UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2014

☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from               to

Commission File Number 0-32565

RiceBran Technologies
(Exact name of registrant as specified in its Charter)
 
California
87-0673375
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
6720 N. Scottsdale Road, Suite # 390 Scottsdale, AZ
85253
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s Telephone Number, Including Area Code: (602) 522-3000

Securities registered under Section 12(b) of the Exchange Act:
NONE
 
Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, no par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☒
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒
 
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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
 
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended).  YES ☐ NO ☒
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☒    No  ☐
 
As of June 30, 2014, the aggregate market value of our common stock held by non-affiliates was $35,220,504.
 
As of March 31, 2015, there were 9,386,822 shares of common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Definitive Proxy Statement for its annual meeting of shareholders, which Definitive Proxy Statement will be filed with the Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2014, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


FORM 10-K

INDEX

PART I
Page
 
Item 1.
4
 
Item 1A.
13
 
Item 1B.
21
 
Item 2.
22
 
Item 3.
22
 
Item 4.
23
PART II
 
 
Item 5.
23
 
Item 6.
24
 
Item 7.
24
 
Item 7A.
32
 
Item 8.
32
 
Item 9.
65
 
Item 9A.
65
 
Item 9B.
65
PART III
 
 
Item 10.
66
 
Item 11.
66
 
Item 12.
66
 
Item 13.
66
 
Item 14.
66
PART IV
   
 
Item 15.
66
 
2

FORWARD-LOOKING STATEMENTS

This Annual Report includes forward-looking statements that involve substantial risks and uncertainties.  These forward-looking statements are not historical facts, but are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions.  Words such as “believes,” “anticipates,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  These forward-looking statements are not guarantees of future performance and concern matters that could subsequently differ materially from those described in the forward-looking statements.  Actual events or results may also differ materially from those discussed in this Annual Report.  These risks and uncertainties include those described in “Risk Factors” and elsewhere in this Annual Report.  Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Annual Report.
 
3

PART I

ITEM 1. BUSINESS

Overview

History and Our Corporate Structure

We are a human food ingredient, functional food ingredient,  packaged functional food and animal nutrition company focused on value-added processing and marketing of healthy, natural and nutrient dense products derived from raw rice, an underutilized by-product of the rice milling industry.

Using our bio-refining business model, we apply our proprietary and patented technologies and intellectual properties to convert raw rice bran into numerous high value products including stabilized rice bran (SRB), rice bran oil (RBO), defatted rice bran (DRB) and derivative products including: RiBalance, a complete rice bran nutritional package derived from further processing of SRB; RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluable derivative of RiBalance, and ProRyza, rice bran protein-based products, and a variety of other valuable derivatives extracted from these core products.

Our target markets are natural food, functional food, cosmetic and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

We have two reportable operating segments in 2014: (i) USA segment, which manufactures and distributes SRB (for human food ingredient and animal nutrition customers) and derivative  products (ii) Brazil segment, which extracts crude RBO and DRB from rice bran, which are then further processed into fully refined rice bran oil for sale internationally and in Brazil, compounded animal nutrition products for horses, cows, swine, sheep and poultry and a number of human food and animal nutrition products, derivatives and co-products. We incur corporate and other expenses not directly attributable to operating segments, which include costs related to our corporate staff, general and administrative expenses including public company expenses, intellectual property, professional fees, and other expenses.  No Corporate allocations, including interest, are made to the operating segments.

The combined operations of our USA and Brazil segments encompass our bio-refining approach to processing raw rice bran into various high quality, value-added constituents and finished products.  Over the past decade, we have developed and optimized our proprietary bio-refining processes to support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients for use in meats, baked goods, cereals, coatings, health foods, nutritional supplements, nutraceuticals and high-end animal nutrition and animal health products.

On January 2, 2014, we acquired H&N Distribution Inc., an Irving, Texas based company now operating as Healthy Natural, Inc. (HN) which has a formulating, blending and co-packaging facility in Irving, Texas, where it manufactures products for the human nutrition market.  See Note 4 to the consolidated financial statements for further discussion of the terms of the acquisition.

In February 2008, through our Delaware subsidiary Nutra S.A., we acquired 100% ownership of Industria Riograndens De Oleos Vegetais Ltda. ( Irgovel), our rice bran oil processing plant in Pelotas, Brazil.  During 2011, we sold a minority interest in Nutra SA, to AF Bran Holdings-NL LLC and AF Bran Holding LLC.

We incorporated under the laws of the State of California on March 18, 1998.  From July 2003 until October 2012, our corporate name was “NutraCea.”  Our common stock is currently trading on NASDAQ Capital Market under the symbol “RIBT.”  Certain of our warrants are currently trading on the same exchange under the symbol “RIBTW”.
 
USA

The USA segment produces SRB inside two rice bran stabilization facilities, located within supplier rice mills in Arbuckle and West Sacramento, California, and one owned facility in Mermentau, Louisiana.  At Dillon, Montana, the USA segment also produces our Stage II products including: RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of SRB; RiFiber, a fiber rich derivative of SRB; RiBalance, a complete rice bran nutritional package derived from further processing RiBalance, and ProRyza, protein-based products.  “Stage II” refers to the proprietary processes run at our Dillon, Montana facility and describes products produced at that facility using our patented processes.  The manufacturing facilities included in our USA segment have proprietary processing equipment and process patented technology for the stabilization and further processing of rice bran into finished products.  Beginning January 2, 2014, with the acquisition of HN, we also formulate and copack products at a leased facility in Irving Texas.  We lease a facility in West Sacramento, California that houses a laboratory, warehouse and production facilities.  We use an owned facility in Lake Charles, Louisiana as a temporary warehouse.  In 2014, approximately 83% of USA segment revenue is from sales of human nutrition products and the remainder was from sales of animal nutrition products.

Brazil Segment

The Brazil segment consists of the consolidated operations of Nutra SA, whose only operating subsidiary is Irgovel, located in Pelotas, Brazil.  Irgovel manufactures RBO and DRB products for both the human ingredient and animal nutrition markets in Brazil and internationally.  In refining RBO to an edible grade, several co-products are obtained.  One such product is distilled fatty acids, a valuable raw material for the detergent industry.  Irgovel also produces rice lecithin, which has application in human nutrition, animal nutrition and industrial applications.  DRB is compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market, sold as a raw material for further processing into human food ingredients or sold in bulk into the animal nutrition markets in Brazil and neighboring countries.  In 2014, approximately 39% of Brazil segment product revenue was from sales of RBO products and the remainder was from sales of DRB products.  Irgovel, however, was shut down for a portion of 2014 to complete the final stages of a capital expansion project, which caused a temporary change in sales mix.  We expect RBO sales to return to historical levels, approximately 45% of product revenues, in the near future.

Our Irgovel subsidiary is comprised of several facilities on approximately 19 acres in Pelotas, Brazil.  These facilities include a plant for extraction of RBO from raw rice bran, RBO refining processes, compounded animal nutrition manufacturing, consumer RBO bottling, distilled fatty acid manufacture, lecithin manufacture, and support systems for the plant, including steam generation, maintenance, administrative offices and a quality assurance laboratory.

Ownership Interest in Nutra SA

In December 2010, we entered into a membership interest purchase agreement with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (collectively, the Investors) and sold a minority interest in Nutra SA to the Investors in January 2011.  The Investors initially purchased a 35.6% interest in Nutra SA.  The Investors ownership percentage in Nutra SA averaged 40.0% in 2014 and 49.0% in 2013 and was 34.7% at December 31, 2014.  Under agreements with the Investors, we are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the MIPA.

The Investors have the right to begin a process to force the sale of all Nutra SA assets on or after January 1, 2016.  The right terminates upon the occurrence of certain events (a $50.0 million Nutra SA initial public offering or a change of control, as defined).  We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale.

Under the limited liability company agreement for Nutra SA, as amended (LLC agreement), any units of membership interest held by the Investors beginning January 1, 2014, accrue a yield at 4% (the Yield).  Commencing with the first quarter of 2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors, to the extent there is distributable cash, as defined in the LLC agreement.

Following the payment of the Yield, Nutra SA must distribute all distributable cash (as defined in the LLC Agreement) to the members on March 31 of each year as follows: (i) first, to the Investors in an amount equal to 2.3 times the Investors’ capital contributions, less the aggregate amount of distributions paid to the Investors, (ii) second, to us in an amount equal to two times the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iii) third, to us and the Investors in proportion to our respective membership interests.
 
Under the LLC agreement, the business of Nutra SA is to be conducted by the manager, currently our CEO, subject to the oversight of the management committee.  The management committee is comprised of three of our representatives and two Investor representatives.  Upon an event of default or a qualifying event, we will no longer control the management committee and the management committee will include three Investor representatives and two of our representatives.  In addition, following an event of default or a qualifying event, a majority of the members of the management committee may replace the manager of Nutra SA.

Background

Consistent with our mission to convert feed to food, our greatest opportunities are in the functional food, nutraceutical and human food ingredient markets.

Nutraceutical and Functional Foods (NFF)

Based on industry sources, the U.S. nutraceutical and functional foods market is projected to reach $75.3 billion in 2017 and grow at a compounded annual growth rate of nearly 6% between 2013 and 2017.  Premium ingredient manufacturers are in high demand and we are strategically positioned to take advantage of this growing and sustainable market opportunity as discussed below in “Our Growth Strategy”.

Our ingredient products are primarily sold to consumer nutrition and healthcare companies, nutritional supplement retailers and direct sales companies.  In August 2013, we entered into a multi-year agreement to sell certain of our Stage II products to a rapidly growing direct marketing company.  Pursuant to that agreement, that company is obligated to purchase a minimum of $7.7 million in products during the term of the agreement which expires in December 2016.  We will seek additional long-term supply agreements with similar companies in the future.  As part of this strategy, we have been working with co-packaging and fulfillment companies to expand our presence in these markets.

Human Food Ingredients

Our SRB, DRB, RBO and derivatives are nutritional, economical and beneficial food products that contain a unique combination of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants that enhance the nutritional value of popular consumer products.  Foods that are ideally suited for the addition of our SRB and DRB to their products include processed meats, cereals, baked goods, breading and batters.  The inclusion of DRB in breading and batters can result in a reduction in oil uptake, higher moisture retention, improved nutritional profiles, and reduced costs.

In 2008, we received USDA/FSIS approval to market rice bran as an ingredient to be used as a filler in comminuted meat products, such as meat and poultry sausages that contain binders, nugget-shaped patties, meatballs, meatloaf, and meat and poultry patties.  Our products replace functional ingredients like soy protein isolate, soy protein concentrate, modified food starch, pea protein and mustard flour at a significantly reduced cost.  With strong application benefits such as reduced cost per unit, increased product yield and reduced purge, our SRB has a significant market opportunity in the comminuted meat market both inside and outside the U.S.

Animal Nutrition

Our SRB and DRB are marketed as feed ingredients in the U.S. and international animal nutrition markets.  We will continue to pursue high margin sales opportunities in those markets.  Our SRB and DRB are used as equine feed ingredients and have been shown to provide health benefits.  Show and performance horses represent the premium end of the equine market and are a key target for our animal nutrition products.  In our Brazil segment, we also blend DRB with other ingredients to produce a variety of feed formulations targeted to animal species such as horses, beef cattle, dairy cows, pigs, sheep and poultry.

About Rice Bran

Rice is the staple food for over half of the world’s population and is the staple food source for several of the world’s most populous countries.  Asia accounts for roughly 90% of global rice production and China is the world’s number one rice producer.  Globally, Brazil and the United States rank 9th and 10th, respectively, in production of rice, with approximately 11 million metric tons produced in each country annually.

When harvested from the field, individual rice kernels are stored in common receiving locations such as farm silos for future delivery to grain dryers or area rice mills.  At this stage, large quantities of individual rice kernels are collectively called “paddy rice,” or “rough” rice.  In this form, the rice kernel is fully enveloped by the rice hull, which serves as a protective cover, shielding the inner rice kernel from damage.
 
After storage and drying, if necessary, paddy rice is cleaned of foreign material (scalping, de-stoning and aspiration) just before it enters the first stage of milling, or paddy husking.  In the paddy husker, the hull is removed from rough rice by differential speed rubber rollers.  Loosened hulls are carried off by aspiration.  After husking, a paddy separator uses a reciprocating motion to separate normal brown rice kernels (caryopsis) from unhusked kernels which are returned to the paddy husker.

In the second stage of milling, the outer brown layers of bran are removed from the inner white starch endosperm by an abrasive or frictional milling process which produces a milled, white rice kernel.  After milling, white rice is typically sorted by size to remove broken pieces of rice kernels from whole kernels, as well as color sorting to remove discolored kernels.  Additional stages may be required (per customer specifications) to polish the white rice to a smooth surface.

Raw rice bran collected from the milling process is composed of rice germ and several sub-layers (pericarp, testa, nucellus and aleurone) surrounding the white starchy endosperm.  Commercial rice bran makes up approximately 10% of rough rice by weight.  Rice germ, an especially nutrient rich material, makes up approximately 10% of commercial rice bran by weight.

As brown rice is milled into white rice, the oils present in raw rice bran come into contact with native lipase enzymes that are naturally present in the rice kernel.  These lipase enzymes initiate a rapid enzymatic hydrolysis of the oil, converting oils (triglycerides) into monoglycerides, diglycerides and free fatty acids (FFA).  As the FFA content builds in raw rice bran, the bran becomes unpalatable and off flavors (rancidity) develop.  If left unchecked, enzymatic degradation at normal room temperatures can increase the FFA levels to 5-8% within 24 hours and can continue at a rate of approximately 4-5% per day thereafter.  Enzymatic degradation is the most serious form of degradation of raw rice bran. Rice bran stabilization is the process of carefully deactivating native enzymes to prevent the increase of FFA otherwise caused by lipase enzyme activity. Proper stabilization is critical in the preservation of the nutritional value of the bran, an important nutrient source that is largely used as animal feed or otherwise wasted.

Historically there have been a number of attempts to develop rice bran stabilization techniques, including the use of chemicals, microwave heating, or variations of existing extrusion technology.  Many of these approaches have had limited success in part because they have produced rice bran with limited shelf life or with significant degradation of nutrients.

Our Technologies

Our Proprietary Rice Bran Stabilization Technology

Our stabilization process uses proprietary innovations to create a combination of temperature, pressure and other conditions necessary to thoroughly deactivate enzymes without significantly damaging the structure or nutrient content of raw rice bran.  This means that higher value compounds in bran, such as oils, proteins and phytonutrients are left undamaged and are available for utilization.  Our process does not use chemicals to stabilize raw rice bran.

Our stabilizers are designed to be installed adjacent to, on the premises of or in near proximity to any conventional rice mill so that freshly milled raw rice bran can be quickly delivered to our proprietary stabilizers.  Process logic controllers maintain exact process conditions within the prescribed pressure/temperature regime.  In case of power failure or interruption of the flow of fresh bran into the system, the electronic control system is designed to purge the equipment of materials in process and resume production only after proper operating conditions are re-established.

SRB leaving our system is then discharged onto cooling units specifically designed to control air pressure and humidity.  Cooled SRB can be loaded into bulk hopper trucks for large volume customers or sent by pneumatic conveyor to a bagging unit for packaging into 50 pound or 2,000 pound sacks.

Each stabilization module can process approximately 2,000 pounds of bran per hour and has a capacity of over 7,200 tons per year.  Stabilization production capacity can be doubled, tripled or further multiplied by installing additional units sharing a common conveyor and stage system, which we believe can handle the output of the world’s largest rice mills.  We have also developed and tested a smaller production unit, with a maximum production capacity of 840 tons per year, for installation in countries or locations where rice mills are substantially smaller than those in the United States.

Additional patented and proprietary processes involve enzyme treatment of SRB or DRB to produce fractions enriched in one or more macronutrients, including proteins, fibers, lipids and micronutrients such as vitamins, minerals and phytosterols, among others.  In these processes SRB or DRB, in an aqueous slurry, is treated with one or more enzymes, centrifugally separated and the fractions dried on drum driers.
 
Our Bio-Refining Process

Rice bran is hypoallergenic and a valuable source of protein with a balanced amino acid profile for human nutrition and is rich in healthy oil, vitamins, antioxidants, dietary fiber and other nutrients.  The approximate composition and caloric content of our SRB is as follows:

Fat (oil)
   
18-23
%
Protein
   
12-16
%
Total Dietary Fiber
   
20-30
%
Moisture
   
4-8
%
Ash
   
6-14
%
Calories
 
3.2 kcal/gram

Rice bran contains approximately 18-23% oil, which has a favorable fatty acid composition and excellent heat stability.  Rice bran oil contains essential fatty acids and a broad range of nutraceutical compounds that have been demonstrated to have therapeutic properties.

In the bio-refining process, raw rice bran is obtained from a number of rice mills and transported to a facility within which it is first stabilized via extrusion and then solvent extracted to produce crude RBO and DRB.  Crude RBO is subsequently processed in a number of steps designed to sequentially capture constituents of value and to remove and discard impurities.  The final outcome of these steps is a highly refined, edible RBO that has superior flavor and functional properties.  In addition, the various co-products of crude RBO processing, distilled fatty acids for example, are refined and sold as products in their own right.  DRB is finely ground and packaged for use as a versatile food ingredient in many applications.  DRB may also be compounded with other ingredients such as a vegetable proteins, carbohydrates, vitamin premixes and minerals to produce an array of nutritionally targeted animal feeds for various species.  The DRB can also be further processed to extract and concentrate protein and dietary fiber.  Our bio-refining process and related technologies are being continuously improved and optimized as we examine the technical and commercial feasibility of producing additional products derived from both RBO and DRB.

DRB contains many of the same nutritional and functional benefits as SRB, except that the oil has been removed.  This is important for several ingredient applications where SRB’s oil content could present food formulation challenges.  By removing oil from SRB, nutritionists have greater options to formulate DRB into breakfast bars, low-calorie foods, low-fat baking applications and batter and breading for frying applications.  Additionally, DRB is ideally suited for downstream enzymatic processing, transforming DRB into an ideal feedstock for protein and fiber concentrates.

RBO as extracted from stabilized rice bran can be utilized in a variety of edible and industrial oil applications.  With proper processing, RBO becomes high quality cooking oil possessing beneficial high temperature frying characteristics.  RBO has a unique fatty acid content that imparts improved oxidative stability as compared to other vegetable oils such as soy or cottonseed giving it advantages when used in food applications.  The RBO extraction process utilized at our Brazilian facility uses a conventional solvent extraction process to separate oil from raw bran, resulting in crude RBO available for sale to industrial markets or other processors.  Additional refining processes done in Brazil can involve degumming, neutralization, bleaching, de-waxing and deodorizing.  A bio-refining process approach results in numerous marketable co-products in addition to the actual end product.

Our Growth Strategy

With the proceeds from our recent financing transactions, we are positioned to capitalize on specific market conditions that we believe will increase market acceptance of our products and lead to increased growth and profitability.  These market conditions are:

1. Increasing global demand for vegetable oil – Our Brazil segment currently sells all of the rice bran oil it can produce in our oil extraction and refining plant in Pelotas, Brazil.  Following the capital expansion project at this plant, raw rice bran processing capacity increased approximately 50% in late 2014.

2. Increasing demand for new protein sources – We have co-developed proprietary technologies with DSM Innovation Center, a subsidiary of Royal DSM N.V., that enables the extraction of protein from DRB and SRB feed-stocks that we produce in both of our Brazil and USA segments.  We recently launched new protein products from our U.S. operations based on these technologies and plan to produce protein from DRB in our Brazil segment in the future.  In addition, we have entered into a series of agreements with various affiliates of Wilmar International Limited (collectively, Wilmar) to develop and commercialize rice bran products, including protein, for the China market.  Wilmar currently operates 12 large rice mills in China and is a leading producer of raw rice bran that is available for further processing into higher value products such as protein and fiber.
 
3. Demand for “clean” labels on food products – The market for healthy and nutritious foods is rapidly expanding in the US, Europe and other global markets with increasing demand for healthy, natural and minimally processed ingredients that are hypoallergenic, non-genetically modified, and produced in a sustainable fashion.  The regulatory need to add front-of-label warnings on food items is driving food companies to replace standard food ingredients like soy and wheat with “cleaner” ingredients such as rice bran which is non-allergenic, non-genetically modified, natural and minimally processed.  Incorporation of our food ingredients by major global food companies into meats, baked goods and cereals has steadily increased in the past year helping drive sales.  We expect this growth to continue as more food companies adopt rice bran as a standard food ingredient.  This trend is not limited to human foods as we are finding a similar transition to “clean” ingredients among high-end animal nutrition companies.

4. The value of proprietary, evidence-based functional ingredients for nutraceuticals and functional foods – With increasing medical costs associated with doctor visits and medications, consumers are becoming more proactive in adopting and maintaining healthier lifestyles through exercise, balanced nutrition and increased consumption of functional foods and nutraceuticals.  Associated with this trend is higher demand by marketers of nutraceuticals and functional foods for novel functional ingredients and particularly for proprietary and patented ingredients that provide barriers to competition in the marketplace, therefore commanding higher premiums.  We currently develop and commercialize proprietary rice bran ingredients and derivatives from our Stage II facility in the USA segment.

Expand Our Nutraceutical and Functional Foods (NFF) Business

Based on industry sources, the U.S. nutraceutical and functional foods market is projected to reach $75.3 billion in 2017 and grow at compound annual growth rate of nearly 6% between 2013 and 2017.  We have invested significant resources on research and development of rice bran derivatives with health-related applications.  Functionalities for a subset of these products were validated through scientific studies and human clinical studies.  Our portfolio of functional ingredients includes rice bran extracts that demonstrate beneficial properties in areas of cardiovascular health, weight management, glucose balance, inflammatory response and gastrointestinal health.  Premium ingredient manufacturers are in high demand and we are strategically positioned to take advantage of this growing and sustainable market opportunity.  We believe our proprietary technology and patents represent valuable assets for achieving strategic leverage in this industry segment particularly in the nutraceuticals, functional foods and functional beverages sectors.  We intend to expand our NFF business by adopting the following strategy:

Direct marketing to formulators and co-packers We believe that marketing our active ingredients directly to formulators and co-packers who manufacture turnkey finished products for direct to consumer marketing companies (i.e. multi-level marketing (MLM), web, radio, retail) and to active ingredient distributors will reduce new product development cycles and drive sales of our functional ingredients.  Co-packers and distributors of healthy and natural products have established credibility with multiple marketing companies who rely on these businesses to develop and manufacture new turnkey products.  In our experience, working with formulators and co-packers to sell finished products to marketing and distribution companies can shorten the product development cycle and increases sales quickly.

We believe that focusing our marketing efforts on distributors, formulators and co-packaging companies will increase sales of our Stage II products in both the short- and long-term as new functional ingredients are added to our portfolio of products.

Acquisition of formulating and packaging company that serves the NFF . In January 2014, we acquired HN.  By incorporating HN’s formulating and packaging capabilities into our business model, we expect to drive sales of our Stage II products into multiple NFF channels allowing us to capture not only single ingredient sales but also sales of blended finished products consisting predominantly of our ingredients blended with other products and sold as a finished product on a business to business basis.

Increase production capacity of our Stage II products .  During 2014, we approximately doubled our capacity to produce certain Stage II products at our Dillon, Montana facility, as compared to our 2013 capacity in response to projected increased demand for these products.  We completed the expansion project near the end of 2014.

Develop novel proprietary functional ingredients As part of our long-term strategy to grow the NFF business, we will continue to develop functional ingredients and packaged, compounded finished products from rice bran and to validate their functionality through evidence-based scientific studies and human clinical trials.

Increase Global Distribution Network

Our growth strategy includes increasing sales of our products in overseas markets.   We recently added distributors in Canada and Mexico and plan to strengthen our network in other global markets.
 
Complete Expansion of our Rice Bran Bio-Refinery in Brazil

We completed a major expansion at our Irgovel facility in the fourth quarter of 2014.  This expansion should increase RRB processing by approximately 50% from the current capacity of 6,000 metric tons per month to approximately 9,000 metric tons per month, which would result in higher revenues and profitability.

Co-Research and Development and Investment in New Wilmar Businesses

We continue to collaborate with Wilmar to develop and market rice bran derived products aimed at the Chinese market.  Under our agreements with Wilmar, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar.  If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation.  The exercise price for this option will equal 25% of the capital investment made in the entity, plus interest, as defined in the agreement.  We believe this strategic partnership represents a future opportunity for us to participate in the Asia food market and to increase the overall value of our business.

Continue to Generate Evidence-Based Functionality of Our Proprietary Ingredients

A 57-subject clinical trial conducted by Advanced Medical Research, with our funding, suggested that consumption of our RiSolubles nutritional supplements may lower blood glucose levels of type 1 and type 2 diabetes mellitus patients and may be beneficial in reducing high blood cholesterol and high blood lipid levels.  If warranted, we may develop products which address the use of SRB products as medical foods for, and to potentially make health benefit claims relating to, the effects of dietary rice bran on overall health and well-being and as it may relate to maintaining balanced sugar and lipid levels.

We have maintained relationships with several medical institutions and practicing physicians who may continue to conduct clinical trials and beta work for our products.  Some of these previous clinical trials are reviewed in an article entitled “Effects of Stabilized Rice Bran, its Soluble and Fiber Fractions on Blood Glucose Levels and Serum Lipid Parameters in Humans with Diabetes Mellitus Types I and II” published in the Journal of Nutritional Biochemistry (March 2002, 175-187).  The trial produced positive results by showing that the levels of blood lipids and glycosylated hemoglobin were reduced.  Subsequently, three domestic and six international patents were issued to us on the strength of this clinical trial.

In December 2007, we formed Rice Science, LLC (Rice Science), a Delaware limited liability company, with Herbal Science Singapore Pte. Ltd. (Herbal Science) to develop nutraceutical extracts and pharmaceutical chemistries from our SRB.  Herbal Science utilized sophisticated methodologies in the identification and isolation of specific biologically active compounds that have been tested for effectiveness against specific disease conditions.  In March 2011, our partnership with Herbal Science ended with us acquiring the membership interest formerly owned by Herbal Science, leaving Rice Science as our wholly owned subsidiary.  We are hopeful that the research performed by Herbal Science will result in biologically active SRB extracts for use in the nutraceutical and functional food industry.

In 2008, Rice Science conducted research regarding the development of extracts from SRB that would be effective in addressing inflammation and pain. A number of SRB extracts have been tested with two identified as having significant in vitro activities. A blend of these two extracts was created to produce a third extract that exhibits a high level of in vitro inhibition of Cox 1, Cox 2 and Lox 5 enzymes (Journal of Medicinal Food (2009) 12, 615-623).  This extract was used in a pharmacokinetic study to determine uptake kinetics of key bioactives into human serum.  Results indicated that the bioactive compounds were rapidly assimilated.  The next step would be to conduct a human clinical trial if funds were available.  A number of active compounds were identified and modeled.

Late in 2007, the Cancer Biomarkers Group in the Department of Cancer Studies and Molecular Medicine, University of Leicester in Leicester, UK published a research paper evaluating the effect of our SRB in ApcMin mice (British Journal of Cancer (2007) 96, 248-254).  The mice were genetically modified to serve as models for mammary, prostate and intestinal carcinogenesis.  They reported that consumption of SRB (30% in the diet) reduced the numbers of intestinal adenomas in these mice by 51% compared to the same mice on a control diet.
 
Intellectual Property

From 2011 to March 2013, we engaged in a joint research project with DSM Innovation Center, a subsidiary of Royal DSM N.V., to develop methods for extracting and concentrating high quality vegetable protein from rice bran.  Combined spending on research and development related to that project totaled $3.0 million.  In March 2013, we announced the development of an improved fiber protein product and a separate water soluble rice bran protein product which have been commercialized under the ProRyza mark.  We will continue to support internal as well as external R&D efforts that improve on existing technologies or lead to the development of new technologies relating to rice bran processing and applications.

