741				2,550
Loss on disposition of property and equipment			7				-
Operating loss			(1,076	)			(2,955	)
Interest income			1				11
Interest expense			(112	)			(49	)
Gain on extinguishment of PPP loan			1,792				-
Other expense			(13	)			(45	)
Other income			-				5
Income (loss) before income taxes			592				(3,033	)
Income tax benefit			(1	)			-
Net income (loss)		$	591			$	(3,033	)
Earnings (loss) per common share:
Basic		$	0.01			$	(0.08	)
Diluted		$	0.01			$	(0.08	)
Weighted average number of shares outstanding:
Basic			45,635,185				39,963,155
Diluted			46,556,247				39,963,155

 

		March 31,				December 31,
		2021				2020
ASSETS
Current assets:
Cash and cash equivalents		$	5,418			$	5,263
Accounts receivable, net of allowance for doubtful accounts of $3 and $9			3,627				2,819
Inventories			1,494				1,878
Other current assets			1,722				1,380
Total current assets			12,261				11,340
Property and equipment, net			15,860				16,367
Operating lease right-of-use assets			2,372				2,452
Goodwill			3,915				3,915
Intangible assets			670				722
Total assets		$	35,078			$	34,796
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	1,076			$	955
Commodities payable			1,381				825
Accrued salary, wages and benefits			774				601
Accrued expenses			499				536
Operating lease liabilities, current portion			353				344
Due under insurance premium finance agreements			248				126
Due under factoring agreement			2,334				1,785
Finance lease liabilities, current portion			89				82
Long-term debt, current portion			596				572
Total current liabilities			7,350				5,826
Operating lease liabilities, less current portion			2,190				2,330
Finance lease liabilities, less current portion			123				113
Long-term debt, less current portion			1,154				3,107
Total liabilities			10,817				11,376
Commitments and contingencies
Shareholders' equity:
Preferred stock, 20,000,000 shares authorized: Series G, convertible, 3,000 shares authorized, stated value $225, 225 shares, issued and outstanding			112				112
Common stock, no par value, 150,000,000 shares authorized, 45,274,030 shares and 45,238,087 shares, issued and outstanding			322,468				322,218
Accumulated deficit			(298,319	)			(298,910	)
Total shareholders' equity			24,261				23,420
Total liabilities and shareholders' equity		$	35,078			$	34,796

 

		Three Months Ended March 31,
		2021				2020
Cash flow from operating activities:
Net income (loss)		$	591			$	(3,033	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation			612				579
Amortization			53				59
Stock and share-based compensation			253				312
Gain on extinguishment of PPP loan			(1,792	)			-
Other			(18	)			(79	)
Changes in operating assets and liabilities:
Accounts receivable			(808	)			(1,315	)
Inventories			384				(1,018	)
Accounts payable and accrued expenses			508				231
Commodities payable			556				1,108
Other			(340	)			(178	)
Net cash used in operating activities			(1	)			(3,334	)
Cash flows from investing activities:
Purchases of property and equipment			(325	)			(221	)
Net cash used in investing activities			(325	)			(221	)
Cash flows from financing activities:
Advances on factoring agreement			7,407				7,455
Payments on factoring agreement			(6,883	)			(6,995	)
Advances on insurance premium finance agreements			279				344
Payments on insurance premium finance agreements			(157	)			(144	)
Payments of debt and finance lease liabilities			(165	)			(32	)
Net cash provided by financing activities			481				628
Net change in cash and cash equivalents and restricted cash		$	155			$	(2,927	)
Cash and cash equivalents and restricted cash, beginning of period			5,263				8,444
Cash and cash equivalents and restricted cash, end of period			5,418				5,517
Net change in cash and cash equivalents and restricted cash		$	155			$	(2,927	)
Supplemental disclosures:
Cash paid for interest		$	85			$	26
Cash paid for income taxes		$	1			$	-

 

NOTE 1. BASIS OF PRESENTATION

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of RiceBran Technologies and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q; therefore, they do not include all of the information and notes required by GAAP for complete financial statements. The interim financial statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented of a normal and recurring nature necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

 

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020, which included all disclosures required by generally accepted accounting principles.

 

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

 

NOTE 2. BUSINESS

 

We are a specialty ingredient company focused on the development, production, and marketing of products derived from traditional and ancient small grains. We create and produce products utilizing proprietary processes to deliver improved nutrition, ease of use, and extended shelf-life, while addressing consumer demand for all natural, non-GMO and organic products. We believe our products are valuable alternatives to traditional food ingredients.

 

Notably, we apply our proprietary technologies to convert raw rice bran into stabilized rice bran (SRB), and high value-added derivative products including: RiBalance, a rice bran nutritional package derived from SRB; RiSolubles, a nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluble derivative of RiBalance and ProRyza, a rice bran protein-based product; as well as a variety of other valuable derivatives extracted from these core products.