We hold eight U.S. patents relating to the production or use of rice bran and rice bran derivatives.  In addition to the issued U.S. patents, we have been issued fourteen additional foreign patents covering the subject areas.  We intend to apply for additional patents in the future as new products, treatments and uses are developed.

Our bio-refining and related stabilization activities are an adaptation and refinement of standard food processing technology applied to rice bran.  We have chosen to treat certain of our methods and processes as a trade secret and not to pursue process or process equipment patents on the original processes.  However, as we develop improvements we intend to periodically review whether we should seek patent protection for them.  We believe that certain unique products, and their biological effects, resulting from our SRB may be patentable in the future.  We also hold a number of U.S. registered trademarks and trade names and have applied for additional marks.

Government Regulations

Our operations are subject to federal, foreign, state, and local government laws and regulations, including those relating to zoning, workplace safety, and accommodations for the disabled, and our relationship with our employees are subject to regulations, including minimum wage requirements, anti-discrimination laws, overtime and working conditions, and citizenship requirements.

In both our United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.  Such laws, regulations and other constraints exist at the federal, state or local levels in the United States, and at all levels of government in foreign jurisdictions, including regulations pertaining to the formulation, manufacturing, packaging, labeling, distribution, sale and storage of our products.  In addition, we are subject to regulations regarding product claims and advertising.

USA Segment

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by one or more federal agencies, primarily the FDA, the FTC, and the USDA.  Our activities are also regulated by various governmental agencies for the states and localities in which our products are manufactured and sold, as well as by governmental agencies in certain countries outside the United States, such as Brazil (discussed below), in which our products are manufactured and sold.  Among other matters, regulation by the FDA and FTC is concerned with product safety and claims made with respect to a product's ability to provide health-related benefits.  Specifically, the FDA, under the Federal Food, Drug, and Cosmetic Act (FDCA), regulates the formulation, manufacturing, packaging, labeling, distribution and sale of food including dietary supplements.  The FTC regulates the advertising of these products.

Federal agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing warning letters and cease-and-desist orders, requiring corrective labeling or advertising, requiring consumer redress such as requiring that a company offer to repurchase products previously sold, seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution.  In addition, certain state agencies have similar authority.  These federal and state agencies have in the past used these remedies in regulating participants in the food and dietary supplement industries, including the imposition of civil penalties.

The FDA Food Safety Modernization Act (FSMA), enacted January 4, 2011, amended the FDCA to significantly enhance FDA's authority over various aspects of food regulation including dietary supplements.  The FSMA granted FDA mandatory recall authority when the FDA determines there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause serious adverse health consequences or death to humans or animals.  One of the FSMA's more significant changes is the requirement of hazard analysis and risk-based preventive controls (HARPC) for all food facilities required to register with the FDA, except dietary supplement facilities in compliance with both CGMPs and the serious adverse event reporting requirements.  Failure to comply with both CGMPs and the serious adverse event reporting requirements may subject dietary supplement manufacturers to the HARPC requirements.
 
Any substance that is intentionally added to food is a food additive and is subject to premarket review and approval by the FDA, unless the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use, or unless the use of the substance is otherwise excluded from the definition of a food additive.  When an additive is proposed for use in a meat, its safety, technical function, and conditions of use must also be evaluated by the USDA.  Because the USDA retains jurisdiction over meat products and food ingredients intended for use in meats, the use of our SRB and DRB meat enhancers is regulated by this agency.  Both SRB and DRB have USDA approval for use in meat products.

Animal feed ingredients are regulated by FDA at the federal level and the American Association of Feed Control Officials (AAFCO) at the state level.  Our SRB is defined by AAFCO as heat stabilized rice bran.

Brazil Segment

The Brazilian Ministry of Agriculture, Livestock and Food Supply (MAPA), one of the Federal administrative bodies, is the primary regulator of agricultural products in Brazil, and its main activity is the management of public policies to encourage agriculture, the promotion of agribusiness and the regulation and standardization of services related to the sector.  Amongst other activities, MAPA is responsible for the regulation and control of pharmaceuticals, biological products and medicated feed additives for animal use.  MAPA is organized into departments, each one responsible for different sectors of the nation’s agribusiness.  Amongst these departments, the Secretary of Agricultural Defense (SDA) is responsible for implementing the actions of the State which aims at the prevention, control and eradication of animal diseases and plant pests.  The SDA also contributes to the formulation of the national agricultural policy by planning, regulating, coordinating and supervising the activities of agricultural defense throughout the country, being responsible for the coordination of the Department of Inspection of Livestock Products.  In order to fulfill its mission, the SDA provides central management and regulatory bodies as well as projections within the states for the implementation and coordination of those activities for which it is responsible.  Furthermore, ANVISA, a regulatory agency which operates in all those sectors related to products and services that affect the health of the population, and with expertise that covers both sanitary regulation and the economic regulation of the market, contributes to the enforcement of most of the regulations regarding processed food products, including vegetable oils, fats and vegetable creams.

Sales and Marketing

Both our USA and Brazil segments use internal sales staff, outside independent sales representatives and third party distributors to market our portfolio of products domestically and internationally. In 2014, three customers accounted for 60% of USA segment revenues. In our Brazil segment, three customers accounted for 23% of segment revenues. In 2013, three customers accounted for approximately 38% of USA segment revenues and in our Brazil segment, three customers accounted for approximately 35% of segment revenues.   W e continue to diversify our customer base in an attempt to mitigate the concentration of customers. We have recently signed multi-year contracts with two customers who we expect to grow significantly. In addition, we have recently initiated new ingredient sales to large international consumer products companies that we expect to further diversify our portfolio risk.

Our Strategic Alliances

In 2011, we entered into an agreement with DSM Innovation Center, a subsidiary of Royal DSM N.V., with the goal of developing technology to extract and concentrate protein from rice bran. In March 2013, the agreement was mutually terminated under terms whereby we each received (i) the right to separately develop, modify and improve the jointly developed technology owned by the partner and (ii) a nonexclusive, royalty free, perpetual license to that technology.

RBT PRO, LLC (RBT PRO) was a wholly owned subsidiary whose only asset was the license acquired in March 2013. In April 2013, we entered into a series of agreements with Wilmar.  In connection therewith, we sold a 50% membership interest in RBT PRO to Wilmar for $1.2 million. RBT PRO granted an exclusive, royalty free, perpetual sublicense of the license to Wilmar for use throughout China and to us for use worldwide, excluding China.

We also entered into a cross license agreement with Wilmar, and under the agreements, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivatives, as defined in the agreement, using the intellectual property licensed to Wilmar.  If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation.  The exercise price for this option will equal 25% of the capital investment made in the entity, plus interest, as defined in the agreement.
 
Our Competition

There are a number of companies that have invested significant resources to develop stabilizing technologies for stabilizing and further processing rice bran and who market rice bran products with varying levels of stabilization into multiple markets around the world.  We believe that we have best of breed technologies for stabilizing rice bran and, as such, have developed significant brand recognition in the animal feed and human food ingredient sectors both domestically and internationally.  Together with our decades of application technology know-how and patented processing methods, we believe that we have a first-to-market advantage over the competition with respect to our SRB products

We are aware of several new producers of rice based animal nutrition and food ingredient products in the US, Europe and Asia.  We believe that our major nutritional supplement competitors include producers of isolated soy protein, wheat bran and oat bran, particularly in the functional food ingredients market segment.

We compete with other companies that offer products incorporating SRB as well as companies that offer other food ingredients and nutritional supplements.  We also face competition from companies providing products that use oat bran and wheat bran as nutritional supplements as well as for health and beauty aids.  Many consumers may consider such products to be a replacement for the products we manufacture and distribute.

Beginning in 2008 with the purchase of Irgovel, we also began to compete in the world's edible oil market.  Our competition for exports of rice bran oil resides primarily in Southeast Asia.  Our branded rice bran oil “Carreteiro” competes with other bottled oils such as soy, palm, canola, peanut and others in the Brazilian market.  In addition, our exported rice bran oil competes with those same oils from other grains, seeds and plants in markets around the world.

Our Employees

As of December 31, 2014, the USA and Corporate segments had 63 employees located in the U.S.  The Brazil segment had 232 employees.  Our employee count may change periodically.  From year to year we experience normal variable labor fluctuation at our production facilities.  We believe relations with our employees are good.  None of our U.S. based employees are covered by collective bargaining agreements.  All of the employees at our Irgovel facility in Brazil are represented by a labor union and are covered by a collective bargaining agreement.

Securities and Exchange Commission Reports

We maintain an Internet website at the following address: www.ricebrantech.com.  We make available on or through our Internet website certain reports and amendments to those reports that we file with the Securities and Exchange Commission (SEC) in accordance with the Securities Exchange Act of 1934 (Exchange Act).  These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K.  We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.  The contents of our website are not incorporated by reference in this report on Form 10-K and shall not be deemed “filed” under the Securities Exchange Act of 1934.  The public may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  You may obtain information about the Public Reference Room by contacting the SEC at 1-800-SEC-0330.  Reports filed with the SEC are also made available on the SEC website ( www.sec.gov).

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.  Investors or potential investors in our stock should carefully consider the risks described below.
 
RISK FACTORS

Risks Relating to Our Business

We have not yet achieved positive cash flows.

Our net cash used in operating activities was $10.0 million in 2014 and $5.2 million in 2013.  We may not be able to achieve revenue growth, profitability or positive cash flow, on either a quarterly or annual basis, and that profitability, if achieved, may not be sustained.  If we are unable to achieve or sustain profitability, we may not be financially viable in the future and may have to curtail, suspend, or cease operations, restructure existing operations to attempt to ensure future viability, or pursue other alternatives such as re-filing for bankruptcy, pursuing dissolution and liquidation, seeking to merge with another company, selling all or substantially all of our assets or raising additional capital through equity or debt financings.  Because of our recurring losses and negative cash flows from operations, the audit report of our independent registered public accountants on our consolidated financial statements contains an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

We have generated significant losses since our inception in 2000, and losses in the future could cause the trading price of our stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flows.

Since we began operations in February 2000, we have incurred an accumulated deficit in excess of $240 million.  We may not be able to achieve or maintain profitable operations if achieved.  If our losses continue, our liquidity may continue to be severely impaired, our stock price may fall and our shareholders may lose all or a significant portion of their investment.  If we are not able to attain profitability in the near future our financial condition could deteriorate further which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.  Further, we may be unable to pay our debt obligations as they become due, which include obligations to secured creditors.

We may need to raise additional funds through debt or equity financings in the future to achieve our business objectives and to satisfy our cash obligations, which would dilute the ownership of our existing shareholders and possibly subordinate certain of their rights to the rights of new investors.

We may need to raise additional funds through debt or equity financings in order to complete our ultimate business objectives.  We also may choose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working capital, strengthen our financial position or to make acquisitions.  Our board of directors has the ability, without seeking shareholder approval, to issue convertible debt and additional shares of common stock or preferred stock that is convertible into common stock for such consideration as the board of directors may consider sufficient, which may be at a discount to the market price.  Any sales of additional equity or convertible debt securities would result in dilution of the equity interests of our existing shareholders, which could be substantial.  Additionally, if we issue shares of preferred stock or convertible debt to raise funds, the holders of those securities might be entitled to various preferential rights over the holders of our common stock, including repayment of their investment, and possibly additional amounts, before any payments could be made to holders of our common stock in connection with an acquisition of us.  Such preferred shares, if authorized, might be granted rights and preferences that would be senior to, or otherwise adversely affect, the rights and the value of our common stock.  Also, new investors may require that we and certain of our shareholders enter into voting arrangements that give them additional voting control or representation on our board of directors.

Any material weaknesses in our internal control over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock and increase our cost of raising capital.

Any future failure to remedy deficiencies in our internal control over financial reporting that may be discovered or our failure to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements.  Any such failure could, in turn, affect the future ability of our management to certify that internal control over our financial reporting is effective.  Inferior internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and could subject us to civil or criminal penalties or shareholder litigation, which could have an adverse effect on our results of operations and the trading price of our common stock.

In addition, if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price.  Furthermore, deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002.  Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
 
There are significant market risks associated with our business.

We have formulated our business plan and strategies based on certain assumptions regarding the size of the rice bran market, our anticipated share of this market, the estimated price and acceptance of our products and other factors.  These assumptions are based on our best estimates, however our assessments may not prove to be correct.  Any future success may depend upon factors including changes in the dietary supplement industry, governmental regulation, increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs including costs of rice bran, production, supplies, personnel, equipment, and reduced margins caused by competitive pressures.  Many of these factors are beyond our control.

We may face difficulties integrating businesses we acquire.

As part of our strategy, we expect to review opportunities to buy other businesses or technologies, such as the acquisition of HN that was completed on January 2, 2014, that would complement our current products, expand the breadth of our markets or enhance technical capabilities, or that may otherwise offer growth opportunities.  Such acquisitions involve numerous risks, including:
problems combining the purchased operations, technologies or products;
unanticipated costs;
diversion of management’s attention from our core business;
adverse effects on existing business relationships with suppliers and customers;
risks associated with entering markets in which we have no or limited prior experience;
potential loss of key employees of purchased organizations;
problems combining the purchased operations, technologies or products;
unanticipated costs;
diversion of management’s attention from our core business;
adverse effects on existing business relationships with suppliers and customers;
risks associated with entering markets in which we have no or limited prior experience; and
potential loss of key employees of purchased organizations.

We have significant foreign operations and there are inherent risks in operating overseas.

An important component of our business strategy is to build and operate rice bran stabilization and rice bran oil facilities in foreign countries and to market and sell our products internationally.  For example, we have an operation in Brazil which manufactures rice bran oil.  In 2015 we intend to install our proprietary SRB stabilization equipment in South America to allow Irgovel more operating flexibility. There are risks in operating facilities in foreign countries because, among other reasons, we may be unable to attract sufficient qualified personnel, intellectual property rights may not be enforced as we expect, and legal rights may not be available as contemplated.  Should any of these risks occur, our ability to expand our foreign operations may be materially limited and we may be unable to maximize the output from these facilities and our financial results may decrease from our anticipated levels.  The inherent risks of international operations could materially adversely affect our business, financial condition and results of operations.  The types of risks faced in connection with international operations and sales include, among others:
cultural differences in the conduct of business;
fluctuations in foreign exchange rates;
greater difficulty in accounts receivable collection and longer collection periods;
challenges in obtaining and maintaining financing;
impact of recessions in economies outside of the United States;
reduced or obtainable protection for intellectual property rights in some countries;
unexpected changes in regulatory requirements;
tariffs and other trade barriers;
political conditions in each country;
management and operation of an enterprise spread over various countries;
the burden and administrative costs of complying with a wide variety of foreign laws; and
currency restrictions.
 
Brazilian economic, political and other conditions, and Brazilian government policies or actions in response to these conditions, may negatively affect our business and results of operations.

The Brazilian economy has historically been characterized by interventions by the Brazilian government and unstable economic cycles.  The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy.  For example, the government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil.  In addition, periodically there are disruptions related to national transportation strikes, like those occurring in February 2015, which may limit Irgovel’s ability to receive raw rice bran and ship products to customers.  We have no control over, and cannot predict, what policies or actions the Brazilian government may take in the future.

Our Brazilian segment’s business, results of operations, financial condition and prospects may be adversely affected by, among others, the following factors:
exchange rate movements ;
exchange   control policies;
expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP;
inflation ;
tax policies ;
other   economic political, diplomatic and social developments in or affecting Brazil;
interest rates;
energy shortages;
liquidity of domestic capital and lending markets;
changes in environmental regulation; and
social   and political instability.

Our interests in Nutra SA are subject to certain drag along rights and we may receive little or no proceeds from such sale.

The Investors in Nutra SA (Investors) have the right to force the sale of all Nutra SA assets after January 1, 2016.  Should the Investors desire to sell 100% of Nutra SA to a third party, we are obligated to cooperate in the negotiation and sale of Nutra SA in accordance with the terms of such sale as agreed to thereby.  In the event of a sale, the Investors are entitled to a preferential return of any proceeds received from the sale of Nutra SA in an amount equal to the amount of their unreturned 4% yield, plus 2.3 times such investors’ unreturned capital balance, which amounts must be distributed to such investors before any amounts my be distributed to us.  The unreturned capital balance for the Investors as of March 31, 2015, is $14.4 million.  Because of these drag along rights, we will only receive a certain portion of the proceeds if the sales proceeds are greater than the amount of such preferential return, and we will receive no proceeds from the sale of Nutra SA if the proceeds from such sale are less than the investors preferential return.

The capital expansion project and temporary shutdown at our Irgovel facility could adversely affect our business, financial condition or results of operations.

Irgovel recently completed a capital expansion project involving installation of new equipment and improvements to existing infrastructure.  The installation of new equipment at the Irgovel facility involves significant uncertainties.  For example, our new equipment may not perform as expected or may differ from design and/or specifications.  For example, in August 2014 we experienced a structural breakdown inside the ash house attached to the boiler system at our Irgovel facility.  As a result, the steam necessary to operate the plant was unavailable and the plant was temporarily shut down.  If we are required to redesign or modify the equipment to ensure that it performs as expected, we may need to further shut down the facility until the equipment has been redesigned or modified as necessary.  Facility shutdown and subsequent restart expenses may adversely affect our operating results in the period when these events occur. Any of the foregoing risks associated with the capital expansion project could lead to lower revenues or higher costs or otherwise have a negative impact on our future results of operations and financial condition.

Irgovel has certain financial and operating performance obligations which if not met may lead to us losing management control over Irgovel.

Under the terms of our agreements with the Investors, Irgovel must meet certain minimum annual processing targets and must achieve EBITDA of at least $4.0 million, beginning in 2015.  If Irgovel fails to meet these financial requirements, we could lose management control over Irgovel’s operations, and management control would transfer to the other investors in Nutra SA.  Any such change in management control would cause us to no longer consolidate Irgovel’s financial results with our financial results.  Instead, we would be required to account for Irgovel as an equity investment on our balance sheets which may negatively impact our share price.
 
Our business could be affected adversely by labor disputes, strikes or work stoppages in Brazil.

All of the employees at our Irgovel facility in Brazil are represented by a labor union and are covered by a collective bargaining agreement.  As a result, we are subject to the risk of labor disputes, strikes, work stoppages and other labor-relations matters.  Our collective bargaining agreement in Brazil has a one-year term and requires that we provide wage adjustments each year.  We may be unable to negotiate new collective bargaining agreements on similar or more favorable terms and may experience work stoppages or other labor problems in the future.  We could experience a disruption of our operations or higher ongoing labor costs, which could have a material adverse effect on our operating results and financial condition, potentially resulting in cancelled orders by customers, unanticipated inventory accumulation or shortages and reduced revenues and net income.

Fluctuations in foreign currency exchange could adversely affect our financial results.

We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. Dollar, including primarily the Brazilian Real.  Currently, a significant portion of our revenues and expenses occur in our Brazilian subsidiary, Irgovel.  Because our consolidated financial statements are presented in U.S. Dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. Dollars at exchange rates in effect historically, during or at the end of each reporting period.  Therefore, increases or decreases in the value of the U.S. Dollar against the Brazilian Real and any other currency which affects a material amount of our operations, will affect our revenues, cost of sales, gross profit (loss), operating expenses, or other income and expenses and the value of balance sheet items denominated in foreign currencies.  These fluctuations may have a material adverse effect on our financial results.  Disruptions in financial markets may result in significant changes in foreign exchange rates in relatively short periods of time which further increases the risk of an adverse currency effect.  Since we plan to expand our international operations, we will likely increase our exposure to foreign currency risks.  We do not hedge our currency risk, and do not expect to, as currency hedges are expensive and do not necessarily reduce the risk of currency fluctuations over longer periods of time.

We depend on a limited number of customers.

In the USA segment, in 2014, three customers accounted for 60% of segment revenues and the top ten customers accounted for 75% of segment revenues.  As of December 31, 2014, the customers with the highest ten balances in the USA segment accounted for 64% of segment accounts receivable.

In the Brazil segment, three customers accounted for 23% of 2014 segment revenues and our top ten customers accounted for 47% of 2014 segment revenues.  As of December 31, 2014, the customers with the highest ten balances accounted for 75% of Brazil segment accounts receivable.

We are dependent upon the continued growth, viability and financial stability of our customers. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenues.  Consolidation among our customers may further reduce the number of customers that generate a significant percentage of our revenues and expose us to increased risks relating to dependence on a small number of customers.  A significant reduction in sales to any of our customers or a customer could have a material adverse effect on our results of operations.

The inability of our significant customers to meet their obligations to us may adversely affect our financial results.

We currently depend on a limited number of customers.  This results in a concentration of credit risk with respect to our outstanding accounts receivable.  We consider the financial strength of the customer, the remoteness of the possible risk that a default event will occur, the potential benefits to our future growth and development, possible actions to reduce the likelihood of a default event and the benefits from the transaction before entering into a large credit limit for a customer.  Although we analyze these factors, the ultimate collection of the obligation from the customer may not occur.  Although we continue to expand our customer base in an attempt to mitigate the concentration of credit risk, the writing off of an accounts receivable balance could have an adverse effect on our results of operations.  Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables.  Historically, we have not experienced any loss of our cash and cash equivalents, but we have experienced losses to our trade receivables.
 
We may encounter difficulties in maintaining relationships with distributors and customers while enforcing our credit policies.

We define credit risk as the risk of loss from obligors or counterparty default.  Our credit risks arise from both distributors and consumers.  Many of these risks and uncertainties are beyond our control.  Our ability to forecast future trends and spot shifts in consumer patterns or behavior even before they occur are vital for success in today’s economy.  In managing risk, our objective is to protect our profitability, but also to protect, to the extent we can, our ongoing relationships with our distributors and customers.  However, as part of our credit risk policies, we occasionally must, among other things, cancel, reduce credit limits and place cash only requirements for certain questionable accounts.  These credit risk policies may negatively impact our relationships with our distributors and customers, which could adversely affect our results of operations.

We rely upon a limited number of product offerings.

The majority of the products that we have sold through December 31, 2014, have been based on SRB produced at our U.S. facilities and RBO extracted at Irgovel.  A decline in the market demand for our SRB and RBO products or the products of other companies utilizing our SRB and RBO products, would have a significant adverse impact on us.

Our ability to generate sales is dependent upon our ability to continue our ongoing marketing efforts to raise awareness of our products and benefits of rice bran products generally.

We are dependent on our ability to market products to animal food producers, food manufacturers, mass merchandisers and health food retailers, and to other companies for use in their products.  We must increase the level of awareness of dietary supplements in general and our products in particular.  We will be required to devote substantial management and financial resources to these marketing and advertising efforts and such efforts may not be successful.

Our ability to adapt to sudden increases in demand of our product is limited by an adequate supply of raw rice bran and our ability to find additional facilities for production.

Many of our current products depend on our proprietary technology using raw rice bran, which is a by-product from milling paddy rice to white rice.  Our ability to manufacture SRB is currently limited to the production capability of our equipment located at our two suppliers’ rice mills in California and our own plant located adjacent to our supplier in Mermentau, Louisiana.  At the facilities and our value-added product plants in Dillon, Montana and our facility in Pelotas, Brazil, we currently are capable of producing enough finished products to meet current demand.  If demand for our products were to increase dramatically in the future, we would need additional production capacity which may take time and may expose us to additional long term operating costs.

We may not be able to continue to secure adequate sources of raw rice bran to meet our future demand.  Since rice bran has a limited shelf life, the supply of rice bran is affected by the amount of rice planted and harvested each year.

Adverse economic or weather conditions may impact our supply of raw rice bran.

If economic or weather conditions, for example the current drought in California, adversely affect the amount of rice planted or harvested, the cost of rice bran products that we use may increase.  We are not always able to immediately pass cost increases to our customers and any increase in the cost of SRB products could have an adverse effect on our results of operations.

We face competition from other companies that produce bran, grains and other alternative ingredients with similar benefits as our rice brans.

Competition in our targeted industries, including nutraceuticals, functional food ingredients, rice bran oils, animal feed supplements and companion pet food ingredients is vigorous, with a large number of businesses engaged in the various industries.  Many of our competitors have established reputations for successfully developing and marketing their products, including products that incorporate bran from other cereal grains and other alternative ingredients that are widely recognized as providing similar benefits as rice bran.  In addition, many of our competitors have greater financial, managerial, and technical resources than we do.  If we are not successful in competing in these markets, we may not be able to attain our business objectives.
 
We must comply with our contractual obligations.

We have numerous ongoing contractual obligations under various purchase, sale, supply, production and other agreements which govern our business operations.  We also have contractual obligations which require ongoing payments such as various debt agreements and lease obligations and the agreement of Irgovel to pay tax obligations to the Brazilian government.  While we seek to comply at all times with these obligations, we may not be able to comply with the terms of all contracts during all periods of time, especially if there are significant changes in market conditions or our financial condition.  If we are unable to comply with our material contractual obligations, there likely would be a material adverse effect on our financial condition and results of operations.

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints both domestically and abroad and our failure to comply with these laws, regulations and constraints could lead to the imposition of significant penalties or claims, which could harm our financial condition and operating results.

In both the U.S. and foreign markets, the formulation, manufacturing, packaging, labeling, distribution, sale and storage of our products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints.  Such laws, regulations and other constraints may exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions.  The dietary supplement and cosmetic industries are subject to considerable government regulation, both as to efficacy as well as labeling and advertising.  We are subject to regulation by one or more federal agencies including the U.S. Food and Drug Administration (FDA), the U.S. Federal Trade Commission (FTC), and the U.S. Department of Agriculture (USDA), state and local authorities and foreign governmental agencies including the Brazilian National Health Surveillance Agency.  In addition, the adoption of new regulations or changes in the interpretations of existing regulations may result in significant compliance costs or discontinuation of product sales and may negatively impact the marketing of our products, resulting in significant loss of sales revenues.  Our failure to comply with these current and new regulations could lead to the imposition of significant penalties or claims, limit the production or marketing of any non-compliant products or advertising and could negatively impact our business.

We may be subject to product liability claims and product recalls.

We sell food and nutritional products for animal and human consumption, which involves risks such as product contamination or spoilage, product tampering and other adulteration of food products.  We may be subject to liability if the consumption of any of our products causes injury, illness or death.  We maintain a product liability policy for $5.0 million per year in the aggregate.  In addition, we may voluntarily recall products in the event of contamination or damage.  A significant product liability judgment or a widespread product recall may cause a material adverse effect on our financial condition.  Even if a product liability claim is unsuccessful, there may be negative publicity surrounding any assertion that our products caused illness or injury which could adversely affect our reputation with existing and potential customers.

Many of the risks of our business have only limited insurance coverage and many of our business risks are uninsurable.

Our business operations are subject to potential product liability, environmental, fire, employee, manufacturing, shipping and other risks.  Although we have insurance to cover some of these risks, the amount of this insurance is limited and includes numerous exceptions and limitations to coverage.  In the event we were to suffer a significant uninsured claim, our financial condition would be materially and adversely affected.

Our success depends in part on our ability to obtain, enforce and protect our patents, licenses and other intellectual property rights for our products and technology.

Our success is dependent upon our ability to protect and enforce the patents, trade secrets and trademarks that we have and to develop and obtain new patents and trademarks for future processes, machinery, compounds and products that we develop.  The process of seeking patent protection may be long and expensive, and patents might not be issued or not be broad enough in scope.  We may not be able to protect our technology adequately, and our competition may be able to develop similar technology that does not infringe or encroach upon any of our rights.
 
There currently are no claims or lawsuits pending or threatened against us regarding possible infringement claims, but infringement claims by third parties, or claims for indemnification resulting from infringement claims, could be asserted in the future or that such assertions, if proven to be accurate, could have a material adverse effect on our business, financial condition and results of operations.  In the future, litigation may be necessary to enforce our patents, to protect our trade secrets or know-how or to defend against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others.  Any litigation could result in substantial cost and diversion of our efforts and other resources, which could have a material adverse effect on our financial condition and results of operations.  Adverse determinations in any litigation could result in the loss of our proprietary rights, subjecting us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from manufacturing or selling our systems, any of which could have a material adverse effect on our financial condition and results of operations.  A license under a third party’s intellectual property rights might not be available to us on reasonable terms, if at all.