 

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

 

We manufacture and distribute SRB from four locations: two facilities located within supplier-owned rice mills in Arbuckle and West Sacramento, California; one company-owned facility in Mermentau, Louisiana; and our own rice mill in Wynne, Arkansas.  At our Dillon, Montana facility, we produce SRB-based products and derivatives through proprietary processes.  Our rice mill in Wynne, Arkansas also supplies grades U.S. No. 1 and No. 2 premium long and medium white rice, and our grain processing facility in East Grand Forks, Minnesota, mills a variety of traditional, and ancient, small grains. Given the integrated nature of these facilities, we have one reporting unit and one operating segment, specialty ingredients.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following discusses the accounting standard(s) not yet adopted that will, or are expected to, result in a significant change in practice and/or have a significant financial impact on our financial position, results of operations or cash flows.

 

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which changes the accounting for credit losses for certain instruments, including trade receivables, from an incurred loss method to a current expected loss method. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance, and subsequent guidance related to the topic, is effective for our annual and interim periods beginning in 2023 and must be adopted on a modified retrospective approach through cumulative-effect adjustment to retained earnings as of January 1, 2023. Based on the nature of our current receivables and our credit loss history, we do not expect the adoption of the guidance to have a significant impact on our results of operations, financial position, or cash flows.

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 4. CASH AND CASH EQUIVALENTS

 

As of March 31, 2021, we have $2.4 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements. We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

 

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

 

NOTE 5. ACCOUNTS RECEIVABLE AND REVENUES

 

Amounts billed and due from our customers are classified as accounts receivables on our consolidated balance sheets and require payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due within 30 days or less, however certain customers have terms of up to 120 days. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Periodically, we require payment prior to the point in time we recognize revenue. Amounts received from customers prior to revenue recognition on a contract are contract liabilities, are classified as customer prepayments liability on our consolidated balance sheets and are typically applied to an invoice within 30 days of the prepayment.

 

Our accounts receivable potentially subject us to significant concentrations of credit risk. Revenues and accounts receivable from significant customers (customers with revenue or accounts receivable in excess of 10% of consolidated totals) are stated below as a percent of consolidated totals.

 

 

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

 

 

NOTE 6. INVENTORIES

 

The following table details the components of inventories (in thousands).

 

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 7. PROPERTY AND EQUIPMENT

 

The following table details the components of property and equipment (amounts in thousands).

 

 

Amounts payable for property and equipment included in accounts payable of less than $0.1 million at March 31, 2021, and $0.3 million at December 31, 2020.  Assets which had not yet been placed in service, included in property and equipment, totaled $0.7 million at March 31, 2021, and $0.6 million at December 31, 2020.

 

Involuntary Conversion

 

In 2020, we wrote down assets, consisting primarily of a building, machinery and equipment, in the amount of $0.9 million and incurred other costs of $0.1 million as a result of hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.  Operations at this facility have been shut down since September 2020, while this facility is being repaired.  We currently expect insurance recoveries will cover our asset loss to the extent it exceeds our $0.1 million deductible under our insurance policy.  In September 2020, we received an advance on the insurance settlement of $0.3 million and we accrued a receivable for the additional $0.7 million of expected insurance proceeds related to our asset loss.  The resulting $0.1 million net loss on involuntary conversion of assets was included in selling, general and administrative expenses in our consolidated financial statements in the third quarter of 2020.  A $0.7 million insurance proceeds receivable is included in other current assets on our consolidated balance sheet as of March 31, 2021 and December 31, 2020.  The final settlement with the insurer on this matter will likely differ from the total proceeds we have estimated as of March 31, 2021.  We accrue estimated insurance proceeds receivable when the proceeds are estimable and probable of collection.  Given the nature of recoveries of lost profits under business interruption insurance we have not accrued insurance proceeds receivable for any potential recoveries of lost profits.

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 8. LEASES

 

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

 

 

As of March 31, 2021, variable lease payments do not depend on a rate or index. As of March 31, 2021, property and equipment, net, includes $0.2 million of finance lease right-of-use-assets, with an original cost of $0.4 million. During 2021, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

 

As of March 31, 2021, we do not believe it is certain that we will exercise any renewal options. The remaining terms of our leases and the discount rates used in the calculation of the fair value of our leases as of March 31, 2021, follows.

 

 

Maturities of lease liabilities as of March 31, 2021, follows (in thousands).

 

 

NOTE 9. DEBT

 

We finance certain amounts owed for annual insurance premiums under financing agreements. As of March 31, 2021, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through November 2021, at interest rates of 4.0% per year. 

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

In October 2019, we entered into a factoring agreement which provides for a $7.0 million credit facility with a lender.  We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement.  The facility has an initial two-year term and automatically renews for successive annual periods, unless proper termination notice is given.  We paid a $0.2 million facility fee upon inception of the agreement which is amortizing to interest expense on a straight-line basis over two years.  We incur recurring fees under the agreement, including a funding fee of 0.5% above the prime rate, in no event to be less than 5.5%, on any advances and a service fee on average net funds borrowed. The lender has the right to demand repayment of the advances at any time. The lender has a security interest in personal property assets. 

 

Due under factoring agreement consists of the following (in thousands).

 

 

Additional information related to our factoring obligation follows.

 

 

Long-term debt consists of the following (in thousands).

 

 

In April 2020, we received $1.8 million on a Small Business Administration (SBA) Payroll Protection Program (PPP) loan as provided for in the Coronavirus Aid, Relief and Economic Security Act (CARES), enacted into U.S. law in March 2020.  Under certain conditions, the loan and accrued interest were forgivable, if the loan proceeds were used for maintaining workforce levels.  As of December 31 2020, payments on the PPP loan were deferred under the terms of the program.  Interest accrued at an annual rate of 1.0%.  The loan proceeds were used for maintaining workforce levels and the entire loan and related accrued interest was forgiven, in its entirety in January 2021.  As discussed further in Note 14, our compliance with the loan program is subject to potential audit by the SBA.

 

In July 2020, we entered into a mortgage agreement with a lender pursuant to a promissory note. In September 2020, we borrowed $1.0 million on the note and, in October 2020, we borrowed the remaining $1.0 million available on the note. Interest on this note accrues at an annual rate which is the greater of 11.0% above the lender’s prime rate and 14.3%.  In addition, we incurred a facility fee equal to 1.0% of the amount of each advance under the promissory note. The principal amount of the note must be repaid in monthly installments ending in June 2022. The note is secured by certain real property and personal property assets located in Wynne, Arkansas. As of March 31, 2021, the note bore interest at an annual rate of 14.3%.

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

Future principal maturities of long-term debt outstanding as of March 31, 2021, follow (in thousands).

 

 

NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

 

A summary of equity activity for the three months ended March 31, 2021 and 2020, follows (in thousands, except share amounts).

 

 

 

Share-based compensation by type of award for the three months ended March 31, 2021, follows (in thousands).

 

 

In the three months ended March 31, 2021, we issued to an employee 29,943 shares of common stock (average $0.94 grant date fair value per share) which were vested at issuance.

 

In the three months ended March 31, 2021, holders forfeited options for the purchase of up to 18,905 shares of common stock (average $11.54 per share exercise price, average 7.5-year remaining life).

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

Restricted stock unit (RSU) activity for the three months ended March 31, 2021, follows.

 

 

The shares of common stock subject to the RSUs granted in 2021 vest within two years of grant. The 2021 RSU grants were not subject to any market conditions and were valued using the market price of our common stock on the date of grant.

 

As of March 31, 2021, issuance of 836,803 shares of common stock subject to certain RSUs, 386,403 of which are vested, is deferred to the date the holder is no longer providing service to RiceBran Technologies.

 

In the three months ended March 31, 2021, warrants for the purchase of up to 25,000 shares of common stock ($5.25 per share exercise price) expired.

 

In April 2021, a warrant holder cash exercised a warrant for the purchase of 177,936 shares of common stock ($0.96 per share exercise price).

 

NOTE 11. INCOME TAXES

 

Our tax expense for the three months ended March 31, 2021 and 2020, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of March 31, 2020, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards. We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not more likely than not to occur.

 

NOTE 12. EARNINGS PER SHARE (EPS)

 

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

 

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

 

Below are reconciliations of the numerators and denominators in the EPS computations for the three months ended March 31, 2021 and 2020.

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

 

The effects of the following potentially dilutive securities, outstanding at March 31, 2021, were not included in the computation of diluted EPS for the three months ended March 31, 2021, because to do so would have been antidilutive: stock options for the purchase of 578,121 shares of our common stock and warrants for the purchase of 50,000 shares of our common stock.  No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three months ended March 31, 2020, because to do so would be antidilutive as a result of our loss from continuing operations.  Potentially dilutive securities outstanding during the three months ended March 31, 2020, included our outstanding convertible preferred stock, options, warrants, nonvested restricted stock units and nonvested stock.

 

NOTE 13. FAIR VALUE MEASUREMENTS

 

The fair value of cash and cash equivalents, restricted cash, accounts and other receivables and accounts payable approximates their carrying value due to shorter maturities. As of March 31, 2021, the fair values of our operating lease liabilities were approximately $0.3 million higher than their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements). As of March 31, 2021, the fair values of our debt and finance lease liabilities approximated their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements).

 

NOTE 14. COMMITMENTS AND CONTINGENCIES

 

PPP Audit Contingency

 

As discussed in Note 9, the outstanding principal and related accrued interest on our PPP loan were completely forgiven in January 2021. The SBA may audit any PPP loan at its discretion through January 2027, six years after the date the SBA forgave the loan.  The SBA may review any or all of the following when auditing a PPP loan: whether the borrower qualified for the PPP loan, whether the PPP loan amount was appropriately calculated and the proceeds used for allowable purposes, and whether the loan forgiveness amount was appropriately determined.  We could be deemed ineligible for the PPP loan received in 2020 upon audit by the SBA.  We believe the SBA's stated intention is to focus its reviews on borrowers with loans greater than $2 million, thereby mitigating our future risk of an audit.  The SBA continues to develop and issue new and updated guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program.

 

Employment Contracts and Severance Payments

 

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

 

 

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

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

 

Legal Matters

 

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

 

NOTE 15. RELATED PARTY TRANSACTIONS

 

Our director, Ari Gendason, is an employee and senior vice president and chief investment officer of Continental Grain Company (CGC). As of the date of this filing, CGC owns approximately 23.5% 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.