We are dependent on key employees.

Our success depends upon the efforts of our top management team and certain other key employees, including the efforts of John Short (chief executive officer), Dale Belt (chief financial officer), Mark McKnight (senior vice president sales) and Robert Smith, PhD (senior vice president of operations and R&D).  Although we have written employment agreements with our CEO and CFO and senior vice president of sales, such individuals could die, become disabled, or resign.  In addition, our success is dependent upon our ability to attract and retain key management persons for positions relating to the marketing and distribution of our products.  We may not be able to recruit and employ such executives at times and on terms acceptable to us.  Also, volatility, lack of positive performance in our stock price and changes in our overall compensation program, including our equity incentive program, may adversely affect our ability to retain such key employees.

Compliance with corporate governance and public disclosure regulations may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations issued by the SEC, such as Dodd-Frank, are creating uncertainty for companies.  In order to comply with these laws, we may need to invest substantial resources to comply with evolving standards, and this investment would result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Our officers and directors have limited liability and have indemnification rights.

Our articles of incorporation and bylaws provide that we may indemnify our officers and directors against losses sustained or liabilities incurred which arise from any transaction in that officer’s or director’s respective managerial capacity, unless that officer or director violates a duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend, or derived an improper benefit from the transaction.

Risks Relating to Our Stock

Our stock price is volatile.

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future.  The market price of the common stock may continue to fluctuate in response to a number of factors, including:
announcements of new products or product enhancements by us or our competitors;
fluctuations in our quarterly or annual operating results;
developments in our relationships with customers and suppliers;
our ability to obtain financing;
the loss of services of one or more of our executive officers or other key employees;
announcements of technological innovations or new systems or enhancements used by us or our competitors;
developments in our or our competitors’ intellectual property rights;
adverse effects to our operating results due to impairment of goodwill;
failure to meet the expectation of securities analysts’ or the public;
general economic and market conditions;
our ability to expand our operations, domestically and internationally;
the amount and timing of expenditures related to any expansion;
litigation involving us, our industry or both;
actual or anticipated changes in expectations by investors or analysts regarding our performance; and
price and volume fluctuations in the overall stock market from time to time.
 
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.  Our stock price is volatile and we have been the target of shareholder litigation.  Any shareholder litigation brought against us in the future could result in substantial costs and divert our management’s attention and resources from our business.

We have significant “equity overhang” which could adversely affect the market price of our common stock and impair our ability to raise additional capital through the sale of equity securities.

As of March 31, 2015, we had 9,386,822 shares of common stock outstanding and 6,773,601 shares of our common stock were issuable upon exercise of our outstanding options and warrants.  The possibility that substantial amounts of our common stock may be sold by investors or the perception that such sales could occur, often called “equity overhang,” could adversely affect the market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future.  The issuance of the additional shares upon an increase in our authorized shares of common stock would significantly increase the amount of our common stock outstanding and the amount of the equity overhang.

The impacts of antidiluton provisions in certain warrants may dilute current shareholders.

As of March 31, 2015, we had 426,489 shares of common stock issuable upon exercise of outstanding warrants that contain antidilution provisions, with a current exercise price of $5.24 .  These antidilution provisions cause the exercise prices and conversion prices of the warrants to decrease automatically if we issue shares of our common stock or securities convertible into shares of our common stock at prices below the exercise price of these warrants.  These adjustments automatically cause the number of shares issuable upon exercise of these warrants to proportionately increase.  Any such adjustment could materially dilute the holders of our common stock.

The authorization and issuance of preferred stock may have an adverse effect on the rights of holders of our common stock.

Our board of directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock.  The terms of any series of preferred stock could be issued with terms, rights, preferences and restrictions that could adversely affect the rights of holders of our common stock and thereby reduce the value of our common stock.  The designation and issuance of preferred stock favorable to current management or shareholders could make it more difficult to gain control of our board of directors or remove our current management and may be used to defeat hostile bids for control which might provide shareholders with premiums for their shares.  We have designated and issued five series of preferred stock, no shares of which remain outstanding.  We may issue additional series of preferred stock in the future.

If we fail to comply with the continuing listing standards of The NASDAQ Capital Market, our securities could be delisted.

Our common stock is listed on the NASDAQ Capital Market under the symbol “RIBT”, and we also have outstanding warrants listed on the NASDAQ Capital Market under the symbol “RIBTW”.  For our common stock and warrants to continue to be listed on the NASDAQ Capital Market, we must meet the current NASDAQ Capital Market continued listing requirements.  If we were unable to meet these requirements, including, but not limited to, requirements to obtain shareholder approval of a transaction other than a public offering involving the sale or issuance equal to 20% or more of our common stock at a price that is less than the market value of our common stock, our common stock and warrants could be delisted from the NASDAQ Capital Market.  If our securities were to be delisted from the NASDAQ Capital Market, our securities could continue to trade on the over-the-counter bulletin board following any delisting from the NASDAQ Capital Market, or on the Pink Sheets, as the case may be.  Any such delisting of our securities could have an adverse effect on the market price of, and the efficiency of the trading market for our securities, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any.  Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.
 
ITEM 2. PROPERTIES

We maintain various facilities that are used for manufacturing, warehousing, research and development, distribution, and administrative functions.  These facilities consist of both owned and leased properties.  The following table summarizes the properties used to conduct our operations as of March 31, 2015:
 
     Primary Segment
 
                   Location
 
           Status
 
                             Primary Use
 
USA
 
West Sacramento, California
 
Leased
 
Warehousing, and administrative
             
USA
 
Mermentau, Louisiana
 
Owned
 
Manufacturing
             
USA
 
Lake Charles, Louisiana
 
Building – owned
 
Warehouse
       
Land - leased
   
             
USA
 
Dillon, Montana
 
Owned
 
Manufacturing
             
USA
 
Irving, Texas
 
Leased
 
Manufacturing, warehousing and distribution
             
Brazil
 
Pelotas, Brazil
 
Owned
 
Manufacturing, R&D and administrative
             
Corporate
 
Scottsdale, Arizona
 
Leased
 
Administrative – corporate offices

Our corporate headquarters is located at 6720 N. Scottsdale Road, Suite 390, Scottsdale, AZ  85253.  We lease approximately 9,000 square feet of corporate office space in Scottsdale.

We believe that all facilities are in good operating condition, the machinery and equipment are well-maintained, the facilities are suitable for their intended purposes and they have capacities adequate for current operations.

The properties are covered by insurance but insurance for the properties located in Louisiana is subject to high deductibles and limitations on damages due to tropical storms.

ITEM 3. LEGAL PROCEEDINGS

Various lawsuits, claims, proceedings and investigations are pending involving us as described below in this section.  When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.  In addition to the matters described herein, 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, which in our opinion will not have a material adverse effect on our financial condition, cash flows or results of operations.

Irgovel Purchase

On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining former Irgovel stockholders (Sellers), requesting:  (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion.  The amount of damage claimed by Mr. Resyng is approximately $3 million.

We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement).  Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.
 
On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million.  We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above.  Our parent company has not been served with any formal notices in regard to this matter.  To date, only Irgovel has received formal legal notice.  In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration.  On October 29, 2010, we initiated an arbitration proceeding against the Sellers for breaches of the Purchase Agreement, including claims related to Sellers’ handling of the Resyng claim and whether any future payments are required under the Purchase Agreement.  On February 25, 2015, the arbitration panel issued its opinion and ordered the Sellers to pay Irgovel and us R$3.6 million plus arbitration fees, legal fees, and interest.  We are currently seeking to confirm and obtain a final award in Brazil.

As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies.  As of December 31 2014 and 2013, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets.  There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of December 2014 and 2013, totaling $1.6 million.  When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement.  As of December 31, 2014, $0.5 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.6 million to settle any remaining contingencies.  We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.  If and when received, w e agreed to pay to Nutra SA ninety percent of any funds received from the escrow account or treat the funds retained as a distribution from Nutra SA and reduce our ownership percentage accordingly.

Diabco Life Sciences, LLC

In January 2012, we filed a complaint in the Superior Court of California, Sacramento County, seeking damages arising out of Diabco Life Sciences, LLC’s (Diabco) breach of a 2008 promissory note in the principal amount of $0.5 million.  At trial in August 2013, Diabco stipulated that total damages through July 2013, including interest and late fees, amounted to $0.9 million.  In September 2013, the court issued its tentative statement of decision indicating that judgment will be entered in our favor in the amount of $0.9 million as of July 2013, plus interest.  In January 2014, the court issued its final judgment in the amount of $1.0 million.  Diabco filed a notice of appeal which was dismissed in October 2014.  We have no receivable from Diabco recorded in the accompanying financial statements, as recovery of the judgment is not reasonably assured.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our common stock is traded on the NASDAQ Capital Market under the symbol “RIBT.”  Our CUSIP No. is 762831-10-5.  The following table sets forth the range of high and low sales prices for our common stock for the periods indicated below.  The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.  Through December 12, 2013, our common stock was quoted on the OTCQB under the symbol “RIBT.” All share and per share information in the table below reflects the one-for-200 reverse stock split which was effected on November 13, 2013.  Our shares of common stock did not trade on a post-adjusted basis until the opening of the market on November 18, 2013.
 
 
 
Low
   
High
 
 
 
   
 
2014
       
Fourth Quarter
 
$
3.74
   
$
5.31
 
Third Quarter
   
4.28
     
6.90
 
Second Quarter
   
3.56
     
7.45
 
First Quarter
   
4.05
     
6.95
 
                 
2013
               
Fourth Quarter
 
$
4.25
   
$
14.00
 
Third Quarter
   
4.00
     
14.00
 
Second Quarter
   
12.00
     
18.00
 
First Quarter
   
10.00
     
24.00
 

Holders

As of March 31, 2015, there were approximately 280 holders of record and 9,300 beneficial owners of our common stock.

Dividends

We have never declared or paid any cash dividends on our common stock.  We currently anticipate that we will retain all future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.  Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA, LLC .

Recent Sales of Unregistered Securities

During the quarter ended December 31, 2014, we issued the securities described below without registration under the Securities Act.  Unless otherwise indicated below, the securities were issued pursuant to the private placement exemption provided by Section 4(2) of the Securities Act of 1933.  All issuances below were made without any public solicitation, to a limited number of persons and were acquired for investment purposes only.

We issued the following shares of common stock under agreements with consultants and vendors as summarized in the table which follows.

Date of Issuance
 
Shares of
Common
Stock
 
Vesting Period
October 1, 2014
   
1,875
 
Immediate
December 31, 2014
   
3,200
 
Immediate

Share Repurchases

We did not repurchase any of our common stock in 2014.
 
ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K.
 
This discussion and analysis may contain “forward-looking statements.”  These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may include, without limitation, statements about our market opportunities, strategies, competition, and expected activities and expenditures and at times may be identified by the use of words such as “may,” “could,” “should,” “would,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue” and variations of these words or comparable words.  Forward-looking statements inherently involve risks and uncertainties.  Accordingly, actual results may differ materially from those expressed or implied by these forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, the risks described under “Risk Factors” in Item 1A.  We undertake no obligation to update any forward-looking statements for revisions or changes after the filing date of this Annual Report on Form 10-K.

Basis of Presentation and Going Concern

In 2014, we continued to experience losses and negative cash flows from operations which raises substantial doubt about our ability to continue as a going concern.  W e 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 consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

As described further in Note 4 of our consolidated financial statements , in January 2014, we completed the acquisition of H&N Distribution, Inc., the operations of which are accretive to cash flows.  Our Brazilian subsidiary, Irgovel, recently complete the final stages of a major capital expansion.  Significant cash was used during the shutdown period.  Operations at Irgovel are expected to normalize during the second quarter of 2015, such that Irgovel will then be operating at its newly increased capacity and begin generating cash from operations.

Segments

We have two reportable operating segments in 2014: (i) USA segment, which manufactures and distributes SRB (for human food ingredient and animal nutrition customers) and derivative products and (ii) Brazil segment, which extracts crude RBO and DRB from rice bran, which are then further processed into fully refined rice bran oil for sale internationally and in Brazil, compounded animal nutrition products and a number of valuable human food and animal nutrition products. derivatives and co-products.  We incur corporate expenses not directly attributable to operating segments, which include costs related to our corporate staff, general and administrative expenses including public company expenses, intellectual property, professional fees, and other expenses.  No corporate allocations, including interest, are made to the operating segments.

The combined operations of our USA and Brazil segments encompass our bio-refining approach to processing raw rice bran into various high quality, value-added constituents and finished products.  Over the past decade, we have developed and optimized our proprietary bio-refining processes to support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in human meats, baked goods, cereals, coatings, health foods, nutritional supplements, nutraceuticals and high-end animal nutrition and health products.

The USA segment produces SRB inside two rice bran stabilization facilities, located within supplier rice mills in Arbuckle and West Sacramento, California, and one owned facility in Mermentau, Louisiana.  At Dillon, Montana, the USA segment also produces our Stage II products including: RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of SRB; RiFiber, a fiber rich derivative of SRB, RiBalance, a complete rice bran nutritional package derived from further processing RiBalance, and ProRyza, protein-based products.  “Stage II” refers to the proprietary processes run at our Dillon, Montana facility and describes products produced at that facility using our patented processes.  The manufacturing facilities included in our USA segment have proprietary processing equipment and process patented technology for the stabilization and further processing of rice bran into finished products.  Beginning January 2, 2014, with the acquisition of HN, we also formulate and copack products at a leased facility in Irving Texas.  We lease a facility in West Sacramento, California that houses a laboratory, warehouse and production facilities.  We use an owned facility in Lake Charles, Louisiana, as a temporary warehouse.  In 2014, approximately 83% of USA segment revenue is from sales of human nutrition products and the remainder was from sales of animal nutrition products.
 
The Brazil segment consists of the consolidated operations of Nutra SA, whose only operating subsidiary is Irgovel, located in Pelotas, Brazil.  Irgovel manufactures RBO and DRB products for both the human ingredient and animal nutrition markets in Brazil and internationally.  In refining RBO to an edible grade, several co-products are obtained.  One such product is distilled fatty acids, a valuable raw material for the detergent industry.  Irgovel also produces rice lecithin, which has application in human nutrition, animal nutrition and industrial applications.  DRB is compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market, sold as a raw material for further processing into human food ingredients or sold in bulk into the animal nutrition markets in Brazil and neighboring countries.  In 2014, approximately 39% of Brazil segment product revenue was from sales of RBO products and the remainder was from sales of DRB products.  Irgovel, however, was shut down for a portion of 2014 to complete the final stages of a capital expansion project, which caused a temporary change in sales mix.  We expect RBO sales to return to historical levels, approximately 45% of product revenues, in the near future.

Results of Operations

Consolidated net loss attributable to RiceBran Technologies shareholders for 2014 was $23.0 million, or $3.96 per share, compared to $15.0 million, or $12.95 per share in 2013.

Revenue and Gross Profit

Revenues (in thousands):

   
2014
   
% of
Total
Revenues
   
2013
   
% of
Total
Revenues
   
Change
   
%
Change
 
USA segment
 
$
23,096
     
57.6
   
$
12,023
     
34.3
   
$
11,073
     
92.1
 
Brazil segment
   
17,012
     
42.4
     
23,028
     
65.7
     
(6,016
)
   
(26.1
)
Total revenues
 
$
40,108
     
100.0
   
$
35,051
     
100.0
   
$
5,057
     
14.4
 

Consolidated revenues for 2014, were $40.1 million compared to $35.1 million in 2013, an increase of $5.1 million, or 14.4%.

USA segment revenues increased $11.1 million, or 92.1%, in 2014 compared to 2013.  Animal feed product revenues decreased $1.7 million on lower volume while human nutrition product revenues increased $12.7 million, in large part due to increased sales in the human functional food market as a result of the acquisition of HN.  The decline in animal feed revenue was primarily attributable to reduced sales to two large, but low margin customers.  We continue to focus on increasing the higher margin human nutrition product revenues.

Brazil segment revenues decreased $6.0 million, or 26.1%, in 2014 compared to 2013.  Revenues decreased $1.7 million as a result of the 8.9% decrease in the average foreign currency translation rate between these periods.  On a local currency basis, prior to translation into U.S. Dollars, Brazil segment revenues decreased 18.9% year over year.  Revenues were negatively affected by the Irgovel plant shut down that began in January 2014 .  The plant was shut down until April 2014 for expansion of the rice bran oil extractor, the key functional part of the plant, as well as installation of a new desolventizing/toasting system.  Production began again in April 2014 on a limited basis.  During the 2014 first quarter, inventory available for sale was limited to certain animal feed products that utilized DRB that had been stockpiled prior to the shutdown.  During the 2014 third quarter, Irgovel experienced production downtimes due to an equipment failure and experienced difficulty procuring raw bran as a result of disengaging with bran suppliers during the prolonged shut down period and working capital issues, which reduced production and product available for sale.  Additionally, Irgovel shut down for two weeks in December 2014 for annual maintenance and resumed operations in January 2015, however, it has not yet consistently operated at its new increased capacity for a 30 day period due to an equipment failure in January 2015 and disruptions related to national transportation strikes in February 2015 which limited Irgovel’s ability to receive raw rice bran and ship product to customers.
 
Gross profit (in thousands):

   
2014
   
Gross
Profit %
   
2013
   
Gross
Profit %
   
Change
   
Change
in Gross
Profit %
 
USA segment
 
$
6,972
     
30.2
   
$
2,945
     
24.5
   
$
4,027
     
5.7
 
Brazil segment
   
(2,503
)
   
(14.7
)
   
1,000
     
4.3
     
(3,503
)
   
(19.0
)
Total gross profit
 
$
4,469
     
11.1
   
$
3,945
     
11.3
   
$
524
     
(0.1
)

Consolidated gross profit in 2014 increased $0.5 million, to $4.5 million for 2014 compared to $3.9 million in 2013.

The USA segment gross profit increased $4.0 million, to $7.0 million in 2014.  The improvement was attributable to increased human nutrition product revenues derived from the acquisition of HN and the resulting shift in sales mix from animal to human.

Brazil segment gross profit declined $3.5 million between years.  As noted previously, the Irgovel plant was shut down in January 2014.  Production began again at the beginning of the second quarter on a limited basis.  Processing levels are expected to consistently reach approximately 150% of pre-expansion raw bran processing levels in the second quarter of 2015.  The amount of raw bran processed in 2014 was 21.2% lower than 2013 due to the shutdown and subsequent restart issues.

Operating Expenses (in thousands):

 
 
2014
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
5,941
   
$
4,133
   
$
4,280
   
$
14,354
 
Depreciation and amortization
   
52
     
2,137
     
690
     
2,879
 
Total operating expenses
 
$
5,993
   
$
6,270
   
$
4,970
   
$
17,233
 
 
 
 
2013
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
5,918
   
$
2,006
   
$
4,442
   
$
12,366
 
Depreciation and amortization
   
24
     
469
     
756
     
1,249
 
Impairment of  property
   
-
     
300
     
-
     
300
 
Total operating expenses
 
$
5,942
   
$
2,775
   
$
5,198
   
$
13,915
 
 
 
 
Favorable (Unfavorable) Change
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
(23
)
 
$
(2,127
)
 
$
162
   
$
(1,988
)
Depreciation and amortization
   
(28
)
   
(1,668
)
   
66
     
(1,630
)
Impairment of  property
   
-
     
300
     
-
     
300
 
Total operating expenses
 
$
(51
)
 
$
(3,495
)
 
$
228
   
$
(3,318
)
 
Consolidated operating expenses were $17.2 million for 2014, compared to $13.9 million for 2013, an increase of $3.3 million.
                                        
Corporate segment selling, general and administrative expenses (SG&A) were relatively the same in 2014 and 2013.  SG&A in 2014 included $0.3 of acquisition costs related to the closing of the HN acquisition in January 2014.  This expense was offset by reductions in other expenses between years, primarily bonuses.

USA segment SG&A expenses increased $2.1 million year over year.  Additional expenses related to the operations and management of HN, acquired in January 2014, were approximately $0.9 million.  The prior year period included a $0.3 million gain on sale of property. The remainder of the increase related primarily to increased travel, salary, wages and benefits expenses.

Brazil segment SG&A decreased $0.3 million as a result of the decline in the average foreign exchange rate between periods.  The reduction was offset by a $0.1 million increase in losses on property disposals.
 
USA segment depreciation and amortization expense increased $1.7 million due to amortization of a customer relationship intangible asset of $3.8 million established in January 2014 upon the acquisition of HN.  The intangible is amortizing on an accelerated basis over a three year period.

Other Income (Expense) (in thousands):

 
 
2014
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Interest income
 
$
-
   
$
-
   
$
115
   
$
115
 
Interest expense
   
(7,949
)
   
-
     
(2,385
)
   
(10,334
)
Change in fair value of derivative warrant and conversion liabilities
   
(1,209
)
   
-
     
-
     
(1,209
)
Financing expense
   
(2,072
)
   
-
     
-
     
(2,072
)
Loss on extinguishment
   
(906
)
   
-
     
-
     
(906
)
Foreign currency exchange, net
   
-
     
-
     
(174
)
   
(174
)
Other
   
-
     
-
     
(587
)
   
(587
)
Other income (expense)
 
$
(12,136
)
 
$
-
   
$
(3,031
)
 
$
(15,167
)
 
 
 
2013
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Interest income
 
$
-
   
$
-
   
$
109
     
109
 
Interest expense
   
(1,950
)
   
-
     
(1,984
)
   
(3,934
)
Change in fair value of derivative warrant and conversion liabilities
   
(1,029
)
   
-
     
-
     
(1,029
)
Financing expense
   
(564
)
   
-
     
-
     
(564
)
Loss on extinguishment
   
(2,891
)
   
-
     
-
     
(2,891
)
Foreign currency exchange, net
   
-
     
-
     
(440
)
   
(440
)
Other
   
(41
)
   
-
     
(319
)
   
(360
)
Other income (expense)
 
$
(6,475
)
 
$
-
   
$
(2,634
)
 
$
(9,109
)
 
 
 
Favorable (Unfavorable) Change
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Interest income
 
$
-
   
$
-
   
$
6
   
$
6
 
Interest expense
   
(5,999
)
   
-
     
(401
)
   
(6,400
)
Change in fair value of derivative warrant and conversion liabilities
   
(180
)
   
-
     
-
     
(180
)
Financing expense
   
(1,508
)
   
-
     
-
     
(1,508
)
Loss on extinguishment
   
1,985
     
-
     
-
     
1,985
 
Foreign currency exchange, net
   
-
     
-
     
266
     
266
 
Other
   
41
     
-
     
(268
)
   
(227
)
Other income (expense)
 
$
(5,661
)
 
$
-
   
$
(397
)
 
$
(6,058
)
 
Consolidated other expense was $15.2 million for 2014 compared to other expense of $9.1 million for 2013.
 
The Corporate segment experienced a $6.0 million increase in interest expense. The convertible notes issued in the March 2014 and May 2014 private placement offering closings, automatically converted into common stock in May 2014 upon shareholders approving an increase in our authorized shares of common stock.  When the notes converted, we recognized a noncash charge for interest expense of $6.1 million, to accrete the notes to their face value, and increased equity $6.1 million. 

The Corporate segment also experienced a $0.2 million increase in expense from the change in the fair value of derivative warrant and conversion liabilities.  Our liability warrants and conversion liabilities are valued using the lattice model each reporting period and the resulting change in fair value is recorded in the statements of operations.  The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants and make certain other assumptions.   Beginning in the third quarter of 2014 we had no remaining conversion liabilities.

Corporate segment financing expense increased $1.5 million.  In 2014, the $2.1 million of financing expense was associated with the March 2014 and May 2014 private placement issuance of convertible notes and related warrants and represented the excess of the values assigned to the equity warrants and derivative liability warrants, at issuance, over the net proceeds from issuance, as described further in Note 10 to the consolidated financial statements.
 
Corporate segment loss on extinguishment decreased $2.0 million between periods.  In 2014, the $0.9 million of loss on extinguishment in the second quarter was a result of the conversion of the notes payable issued in connection with the HN acquisition. Upon conversion we recognized the difference between t he fair value of the shares issued ($3.9 million) and the carrying amount of the notes ($2.4 million) and related conversion feature ($0.6 million), as described further in Note 10 to the consolidated financial statements.
 
Liquidity and Capital Resources

With respect to liquidity and capital resources, we manage the Brazil segment, consisting currently of our plant in Brazil, separately from our U.S. based Corporate and USA segments.  Cash on hand at our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA .  Cash used in operating activities for 2014 and 2013, is presented below (in thousands).

   
2014
 
   
Corporate
and USA
   
Brazil
   
Consolidated
 
Net loss
 
$
(16,123
)
 
$
(10,504
)
 
$
(26,627
)
Adjustments to reconcile net loss to net cash used in operations:
                       
Depreciation and amortization
   
3,211
     
3,338
     
6,549
 
Change in fair value of derivative warrant and conversion liabilities
   
1,209
     
-
     
1,209
 
Loss on extinguishment
   
906
     
-
     
906
 
Financing expense
   
2,072
     
-
     
2,072
 
Interest accreted
   
7,058
     
-
     
7,058
 
Other adjustments, net
   
(441
)
   
286
     
(155
)
Changes in operating asset and liabilities:
   
(797
)
   
(282
)
   
(1,079
)
Net cash used in operating activities
 
$
(2,905
)
 
$
(7,162
)
 
$
(10,067
)
 
   
2013
 
   
Corporate
and USA
   
Brazil
   
Consolidated
 
Net loss
 
$
(12,248
)
 
$
(5,392
)
 
$
(17,640
)
Adjustments to reconcile net loss to net cash used in operations:
                       
Depreciation and amortization
   
1,419
     
2,629
     
4,048
 
Change in fair value of derivative warrant and conversion liabilities
   
1,029
     
-
     
1,029
 
Loss on extinguishment
   
2,891
     
-
     
2,891
 
Financing expense
   
564
     
-
     
564
 
Impairment of property
   
300
     
-
     
300
 
Interest accreted
   
315
     
-
     
315
 
Other adjustments, net
   
605
     
(1,157
)
   
(552
)
Changes in operating asset and liabilities:
   
1,486
     
2,357
     
3,843
 
Net cash used in operating activities
 
$
(3,639
)
 
$
(1,563
)
 
$
(5,202
)
 
On a combined basis, the Corporate and USA segments used $2.9 million of cash in operating activities in 2014.  We expect USA cash flows will improve in 2015 as a result of the acquisition of HN in January 2014.  During 2014, we paid $0.3 million in HN acquisition costs which are included in cash flows from operations. We will not incur HN acquisition and integration costs in 2015.

The Brazil segment used $7.2 million in operating cash in 2014, compared to $1.6 million of operating cash used in 2013.  Facility shut down and subsequent restart expenses, as well as lack of adequate working capital in some periods, adversely affected our operating results in 2014.  Irgovel completed the final stages of a capital expansion project involving installation of new equipment and improvements to existing infrastructure.  As a result of the project, the Irgovel facility was shutdown approximately ten weeks in the first quarter of 2014, while certain new equipment was brought on line.  Upon restarting the plant in April, the plant experienced excessive downtime and inefficiencies during the “debugging” of plant production processes.  Where possible, we stockpiled certain inventory for sale during the period the plant was shut down.  However, this inventory was not adequate to timely fulfill all outstanding orders during this period.  In addition, Irgovel shut down for two weeks in December 2014 for annual maintenance and resumed operations in January 2015, however, it has not yet consistently operated at its new increased capacity for a 30 day period due to an equipment failure in January 2015 and disruptions related to national transportation strikes in February 2015 which limited Irgovel’s ability to receive raw rice bran and ship products to customers.  Processing levels are expected to consistently reach approximately 150% of pre-expansion raw bran processing levels consistently in the second quarter of 2015.
 
Investing Activities

During 2014, the Corporate segment made additional investments in Nutra SA (Brazil segment) of $10.2 million, and in the period from January 1, 2015 to March 31, 2015, invested an additional $1.1 million.  We expect to provide additional equity to the Brazil segment through the second quarter of 2015 depending upon Irgovel’s operating performance and economic conditions in Brazil.

Financing Activities

In 2014, proceeds from public and private offerings, net of cash costs, totaled $18.7 million.  During the first quarter of 2014, we paid $0.5 million to redeem stock which had been issued to a lender in payment of fees.  In the second quarter of 2014, we paid our secured debt in full.  On May 31, 2014, all of our convertible debt outstanding, with a face amount of $9.4 million, converted into shares of our common stock and as of December 31, 2014, no convertible debt remains outstanding.  We believe that more traditional commercial bank debt financing at significantly lower interest rates may be available as our performance improves in 2015.

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 risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing and liquidity support or market risk or credit support risk to us.

Critical Accounting Policies

Principles of Consolidation – The consolidated financial statements include the accounts of RiceBran Technologies and all subsidiaries in which we have a controlling interest.  All significant inter-company accounts and transactions are eliminated in consolidation.  Noncontrolling interests in our subsidiaries are recorded net of tax as net earnings (loss) attributable to noncontrolling interests.

Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable represent amounts receivable on trade accounts.  The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of accounts receivable.  We analyze the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.  From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of the provision for doubtful accounts.  We periodically evaluate our credit policy to ensure that the customers are worthy of terms and support our business plans.

Inventories - Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method.  In the USA segment, we employ a full absorption procedure using standard cost techniques.  The standards are customarily reviewed and adjusted annually so that they are materially consistent with actual purchase and production costs.  In the Brazil segment we use actual average purchase and production costs.  Provisions for potentially obsolete or slow moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecasts.

Long-Lived Assets, Intangible Assets and Goodwill – Long-lived assets, consisting primarily of property, intangible assets, and goodwill, comprise a significant portion of our total assets.  Property is stated at cost less accumulated depreciation.  Depreciation is computed on the straight-line basis over the estimated useful lives.  Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized.  Gains or losses on the sale of property and equipment are reflected in the statements of operations.  Intangible assets are stated at cost less accumulated amortization.
 
We test goodwill and other indefinite-lived intangible assets for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.  Our annual qualitative or quantitative assessments involve determining an estimate of the fair value of our reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill and other indefinite-lived intangible assets exists.  A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test.  The first step of a quantitative goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill.  If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and, thus, the second step of the quantitative impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss, if any.  Fair values are derived based on an evaluation of past and expected future performance of our reporting units.

In assessing the recoverability of goodwill, we make estimates and assumptions about sales, operating margin, terminal growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.  While our annual impairment testing as of December 31, 2014, supported the carrying amount of goodwill, we may be required to reevaluate the carrying amount in future periods, thus utilizing different assumptions that reflect the then current market conditions and expectations, and, therefore, we could conclude that an impairment has occurred.

We review our long-lived assets, which include intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset.  An impairment loss is recognized based on the difference between the carrying values and estimated fair value.  The estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year.  Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences.  We also evaluate the amortization periods assigned to its intangible assets to determine whether events or changes in circumstances warrant revised estimates of useful lives. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.

Revenue Recognition – We recognize revenue for product sales when title and risk of loss pass to our customers, generally upon shipment for USA segment customers and Brazil segment international customers and upon customer receipt for Brazil segment domestic customers.  Each transaction is evaluated to determine if all of the following four criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured.  If any of the above criteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured.  Changes in judgments and estimates regarding the application of the above mentioned four criteria might result in a change in the timing or amount of revenue recognized by such transactions.

We make provisions for estimated returns, discounts and price adjustments when they are reasonably estimable.  Revenues on the statements of operations are net of provisions for estimated returns, routine sales discounts, volume allowances and adjustments.  Revenues on the statements of operations are also net of taxes collected from customers and remitted to governmental authorities.

Amounts billed to a customer in a sale transaction related to shipping costs are reported as revenues and the related costs incurred for shipping are included in cost of goods sold.

Derivative Warrant Liabilities –   We have certain warrant agreements in effect that contain antidilution clauses.  Under these clauses, we may be required to lower the exercise price on these warrants and issue additional warrants based on future issuances of our common stock and awards of options to employees, additional issuance of warrants and/or other convertible instruments below certain exercise prices.  We account for the warrants with these antidilution clauses as liability instruments.  These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations in other income (expense).

Share-Based Compensation – Share-based compensation expense for employees is calculated at the grant date using the Black-Scholes-Merton valuation model based on awards ultimately expected to vest, reduced for estimated forfeitures, and expensed on a straight-line basis over the service period of the grant.  Forfeitures are estimated at the time of grant based on our historical forfeiture experience and are revised in subsequent periods if actual forfeitures differ from those estimates.  The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management’s judgment regarding market factors and trends.  We treat options granted to employees of foreign subsidiaries as equity options.  We will use alternative valuation models if grants have characteristics that cannot be reasonably estimated using the Black-Scholes-Merton model.
 
We account for share-based compensation awards granted to non-employees and consultants by determining the fair value of the awards granted at either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured.  Generally we value options granted to non-employees and consultants using the Black-Scholes-Merton valuation model.  If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.  The expense associated with stock awards issued to consultants or other third parties are recognized over the term of service.  In the event services are terminated early or we require no specific future performance, the entire amount is expensed.  The value is re-measured each reporting period over the requisite service period.

Income Taxes – We account for income taxes by recording a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards.  Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for financial reporting and tax purposes during the year.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards.  A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is more likely than not that the related tax benefits will not be realized.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
RiceBran Technologies
Scottsdale, Arizona

We have audited the accompanying consolidated balance sheet of RiceBran Technologies (the Company) as of December 31, 2014, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RiceBran Technologies as of December 31, 2014, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations resulting in an accumulated deficit of $242.5 million at December 31, 2014. This factor among other things, raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to this matter are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum, LLP
 
Marcum, LLP
New York, NY
March 31, 2015
 
Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
RiceBran Technologies
Scottsdale, Arizona

We have audited the accompanying consolidated balance sheet of RiceBran Technologies (the Company) as of December 31, 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As described in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations.  This factor among other things, raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to this matter are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP

Phoenix, Arizona
March 31, 2014
 
RiceBran Technologies
Consolidated Balance Sheets
December 31, 2014 and 2013
(in thousands, except share amounts)

   
2014
   
2013
 
ASSETS
 
   
 
Current assets:
       
Cash and cash equivalents
 
$
3,610
   
$
5,091
 
Restricted cash
   
1,920
     
1,920
 
Accounts receivable, net of allowance for doubtful accounts of $574 and $501 (variable interest entity restricted $1,980 and $1,967)
   
3,055
     
2,673
 
Inventories
   
3,508
     
2,430
 
Operating taxes recoverable
   
737
     
585
 
Deferred tax asset
   
171
     
-
 
Deposits and other current assets
   
1,071
     
833
 
Total current assets
   
14,072
     
13,532
 
Property, net (variable interest entity restricted $3,727 and $4,969)
   
24,753
     
24,958
 
Goodwill
   
4,431
     
4,139
 
Intangible assets, net
   
2,740
     
1,417
 
Other long-term assets
   
88
     
532
 
Total assets
 
$
46,084
   
$
44,578
 
                 
LIABILITIES, TEMPORARY EQUITY AND EQUITY
               
Current liabilities:
               
Accounts payable
 
$
3,286
   
$
4,489
 
Accrued salary, wages and benefits
   
2,206
     
2,610
 
Accrued expenses
   
4,257
     
3,089
 
Other liabilities
   
573
     
523
 
Current maturities of debt (variable interest entity nonrecourse $4,758 and  $6,262)
   
4,808
     
8,250
 
Total current liabilities
   
15,130
     
18,961
 
Long-term debt, less current portion (variable interest entity nonrecourse $6,203 and $6,658)
   
11,288
     
10,919
 
Derivative warrant liabilities
   
955
     
1,685
 
Deferred tax liability
   
396
     
-
 
Total liabilities
   
27,769
     
31,565
 
                 
Commitments and contingencies
               
                 
Temporary Equity - Redeemable noncontrolling interest in Nutra SA
   
2,643
     
7,177
 
                 
Equity:
               
Equity attributable to RiceBran Technologies shareholders:
               
Preferred stock, 20,000,000 shares authorized and none issued
   
-
     
-
 
Common stock, no par value, 25,000,000 shares authorized, 9,383,571 and 2,832,014 shares issued and outstanding
   
261,299
     
227,513
 
Accumulated deficit
   
(242,470
)
   
(219,441
)
Accumulated other comprehensive loss
   
(3,157
)
   
(2,236
)
Total equity attributable to RiceBran Technologies shareholders
   
15,672
     
5,836
 
Total liabilities, temporary equity and equity
 
$
46,084
   
$
44,578
 

Notes to Consolidated Financial Statements
 
RiceBran Technologies
Consolidated Statements of Operations
Years Ended December 31, 2014 and 2013
(in thousands, except share and per share amounts)

   
2014
   
2013
 
         
Revenues
 
$
40,108
   
$
35,051
 
Cost of goods sold
   
35,639
     
31,106
 
Gross profit
   
4,469
     
3,945
 
                 
Operating expenses:
               
Selling, general and administrative
   
14,354
     
12,366
 
Depreciation and amortization
   
2,879
     
1,249
 
Impairment of property
   
-
     
300
 
Total operating expenses
   
17,233
     
13,915
 
                 
Loss from operations
   
(12,764
)
   
(9,970
)
                 
Other income (expense):
               
Interest income
   
115
     
109
 
Interest expense - accreted on debt converted to equity
   
(6,323
)
   
-
 
Interest expense - other
   
(4,011
)
   
(3,934
)
Change in fair value of derivative warrant and conversion liabilities
   
(1,209
)
   
(1,029
)
Financing expense
   
(2,072
)
   
(564
)
Loss on extinguishment
   
(906
)
   
(2,891
)
Foreign currency exchange, net
   
(174
)
   
(440
)
Other income
   
12
     
13
 
Other expense
   
(599
)
   
(373
)
Total other income (expense)
   
(15,167
)
   
(9,109
)
                 
Loss before income taxes
   
(27,931
)
   
(19,079
)
Income tax benefit
   
1,304
     
1,439
 
Net loss
   
(26,627
)
   
(17,640
)
Net loss attributable to noncontrolling interest in Nutra SA
   
3,598
     
2,619
 
Net loss attributable to RiceBran Technologies shareholders
 
$
(23,029
)
 
$
(15,021
)
                 
Loss per share attributable to RiceBran Technologies shareholders
               
Basic
 
$
(3.96
)
 
$
(12.95
)
Diluted
 
$
(3.96
)
 
$
(12.95
)
                 
Weighted average number of shares outstanding
               
Basic
   
5,809,364
     
1,160,196
 
Diluted
   
5,809,364
     
1,160,196
 

See Notes to Consolidated Financial Statements
RiceBran Technologies
Consolidated Statements of Comprehensive Loss
Years ended December 31, 2014 and 2013
(in thousands)

   
2014
   
2013
 
         
Net loss
 
$
(26,627
)
 
$
(17,640
)
                 
Other comprehensive loss - foreign currency translation, net of tax
   
(1,404
)
   
(1,362
)
                 
Comprehensive loss, net of tax
   
(28,031
)
   
(19,002
)
                 
Comprehensive loss attributable to noncontrolling interest, net of tax
   
4,081
     
3,285
 
                 
Total comprehensive loss attributable to RiceBran Technologies shareholders
 
$
(23,950
)
 
$
(15,717
)


See Notes to Consolidated Financial Statements
RiceBran Technologies
Consolidated Statements of Changes in Equity
Years Ended December 31, 2014 and 2013
(in thousands, except share amounts)

 
Common Stock
Accumulated
Accumulated
Other Comp-
Total
   
Shares
Amount
   
Deficit
   
rehensive Loss
   
Equity
 
                     
Balance, January 1, 2013
   
1,038,080
   
$
210,396
   
$
(204,420
)
 
$
(1,540
)
 
$
4,436
 
                                         
Share-based compensation, employees and directors
   
-
     
538
     
-
     
-
     
538
 
Stock and warrant offering proceeds, net
   
1,714,286
     
7,617
     
-
     
-
     
7,617
 
Conversion of senior debenture
   
28,429
     
500
     
-
     
-
     
500
 
Common stock issued for fees and services
   
48,556
     
744
     
-
     
-
     
744
 
Warrants issued for fees and services
   
-
     
204
     
-
     
-
     
204
 
Future shares issuance in the exchange for warrants
   
-
     
7,514
     
-
     
-
     
7,514
 
Reverse split, impact of rounding
   
2,663
     
-
     
-
     
-
     
-
 
Foreign currency translation
   
-
     
-
     
-
     
(696
)
   
(696
)
Net loss
   
-
     
-
     
(15,021
)
   
-
     
(15,021
)
Balance, December 31, 2013
   
2,832,014
     
227,513
     
(219,441
)
   
(2,236
)
   
5,836
 
                                         
Share-based compensation, employees and directors
   
281,620
     
729
     
-
     
-
     
729
 
Stock and warrant offering proceeds, net
   
2,786,781
     
13,296
     
-
     
-
     
13,296
 
Warrant issued in private placement offering
   
-
     
430
     
-
     
-
     
430
 
Issuance of shares to former warrant holders and a note holder
   
1,688,985
     
-
     
-
     
-
     
-
 
Debt conversions
   
1,724,461
     
10,109
     
-
     
-
     
10,109
 
Change in classification of warrants to equity from liability
   
-
     
8,902
     
-
     
-
     
8,902
 
Other
   
69,710
     
320
     
-
     
-
     
320
 
Foreign currency translation
   
-
     
-
     
-
     
(921
)
   
(921
)
Net loss
   
-
     
-
     
(23,029
)
   
-
     
(23,029
)
Balance, December 31, 2014
   
9,383,571
   
$
261,299
   
$
(242,470
)
 
$
(3,157
)
 
$
15,672
 

See Notes to Consolidated Financial Statements
RiceBran Technologies
Consolidated Statements of Cash Flows
Years Ended December 31, 2014 and 2013
(in thousands)

   
2014
   
2013
 
Cash flow from operating activities:
       
Net loss
 
$
(26,627
)
 
$
(17,640
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
3,956
     
3,025
 
Amortization
   
2,593
     
1,023
 
Provision for doubtful accounts receivable
   
251
     
226
 
Share-based compensation, employees and directors
   
729
     
538
 
Interest accreted
   
7,058
     
315
 
Change in fair value of derivative warrant and conversion liabilities
   
1,209
     
1,029
 
Loss on extinguishment
   
906
     
2,891
 
Financing expense
   
2,072
     
564
 
Impairment of property
   
-
     
300
 
Deferred tax benefit
   
(1,304
)
   
(1,248
)
Other
   
169
     
(68
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
(766
)
   
256
 
Inventories
   
(138
)
   
(561
)
Accounts payable and accrued expenses
   
(215
)
   
3,383
 
Other
   
40
     
765
 
Net cash used in operating activities
   
(10,067
)
   
(5,202
)
Cash flows from investing activities:
               
Acquisition of HN, net of cash acquired
   
(725
)
   
-
 
Purchases of property
   
(5,423
)
   
(3,119
)
Proceeds from sales of property
   
23
     
829
 
Payment for license
   
-
     
(1,200
)
Net cash used in investing activities
   
(6,125
)
   
(3,490
)
Cash flows from financing activities:
               
Payments of debt
   
(18,971
)
   
(18,404
)
Proceeds from issuance of debt
   
15,699
     
20,218
 
Proceeds from issuance of convertible debt and related warrants, net of costs
   
5,379
     
575
 
Proceeds from issuance of common stock and warrants, net of costs
   
13,296
     
7,617
 
Proceeds from sale of membership interests in Nutra SA, net of costs
   
120
     
1,200
 
Proceeds from sale of membership interests in RBT PRO, net of costs
   
-
     
1,200
 
Change in accumulated Yield in Nutra SA
   
(573
)
   
-
 
Other
   
124
     
408
 
Net cash provided by financing activities
   
15,074
     
12,814
 
Effect of exchange rate changes on cash and cash equivalents
   
(363
)
   
(71
)
Net change in cash and cash equivalents
   
(1,481
)
   
4,051
 
Cash and cash equivalents, beginning of year
   
5,091
     
1,040
 
Cash and cash equivalents, end of year
 
$
3,610
   
$
5,091
 
                 
Supplemental disclosures:
               
Cash paid for interest
 
$
2,628
   
$
2,537
 
Cash paid for income taxes
   
-
     
-
 


See Notes to Consolidated Financial Statements
 
RiceBran Technologies
Notes to Consolidated Financial Statements

NOTE 1. LIQUIDITY, MANAGEMENT PLANS AND GENERAL BUSINESS

Liquidity and Management’s Plans

In 2014, we continued to experience losses and negative cash flows from operations which raises substantial doubt about our ability to continue as a going concern.  W e 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 consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

As described further in Note 4 , in January 2014, we completed the acquisition of H&N Distribution, Inc. (HN), the operations of which are accretive to cash flows.  Our Brazilian subsidiary, Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), recently completed the final stages of a major capital expansion.  Significant cash was used during the shutdown period.  Operations at Irgovel are expected to normalize during the second quarter of 2015, such that Irgovel will then be operating at its newly increased capacity and begin generating cash from operations. However, there are no assurances that this will occur.

General Business

We are a human food ingredient, nutritional supplement and animal nutrition company focused on value-added processing and marketing of healthy, natural and nutrient dense products derived from raw rice bran an underutilized by-product of the rice milling industry.  Using our bio-refining business model, we apply our proprietary and patented technologies and intellectual properties to convert raw rice bran into numerous high value products including stabilized rice bran (SRB), rice bran oil (RBO), defatted rice bran (DRB), RiBalance, a complete rice bran nutritional package derived from further processing of SRB; RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluable derivative of RiBalance, and ProRyza, rice bran protein-based products, and a variety of other valuable derivatives extracted from these core products.  Our target markets are natural food, functional food, nutraceutical supplement and animal nutrition manufacturers, wholesalers and retailers, both domestically and internationally.

We have two reportable operating segments: (i) USA segment, which manufactures and distributes SRB (for human food ingredient and animal nutrition customers) in various granulations along with Stage II products and derivatives and (ii) Brazil segment, which extracts crude RBO and DRB from rice bran, which are then further processed into fully refined rice bran oil for sale internationally and in Brazil, compounded animal nutrition products for horses, cows, swine, sheep and poultry and a number of valuable human food and animal nutrition products derivatives and co-products. Stage II refers to the proprietary processes run at our Dillon, Montana facility and includes products produced at that facility using our patented processes. In addition we incur corporate and other expenses not directly attributable to reportable operating segments, which include costs related to our corporate staff, general and administrative expenses including public company expenses, intellectual property, professional fees, and other expenses.  No corporate allocations, including interest, are made to the reportable operating segments.

The combined operations of our USA and Brazil segments encompass our bio-refining approach to processing raw rice bran into various high quality, value-added constituents and finished products.  Over the past decade, we have developed and optimized our proprietary bio-refining processes to support the production of healthy, natural, hypoallergenic, gluten free, and non-genetically modified ingredients and supplements for use in human meats, baked goods, cereals, coatings, health foods, nutritional supplements, nutraceuticals and high-end animal nutrition and health products.

In 2014, the USA segment produced SRB inside two supplier rice mills in California and our facility in Mermentau, Louisiana.  A facility located in Lake Charles, Louisiana has been idle since May 2009.  The USA segment also includes our Dillon, Montana Stage II facility which produces our Stage II products: RiBalance, a complete rice bran nutritional package derived from further processing of SRB; RiSolubles, a highly nutritious, carbohydrate and lipid rich fraction of RiBalance; RiFiber, a fiber rich insoluable derivative of RiBalance, and ProRyza, rice bran protein-based products, and a variety of other valuable derivatives extracted from these core products.     The manufacturing facilities included in our USA segment have proprietary processing equipment and process patented technology for the stabilization and further processing of rice bran into finished products.  In 2014, approximately 82% of USA segment revenue was from sales of human food products and the remainder was from sales of animal nutrition products.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
The Brazil segment consists of the consolidated operations of Nutra SA, whose only operating subsidiary is Irgovel, located in Pelotas, Brazil.  Irgovel manufactures RBO and DRB products for both the human ingredient and animal nutrition markets in Brazil and internationally.  In refining RBO to an edible grade, several co-products are obtained.  One such product is distilled fatty acids, a valuable raw material for the detergent industry.  Irgovel also produces rice lecithin, which has application in human nutrition, animal nutrition and industrial applications.  DRB is compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market, sold as a raw material for further processing into human food ingredients or sold in bulk into the animal nutrition markets in Brazil and neighboring countries.  In 2014, approximately 39% of Brazil segment product revenue was from sales of RBO products and the remainder was from sales of DRB products.  Irgovel, however, was shut down for a portion of 2014 to complete the final stages of a capital expansion project, which caused a temporary change in sales mix.  We expect RBO sales to return to historical levels, approximately 45% of product revenues, in the near future.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated financial statements include the accounts of RiceBran Technologies and all subsidiaries in which we have a controlling interest.  Variable interest in subsidiaries for which we are the primary beneficiary are consolidated.  All significant inter-company accounts and transactions are eliminated in consolidation.  Noncontrolling interests in our subsidiaries are recorded net of tax as net earnings (loss) attributable to noncontrolling interests.

Foreign Currencies - The consolidated financial statements are presented in our reporting currency, U.S. Dollars.  The functional currency for Irgovel is the Brazilian Real.  Assets and liabilities of Irgovel are translated into U.S. Dollars using the exchange rate in effect at the consolidated balance sheet date.  Equity accounts are translated at historical rates, except for the change in accumulated deficit during the year, which is the result of the income statement translation process. Irgovel’s revenues and expenses are translated using the average exchange rates in effect during the period.  Translation differences are recorded in accumulated other comprehensive income (loss) as foreign currency translation.  Gains or losses on transactions denominated in a currency other than Irgovel’s functional currency which arise as a result of changes in foreign exchange rates are recorded as foreign exchange gain or loss in the statements of operations. As of March 31, 2015, the Brazilian Real has fallen against the U.S. Dollar since December 31, 2014, by approximately 17%.

Cash and Cash Equivalents – We consider all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents.  As of December 31, 2014, we maintained our cash, including restricted cash, and cash equivalents, with major banks.  We maintain cash in bank accounts in amounts which at times may exceed federally insured limits.  We have not experienced any losses on such accounts.

Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable represent amounts receivable on trade accounts.  The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts and the aging of accounts receivable.  We analyze the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.  From period to period, differences in judgments or estimates utilized may result in material differences in the amount and timing of the provision for doubtful accounts.  We periodically evaluate our credit policy to ensure that the customers are worthy of terms and support our business plans.

Inventories - Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method.  In the USA segment, we employ a full absorption procedure using standard cost techniques.  The standards are customarily reviewed and adjusted annually so that they are materially consistent with actual purchase and production costs.  In the Brazil segment we use actual average purchase and production costs.  Provisions for potentially obsolete or slow moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecasts.

Long-Lived Assets, Intangible Assets and Goodwill – Long-lived assets, consisting primarily of property, intangible assets, and goodwill, comprise a significant portion of our total assets.  Property is stated at cost less accumulated depreciation.  Depreciation is computed on the straight-line basis over the estimated useful lives.  Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized.  Gains or losses on the sale of property and equipment are reflected in the consolidated statements of operations.  Intangible assets are stated at cost less accumulated amortization and are amortized over their useful life on a straight-line or accelerated basis.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
We test goodwill and other indefinite-lived intangible assets for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying value.  Our annual qualitative or quantitative assessments involve determining an estimate of the fair value of our reporting units in order to evaluate whether an impairment of the current carrying amount of goodwill and other indefinite-lived intangible assets exists.  A qualitative assessment evaluates whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test.  The first step of a quantitative goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill.  If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and, thus, the second step of the quantitative impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss, if any.  Fair values are derived based on an evaluation of past and expected future performance of our reporting units.

In assessing the recoverability of goodwill, we make estimates and assumptions about sales, operating margin, terminal growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.  No impairment was deemed to exist as of December 31, 2014.

We review our long-lived assets, which include intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset.  An impairment loss is recognized based on the difference between the carrying values and estimated fair value.  The estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year.  Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences.  We also evaluate the amortization periods assigned to its intangible assets to determine whether events or changes in circumstances warrant revised estimates of useful lives. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.

Revenue Recognition – We recognize revenue for product sales when title and risk of loss pass to our customers, generally upon shipment for USA segment customers and Brazil segment international customers and upon customer receipt for Brazil segment domestic customers.  Each transaction is evaluated to determine if all of the following four criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured.  If any of the above criteria cannot be satisfied then such a transaction is not recorded as revenue, or is recorded as deferred revenue and recognized only when the sales cycle is complete and payment is either received or becomes reasonably assured.  Changes in judgments and estimates regarding the application of the above mentioned four criteria might result in a change in the timing or amount of revenue recognized by such transactions.

We make provisions for estimated returns, discounts and price adjustments when they are reasonably estimable.  Revenues on the statements of operations are net of provisions for estimated returns, routine sales discounts, volume allowances and adjustments.  Revenues on the statements of operations are also net of taxes collected from customers and remitted to governmental authorities.

Amounts billed to a customer in a sale transaction related to shipping costs are reported as revenues and the related costs incurred for shipping are included in cost of goods sold.

Research and Development – Research and development expenses include internal and external costs.  Internal costs include salaries and employment related expenses.  External expenses consist of costs associated with product development.  All such costs are charged to expense in the period they are incurred.

Derivative Conversion Liabilities – We had certain convertible debt outstanding that contained antidilution clauses.  Under these clauses, we were required to lower the conversion price on the convertible debt based on certain issuances of our common stock, awards of options to employees, additional issuance of warrants and/or other convertible instruments below certain conversion prices.  We accounted for the conversion liabilities associated with these antidilution clauses as liability instruments, separate from the host debt.  The conversion liabilities were classified as debt on our consolidated balance sheets.  These conversion liabilities were valued using the lattice model in each reporting period and the resultant change in fair value was recorded in the consolidated statements of operations in other income (expense).  There were no derivative conversion liabilities at December 31, 2014.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
Derivative Warrant Liabilities –   We have certain warrant agreements in effect that contain antidilution clauses.  Under these clauses, we may be required to lower the exercise price on these warrants and issue additional warrants based on future issuances of our common stock and awards of options to employees, additional issuance of warrants and/or other convertible instruments below certain exercise prices.  We account for the warrants with these antidilution clauses as liability instruments.  These warrants are valued using the lattice model in each reporting period and the resultant change in fair value is recorded in the consolidated statements of operations in other income (expense).

Share-Based Compensation – Share-based compensation expense for employees is calculated at the grant date using the Black-Scholes-Merton valuation model based on awards ultimately expected to vest, reduced for estimated forfeitures, and expensed on a straight-line basis over the service period of the grant.  Forfeitures are estimated at the time of grant based on our historical forfeiture experience and are revised in subsequent periods if actual forfeitures differ from those estimates.  The Black-Scholes-Merton option pricing model requires us to estimate key assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based awards, based on both historical information and management’s judgment regarding market factors and trends.  We will use alternative valuation models if grants have characteristics that cannot be reasonably estimated using the Black-Scholes-Merton model.

We account for share-based compensation awards granted to non-employees and consultants by determining the fair value of the awards granted at either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured.  Generally we value options granted to non-employees and consultants using the Black-Scholes-Merton valuation model.  If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.  The expense associated with stock awards issued to consultants or other third parties are recognized over the term of service.  In the event services are terminated early or we require no specific future performance, the entire amount is expensed.  The value is re-measured each reporting period over the requisite service period.

Income Taxes – We account for income taxes by recording a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards.  Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for financial reporting and tax purposes during the year.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards.  A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is more likely than not that the related tax benefits will not be realized.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Because of the uncertainty inherent in such estimates, actual results could differ from those estimates.

Reclassifications – Certain reclassifications have been made to amounts reported for the prior year to achieve consistent presentation with the current year.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on revenue from contracts with customers, which supersedes current revenue recognition guidance and most industry-specific guidance.  Under the new standard we will recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which we expect to be entitled in exchange for those goods or services.  Revenue from a contract that contains multiple performance obligations will be allocated to each performance obligation generally on a relative standalone selling price basis.  The guidance is effective for our annual and interim periods beginning in 2017.  Early adoption is prohibited.  We have not yet determined the impact that the new guidance will have on our results of operations and financial position and have not yet determined the method by which we will adopt the standard in 2017.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
In February 2015, the FASB issued guidance which makes targeted amendments to current consolidation guidance.  Among other things, the standard changes the manner in which we would assesses one of the characteristics of variable interest entities (VIEs) and introduces a separate analyses specific to limited partnerships and similar entities (such as Nutra SA) for assessing if the equity holders at risk lack decision making.  Limited partnerships and similar entities will be a VIE unless the limited partners hold substantive kick-out rights or participating rights.  A right to liquidate an entity is akin to a kick-out right.  Guidance for limited partnerships under the voting model has been eliminated.  A limited partner and similar partners with a controlling financial interest obtained through substantive kick out rights would consolidate a limited partnership or similar entity. The guidance is effective for our annual and interim periods beginning in 2016.  Early adoption is allowed.  We have not yet determined the impact that the new guidance will have on our results of operations and financial position and have not yet determined if we will early adopt the standard.

NOTE 3. LOSS PER SHARE (EPS)

Basic EPS is computed by dividing net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of common shares outstanding during all periods presented.  Shares underlying options, warrants and convertible debt are excluded from the basic EPS calculation but are considered in calculating diluted EPS.  Nonvested shares that vest solely on the basis of a service condition are not included in the denominator of the computation of basic EPS.

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 effect of outstanding options and warrants is calculated using the treasury stock method.  The dilutive effect of outstanding convertible debt is calculated using the if-converted method.  Nonvested shares that vest solely on the basis of a service condition are included in the denominator of the computation of diluted EPS during their requisite service period under the treasury stock method.

Below are reconciliations of the numerators and denominators in the EPS computations.

   
2014
   
2013
 
NUMERATOR (in thousands):
       
Basic and diluted - net loss attributable to RiceBran Technologies shareholders
 
$
(23,029
)
 
$
(15,021
)
                 
DENOMINATOR:
               
Basic EPS - weighted average number of shares outstanding
   
5,809,364
     
1,160,196
 
Effect of dilutive securities outstanding
   
-
     
-
 
Diluted EPS - weighted average number of shares outstanding
   
5,809,364
     
1,160,196
 
                 
               
     
               
               
Number of shares of common stock which could be purchased with weighted average outstanding securities not included in diluted EPS because effect would be antidilutive-Stock options (average exercise price of $18.56 and $26.90 )
   
201,584
     
179,493
 
Warrants (average exercise price of $5.92 and $17.71)
   
4,651,380
     
809,311
 
Convertible debt
   
-
     
414,683
 
Nonvested Stock
   
87,167
     
-
 
 
The impacts of potentially dilutive securities outstanding at December 31, 2014 and 2013, were not included in the calculation of diluted EPS in 2014 and 2013 because to do so would be antidilutive.  Those securities listed in the table above which were antidilutive in 2014 and 2013, which remain outstanding, could potentially dilute EPS in the future.

NOTE 4. HN ACQUISITION

In January 2014, we purchased all of the outstanding shares of HN for $2.0 million in cash ($1.8 million paid in January 2014 and $0.2 million payable upon the resolution of certain contingencies) and promissory notes in the face amount of $3.3 million, subject to working capital adjustments.  HN is an Irving, Texas-based formulator and co-packer of products targeted at customers in the direct marketing, internet sales and retail distribution markets. HN serves the natural products, nutritional supplement, nutraceutical and functional food (NFF) sectors We acquired HN as part of our strategy to vertically integrate our business in order to leverage our proprietary and patented technologies.   The acquisition has been accounted for as a business combination.  The results of HN’s operations are included in our consolidated financial statements beginning January 2, 2014, and are included in our USA segment.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
In the first quarter of 2014, we incurred $0.3 million of acquisition-related costs which are included in selling, general and administrative expenses in the consolidated statements of operations.  The following table summarizes the aggregate purchase price allocation, the consideration transferred to acquire HN, as well as the amounts of identified assets acquired and liabilities assumed based on the estimated fair value as of the January 2, 2014, acquisition date (in thousands).
 
Cash
 
$
1,800
 
Cash holdback for contingencies
   
200
 
Convertible notes payable
   
2,785
 
Total fair value of consideration transferred
   
4,785
 
         
Financial assets, including acquired cash of $1,075
   
1,314
 
Inventories
   
1,109
 
Property
   
963
 
Identified intangible asset
   
3,847
 
Deferred  income taxes, net
   
(1,529
)
Financial liabilities
   
(1,709
)
Net recognized amounts of identifiable assets acquired
   
3,995
 
Goodwill - USA segment
 
$
790
 
 
The terms of the convertible notes payable are further discussed in Note 10.  The fair value of trade receivables at January 2, 2014, was $0.1 million which equaled the gross amount receivable.  We assigned a $3.8 million value to a customer relationship intangible and we are amortizing that intangible over a three-year period.  In 2014, we recognized $1.7 million of amortization expense in the USA segment related to this intangible and expect to recognize $1.3 million in 2015 and $0.9 million in 2016. 

Our consolidated revenues include $12.1 million of HN revenues for 2014.  After making a reasonable effort, we have been unable to determine the underlying information required to prepare pro forma information for 2013, as if the HN acquisition had occurred January 1, 2013.  After making a reasonable effort, we have been unable to determine net income (loss) attributable to HN resulting from it being fully integrated into the USA segment during 2014.

NOTE 5. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA

We hold a variable interest which relates to our majority equity interest in Nutra SA, LLC (Nutra SA).  We are the primary beneficiary of Nutra SA, and as such, Nutra SA’s assets, liabilities and results of operations are included in our consolidated financial statements.  The other equity holders’ interests are reflected in net loss attributable to noncontrolling interest in Nutra SA, in the consolidated statements of operations, and redeemable noncontrolling interest in Nutra SA, in the consolidated balance sheets.  Our variable interest in Nutra SA is our Brazil segment.  A summary of the carrying amounts of Nutra SA balances included in our consolidated balance sheets follows (in thousands).

   
December 31,
 
   
2014
   
2013
 
Cash and cash equivalents
 
$
269
   
$
1,686
 
Other current assets (restricted $1,980 and $1,967)
   
4,735
     
4,546
 
Property, net (restricted $3,727 and $4,969)
   
15,258
     
17,672
 
Goodwill and intangibles, net
   
3,722
     
4,812
 
Other noncurrent assets
   
34
     
27
 
Total assets
 
$
24,018
   
$
28,743
 
                 
Current liabilities
 
$
5,346
   
$
6,514
 
Current portion of long-term debt (nonrecourse)
   
4,758
     
6,262
 
Long-term debt, less current portion (nonrecourse)
   
6,203
     
6,658
 
Total liabilities
 
$
16,307
   
$
19,434
 

Nutra SA’s debt is secured by its accounts receivable and property.
 
The non-Brazilian entities in our consolidated group do not guarantee any of Nutra SA’s debt.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
A summary of changes in redeemable noncontrolling interest in Nutra SA follows (in thousands):
 
   
2014
   
2013
 
Redeemable noncontrolling interest in Nutra SA, beginning of period
 
$
7,177
   
$
9,262
 
Investors' interest in net loss of Nutra SA
   
(3,598
)
   
(2,619
)
Investors' interest in accumulated other comprehensive loss of Nutra SA
   
(483
)
   
(666
)
Investors' purchase of additional units
   
120
     
1,200
 
Accumulated Yield classified as other current liability
   
(573
)
   
-
 
Redeemable noncontrolling interest in Nutra SA, end of period
 
$
2,643
   
$
7,177
 
                 
Investors' average interest in Nutra SA during the period
   
40.0
%
   
49.0
%
Investors' interest in Nutra SA as of period end
   
34.7
%
   
45.9
%
 
In December 2010, we entered into a membership interest purchase agreement (MIPA) with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (Investors).  The Investors’ share of Nutra SA’s net income (loss) increases (decreases) redeemable noncontrolling interest.  We are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the MIPA.  In 2014 and 2013, we invested an additional $10.3 million and $3.9 million in Nutra SA.

Redeemable noncontrolling interest in Nutra SA is recorded in temporary equity, above the equity section and after liabilities on our consolidated balance sheets, because the Investors have drag along rights which provide the Investors the ability to force a sale of Nutra SA assets in the future.  We have assessed the likelihood of the Investors exercising these rights as less than probable at December 31, 2014.  We will continue to evaluate the probability of the Investors exercising their drag along rights each reporting period.  We will begin to accrete the redeemable noncontrolling interest up to fair value if and when it is probable the Investors will exercise these rights.

Under the limited liability company agreement for Nutra SA (LLC agreement), as amended, any units held by the Investors beginning January 1, 2014, accrue a yield at 4% (the Yield).  Commencing with the first quarter of 2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors, to the extent there is distributable cash, as defined in the LLC agreement.  As of December 31, 2014, our balance sheet includes an other liability of $0.6 million for Yield accumulated and unpaid.  Nutra SA has made no Yield payments.

Following the payment of the Yield, Nutra SA must distribute all distributable cash (as defined in the LLC Agreement) to the members on March 31 of each year as follows: (i) first, to the Investors in an amount equal to 2.3 times the Investors’ capital contributions, less the aggregate amount of non-Yield distributions paid to the Investors, (ii) second, to us in an amount equal to twice the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iii) third, to us and the Investors in proportion to our respective membership interests.

Under the LLC agreement, the business of Nutra SA is to be conducted by the manager, currently our CEO, subject to the oversight of the management committee.  The management committee is comprised of three of our representatives and two Investor representatives.  Upon an event of default or a qualifying event, we will no longer control the management committee and the management committee will include three Investor representatives and two of our representatives.  In addition, following an event of default or a qualifying event, a majority of the members of the management committee may replace the manager of Nutra SA.

As of December 31, 2014, there have been no unwaived events of default.  Events of default, as defined in the MIPA and the October 2013 amendment of investment agreements, are failure of Irgovel to meet minimum annual processing targets or to achieve EBITDA of at least $4.0 million in any year beginning in 2015.

As of December 31, 2014, there have been no qualifying events.  The LLC agreement defines a qualifying event as any event prior to September 16, 2014, which results, or will result, in (i) a person or group of persons exercising the right to appoint members to our board of directors holding one third or more of the votes of all board members, (ii) the sale, exchange, pledge or use as guarantee of one half or more of our ownership interest in Nutra SA to a third party or (iii) the bankruptcy of RiceBran Technologies or Nutra SA.

The Investors have drag along rights, the right to begin a process to force the sale of all Nutra SA assets after January 1, 2016.  The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined).  We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale.

RiceBran Technologies
Notes to Consolidated Financial Statements
 
In evaluating whether we are the primary beneficiary of Nutra SA, we considered the matters which could be put to a vote of the members.  Until there is an event of default or a qualifying event, the Investors’ rights and abilities, individually or in the aggregate, do not allow them to substantively participate in the operations of Nutra SA.  The Investors do not currently have the ability to dissolve Nutra SA or otherwise force the sale of all its assets.  They do have drag along rights in the future.  We will continue to evaluate our ability to control Nutra SA each reporting period.

Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the LLC agreement.

NOTE 6. CONCENTRATION OF RISK

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of trade accounts receivable.  We perform ongoing credit evaluations on our customers’ financial condition and generally do not require collateral.

One USA segment customer accounted for approximately 28% of our revenues in 2014, none of our revenues in 2013, and 2.9% of our receivables as of December 31, 2014.  A second USA segment customer accounted for none of our sales in 2014 and 6% of our sales in 2013, none of our outstanding accounts receivable at December 31, 2014 and 2013.  A third Brazil segment customer accounted for approximately 3% and 5% of our sales in 2014 and 2013 and approximately 7% and 16% of our accounts receivable balances at December 31, 2014 and 2013.  A fourth Brazil segment customer accounted for approximately 3% and 9% of our sales in 2014 and 2013 and approximately 22% and 4% of our accounts receivable balances at December 31, 2014 and 2013.  A fifth Brazil segment customer accounted for approximately 4% and 9% of our sales in 2014 and 2013 and approximately 3% and 10% of our accounts receivable balances at December 31, 2014 and 2013.

As of December 31, 2014, 232 of our 295 employees were located in Brazil.  All of our employees in Brazil are represented by a labor union and are covered by a collective bargaining agreement.

At December 31, 2014, Brazil made up $2.0 million of the $3.1 million consolidated accounts receivable balance, net of allowance for doubtful accounts.

NOTE 7. INVENTORIES

Inventories are composed of the following (in thousands):
 
   
As of December 31,
 
   
2014
   
2013
 
Finished goods
 
$
1,103
   
$
1,194
 
Work in process
   
380
     
546
 
Raw materials
   
1,441
     
441
 
Packaging supplies
   
584
     
249
 
Total inventories
 
$
3,508
   
$
2,430
 
 
NOTE 8. PROPERTY

Property consists of the following (in thousands):

   
As of December 31,
   
   
2014
   
2013
Estimated Useful Lives
Land
 
$
364
   
$
382
   
Furniture and fixtures
   
539
     
553
 
5-10 years
Plant
   
15,942
     
14,582
 
25-30 years, or life of lease
Computer and software
   
1,701
     
1,437
 
3-5 years
Leasehold improvements
   
568
     
200
 
4-7 years or life of lease
Machinery and equipment
   
21,519
     
14,557
 
5-10 years
Construction in progress
   
-
     
7,517
   
Subtotal
   
40,633
     
39,228
   
Less accumulated depreciation
   
15,880
     
14,270
   
Property, net
 
$
24,753
   
$
24,958
   
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
NOTE 9. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consist of the following (in thousands):
 
   
USA Segment
   
Brazil Segment
   
Total
 
   
Patents
   
Trademarks
   
Customer
Lists
   
Trademarks
   
Customer
Lists
   
Intangible
Assets
 
December 31, 2014
                       
Cost
 
$
1,697
   
$
76
   
$
6,524
   
$
2,607
   
$
953
   
$
11,857
 
Accumulated amortization
   
(1,296
)
   
-
     
(4,343
)
   
(2,547
)
   
(931
)
   
(9,117
)
Net book value
 
$
401
   
$
76
   
$
2,181
   
$
60
   
$
22
   
$
2,740
 
                                                 
December 31, 2013
                                               
Cost
 
$
1,697
   
$
48
   
$
2,677
   
$
2,964
   
$
1,084
   
$
8,470
 
Accumulated amortization
   
(1,170
)
   
(41
)
   
(2,466
)
   
(2,472
)
   
(904
)
   
(7,053
)
Net book value
 
$
527
   
$
7
   
$
211
   
$
492
   
$
180
   
$
1,417
 
                                                 
Estimated useful lives
 
17 years
   
Indefinite
   
3 - 7 years
   
7 years
   
7 years
         

Amortization expense is expected to be $1.5 million in 2015, $1.0 million in 2016, $0.1 million in 2017 and $0.1 million in 2018.  Goodwill does not amortize.  A summary of goodwill activity follows for 2014 and 2013.

   
2014
   
2013
 
Goodwill, beginning of period
 
$
4,139
   
$
4,773
 
USA Segment - Acquisition of HN
   
790
     
-
 
Brazil segment - Effect of foreign currency translation
   
(498
)
   
(634
)
Goodwill, end of period
 
$
4,431
   
$
4,139
 

NOTE 10. EQUITY AND SHARE-BASED COMPENSATION

In May 2014, our shareholders approved an increase in our authorized shares of common stock from 6,000,000 shares to 25,000,000 shares. In June 2013, our shareholders approved an increase in the number of our authorized shares of common stock from 2,500,000 to 6,000,000.

On October 28, 2013, our board of directors approved a 1 for 200 reverse split of our common stock.  We began trading on a post-split basis on November 18, 2013.  All share and per share information has been retrospectively adjusted for all prior periods presented giving retroactive effect to the reverse stock split.  Such adjustments include calculations of our weighted averages number of shares outstanding and loss per share, as well as disclosures regarding our share-based compensation and convertible debt.

We have never declared or paid dividends on our common stock and have no plans to pay dividends in the foreseeable future.  Pursuant to the terms of the senior convertible debentures, we may not pay any dividends while a debenture is outstanding.  Cash provided by operations in our Brazil segment is generally unavailable for distribution to our Corporate and USA segments pursuant to the terms of the limited liability company agreement for Nutra SA .

Stock, Convertible Note and Warrant Offerings

In December 2013, we completed a secondary public offering in which we issued and sold 1,714,286 shares of common stock for $5.24 per share and publicly traded warrants to purchase 1,714,286 shares of common stock for $0.01 per underlying share.  The net proceeds from the offering were $7.6 million after deducting underwriting discounts and commissions of $0.7 million and other offering expenses of approximately $1.4 million.  The publicly traded warrants have an exercise price of $6.55 per share and expire in December 2018.  The underwriters on the offering also received a warrant for the purchase of 85,715 shares, at an exercise price of $6.55 per share, which expires in December 2018.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
In January 2014, an underwriter exercised its overallotment rights related to our December 2013 secondary public offering.  We issued and sold 162,586 shares of common stock for $5.24 per share and publicly traded warrants to purchase 162,586 shares of common stock ($6.55 per share exercise price and December 2018 expiration) for $0.01 per underlying share.  In connection with the overallotment exercise, the underwriters for the offering also received a warrant for the purchase of 8,130 shares of common stock (exercise price of $6.55 per share and December 2018 expiration).  The net proceeds from the overallotment exercise were $0.8 million, after deducting underwriting discounts and commissions and other cash offering expenses of $0.1 million, and are included in equity. 

We completed the first closing of a private placement offering in March 2014.   We issued convertible notes in the principal amount of $4.9 million and warrants for the purchase of up to 1,399,614 shares of common stock ($5.25 per share exercise price and March 2019 expiration).   We contributed $1.0 million of the $4.3 million proceeds, net of $0.6 million of costs, to Nutra SA, and used the remainder of the proceeds for capital projects in the United States and for general corporate purposes.  On a fully diluted basis, at issuance we had available shares of common stock for 15.8% of the shares underlying the Warrants.  To the extent there were available shares, we allocated proceeds to equity for the warrants ($0.4 million).  We recorded a derivative liability for the warrants to the extent there were not available shares ($5.0 million).  We recorded $1.1 million in financing expense at closing representing the excess of the amounts recorded for the warrants over the net proceeds from the offering.  The convertible notes issued in the offering were initially recorded with a discount equal to the face amount of the notes.  As discussed below, in Debt Conversions section, these notes converted in May 2014.

We completed the second closing of the private placement offering in May 2014.   We issued convertible notes in the principal amount of $1.2 million and warrants for the purchase of up to 357,075 shares of common stock, with an exercise price of $5.25 per share and a May 2019 expiration.  We contributed $0.5 million of the $1.1 million proceeds, net of $0.2 million of costs, to Nutra SA, and used the remainder of the proceeds for capital projects in the United States and for general corporate purposes.  On a fully diluted basis, at issuance we had no available shares of common stock for the shares underlying these warrants and, as a result, recorded a derivative liability for the fair value of these warrants at issuance ($2.0 million).  We recorded $1.0 million in financing expense at closing, representing the excess of the amounts recorded for the warrants over the net proceeds from the offering.  The convertible notes issued in the offering were initially recorded with a discount equal to the face amount of the notes.  As discussed below, in Debt Conversions section, these notes converted in May 2014.

In late June 2014, we issued and sold 1,417,500 shares of common stock for $5.29 per share and warrants to purchase 708,750 shares of common stock (exercise price of $5.87 per share and June 2019 expiration) for $0.01 per underlying share.  The underwriters for the offering also received a warrant for the purchase of 85,050 shares of common stock (exercise price of $6.625 per share and June 2019 expiration).  The net proceeds from the offering of $6.8 million, after deducting underwriting discounts and commissions and other cash offering expenses of $0.7 million, are included in common stock.   We contributed $3.0 million of the proceeds to Nutra SA and used $0.8 million of the proceeds to pay all amounts due under the USA segment senior revolving note.

In a separate agreement occurring in mid June 2014, we issued warrants to purchase 265,000 shares of common stock (exercise price of $5.25 per share and June 2019 expiration).

In October 2014, we issued and sold 1,181,695 shares of common stock and warrants to purchase 1,181,695 shares of common stock (exercise price of $5.27 per share, exercisable beginning April 2015, April 2020 expiration) for $5.40 per unit, where a unit is one share of common stock and a warrant to purchase one share of common stock.  The underwriters of the offering also received a warrant for the purchase of 94,536 shares of common stock (exercise price of $5.27 per share and October 2019 expiration).  The net proceeds from the offering of $5.8 million, after deducting underwriting discounts and commissions and other estimated cash offering expenses of $0.6 million, are included in common stock.  We intend to use the proceeds for investments in USA segment capital projects and to fund Brazil working capital needs.

Issuance of Shares to Former Warrant Holders and Note Holder

In the fourth quarter of 2013, the holders of our subordinated convertible notes agreed to amend their notes to reduce the interest rate to 5% from 10%, change the maturity of the notes to July 2016 (if there was a different maturity date) and to remove the conversion feature and antidilution protections upon the closing of an equity raise in excess of $7.0 million (Modification).  Concurrently, certain warrant holders agreed to exchange warrants to purchase 496,060 shares of common stock for the future issuance of 1,554,734 shares of our common stock (Exchange).  Most of the warrants impacted (warrants to purchase 441,395 shares) were warrants issued to the note holders when their notes were originally issued and had contained antidilution protections which caused them to be carried at fair value on our balances sheets.  The former warrant holders committed to exchange their warrants, which were cancelled upon our closing an equity raise in the fourth quarter of 2013 .  The fair market value of the shares was recorded in common stock in the fourth quarter of 2013.  We issued the shares, as required, after shareholders approved an increase in our authorized shares of common stock in May 2014.
 
RiceBran Technologies
Notes to Consolidated Financial Statements

In the fourth quarter of 2013, we also issued $500,000 of notes to a holder and agreed to issue the holder 134,250 shares of common stock.  The fair market value of the shares was recorded in common stock in the fourth quarter of 2013.  We issued these shares, as required, after shareholders approved an increase in our authorized shares of common stock in May 2014.

Debt Conversions

In connection with the January 2014 acquisition of HN, we issued convertible promissory notes in the face amount of $3.3 million.  The notes were due in equal quarterly payments commencing on March 31, 2015, and ending on December 31, 2018 and bore interest at 1% per year until January 2015, 5% per year from February 2015 until January 2016 and 10% per year after January 2016.  We recorded the notes at their $2.2 million fair value and the conversion features at their $0.6 million fair value on the date of issuance.  We accreted the notes at an effective interest rate of 18.9%, until the notes, and accumulated interest thereon, converted into 543,894 shares of common stock upon our issuance of shares to the former warrant holders in the Exchange.  The notes converted in May 2014.  Upon conversion, we recognized a $0.9 million loss on extinguishment for the difference between the fair value of the shares issued ($3.9 million) and the carrying amount of the notes ($2.4 million) and related conversion feature ($0.6 million).

The convertible notes issued in the March 2014 and May 2014 private placement closings, due in July 2016, bore interest at 5% interest until the $6.2 million outstanding on the notes, including accumulated interest thereon (less than $0.1 million), automatically converted in May 2014, at a conversion price of $5.25, into 1,180,567 shares of common stock upon shareholders voting to approve an increase in our authorized shares of common stock.  When the notes converted, we recognized interest expense of $6.2 million, to accrete the notes to their face value, and increased equity $6.2 million.

Warrants Reclassified to Equity

Shares of available common stock increased in 2014 as a result of (i) the expiration of certain outstanding warrants and options and (ii) the 19,000,000 share increase in our authorized shares of common stock.  As a result, during the second quarter of 2014, we transferred to equity the $8.9 million fair value of warrants previously classified as derivative liabilities solely due to a lack, on a fully-diluted basis, of available shares of common stock.

Equity Incentive Plans, Options and Warrants

A summary of stock option and warrant activity for 2014 and 2013 follows.
 
   
Options
   
Equity and Liability Warrants
 
   
Shares
Under
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding, January 1, 2013
   
169,254
   
$
32.00
     
6.3
     
806,769
   
$
24.00
     
3.5
 
Granted
   
40,000
     
15.38
             
1,859,111
     
6.85
         
Impact of anti-dilution clauses
   
-
   
NA
             
385,292
   
NA
         
Impact of amendment
   
-
   
NA
             
(496,061
)
 
NA
         
Exercised
   
-
   
NA
             
-
     
-
         
Forfeited, expired or cancelled
   
(29,817
)
   
50.58
             
(148,829
)
   
66.92
         
Outstanding, December 31, 2013
   
179,437
     
24.28
     
6.2
     
2,406,282
     
6.33
     
4.5
 
Granted or issued
   
141,134
     
4.77
             
4,262,436
     
5.44
         
Exercised
   
-
   
NA
             
-
     
-
         
Forfeited, expired or cancelled
   
(50,929
)
   
34.61
             
(164,759
)
   
5.24
         
Outstanding, December 31, 2014
   
269,642
   
$
12.12
     
7.9
     
6,503,959
   
$
5.77
     
4.3
 
Exercisable, December 31, 2014
   
138,671
   
$
18.50
     
6.2
     
5,322,264
   
$
5.88
     
4.1
 
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
Our board of directors adopted our 2014 equity incentive plan in August 2014, after the plan was approved by shareholders.  A total of 1,600,000 shares of common stock were initially reserved for issuance under the plan.  Under the terms of the plan, we may grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services on such terms as are determined by the board of directors.  Our board of directors administers the plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients.  The options granted under the plan have terms of up to 10 years.  As of December 31, 2014, options to purchase 141,134 shares have been issued and remain outstanding, 281,620 common shares have been issued and remain outstanding and 1,177,246 shares are reserved for future grants.

Our board of directors adopted our 2010 Equity Incentive Plan (2010 Plan) in February 2010.  A total of 125,000 shares of common stock were initially reserved for issuance under the 2010 Plan.  The amount reserved increased annually each January 1st by 5% of the outstanding shares as of the prior December 31st.  Additionally, in 2011 the board approved a 40,000 increase in the number of shares of common stock reserved under the plan.

Under the terms of the 2010 Plan, we could grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services on such terms as are determined by the board of directors.  Our board of directors administered the 2010 Plan, determined vesting schedules on plan awards and could accelerate the vesting schedules for award recipients.  The options granted under the 2010 Plan have terms of up to 10 years.  In 2013, the board of directors froze the 2010 Plan and there are no longer any shares reserved for future grants.

Our board of directors adopted the 2005 Equity Incentive Plan (2005 Plan) in May 2005 and our shareholders approved the 2005 Plan in September 2005.  Under the terms of the 2005 Plan, we could grant options to purchase common stock and shares of common stock to officers, directors, employees or consultants providing services on such terms as are determined by the board of directors.  Options granted under the 2005 Plan have terms of up to 10 years.  There are no longer any shares reserved for future grants under the 2005 Plan.

We have outstanding a total of 17,384 options awarded to current and former directors, employees and consultants at various times beginning in 2004 through 2009 that do not fall under the plans described above.  Expiration periods, typically ten years, and other terms of these non-plan specific options are not materially different from those issued under the 2010 Plan and 2005 Plan.

Share-based compensation expenses related to option and stock grants issued to employees and directors are included in selling, general and administrative expenses in the statements of operations, and consisted of the following (in thousands):
 
   
2014
   
2013
 
Stock Options:
       
Consultants
 
$
4
   
$
16
 
Directors
   
11
     
262
 
Employees
   
132
     
127
 
Executive officers
   
136
     
133
 
Stock:
               
Directors
   
332
     
-
 
Executive officers
   
114
     
-
 
Total share-based compensation expense
 
$
729
   
$
538
 

In the third quarter of 2014, we issued shares of common stock to directors and executive officers at a grant date fair value of $4.91 per share.  We issued 44,026 shares which vested in August 2014, 52,412 shares which vest in August 2015 (or at the next annual shareholder meeting date if earlier) and 185,182 shares which vest in August 2017.  In 2014, we recognized $0.5 million in compensation for these share of common stock.  These shares are the only shares vesting in the future.  As of December 31, 2014, we expect to recognize the remaining $0.9 million of unrecognized compensation over a weighted average period of 2.3 years.

In April 2013, our board granted each of our five non-employee directors a stock option to purchase up to 3,750 shares of common stock.  Each option has an exercise price of $16.00 per share, vests in nine equal monthly installments ending December 31, 2013, and expires in April 2023.  In January 2013, we issued each of those five non-employee directors an option for the purchase of up to 1,250 shares of common stock under the non-employee director automatic grant provision.  Each option has an exercise price of $16.00 per share, vested in twelve equal monthly installments ending December 2013, and expires in January 2023.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
In April 2013, the Board granted each of the two directors serving on the strategic committee and consulting special counsel each a stock option to purchase up to 1,250 shares of common stock.  Each option has an exercise price of $16.00 per share, vested in twelve equal monthly installments ending in March 2014 and expires in April 2018.

The following table summarizes option activity during 2014 and 2013 :
 
   
Employees and Directors
   
Consultants
     
   
 
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
 
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Total
Shares
Underlying
Options
 
Outstanding,  January 1, 2013
   
158,304
   
$
26.00
     
10,950
   
$
106.00
     
169,254
 
Granted
   
38,750
     
15.36
     
1,250
     
16.00
     
40,000
 
Forfeited, expired or cancelled
   
(27,317
)
   
27.75
     
(2,500
)
   
300.00
     
(29,817
)
Exercised
   
-
   
NA
     
-
   
NA
     
-
 
Outstanding, December 31, 2013
   
169,737
   
$
23.13
     
9,700
   
$
44.45
     
179,437
 
Granted
   
141,134
     
4.77
     
-
   
NA
     
141,134
 
Forfeited, expired or cancelled
   
(50,929
)
   
34.61
     
-
   
NA
     
(50,929
)
Exercised
   
-
   
NA
     
-
   
NA
     
-
 
Outstanding, December 31, 2014
   
259,942
   
$
10.91
     
9,700
   
$
44.45
     
269,642
 
                                         
Exercisable, December 31, 2014
   
129,539
   
$
16.80
     
9,132
   
$
42.62
     
138,671
 

As of December 31, 2014, our outstanding options have no intrinsic value.  The average fair value of options granted was $4.29 per share in 2014 and $11.18 per share in 2013.  The following are the assumptions used in valuing stock options:
 
   
2014
   
2013
 
         
Assumed volatility
   
119.9%
   
119.2%-122.3%
 
           
(121.1% weighted average)
 
Assumed risk free interest rate
   
1.7%
 
   
0.7%-1.4%
 
           
(0.9% weighted average)
 
Average expected life of options (in years)
   
6.2
     
6.2
 
Expected dividends
   
-
     
-
 
Forfeiture rate
   
5%
 
   
5%
 

RiceBran Technologies
Notes to Consolidated Financial Statements
 
The following table summarizes information related to outstanding and exercisable options:
 
   
As of December 31, 2014
 
   
Outstanding
   
Exercisable
 
Range of Exercise
Prices
   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares
Underlying
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
$
4.77
     
141,134
   
$
4.77
     
9.6
     
15,671
   
$
4.77
     
9.6
 
$
6.00 -$16.00
     
116,217
     
15.79
     
6.1
     
111,277
     
15.79
     
6.1
 
$
28.00
     
1,457
     
28.00
     
7.2
     
1,457
     
28.00
     
7.2
 
$
40.00
     
2,834
     
40.00
     
6.8
     
2,834
     
40.00
     
6.8
 
$
60.00
     
5,000
     
60.00
     
0.1
     
5,000
     
60.00
     
0.1
 
$
74.00
     
2,500
     
74.00
     
6.2
     
1,932
     
74.00
     
6.2
 
$
242.00
     
500
     
242.00
     
1.0
     
500
     
242.00
     
1.0
 
$
4.77 to $242.00
     
269,642
   
$
12.12
     
7.9
     
138,671
   
$
18.50
     
6.2
 
 
The following table summarizes equity and liability warrant activity during 2014 and 2013 :
 
   
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)
 
Balance, January 1, 2013
   
5,756
   
$
90.00
     
2.4
     
801,013
   
$
24.00
     
3.5
 
Granted
   
1,820,711
     
7
             
38,400
     
16.00
         
Impact of antidilution clauses
   
-
   
NA
             
385,292
   
NA
         
Impact of amendment
   
(8,711
)
 
NA
             
(487,350
)
 
NA
         
Exercised
   
-
   
NA
             
-
   
NA
         
Forfeited, expired or cancelled
   
(2,722
)
   
137.60
             
(146,107
)
   
65.60
         
Outstanding, December 31, 2013
   
1,815,034
     
6.69
     
5.0
     
591,248
     
5.24
     
2.9
 
Granted
   
4,262,436
     
5.44
             
-
   
NA
         
Exercised
   
-
   
NA
             
-
   
NA
         
Forfeited, expired or cancelled
   
-
   
NA
             
(164,759
)
   
5.24
         
Outstanding, December 31, 2014
   
6,077,470
   
$
5.81
     
4.4
     
426,489
   
$
5.24
     
2.9
 
Exercisable, December 31, 2014
   
4,895,775
   
$
5.94
     
4.2
     
426,489
   
$
5.24
     
2.9
 
 
RiceBran Technologies
Notes to Consolidated Financial Statements
                                                    
The following table summarizes information related to outstanding and exercisable warrants:
 
      
Outstanding
   
Exercisable
 
Range of Exercise
Prices
 
Type of
Warrant
 
Shares
Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares
Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
$
5.24
 
 Liability (1)
   
426,489
   
$
5.24
     
2.9
     
426,489
   
$
5.24
     
2.9
 
$
5.25 to $5.87
 
 Equity
   
4,006,670
     
5.37
     
4.6
     
2,824,975
     
5.41
     
4.3
 
$
6.55 to $6.63
 
 Equity
   
2,055,767
     
6.55
     
4.0
     
2,055,767
     
6.55
     
4.0
 
$
16.00 to $16.80
 
 Equity
   
12,004
     
16.40
     
3.5
     
12,004
     
16.40
     
3.5
 
$
46.80
 
 Equity
   
3,029
     
46.80
     
1.9
     
3,029
     
46.80
     
1.9
 
           
6,503,959
   
$
5.77
     
4.3
     
5,322,264
   
$
5.88
     
4.1
 

(1) The warrants contain full ratchet anti-dilution provisions .

As of December 31, 2014, we have two warrant agreements outstanding (with one holder) that contain antidilution clauses.  The related warrants are classified as derivative warrant liabilities in our balance sheets.  Under the antidilution clauses contained in these warrants, in the event of equity issuances at prices below the exercise prices of these warrants, we may be required to lower the exercise price on these warrants and increase the number of shares underlying these warrants.  Equity issuances may include issuances of our common stock, certain awards of options to employees, and issuances of warrants and/or other convertible instruments.

Certain equity issuances in 2013 triggered the antidilution clauses in certain liability warrants and, as a result, we were required to lower the exercise price and increase the number of shares underlying certain liability warrants.  In addition, certain amendments in 2013 required us to lower the exercise price and increase the numbers of shares underlying certain warrants.

NOTE 11. DEBT

The following table summarizes current and long-term portions of debt as of December 31, 2014 and 2013(in thousands):
 
   
2014
   
2013
 
Corporate segment:
       
Senior revolving note, net
 
$
-
   
$
1,988
 
Subordinated notes, net
   
4,978
     
4,262
 
Other
   
157
     
-
 
     
5,135
     
6,250
 
Brazil segment:
               
Capital expansion loans
   
3,629
     
4,795
 
Working capital lines of credit
   
2,408
     
3,213
 
Advances on customer export orders
   
1,810
     
2,386
 
Special tax programs
   
3,016
     
2,351
 
Other
   
98
     
174
 
     
10,961
     
12,919
 
Total debt
   
16,096
     
19,169
 
Current portion
   
4,808
     
8,250
 
Long-term portion
 
$
11,288
   
$
10,919
 
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
Required future minimum payments on our debt as of December 31, 2014 , follow (in thousands).

   
Corporate
Segment
   
Brazil
Segment
   
 
Total
 
2015
   
50
     
4,758
     
4,808
 
2016
   
6,591
     
1,045
     
7,636
 
2017
   
64
     
822
     
886
 
2018
   
-
     
764
     
764
 
2019
   
-
     
699
     
699
 
Thereafter
   
-
     
2,873
     
2,873
 
     
6,705
     
10,961
     
17,666
 
Discount
   
(1,570
)
   
-
     
(1,570
)
Total debt
 
$
5,135
   
$
10,961
   
$
16,096
 

As of December 31, 2014, none of the agreements for our outstanding debt contain financial covenants.

Corporate Segment

See Note 10 for a description of the convertible notes payable issued in the first quarter of 2014 to the former shareholders of HN and the private placement investors.  As discussed further in Note 10, in May 2014, these instruments converted into shares of common stock and the senior revolving note was paid in full with the proceeds from the June 2014 stock and warrant offering.  The senior revolving note was due in installments through October 2014.

Subordinated Notes

As of December 31, 2014, subordinated notes in the principal amount of $6.5 million remain outstanding.  The notes bear interest of 5% per year, payable quarterly, and mature in July 2016.  The notes are secured by interest in substantially all of our assets, excluding our interest in Nutra SA and RBT PRO, LLC.  See further discussion in Note 12.  We accrete the notes up to their face value at an average annual interest rate of 22.7%.  In connection with the Modification discussed further in Note 10, during the fourth quarter of 2013, the holders of our subordinated convertible notes agreed to amend their notes to reduce the annual interest rate to 5% from 10%, change the maturity of the notes to July 2016 (if there was a different maturity date) and to remove the conversion features and antidilution protections included in the notes.

Brazil Segment

All Brazil segment debt is denominated in the Brazilian Real (R$), except advances on customer export orders which are denominated in U.S. Dollars.

Capital Expansion Loans

In December 2011, Irgovel entered into loan agreements with the Bank of Brazil.  As of December 31, 2014, the notes held a principal balance of R$8.1 million. The annual interest rate on the loans is 6.5%, payable quarterly and the loans mature December 2021.  Irgovel must make monthly principal payments under each of the loans.  Irgovel used R$1.5 million of the proceeds for working capital purposes and the remainder for the purchase of equipment and machinery.  In July 2012, Irgovel entered into an agreement with the bank under which it borrowed R$1.7 million for the purchase of certain equipment at an annual interest rate of 5.5%.  Interest is payable quarterly on the amounts outstanding and the maturity date of the loans is July 2019.  Irgovel must make monthly principal payments under the loans.  The capital expansion loans are secured by the related equipment.

Working Capital Lines of Credit

Irgovel has working capital lines of credit secured by accounts receivable.  The total amount of borrowing cannot exceed 30%-100% of the collateral, depending on the agreement.  The annual interest rates on this debt range from 12.5% to 125.4%, and average 27.9%.  Principal maturities of amounts outstanding extend through July 2017.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
Advances on Customer Export Orders

Irgovel obtains advances against certain customer export orders from various banks.  The annual interest rates on these advances range from 5.9% to 10.0%, and average 8.0%.  Principal maturities of amounts outstanding extend through March 2015.

Special Tax Programs

Irgovel has an unsecured note payable for Brazilian federal and social security taxes under special Brazilian government tax programs.  During the third quarter of 2014, Irgovel’s debt under several notes was consolidated into one note and Irgovel financed an additional $0.9 million of taxes payable under the programs.  Principal and interest payments are due monthly through January 2029.  Interest on the notes is payable monthly at the Brazilian SELIC target rate, which was 11.8% at December 31, 2014.

NOTE 12. EQUITY METHOD INVESTMENT

In 2011, we entered into an agreement with a partner with the goal of developing technology to extract and concentrate protein from rice bran.  In March 2013, the agreement was mutually terminated under terms whereby we each received (i) the right to separately develop, modify and improve the jointly developed technology owned by the partner and (ii) a nonexclusive, royalty free, perpetual license to that technology (License).  We paid the partner $1.2 million as a lump sum in April 2013.

RBT PRO, LLC (RBT PRO) was a wholly owned subsidiary whose only asset was the License acquired in March 2013.  I n April 2013, we entered into a series of agreements with various affiliates of Wilmar International Limited (collectively Wilmar).  In connection therewith, we sold a 50% membership interest in RBT PRO to Wilmar for $1.2 million.  RBT PRO granted a royalty free, perpetual sublicense of the License to Wilmar for exclusive use throughout China.

We also entered into a cross license agreement with Wilmar, and under the agreements, we obtained rights to purchase a percentage of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar.

There was no gain or loss recognized on these transactions because we entered the agreement with the partner in contemplation of the agreements with Wilmar.  We account for our investment in RBT PRO under the equity method.  Our investment in RBT PRO was zero as of December 31, 2014 and 2013, and RBT PRO has had no net income or loss since inception.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
NOTE 13. INCOME TAXES

Deferred tax assets (liabilities) are comprised of the following (in thousands):
 
   
As of December 31,
 
   
2014
   
2013
 
United States
       
Net operating loss carryforwards
 
$
2,503
   
$
43,328
 
Gain on sale of membership interests in Nutra SA
   
369
     
403
 
Stock options and warrants
   
625
     
1,199
 
Intangible assets
   
(797
)
   
1,194
 
Property
   
(80
)
   
6,832
 
Capitalized expenses
   
525
     
652
 
Debt and deferred financing
   
(116
)
   
(112
)
Other
   
642
     
451
 
Net deferred tax assets
   
3,671
     
53,947
 
Less: Valuation allowance
   
(3,896
)
   
(53,947
)
Deferred tax asset (liability)
   
(225
)
   
-
 
Brazil
               
Intangible assets
   
(28
)
   
(228
)
Property
   
(1,141
)
   
(1,555
)
Net operating loss carryforwards
   
4,666
     
2,381
 
Other
   
370
     
285
 
Net deferred tax assets
   
3,867
     
883
 
Less: Valuation allowance
   
(3,867
)
   
(883
)
Deferred tax asset (liability)
 
$
-
   
$
-
 
                 
Deferred tax asset - current
 
$
171
   
$
-
 
Deferred tax liability - long-term
   
(396
)
   
-
 
   
$
(225
)
 
$
-
 

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes.  We have determined it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Accordingly we have provided a valuation allowance for deferred tax assets.  Our valuation allowance is on U.S. and Brazil deferred tax assets.  The change in valuation allowance of $47.1 million in 2014 was due to (i) $2.5 million in net operating loss and (ii) $3.0 million for the change in the valuation allowance against Brazil deferred tax assets, net of $0.6 million impact from foreign currency translation, offset by (i) the $41.8 million impact of net operating losses expiring and those being limited due to ownership changes (ii) $0.9 million from the impact of state rate changes (iii) $1.3 million from the establishment of deferred tax liabilities in the acquisition of HN (iv) $1.1 million of adjustments to intangibles and stock compensation deferreds, and (v) $7.5 million of adjustment to fixed asset deferred balance as a result of an accounting method change.  The change in valuation allowance of $4.9 million in 2013 was due to (i) $3.9 million in net operating loss and (ii) $0.7 million from the impact of state rate changes and (iii) $0.9 million for the establishment of a valuation allowance against Brazil deferred tax assets, offset by (i) the $0.4 million impact of expiring net operating losses and (ii) $0.2 million of other deferred items.

As of December 31, 2014, net operating loss carryforwards for U.S. federal tax purposes totaled $6.5 million and expire at various dates from 2018 through 2034.  Net operating loss carryforwards for state tax purposes totaled $6.0 million as of December 31, 2014, and expire at various dates from 2015 through 2034.  As of December 31, 2014, net operating loss carryforwards for Brazil tax purposes totaled $13.7 million and do not expire but may be subject to substantial annual limitations (generally 30% of taxable income in any year).

Due to offerings and conversions occurring between December 2013 and May 2014, we believe our ability to utilize previously accumulated net operating loss carryforwards are subject to substantial annual limitations due to “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations.  Therefore in 2014, we recorded the impact of the expiration of substantial net operating loss carryforwards prior to utilization.  We have not yet finalized the exact amount of such limitation, as the rules in this area are complex, and our estimate of the annual limitation is subject to change.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
We are subject to taxation in the U.S. and various states.  We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.  We are open for audit by the IRS for years after 2011 and, generally, by U.S. state tax jurisdictions after 2011.  We are open for audit by the Brazilian tax authorities for years after 2010.

Loss before income taxes is comprised of the following (in thousands):
 
   
2014
   
2013
 
Foreign
 
$
(10,504
)
 
$
(6,832
)
Domestic
   
(17,427
)
   
(12,247
)
Loss before income taxes
 
$
(27,931
)
 
$
(19,079
)

Foreign earnings are assumed to be permanently reinvested.  U.S. federal income taxes have not been provided on undistributed earnings of our foreign subsidiary.

The income tax benefit of $1.3 million in 2014 is all related to U.S. federal and state deferred tax benefit and the income tax benefit of $1.4 million in 2013 is all foreign deferred tax benefit.

Reconciliations between the amount computed by applying the U.S. federal statutory tax rate (34%) to loss before income taxes, and income tax benefit follows (in thousands):

   
2014
   
2013
 
Income tax benefit at federal statutory rate
 
$
(9,496
)
 
$
(6,487
)
Increase (decrease) resulting from:
               
State tax benefit, net of federal tax effect
   
(206
)
   
(653
)
Change in valuation allowance
   
(46,511
)
   
4,927
 
Adjustment to intangible deferred balances
   
484
     
-
 
Adjustment to fixed asset deferred balance
   
7,450
     
-
 
Reduction in deferred balances for forfeited, expired or cancelled options
   
597
     
255
 
Expiration of U.S. net operating losses
   
41,756
     
415
 
Nontaxable fair value adjustment
   
411
     
350
 
Nondeductible convertible debt issuance expenses
   
3,179
     
521
 
Impact of state rate changes
   
917
     
(677
)
Nondeductible expenses
   
37
     
6
 
Adjustments to Brazil deferred balances
   
15
     
-
 
Adjustments to U.S. deferred balances
   
63
     
(96
)
Income tax benefit
 
$
(1,304
)
 
$
(1,439
)

We recognize interest and penalties related to uncertain tax positions in selling, general and administrative expenses. We have not identified any uncertain tax positions requiring a reserve as of December 31, 2014 or 2013.

NOTE 14. COMMITMENTS AND CONTINGENCIES

Employment Contracts

We have entered into employment and other agreements with certain executives and other employees that provide for compensation and certain other benefits.  These agreements provide for severance payments under certain circumstances.

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 Consolidated Financial Statements

Leases

We lease certain properties under various operating lease arrangements that expire over the next twenty one years.  These leases generally provide us with the option to renew the lease at the end of the lease term.  Future minimum payments under these commitments as of December 31, 2014, are as follows: $0.5 million for 2015; $0.5 million in 2016; $0.3 million in 2017; $0.2 million in 2018; $0.2 million in 2019 and $0.9 million thereafter.  We incurred lease expense of $0.8 million in 2014 and $0.5 million in 2013.

Litigation

In addition to the matters discussed below, from time to time we are involved in litigation incidental to the conduct of our business.  When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.  While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations.

Defense costs are expensed as incurred and are included in professional fees.

Irgovel Purchase

On August 28, 2008, former Irgovel stockholder David Resyng filed an indemnification suit against Irgovel, Osmar Brito and the remaining former Irgovel stockholders (Sellers), requesting:  (i) the freezing of the escrow account maintained in connection with the transfer of Irgovel’s corporate control to us and the presentation of all documentation related to the transaction, and (ii) damages in the amount of the difference between (a) the sum received by David Resyng in connection with the judicial settlement agreement executed in the action for the partial dissolution of the limited liability company filed by David Resyng against Irgovel and the Sellers and (b) the amount received by the Sellers in connection with the sale of Irgovel’s corporate control to us, in addition to moral damages as determined in the court’s discretion.  The amount of damage claimed by Mr. Resyng is approximately $3 million.

We believe that the filing of the above lawsuit is a fundamental default of the obligations undertaken by the Sellers under the Quotas Purchase Agreement for the transfer of Irgovel’s corporate control, executed by and among the Sellers and us on January 31, 2008 (Purchase Agreement).  Consequently, we believe that the responsibility for any indemnity, costs and expenses incurred or that may come to be incurred by Irgovel and/or us in connection with the above lawsuit is the sole responsibility of the Sellers.

On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million.  We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above.  Our parent company has not been served with any formal notices in regard to this matter.  To date, only Irgovel has received formal legal notice.  In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration.  On October 29, 2010, we initiated an arbitration proceeding against the Sellers for breaches of the Purchase Agreement, including claims related to Sellers’ handling of the Resyng claim and whether any future payments are required under the Purchase Agreement.  On February 25, 2015, the arbitration panel issued its opinion and ordered the Sellers to pay Irgovel and us R$3.6 million plus arbitration fees, legal fees, and interest.  We are currently seeking to confirm and obtain a final award in Brazil.

As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies.  As of December 31 2014 and 2013, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets.  There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of December 2014 and 2013, totaling $1.6 million.  When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement.  As of December 31, 2014, $0.5 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.6 million to settle any remaining contingencies.  We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.  If and when received, w e agreed to pay to Nutra SA ninety percent of any funds received from the escrow account or treat the funds retained as a distribution from Nutra SA and reduce our ownership percentage accordingly.
 
RiceBran Technologies
Notes to Consolidated Financial Statements

Diabco Life Sciences, LLC

In January 2012, we filed a complaint in the Superior Court of California, Sacramento County, seeking damages arising out of Diabco Life Sciences, LLC’s (Diabco) breach of a 2008 promissory note in the principal amount of $0.5 million.  At trial in August 2013, Diabco stipulated that total damages through July 2013, including interest and late fees, amounted to $0.9 million.  In September 2013, the court issued its tentative statement of decision indicating that judgment will be entered in our favor in the amount of $0.9 million as of July 2013, plus interest.  In January 2014, the court issued its final judgment in the amount of $1.0 million.  Diabco filed a notice of appeal which was dismissed in October 2014.  We have no receivable from Diabco recorded in the accompanying financial statements, as recovery of the judgment is not reasonably assured.

NOTE 15. RELATED PARTY TRANSACTIONS

Transactions with Baruch Halpern

Entities beneficially owned by Baruch Halpern, a director, invested $2.6 million in our subordinated convertible notes and related warrants prior to 2013.  In 2014 and 2013, we paid and expensed $0.1 million and $0.2 million, respectively, of interest on subordinated notes beneficially owned by Mr. Halpern.  The terms of the notes beneficially owned by Mr. Halpern were changed in the Modification.

In connection with the Exchange, warrants beneficially owned by Mr. Halpern for the purchase of up to 185,714 shares of common stock ($14.00 per share exercise price with a July 31, 2017 expiration), related to the subordinated convertible notes were cancelled in exchange for 634,679 shares of our common stock (with a fair value of $2.9 million at time of the Exchange).  The shares were not required to be issued until after our shareholders approved an increase in our authorized shares of common stock, which occurred on May 30, 2014.

In connection with the Exchange, other warrants beneficially owned by Mr. Halpern for the purchase of up to 45,683 shares of common stock ($14.00 per share exercise prices and expirations between January 2017 and August 2017) were cancelled in exchange for 75,377 shares of our common stock (with a fair value of $0.3 million at time of the Exchange).  The shares were not required to be issued until after our shareholders approved an increase in our authorized shares of common stock, which occurred on May 30, 2014.

Transactions with W. John Short

W . John Short, our chief executive officer and director, invested $25 thousand in our subordinated convertible notes and related warrants in January 2012 and an additional $25 thousand in April 2013.  In 2014 and 2013, we paid less than $10 thousand of interest on subordinated notes beneficially owned by Mr. Short.  In June 2013, Mr. Short made an election to be paid in stock, rather than cash, for interest accruing under the notes from February 2013 through June 2014.  In connection with the election, in 2013 we issued to Mr. Short a PIK warrant with 234 underlying shares of common stock, and increased the shares underlying Mr. Short’s convertible notes by 234 shares as payment for interest accruing under the convertible notes from February 2013 through October 2013.  The terms of the notes beneficially owned by Mr. Short were amended pursuant to the Modification.

In connection with the Exchange, warrants beneficially owned by Mr. Short for the purchase of up to 3,806 shares of common stock ($14.00 per share exercise prices and expirations of July 2017 and May 2018), including the PIK warrant, were cancelled in exchange for 12,777 shares of our common stock.  The shares were not required to be issued until after our shareholders approved an increase in our authorized shares of common stock, which occurred on May 30, 2014.

Transactions with Mark McKnight

In January 2014, we purchased all of the outstanding shares of HN for $2.0 million in cash, plus convertible promissory notes for $3.3 million.  Mark McKnight, our current senior vice president of sales, and his wife collectively owned a majority interest in HN prior to the acquisition.  In connection with our acquisition of HN, Mark McKnight received $0.7 million in cash and a convertible promissory note for $1.4 million and Nicole McKnight, his wife, received $0.7 million in cash and a convertible promissory note for $1.4 million.  We had the option to pay principal and accrued interest under the notes in either cash or in our common stock, however, if we issued shares to our former warrants holders upon an increase in authorized shares, under the terms of the Exchange, then we were required to settle any outstanding balance on the notes through the issuance of shares of our common stock.  On May 30, 2014, we issued 225,925 shares of common stock to settle Mark McKnight’s note and 225,925 shares of common stock to settle Nicole McKnight’s note.  The notes were converted at a conversion price of $6.00 per share.
 
RiceBran Technologies
Notes to Consolidated Financial Statements

In January 2014, we entered into a $0.1 million, 5% unsecured, promissory note with Nicole McKnight.  We paid all principal and interest due under the note in October 2014.

During 2013, prior to the acquisition, we had product sales to HN totaling $0.6 million.

NOTE 16. SEGMENT INFORMATION

We have two reportable operating segments in 2014: (i) USA segment, which manufactures and distributes SRB in various granulations along with Stage II products and derivatives and (ii) Brazil segment, which extracts crude RBO and DRB from rice bran, which are then further processed into fully refined rice bran oil for sale internationally and in Brazil, compounded animal nutrition products for horses, cows, swine, sheep and poultry and a number of valuable human food and animal nutrition products derivatives and co-products. In addition we incur corporate and other expenses not directly attributable to operating segments, which include costs related to our corporate staff, general and administrative expenses including public company expenses, intellectual property, professional fees, and other expenses.  No Corporate allocations, including interests, are made to the operating segments.

The table below presents segment information for the years identified and provides a reconciliation of segment information to total consolidated information (in thousands).

   
2014
 
   
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
23,096
   
$
17,012
   
$
40,108
 
Cost of goods sold
   
-
     
16,124
     
19,515
     
35,639
 
Gross profit
   
-
     
6,972
     
(2,503
)
   
4,469
 
Depreciation and amortization (in selling, general and administrative)
   
(52
)
   
(2,137
)
   
(690
)
   
(2,879
)
Other operating expenses
   
(5,941
)
   
(4,133
)
   
(4,280
)
   
(14,354
)
Income (loss) from operations
 
$
(5,993
)
 
$
702
   
$
(7,473
)
 
$
(12,764
)
                                 
Net income (loss) attributable to RiceBran Technologies shareholders
 
$
(16,825
)
 
$
702
   
$
(6,906
)
 
$
(23,029
)
Interest expense
   
(7,949
)
   
-
     
(2,385
)
   
(10,334
)
Depreciation (in cost of goods sold)
   
-
     
(1,022
)
   
(2,648
)
   
(3,670
)
Purchases of property
   
152
     
2,251
     
3,020
     
5,423
 
Property, net, end of period
   
135
     
9,360
     
15,258
     
24,753
 
Goodwill, end of period
   
-
     
790
     
3,641
     
4,431
 
Intangible assets, net, end of period
   
-
     
2,658
     
82
     
2,740
 
Total assets, end of period
   
4,212
     
17,854
     
24,018
     
46,084
 
 
RiceBran Technologies
Notes to Consolidated Financial Statements

   
2013
 
   
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
12,023
   
$
23,028
   
$
35,051
 
Cost of goods sold
   
-
     
9,078
     
22,028
     
31,106
 
Gross profit
   
-
     
2,945
     
1,000
     
3,945
 
Depreciation and amortization (in selling, general and administrative)
   
(24
)
   
(469
)
   
(756
)
   
(1,249
)
Impairment of property
   
-
     
(300
)
   
-
     
(300
)
Other operating expenses
   
(5,918
)
   
(2,006
)
   
(4,442
)
   
(12,366
)
Income (loss) from operations
 
$
(5,942
)
 
$
170
   
$
(4,198
)
 
$
(9,970
)
                                 
Net income (loss) attributable to RiceBran Technologies shareholders
 
$
(12,418
)
 
$
170
   
$
(2,773
)
 
$
(15,021
)
Interest expense
   
(1,950
)
   
-
     
(1,984
)
   
(3,934
)
Depreciation (in cost of goods sold)
   
-
     
(926
)
   
(1,873
)
   
(2,799
)
Purchases of property
   
21
     
191
     
2,907
     
3,119
 
Property, net, end of period
   
55
     
7,231
     
17,672
     
24,958
 
Goodwill, end of period
   
-
     
-
     
4,139
     
4,139
 
Intangible assets, net, end of period
   
-
     
745
     
672
     
1,417
 
Total assets, end of period
   
6,039
     
9,796
     
28,743
     
44,578
 

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

   
2014
   
2013
 
United States
 
$
21,381
   
$
12,869
 
Brazil
   
14,257
     
17,861
 
Other international
   
4,470
     
4,321
 
Total revenues
 
$
40,108
   
$
35,051
 

NOTE 17. FAIR VALUE MEASUREMENT

The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities.  As of December 31 2014, the fair value of our Corporate segment debt (Level 3 measurement) is approximately $0.2 million higher than the $5.1 million carrying value of that debt, based on current market rates for similar debt with similar maturities.  The fair value of our Brazil segment debt (Level 3 measurement) approximates the carrying value of that debt based on the current market rates for similar debt with similar maturities.

Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Certain assets and liabilities are presented in the financial statements at fair value.  Assets and liabilities measured at fair value on a recurring basis include derivative warrant and conversion liabilities.  Assets and liabilities measured at fair value on a non-recurring basis may include property.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

Level 1 – inputs include quoted prices for identical instruments and are the most observable.
Level 2 – inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.
Level 3 – inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.
 
RiceBran Technologies
Notes to Consolidated Financial Statements

 
The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):
 
     
Level 1
   
Level 2
   
Level 3
   
Total
 
December 31, 2014
                 
Derivative warrant liabilities
(1)
 
$
-
   
$
-
   
$
(955
)
 
$
(955
)
Total liabilities at fair value
   
$
-
   
$
-
   
$
(955
)
 
$
(955
)
                                   
December 31, 2013
                                 
Derivative warrant liabilities
(1)
 
$
-
   
$
-
   
$
(1,685
)
 
$
(1,685
)
Total liabilities at fair value
   
$
-
   
$
-
   
$
(1,685
)
 
$
(1,685
)

(1) These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations.  The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants.  The risk-free interest rate is determined by reference to the treasury yield curve rate of instruments with the same term as the warrant.  Additional assumptions that were used to calculate fair value follow.

   
December 31, 2014
   
December 31, 2013
 
Risk-free interest rate
   
0.1% - 1.0%
   
0.1% - 0.6%
 
   
(0.7% weighted average)
   
(0.5% weighted average)
 
Expected volatility
   
95%
 
   
107%
 

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis (in thousands):
 
   
 
 
Fair Value
as of
Beginning
of Period
   
Total
Realized
and
Unrealized
Gains
(Losses)
   
 
 
 
Issuance of
New
Instruments
   
 
 
Net
Transfers
(Into) Out of
Level 3
   
 
 
 
Fair Value,
at End of
Period
   
Change in
Unrealized
Gains
(Losses) on
Instruments
Still Held
 
2014
       
(1
)
               
Derivative warrant liability
 
$
(1,685
)
 
$
(1,151
)
 
$
(7,021
)
 
$
8,902
(2)
 
$
(955
)
 
$
546
 
Derivative conversion liability
   
-
     
(58
)
   
(589
)
   
647
(3)
   
-
   
NA
 
Total Level 3 fair value
 
$
(1,685
)
 
$
(1,209
)
 
$
(7,610
)
 
$
9,549
   
$
(955
)
 
$
546
 
                                                 
2013
           
(1
)
                               
Derivative warrant liability
 
$
(4,520
)
 
$
(950
)
 
$
(575
)
 
$
4,360
(4)
 
$
(1,685
)
 
$
(372
)
Derivative conversion liability
   
(2,199
)
   
(80
)
   
(598
)
   
2,877
(5)
   
-
   
NA
 
Total Level 3 fair value
 
$
(6,719
)
 
$
(1,030
)
 
$
(1,173
)
 
$
7,237
   
$
(1,685
)
 
$
(372
)
 
(1) Included in change in fair value of derivative warrant and conversion liabilities in our consolidated statements of operations.
(2) Represents transfers to equity as a result of increases in authorized and unissued shares of common stock available for settlement of certain warrants.
(3) Represents reduction in conversion liability as a result of debt conversions.
(4) Represents fair value of warrants cancelled in connection with the Exchange.
(5) Represents $2.8 million fair value of conversion liabilities when eliminated in connection with the Modification and $0.1 million as a result of conversions of debt.
 
RiceBran Technologies
Notes to Consolidated Financial Statements
 
The following tables summarize the fair values by input hierarchy of items measured at fair value in our balance sheets on a nonrecurring basis (in thousands):

     
 
As of December 31, 2013
   
2013
Impairment
 
     
Level 1
   
Level 2
   
Level 3
   
Total
   
Losses
 
                       
(1
)
Property, net
(1)
 
$
-
   
$
-
   
$
394
   
$
394
   
$
300
 
Property, net
   
$
-
   
$
-
   
$
394
   
$
394
   
$
300
 

(1) USA segment machinery and equipment not currently in use was evaluated for impairment and as a result was written down to estimated fair value in the first quarter of 2013.  Fair value was an estimate of net realizable value comprised of an estimate of proceeds from sale, based on an internal evaluation of market conditions, less estimated costs to sell.

PART II
(continued)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (Exchange Act) was performed as of December 31, 2014, under the supervision and with the participation of our current management, including our current Chief Executive Officer and Chief Financial Officer.  Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2014.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and for the assessment of the effectiveness of internal control over financial reporting.  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.  The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention, or timely detection, of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of current management, including our current Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.  In making this assessment, management used the criteria set forth in the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control - Integrated Framework (1992).”

Our management concluded that as of December 31, 2014, we maintained effective internal control over financial reporting based on the criteria established in the Internal Control – Integrated Framework (1992), issued by COSO.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 12 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Part III is incorporated by reference to our definitive proxy statement, to be filed within 120 days of our fiscal year end, or will be included in an amendment to this Form 10-K.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

See Exhibit Index attached hereto.
The Financial Statements are included under Item 8.
EXHIBIT INDEX

Exhibit
Number
 
Exhibit Description
1.01
 
Warrant Agreement dated December 18, 2013, with American Stock Transfer & Trust Company. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed December 18, 2013)
2.01
 
Quotas Purchase and Sale Agreement, dated January 31, 2008, with Quota Holders of Irgovel - Industria Riograndens De Oleos Begetais Ltda (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed on August 11, 2008 and on registrant’s annual report on Form 10-K, filed on March 17, 2008)
3.01.1
 
Restated and Amended Articles of Incorporation as filed with the Secretary of State of California on December 13, 2001 (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-KSB, filed on April 16, 2002)
3.01.2
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 4, 2003 (incorporated herein by reference to exhibits previously filed on registrant’s Registration Statement on Form SB-2, filed on November 18, 2005)
3.01.3
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on October 31, 2003 (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-QSB, filed on November 19, 2003)
3.01.4
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on September 29, 2005 (incorporated herein by reference to exhibits previously filed on registrant’s Registration Statement on Form SB-2, filed on November 18, 2005)
3.01.5
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on August 20, 2007 (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed on August 14, 2007)
3.01.6
 
Certificate of Amendment of Articles of Incorporation as filed with the Secretary of State of California on June 30, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 5, 2011)
3.01.7
 
Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of California on July 12, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
3.01.8
 
Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of California on May 30, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s registration statement on Form S-3 filed June 5, 2014)
3.02
 
Certificate of Designation of the Rights, Preferences, and Privileges of the Series A Preferred Stock as filed with the Secretary of State of California on December 13, 2001 (incorporated herein by reference to exhibits previously filed on registrant’s Registration Statement on Form SB-2, filed on June 4, 2002)
3.03
 
Certificate of Determination, Preferences and Rights of Series B Convertible Preferred Stock as filed with the Secretary of State of California on October 4, 2005 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on October 4, 2005)
3.04
 
Certificate of Determination, Preferences and Rights of Series C Convertible Preferred Stock as filed with the Secretary of State of California on May 10, 2006 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 15, 2006)
3.05
 
Certificate of Determination, Preferences and Rights of the Series D Convertible Preferred Stock, as filed with the Secretary of State of California on October 17, 2008 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on October 20, 2008)
3.06
 
Certificate of Determination, Preferences and Rights of the Series E Convertible Preferred Stock, as filed with the Secretary of State of California on May 7, 2009 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 8, 2009)
3.07.0
 
Bylaws (incorporated herein by reference to exhibits previously filed on registrant’s Registration Statement on Form SB-2, filed on June 12, 2006)
3.07.2
 
Amendment of Bylaws effective June 19, 2007 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on June 25, 2007)
3.07.3
 
Amendment of Bylaws effective December 4, 2009 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 10, 2009)
3.08
 
Certificate of Ownership dated October 3, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on October 10, 2012)
 
4.01
 
Common Stock Warrant issued to Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
4.02
 
Form of warrant to purchase shares issued to holders of secured convertible promissory notes (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
4.03
 
Common Stock Warrant issued to Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
4.04
 
Warrant Agreement by and between RiceBran Technologies and American Stock Transfer & Trust Company and Form of Warrant Certificate (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 18, 2013)
4.05
 
Form of Convertible Promissory Note dated March 20, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 21, 2014)
4.06
 
Form of Warrant dated March 20, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 21, 2014)
4.07
 
Form of Warrant (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on June 20, 2014)
4.08
 
Form of Warrant (incorporated herein by reference to exhibits previously filed on registrant’s current report on 8-K, filed on September 30, 2014)
10.01
*
Employment Agreement with W. John Short (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 10, 2009)
10.02
*
First Amendment of Employment Agreement with W. John Short (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 10, 2009)
10.03
*
Second Amendment of Employment Agreement with W. John Short (incorporated herein by reference to previously filed Form 10-Q, filed on May 11, 2011)
10.04
*
Third Amendment to Employment Agreement with W. John Short dated July 2, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on registrant’s current report on Form 8-K, filed on July 8, 2010)
10.05
*
Fourth Amendment to Employment Agreement with W. John Short dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011)
10.06
*
Employment Agreement with Jerry Dale Belt dated June 8, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on registrant’s current report on Form 8-K, filed on June 8, 2010)
10.07
*
First Amendment to Employment Agreement with Jerry Dale Belt dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011)
10.08
*
Second Amendment to Employment Agreement with Jerry Dale Belt dated February 14, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 30, 2012)
10.09
*
Third Amendment to Employment Agreement with Jerry Dale Belt dated May 30, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on June 3, 2014)
10.10
*
Employment Agreement with Colin Garner dated September 1, 2010 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 5, 2011)
10.11
*
First Amendment to Employment Agreement with Colin Garner dated July 15, 2011 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on July 20, 2011)
10.12
*
2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on Form SB-2, filed on November 18, 2005)
10.13
*
Form of Non-Employee Director Stock Option Agreement under the 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 17, 2008)
10.14
*
Form of Stock Option Agreement for 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed on May 12, 2008)
10.15
*
Form of Restricted Stock Grant Agreement for 2005 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed on August 11, 2008)
10.16
 
Asset Purchase Agreement with Kerry Inc. dated February 11, 2010 (incorporated herein by reference to exhibit 10.77 previously filed on registrant’s annual report on Form 10-K, filed on February 24, 2011)
10.17
 
Stipulation and Agreement of Settlement dated May 17, 2010 (incorporated herein by reference to exhibit 10.1 previously filed on registrant’s current report on Form 8-K, filed on May 18, 2010)
10.18
+
Nutra SA, LLC Membership Interest Purchase Agreement dated December 29, 2010 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K/A, filed on August 10, 2011)
10.19
 
Form of Investor Rights Agreement (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 5, 2011)
10.20
 
Form of Amended and Restated Limited Liability Company Agreement for Nutra SA, LLC (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on February 24, 2011)
 
10.21
*
2010 Equity Incentive Plan (incorporated herein by reference to previously filed Form 10-Q, filed on May 11, 2011)
10.22
*
Form of Non-Employee Director Stock Option Agreement under the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 30, 2012)
10.23
 
Form of Stock Option Agreement for the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 30, 2012)
10.24
*
Form of Restricted Stock Grant Agreement for the 2010 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 30, 2012)
10.25
 
Form of Indemnification Agreement for officers and directors (incorporated by reference to previously filed Form 10-Q, filed on May 11, 2011)
10.26
 
Loan agreement between Industria Riograndens De Oleos Vegetais Ltd. and Banco do Brasil S.A. in the amount of R$2,784,838, respectively, with a Brazilian bank dated December 15, 2011, English translation from the original Portuguese (incorporated herein by reference to exhibits previously filed on registrant’s annual report on Form 10-K, filed on March 30, 2012)
10.27
 
Loan agreement between Industria Riograndens De Oleos Vegetais Ltd. and Banco do Brasil S.A. in the amount of R$6,676,012 dated December 15, 2011, English translation from the original Portuguese (incorporated herein by reference to exhibits previously filed on registrant’s Annual Report on Form 10-K, filed on March 30, 2012)
10.28
 
Securities Purchase Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.29
 
Security Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.30
 
Subsidiary Guarantee dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.31
 
Form of Original Issue Discount Senior Secured Convertible Debenture Due July 1, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.32
 
Note and Warrant Purchase Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.33
 
Form of Secured Convertible Promissory Note (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.34
 
Security Agreement dated January 17, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.35
 
Form of Subordination Agreement (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on January 23, 2012)
10.36
 
Securities Purchase Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.37
 
Security Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.38
 
Subsidiary Guarantee dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.39
 
$1,009,200 Original Issue Discount Senior Secured Convertible Debenture Due January 1, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.40
 
$290,000 Original Issue Discount Senior Secured Convertible Debenture Due January 1, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.41
 
Securities Exchange Agreement dated July 31, 2012 with Hillair Capital Investments L.P. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.42
 
Amendment to Loan Documents dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.43
 
Subordination Agreement dated July 31, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 6, 2012)
10.44
 
Contribution and Subscription Agreement dated December 24, 2012 regarding Nutra SA, LLC (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 31, 2012)
10.45
 
Second Amended and Restated Limited Liability Agreement for Nutra SA, LLC dated December 24, 2012 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 31, 2012)
10.46
 
License Agreement dated March 14, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 20, 2013)
10.47
 
Membership Interest Purchase Agreement dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013)
 
10.48
 
Sublicense Agreement with RBT PRO LLC and Wilmar (Shanghai) Biotechnology Research Development Center Co., Ltd. dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013)
10.49
 
Sublicense Agreement with RBT PRO LLC dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013)
10.50
 
Cross License Agreement with Wilmar (Shanghai) Biotechnology Research Development Center Co., Ltd. dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013)
10.51
 
Amended and Restated Limited Liability Company Agreement for RBT PRO LLC, dated April 2, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on April 5, 2013)
10.52
 
Senior Secured Revolving Credit Facility Agreement with TCA Global Credit Master Fund, LP, dated as of April 30, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.53
 
Promissory Note issued to TCA Global Credit Master Fund, LP, dated as of April 30, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.54
 
Form of Guaranty Agreement by Subsidiary Guarantors in favor of TCA Global Credit Master Fund, LP, dated as of April 30, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.55
 
Security Agreement with TCA Global Credit Master Fund, LP, dated as of April 30, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.56
 
Form of Security Agreement, dated as of April 30, 2013, by Subsidiary Guarantors and TCA Global Credit Master Fund, LP(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.57
 
Form of Pledge with TCA Global Credit Master Fund, LP, dated as of April 30, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.58
 
Amendment and Waiver Agreement with Hillair Capital Investments L.P., dated as of May 24, 2013(incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on May 30, 2013)
10.59
 
Amended and Restated Security Agreement dated as of May 24, 2013(incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
10.60
 
Amended and Restated Note and Warrant Purchase Agreement dated as of May 24, 2013(incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
10.61
 
Restated Subordination Agreement dated as of May 24, 2013(incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
10.62
 
Amendment 1 to Senior Secured Revolving Credit Facility Agreement with TCA Global Credit Master Fund, LP dated July 18, 2013(incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
10.63
 
Promissory Note issued to TCA Global Credit Master Fund, LP dated July 18, 2013(incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed August 14, 2013)
10.64
 
Acquisition and Stock Purchase Agreement with the Shareholders of H&N Distribution, Inc. dated September 24, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on September 26, 2013)
10.65
 
Amendment of Investment Agreements effective as of October 31, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on November 8, 2013)
10.66
 
Amendment No. 2 to Senior Secured Revolving Credit Facility Agreement with TCA Global Credit Master Fund, LP dated October 11, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed November 12, 2013)
10.67
 
Promissory Note issued to TCA Global Credit Master Fund, LP dated October 11, 2013 (incorporated herein by reference to exhibits previously filed on registrant’s quarterly report on Form 10-Q, filed November 12, 2013)
10.68
 
Underwriting Agreement dated December 12, 2013, with Maxim Group, LLC, as representative of the several underwriters. (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on December 18, 2013)
10.69
 
Note and Warrant Purchase Agreement dated March 20, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 21, 2014)
10.70
 
Registration Rights Agreement dated March 20, 2014 (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on March 21, 2014)
10.71
*
RiceBran Technologies 2014 Equity Incentive Plan (incorporated herein by reference to exhibits previously filed on registrant’s current report on Form 8-K, filed on August 25, 2014)
 
*
Form of Stock Option Agreement for 2014 Equity Incentive Plan, filed herewith
*
Form of Restricted Stock Award Agreement for 2014 Equity Incentive Plan, filed herewith
10.74
 
Securities Purchase Agreement (incorporated herein by reference to exhibits previously filed on registrant’s current report on 8-K, filed on October 1, 2014)
10.75
 
Form of Registration Rights Agreement (incorporated herein by reference to exhibits previously filed on registrant’s current report on 8-K, filed on October 1, 2014)
10.76
 
Employment Agreement with Mark S. McKnight dated September 20, 2013 (incorporated herein by reference to exhibits previously filed on Amendment No. 1 to registrant’s annual report on Form 10-K, filed on April 30, 2014)
10.77
 
Amendment to Employment Agreement and Non-Competition Agreement for Mark S. McKnight dated December 30, 2013 (incorporated herein by reference to exhibits previously filed on Amendment No. 1 to registrant’s annual report on Form 10-K, filed on April 30, 2014)
 
Second Amendment of Investment Agreements for Nutra SA, LLC dated December 9, 2014, filed herewith
 
List of subsidiaries.
 
Consent of Independent Registered Public Accounting Firm.
 
Consent of Independent Registered Public Accounting Firm.
 
Power of Attorney (See signature page).
 
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification by CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
@
XBRL Instance Document
101.SCH
@
XBRL Taxonomy Extension Schema Document
101.CAL
@
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
@
XBRL Taxonomy Extension Calculation Definition Linkbase Document
101.LAB
@
XBRL Taxonomy Extension Calculation Label Linkbase Document
101.PRE
@
XBRL Taxonomy Extension Calculation Presentation Linkbase Document
 
+
Confidential treatment granted as to certain portions
*
Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.
@
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
71


Exhibit 10.72
 
RICEBRAN TECHNOLOGIES
2014 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT


Name :
 
   
Address :
 

Grant :              You (the Participant ”) are granted an option to purchase Common Stock of the Company as provided below, subject to the terms and conditions of this Notice of Stock Option Grant (the Notice of Grant ), the 2014 Equity Incentive Plan, as amended from time to time (the Plan ), the Stock Option Award Agreement (the Option Agreement ”) attached hereto. Unless otherwise defined in this Notice of Grant or the Option Agreement, the defined terms used in this Notice of Grant and in the Option Agreement shall have the meanings given those terms in the Plan.

Grant Number:
 
   
Date of Grant:
 
   
Vesting Commencement Date:
 
   
Exercise Price per Share:
 
   
Total Number of Shares:
 
   
Total Exercise Price:
 
   
Type of Option:
 
Non-Qualified Stock Option
   
   
Incentive Stock Option
   
Expiration Date:
 
   
Post-Termination Exercise Period:
Termination for Cause = Termination Date
 
Involuntary Termination without Cause = 90 Days
 
Voluntary Termination = 30 Days
 
Disability = 12 months
 
Death = 12 months
   
   
Vesting Schedule: To be determined for each grant
 


By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, this Notice of Grant and the Option Agreement. Participant has reviewed the Plan, Option Agreement and this Notice of Grant in their entirety, is familiar with and fully understands the terms and provisions thereof, has had an opportunity to obtain the advice of counsel prior to executing this Notice of Grant and hereby accepts the Option subject to all of the terms and provisions hereof. Participant understands that Participant’s employment or consulting relationship, or service with the Company is for an unspecified duration and can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice of Grant, the Stock Option Award Agreement or the Plan changes the at-will nature of that relationship. Participant acknowledges that the vesting of shares pursuant to this Notice of Grant is earned only by Participant’s continuing service as an Employee or Consultant of the Company.


PARTICIPANT :
RICEBRAN TECHNOLOGIES
   
Signature:
 
By:
 
 
Print Name:
 
 
Its:
 
 
Date:
 
 
Date:
 
   
 
Address:       
 
   
 

RICEBRAN TECHNOLOGIES
STOCK OPTION AWARD AGREEMENT
2014 EQUITY INCENTIVE PLAN

Unless otherwise defined herein, or in the Notice of Grant, the terms used in this Award Agreement (the Agreement ) shall have the same defined meanings as set forth in the Company’s 2014 Equity Incentive Plan (the Plan ).

Participant has been granted an option to purchase Common Stock (the Option ). The Option is subject to the terms and conditions of the Plan, the Notice of Stock Option Grant ( Notice of Grant ) and this Agreement.

1.                  Vesting Rights . Subject to the applicable provisions of the Plan and this Agreement, this Option may be exercised, in whole or in part, in accordance with the Vesting Schedule set forth in the Notice of Grant. In the event of a Change of Control transaction, as defined in the Plan, the vesting of all Options granted to Participant shall accelerate and such Options will become exercisable in full immediately prior to the consummation of the consummation of the Change of Control transaction. If such Options are not exercised on or prior to the consummation of the transaction, they shall terminate immediately following the consummation of the Change of Control transaction.

2.                  Termination Period .

  (a)          General Rule . Except as provided below, and subject to the Plan, this Option may be exercised for 3 months after an involuntary Termination without Cause of Participant. In no event shall this Option be exercised later than the Term/Expiration Date set forth in the Notice of Grant.

  (b)          Death . Upon the Termination of Participant by reason of his or her death, this Option may be exercised for twelve months after the date of Termination, provided that in no event shall this Option be exercised later than the Term/Expiration Date set forth in the Notice of Grant.

  (c)          Disability . Upon the Termination of Participant by reason of his or her Disability, this Option may be exercised for twelve months after the date of Termination, provided that in no event shall this Option be exercised later than the Term/Expiration Date set forth in the Notice of Grant.

  (d)          Cause . Upon the Termination of Participant for Cause, the Option shall expire on such date of Participant’s Termination Date.

3.                  Grant of Option . The Participant named in the Notice of Grant has been granted an Option for the number of Shares set forth in the Notice of Grant at the exercise price per share of Common Stock set forth in the Notice of Grant (the Exercise Price ). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.

If designated in the Notice of Grant as an Incentive Stock Option ( ISO ), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option ( NQSO ).

4.                  Exercise of Option .

  (a)          Right to Exercise . This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice of Grant and the applicable provisions of the Plan and this Agreement. In the event of Participant’s death, Disability, Termination for Cause or involuntary Termination without Cause, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice of Stock Option Grant and this Agreement.

  (b)          Method of Exercise . This Option is exercisable by delivery of an exercise notice (the Exercise Notice ”), which shall state the election to exercise the Option, the number of shares of Common Stock (the Shares ) in respect of which the Option is being exercised (the Exercised Shares ), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

(c)          Compliance . No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Participant on the date the Option is exercised with respect to such Exercised Shares.

5.                  Method of Payment . Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Participant:

  (a)          cash; or

  (b)          check; or

  (c)          other method authorized by the Company or under the Plan.

6.                  Non-Transferability of Option . This Option may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of Participant only by the Participant. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Participant.

7.                  Term of Option . This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Notice of Grant, the Plan and the terms of this Agreement.

8.                  Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Committee, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, shall equitably adjust the number, class, and price of Shares covered by this Agreement.

9.                  U.S. Tax Consequences . For Participants subject to U.S. income tax, some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. All other Participants should consult a tax advisor for tax consequences relating to this Option in their respective jurisdiction. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

  (a)          Exercising the Option .

(1)              Nonqualified Stock Option . The Participant may incur regular federal income tax liability upon exercise of a NQSO. The Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Participant is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Participant and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

(2)              Incentive Stock Option . If this Option qualifies as an ISO, the Participant will have no regular federal income tax liability upon its exercise, although the excess, if any, of the aggregate Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Participant to alternative minimum tax in the year of exercise.

  (b)          Disposition of Shares .

(1)              NQSO . If the Participant holds NQSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

(2)              ISO . If the Participant holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Participant disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price.

  (c)          Notice of Disqualifying Disposition of ISO Shares . If the Participant sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Participant shall immediately notify the Company in writing of such disposition. The Participant agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Participant.

  (d)          Possible Effect of Section 409A of the Code . Section 409A of the Code applies to arrangements that provide for the deferral of compensation. Generally, a stock option granted with an exercise price per share of not less than the “fair market value” (determined in a manner consistent with Section 409A of the Code and the regulations and other guidance promulgated thereunder) per share on the date of grant of the stock option and with no other feature providing for the deferral of compensation will not be subject to Section 409A of the Code. However, if the exercise price of the stock option is less than such “fair market value” or the stock option has another feature for the deferral of compensation, then if the stock option is not administered within the parameters established under Section 409A the optionholder will be subject to additional taxes. Also, the amount deemed to be deferred compensation under Section 409A of the Code will be subject to ordinary income and employment taxes (in this respect the IRS has not yet indicated how it will calculate the amount of deferred compensation subject to tax and the timing and frequency of taxation, but it seems likely that the income will be measured and taxes imposed at least on the vesting dates of the stock option). If Section 409A of the Code does apply to this Option, then special rules apply to the timing of making and effecting certain amendments of this Option with respect to distribution of any deferred compensation.

10.               Entire Agreement; Governing Law . The Plan is incorporated herein by reference. The Plan, the Notice of Grant, the employment agreement by and between the Company and the Participant (to the extent it applies to the Option) and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant. This agreement is governed by California law except for that body of law pertaining to conflict of laws.

11.               No Rights as Employee, Director or Consultant . Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant s employment, for any reason, with or without cause.

12.              Investment Representations . In connection with the issuance of the Option, the Participant specifically represents to the Company as follows:

  (a)          The Participant is aware of the Company's business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Option. The holder is acquiring this Option for its own account for investment purposes only and not with a view to, or for the resale in connection with, any distribution thereof.

  (b)          The Participant understands that this Option has not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Participant’s investment intent as expressed herein.

  (c)          The Participant further understands that the Company shall not be obligated to issue any Shares and the Participant may not be able to exercise the Option at any time when the offering of the Shares covered by this Option have not been registered under the Securities Act of 1933, pursuant to Form S-8 or otherwise, and such other state, federal or foreign laws, rules or regulations as the Company or the Board deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules or regulations available for the offering and sale of such Shares. In the absence of such effective registration or an available exemption from registration under the Securities Act, issuance of Shares upon exercise of the Option may be delayed until registration of such Shares is effective or an exemption from registration under the Securities Act is available.

By your signature and the signature of the Company’s representative on the Notice of Grant, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, the Notice of Grant, and this Agreement. Participant has reviewed the Plan, the Notice of Grant, and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Notice of Grant, and fully understands all provisions of the Plan, the Notice of Grant, and this Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice of Grant and the Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated on the Notice of Grant.

No. ___

RICEBRAN TECHNOLOGIES

2014 EQUITY INCENTIVE PLAN

STOCK OPTION EXERCISE AGREEMENT

This Stock Option Exercise Agreement (the Exercise Agreement ) is made and entered into as of , ___(the Effective Date ) by and between RiceBran Technologies, a California corporation (the Company ), and the purchaser named below (the Purchaser ). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company’s 2014 Equity Incentive Plan (the Plan ).

Purchaser :
 
 
Social Security Number :
 
 
Address
 
 
Total Number of Shares
 
 
Exercise Price Per Share
 
 
Type of Stock Option
 
 
(Check one) :
☐Incentive Stock Option
 
☐Nonqualified Stock Option
   
   
 
1.                       EXERCISE OF OPTION .

1.1               Exercise . Pursuant to exercise of that certain option (the Option ) granted to Purchaser under the Plan and subject to the terms and conditions of this Exercise Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the Total Number of Shares set forth above (the Shares ) of the Company’s Common Stock, at the Exercise Price Per Share set forth above (the Exercise Price ). As used in this Exercise Agreement, the term Shares refers to the Shares purchased under this Exercise Agreement and includes all securities received (i) in replacement of the Shares, (ii) as a result of stock dividends or stock splits with respect to the Shares, and (iii) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.

1.2               Title to Shares . The exact spelling of the name(s) under which Purchaser will take title to the Shares is:


     
     
     
     
 
Purchaser desires to take title to the Shares as follows:

 ☐ Individual, as separate property

 ☐ Husband and wife, as community property

 ☐ Joint Tenants

 ☐ Other; please specify:

1.3              Payment . Purchaser hereby delivers payment of the Exercise Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate):
     
 
in cash (by check) in the amount of $________, receipt of which is acknowledged by the Company;
     
 
through a “broker-assisted” or “same day sale” program, commitment from the Purchaser or Authorized Transferee and an NASD Dealer meeting the requirements set forth by the Company.
     
2.                     DELIVERY .

2.1              Deliveries by Purchaser . Purchaser hereby delivers to the Company (i) this Exercise Agreement and (ii) the Exercise Price and payment or other provision for any applicable tax obligations.

2.2              Deliveries by the Company . Upon its receipt of the Exercise Price, payment or other provision for any applicable tax obligations and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser.

3.                     REPRESENTATIONS AND WARRANTIES OF PURCHASER . Purchaser represents and warrants to the Company that:

3.1              Agrees to Terms of the Plan . Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition.

3.2              Access to Information . Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company’s representatives concerning such matters and this investment.

3.3              Understanding of Risks . Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the qualifications and backgrounds of the management of the Company; and (iv) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser’s own interests in this transaction and is financially capable of bearing a total loss of this investment.

4.                     COMPLIANCE WITH SECURITIES LAWS . Purchaser understands and acknowledges that the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws.

5.                     RESTRICTED SECURITIES .

5.1              No Transfer Unless Registered or Exempt . Purchaser understands that Purchaser may not transfer any Shares except when such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares, and may withdraw any such registration statement at any time after filing. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.

5.2              SEC Rule 144 . If Purchaser is an “affiliate” for purposes of Rule 144 promulgated under the Securities Act, then in addition, Purchaser has been advised that Rule 144 requires that the Shares be held for a minimum of six (6) months, and in certain cases one year, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an “affiliate” of the Company or if “current public information” about the Company (as defined in Rule 144) is not publicly available.

6.                     RIGHTS AS A STOCKHOLDER . Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Purchaser until such time as Purchaser disposes of the Shares.

7.                     RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS .

7.1              Legends . Purchaser understands and agrees that the Company will place any legends that may be required by state or U.S. Federal securities laws, the Company’s Articles of Incorporation or Bylaws, any other agreement between Purchaser and the Company or, subject to the assent of the Company, any agreement between Purchaser and any third party.

7.2              Stop-Transfer Instructions . Purchaser agrees that, to ensure compliance with any restrictions imposed by this Exercise Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

7.3              Refusal to Transfer . The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.

8.                    TAX CONSEQUENCES . PURCHASER UNDERSTANDS AND REPRESENTS: (i) THAT PURCHASER HAS REVIEWED THE PROSPECTUS PREPARED FOR THE PLAN AND CONSULTED PURCHASER’S PERSONAL TAX ADVISER IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. SET FORTH BELOW IS A BRIEF SUMMARY AS OF THE DATE THE PLAN WAS ADOPTED BY THE BOARD OF SOME OF THE U.S. FEDERAL TAX CONSEQUENCES OF EXERCISE OF THE OPTION AND DISPOSITION OF THE SHARES. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT THE PROSPECTUS AND PURCHASER’S PERSONAL TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

8.1              Exercise of Incentive Stock Option . If the Option qualifies as an ISO, there will be no regular U.S. Federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for U.S. Federal alternative minimum tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise.

8.2              Exercise of Nonqualified Stock Option . If the Option does not qualify as an ISO, there may be a regular U.S. Federal income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Purchaser is or was an employee of the Company, the Company may be required to withhold from Purchaser’s compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.

8.3              Disposition of Shares . The following tax consequences may apply upon disposition of the Shares.

 (a)              Incentive Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.

 (b)              Nonqualified Stock Options . If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long-term capital gain.

 (c)              Withholding . The Company may be required to withhold from the Purchaser’s compensation or collect from the Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income.

9.                    COMPLIANCE WITH LAWS AND REGULATIONS . The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

10.                  SUCCESSORS AND ASSIGNS . The Company may assign any of its rights under this Exercise Agreement. No other party to this Exercise Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Exercise Agreement, except with the prior written consent of the Company. This Exercise Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Agreement will be binding upon Purchaser and Purchaser’s heirs, executors, administrators, legal representatives, successors and assigns.

11.                  GOVERNING LAW . This Exercise Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.

12.                   NOTICES . Any and all notices required or permitted to be given to a party pursuant to the provisions of this Exercise Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Exercise Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (iii) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Exercise Agreement, or at such other address as such other party may designate by one of the indicated means of notice herein to the other parties hereto. Notices to the Company will be marked “Attention: Stock Plan Administration”.

13.                  FURTHER ASSURANCES . The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Exercise Agreement.

14.                  TITLES AND HEADINGS . The titles, captions and headings of this Exercise Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Exercise Agreement. Unless otherwise specifically stated, all references herein to “sections” will mean “sections” to this Exercise Agreement.

15.                  ENTIRE AGREEMENT . The Plan, the Notice, the Stock Option Agreement, the employment agreement by and between the Company and the Purchaser (to the extent it applies to the Option) and this Exercise Agreement constitute the entire agreement and understanding of the parties with respect to the subject matter of this Exercise Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

16.                  COUNTERPARTS . This Exercise Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

17.                  SEVERABILITY . If any provision of this Exercise Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Exercise Agreement and the remainder of this Exercise Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Exercise Agreement. Notwithstanding the forgoing, if the value of this Exercise Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

[ Signature Page to Follow ]

IN WITNESS WHEREOF , the Company has caused this Exercise Agreement to be executed by its duly authorized representative and Purchaser has executed this Exercise Agreement as of the Effective Date, indicated above.


RICEBRAN TECHNOLOGIES
PURCHASER
 
  ______________________________________
By: ___________________________________
(Signature)
 
______________________________________ ______________________________________
(Please print name)
(Please print name)
 
______________________________________
(Please print title)
 
 
Address:  
Address:
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
Fax No.: _______________________________
Fax No.: _______________________________
 
Phone No.: _____________________________
Phone No.: _____________________________

 

[Signature page to RiceBran Technologies Stock Option Exercise Agreement]



Exhibit 10.73
 
RICEBRAN TECHNOLOGIES
2014 EQUITY INCENTIVE PLAN

NOTICE OF GRANT OF RESTRICTED STOCK



Name :
 
   
Address :
 
   
   
 
Grant :                  You (“ Participant ”) are granted the right to receive an Award of Restricted Stock of RiceBran Technologies (the “ Company ”) as provided below, subject to the terms and conditions set forth in this Notice of Grant of Restricted Stock (the “ Notice of Grant ”) and the Terms and Conditions of Restricted Stock Grant attached hereto as Exhibit A (“ Terms and Conditions, ” and collectively with this Notice of Grant, the “ Agreement ”) and the RiceBran Technologies 2014 Equity Incentive Plan, as amended from time to time (the “ Plan ”).  Unless otherwise defined in this Agreement, the defined terms used in this Agreement have the meanings given those terms in the Plan.

Grant Number
 
   
Date of Grant
 
   
Board Year
 
   
Number of Shares Granted
 
   

Vesting Schedule : To be determined for each grant



[ Signature Page to Follow ]

By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Award of Restricted Stock is granted under and governed by the terms and conditions of the Plan and this Agreement. Participant has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of the Plan and this Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
 
PARTICIPANT :
RICEBRAN TECHNOLOGIES
   
Signature:
 
By:
 
 
Print Name:
 
Its:
 
 
Date:
 
Date:  
 
   
Address:    
 
 
 

EXHIBIT A
 
TERMS AND CONDITIONS OF RESTRICTED STOCK GRANT

1.            Grant of Restricted Stock .  The Company hereby grants to the Participant named above (the “ Participant ”) under the Plan for past services and as a separate incentive in connection with his or her services and not in lieu of any salary or other compensation for his or her services, an Award of shares of the Company’s common stock (“ Restricted Stock ”), subject to all of the terms and conditions in this Agreement and the Plan, which is incorporated herein by reference.

2.            Escrow of Shares .

  (a)              All Shares of Restricted Stock (the “ Shares ”) will, upon execution of this Agreement, be delivered and deposited with an escrow holder designated by the Company (the “ Escrow Holder ”). The Shares will be held by the Escrow Holder until such time as the Shares vest or the date Participant ceases to be an employee, director or consultant to the Company (a “ Service Provider ”).

  (b)              The Escrow Holder will not be liable for any act it may do or omit to do with respect to holding the Shares in escrow while acting in good faith and in the exercise of its judgment.

  (c)              Upon Participant’s termination as a Service Provider for any reason, the Escrow Holder, upon receipt of written notice of such termination, will take all steps necessary to accomplish the transfer of the unvested Shares to the Company. Participant hereby appoints the Escrow Holder with full power of substitution, as Participant’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of Participant to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares to the Company upon such termination.

  (d)              The Escrow Holder will take all steps necessary to accomplish the transfer of the Shares to Participant after they vest following Participant’s request that the Escrow Holder do so.

  (e)              Subject to the terms hereof, Participant will have all the rights of a stockholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon.

  (f)              In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock, the Shares will be increased, reduced or otherwise changed, and by virtue of any such change Participant will in his or her capacity as owner of unvested shares of Restricted Stock be entitled to new or additional or different shares of stock, cash or securities (other than rights or warrants to purchase securities); such new or additional or different shares, cash or securities will thereupon be considered to be unvested Shares and will be subject to all of the conditions and restrictions which were applicable to the unvested Shares pursuant to this Agreement. If Participant receives rights or warrants with respect to any unvested Shares, such rights or warrants may be held or exercised by Participant, provided that until such exercise any such rights or warrants and after such exercise any shares or other securities acquired by the exercise of such rights or warrants will be considered to be unvested Shares and will be subject to all of the conditions and restrictions which were applicable to the unvested Shares pursuant to this Agreement.

  (g)              The Company may instruct the transfer agent for its Common Stock to place a legend on the certificates representing the Restricted Stock or otherwise note its records as to the restrictions on transfer set forth in this Agreement.

3.             Vesting Schedule .  Except as provided in Section 4, and subject to Section 5, the Shares awarded by this Agreement will vest in accordance with the Vesting Schedule set forth in the Notice of Grant.
 
  (a)                The Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Agreement, unless Participant will have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.

  (b)              In the event of a Change of Control transaction, as defined in the Plan, the vesting of all Shares granted to Service Provider shall accelerate and become fully vested prior to the consummation of the transaction.

4.            Committee Discretion .  The Committee, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Restricted Stock at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock will be considered as having vested as of the date specified by the Committee.

5.            Forfeiture upon Termination of Status as a Service Provider .  Notwithstanding any contrary provision of this Agreement, the balance of the Shares that have not vested at the time of Participant’s termination as a Service Provider for any reason will be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company upon the date of such termination and Participant will have no further rights thereunder. Participant will not be entitled to a refund of the price paid for the Shares, if any, returned to the Company pursuant to this Section 5. Participant hereby appoints the Escrow Holder with full power of substitution, as Participant’s true and lawful attorney-in-fact with irrevocable power and authority in the name and on behalf of Participant to take any action and execute all documents and instruments, including, without limitation, stock powers which may be necessary to transfer the certificate or certificates evidencing such unvested Shares to the Company upon such termination of service.

6.            Death of Participant .  Any distribution or delivery to be made to Participant under this Agreement will, if Participant is then deceased, be made to Participant’s designated beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.  This Section 6 is subject in its entirety to Section 5 above.
 
7.             Withholding of Taxes .  Notwithstanding any contrary provision of this Agreement, no certificate representing the Shares may be released from the escrow established pursuant to Section 2, unless and until satisfactory arrangements (as determined by the Committee) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company determines must be withheld with respect to such Shares. The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such tax withholding obligation, in whole or in part by one or more of the following (without limitation): (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Common Stock having a Fair Market Value equal to the minimum amount required to be withheld, (c) delivering to the Company already vested and owned Common Stock having a Fair Market Value equal to the amount required to be withheld, or (d) selling a sufficient number of such Common Stock otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any tax withholding obligations by reducing the number of Common Stock otherwise deliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the time any applicable Shares are scheduled to vest pursuant to Sections 3 or 4, Participant will permanently forfeit such Common Stock and the Common Stock will be returned to the Company at no cost to the Company.

8.            Rights as Stockholder .  Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant or the Escrow Holder. Except as provided in Section 2, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

9.            No Guarantee of Continued Service .  PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE SHARES OF RESTRICTED STOCK PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS RESTRICTED STOCK OR ACQUIRING COMMON STOCK HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

10.         Address for Notices .  Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company at RiceBran Technologies, 6720 N. Scottsdale Road, Suite 390, Scottsdale, Arizona 85253, or at such other address as the Company may hereafter designate in writing.

11.          Grant is Not Transferable .  The unvested Shares subject to this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any unvested Shares subject to this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

12.          Binding Agreement .  Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

13.          Additional Conditions to Release from Escrow .  The Company will not be required to issue any certificate or certificates for Shares hereunder or release such Shares from the escrow established pursuant to Section 2 prior to fulfillment of all the following conditions: (a) the admission of Common Stock to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee will, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any state or federal governmental agency, which the Committee will, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the date of grant of the Restricted Stock as the Committee may establish from time to time for reasons of administrative convenience.

14.          Plan Governs .  This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Agreement will have the meaning set forth in the Plan.

15.          Committee Authority . The Committee will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any shares of Restricted Stock have vested). All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

16.          Electronic Delivery .  The Company may, in its sole discretion, decide to deliver any documents related to the Shares awarded under the Plan or future Restricted Stock that may be awarded under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.

17.          Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

18.          Agreement Severable .  In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

19.          Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code in connection to this Award of Restricted Stock.

20.          Amendment, Suspension or Termination of the Plan .  By accepting this Award, Participant expressly warrants that he or she has received an Award of Restricted Stock under the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.

21.          Governing Law .  This Agreement will be governed by the laws of the State of California, without giving effect to the conflict of law principles thereof. For purposes of litigating any dispute that arises under this Award of Restricted Stock or this Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California , and agree that such litigation will be conducted in the courts of Sacramento County, California or the federal courts for the United States for the Eastern District of California, and no other courts, where this Award of Restricted Stock is made and/or to be performed.
 
22.          Section 83(b) Election . Participant hereby acknowledges that he or she has been informed that, with respect to the purchase of the Shares, an election may be filed by the Participant with the Internal Revenue Service, within 30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares, if any, and their Fair Market Value on the date of purchase (the “ Election ”). Making the Election will result in recognition of taxable income to the Participant on the date of purchase, measured by the excess, if any, of the Fair Market Value of the Shares over the purchase price for the Shares. Absent such an Election, taxable income will be measured and recognized by Participant at the time or times on which the Company’s right to reacquire the Shares lapses. Participant is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election. PARTICIPANT ACKNOWLEDGES THAT IT IS SOLELY PARTICIPANT’S RESPONSIBILITY, AND NOT THE COMPANY’S RESPONSIBILITY, TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PARTICIPANT REQUESTS THE COMPANY, OR ITS REPRESENTATIVE, TO MAKE THIS FILING ON PARTICIPANT’S BEHALF.
 



Exhibit 10.78
 
SECOND AMENDMENT OF INVESTMENT AGREEMENTS

This Second Amendment of Investment Agreements (this “ Amendment ”) is entered into and made effective as of the  9th day of December, 2014 (the “ Effective Date ”), by and among RiceBran Technologies (f/k/a NutraCea), a California corporation (“ RBT ”), AF Bran Holdings-NL LLC (“ AFBH-NL ”) and AF Bran Holdings LLC (“ AFBH ”), in each case, a Delaware limited liability company (AFBH-NL and AFBH being referred to collectively as “ AF ” or “ Investor ”), Industria Riograndese de Oleos Vegetais Ltda, a limited liability company organized under the laws of the Federative Republic of Brazil  (“ Irgovel ”) and Nutra SA, LLC, a Delaware limited liability company (the “ Company ”).  The Company, RBT, Irgovel and Investor are sometimes referred herein collectively as the “ Parties .”

WHEREAS, the Parties have entered into various agreements regarding AF’s investments into the Company and the operation and control of the Company and Irgovel (collectively the “ Investment Agreements ”), including but not limited to (i) a Contribution and Subscription Agreement (“ Contribution Agreement ”) dated as of December 24, 2012, as amended on January 29, 2013, (ii) an Investor Rights Agreement dated as of December 29, 2010, as modified pursuant to a Waiver of Investor Rights Agreement effective as of December 6, 2013, (iii) a Membership Interest Purchase Agreement dated as of December 29, 2010, as amended on January 18, 2011 and as further amended pursuant to the Amendment of Investment Agreements (“ First Amendment ”) dated October 31, 2013, and (iv) a Second Amended and Restated Limited Liability Company Agreement for Nutra SA, LLC (“ LLC Agreement ”) dated as of December 24, 2012, as amended pursuant to the First Amendment;

WHEREAS, pursuant to the First Amendment, RBT agreed to purchase at least $3,000,000 of Units from the Company between the date of the First Amendment and December 31, 2013 and did purchase such $3,000,000 of Units by December 31, 2013;

WHEREAS, pursuant to Section 2(d) of the Contribution Agreement, as amended, RBT further agreed that upon the release to RBT or any of its affiliates, subsidiaries or other related parties of any funds held in that certain escrow account (“ Escrow Account ”) established by U.S. Bank National Association in San Francisco, California under that certain Escrow Agreement dated as of February 18, 2008 in connection with RBT's purchase of 100% of the total capital stock of Irgovel, RBT would cause 90% of such released funds to be promptly paid over to the Company, which funds were not to constitute a Capital Contribution (as defined in the LLC Agreement) by RBT to the Company and would not entitle RBT to receive any additional Units or be counted towards the Unreturned RBT Capital Contributions (as defined in the LLC Agreement);

WHEREAS, the funds in the Escrow Account have not yet been released, but RBT has made additional contributions to the Company in 2014 in amounts that exceeded 90% of the anticipated Escrow Funds; and

WHEREAS, Investor has agreed to extend the Drag Along Trigger Date (as defined in the LLC Agreement) on which Investor can first exercise its Drag Along Rights (as defined in the LLC Agreement);
 

NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1.                       Additional RBT Contributions . The Parties agree and acknowledge that since the date of the First Amendment, RBT has made an additional cash Capital Contributions to the Company as follows: (i) $3,000,000 in December of 2013, and (ii) $10,245,000 cumulatively in 2014. Such contributions comprised Capital Contributions by RBT to the Company and RBT has received an additional 5,122,500 Units in the Company and a corresponding increase in its Percentage Interest (as defined in the LLC Agreement) for such contributions. For clarity purposes, Exhibit A sets forth the Company’s equity table as of the date of this Agreement.

2.                       Amendments to the Contribution Agreement Regarding Escrow Fund .  Section 2(d) of the Contribution Agreement is hereby amended and restated in its entirety as follows:
 
“(d)              Contribution of Escrow Funds .  Upon release to RBT or any of its affiliates, subsidiaries or other related parties of any funds held in the Escrow Fund, RBT shall retain such funds and shall not be obligated to pay the funds to the Company.  90% of such released funds shall be treated as a distribution from the Company to RBT, and shall reduce the Unreturned RBT Capital Contributions in the Company as defined in the LLC Agreement.  Accordingly, upon the release of all of the Escrow Funds to RBT, RBT’s Capital Account shall be decreased by $2.00 per Unit calculated on 90% of net proceeds received by RBT.  Should RBT subsequently contribute to the Company any of the released funds, the contributions will comprise an additional RBT Capital Contribution and will increase RBT’s Units and Percentage Interest accordingly.”

3.                      Drag Along Rights . AF hereby agrees that it will not exercise its right to cause the sale of RBT or Irgovel until January 1, 2016 at the earliest and that the “Drag Along Trigger Date” (as defined in the LLC Agreement) shall not occur until January 1, 2016.

4.                      No Further Amendment .  The Parties acknowledge and agree that there are no other amendments, changes, waivers or modifications to the Investment Agreements other than as set forth in this Amendment, and all other terms of the Investment Agreements remain in full force and effect except as expressly modified or waived herein or therein.  The Parties agree that except as expressly set forth herein, this Amendment shall not be construed as a waiver by any Party of any of its other rights or obligations under the Investment Agreements.

5.                     Counterparts .   This Amendment may be executed in any number of counterparts with the same effect as if the Parties had all signed the same document.  All counterparts shall be construed together and shall constitute one agreement. This Amendment, to the extent executed and delivered by means of a photographic, photostatic, facsimile or similar reproduction of such signed writing using a facsimile machine or electronic mail shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any Party or to any such agreement or instrument, each other Party or party thereto shall re execute original forms thereof and deliver them to all other Parties.  No Party shall raise the use of a facsimile machine or electronic mail to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or electronic mail as a defense to the formation or enforceability of a contract and each such Party forever waives any such defense.
 
2

6.                      Headings .   The article and section headings of this Amendment are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof.

7.                      Effectiveness .  This Amendment shall be effective and binding upon all parties to the Investment Agreements upon the written consent of the Parties.

8.                      Entire Agreement .  This Amendment and the Investment Agreements as amended hereby constitute the entire agreement among the Parties with respect to the subject matter hereof.

 
[SIGNATURE PAGE TO FOLLOW]
 
3

The Parties have executed this Second Amendment of Investment Agreements as of the date first above written.

RICEBRAN TECHNOLOGIES

By:
/s/ W. John Short
 
Name:
W. John Short
 
Title:
Chief Executive Officer
 

Address:
6720 N. Scottsdale Road, Suite 390
 
Scottsdale, Arizona 85253
Facsimile:
(602) 522-3001

AF

AF BRAN HOLDINGS-NL LLC
 
AF BRAN HOLDINGS LLC
 
By:
/s/ Ettore V. Biagioni, Authorized Signatory  
By:
/s/ Ettore V. Biagioni, Authorized Signatory
Name:
Ettore V. Biagioni, Authorized Signatory
 
Name:
Ettore V. Biagioni, Authorized Signatory
Title:
President
 
Title:
President

Address:
10 East 53rd Street, 36th Floor
 
Address:
10 East 53rd Street, 36th Floor
 
New York, NY 10022
   
New York, NY 10022
Facsimile:
(212) 750-0191
 
Facsimile:
(212) 750-0191

COMPANY      IRGOVEL
 
NUTRA SA, LLC
 
INDUSTRIA RIOGRANDESE DE OLEOS VEGETAIS  LTDA
         
By:
/s/ W. John Short, Authorized Signatory  
By:
/s/ W. John Short, Authorized Signatory
 
W. John Short, Authorized Signatory
   
W. John Short, Authorized Signatory
Title:
Manager
     

Address:
c/o NutraCea
 
Address:
Av. Presidente Joao Goulart, 7351
 
6720 N. Scottsdale Road, Suite 390
   
Distrito Industrial
 
Scottsdale, Arizona 85253
   
Pelotas, RS, Brazil 96040-000
Facsimile:
(602) 522-3001
 
Facsimile:
55 (53) 3301-9247


 
[SIGNATURE PAGE TO SECOND AMENDMENT OF INVESTMENT AGREEMENT ]


Exhibit 21.01
 
RiceBran Technologies
Subsidiaries of the Registrant
As of March 31, 2015

Subsidiaries of the Registrant
 
State or Other Jurisdiction of Incorporation
Grain Enhancement, LLC (2) (6)
 
Delaware limited liability company
Nutra SA, LLC (3)
 
Delaware limited liability company
Healthy Natural Inc. (1)
 
Nevada
Industria Riograndens De Oleos Vegetais Ltda (4)
 
Limited liability company organized under the laws of the
 
Federative Republic of Brazil
NutraCea, LLC (1)
 
Delaware limited liability company
RBT PRO, LLC (8)
 
Delaware limited liability company
Rice Rx, LLC (1)
 
Delaware limited liability company
Rice Science LLC (1)
 
Delaware limited liability company
The RiceX Company (1)
 
Delaware corporation
RiceX Nutrients, Inc. (5)
 
Montana corporation.
SRB- MERM, LLC (7)
 
Delaware limited liability company
SRB-LC, LLC (7)
 
Delaware limited liability company
SRB-MT, LLC (7)
 
Delaware limited liability company
SRB-WS, LLC (7)
 
Delaware limited liability company
SRB- IP, LLC (7)
 
Delaware limited liability company
 

 
(1) wholly owned subsidiary of RiceBran Technologies
(2) 47.5% interest
(3) 66.1% interest
(4) wholly owned subsidiary of Nutra SA, LLC
(5) wholly owned subsidiary of The RiceX Company
(6) inactive
(7) wholly owned subsidiary of NutraCea, LLC
(8) 50.0 % interest
 
 


Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

RiceBran Technologies
Scottsdale, Arizona

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-196541, 333-196950 and 333-199646) and on Form S-8 (Nos. 333-110585, 333-135814 and 333-199648) of RiceBran Technologies (the Company) of our report dated March 31, 2015, with respect to our audit of the consolidated financial statements as of December 31, 2014 and for the year then ended which is included in this Form 10-K of RiceBran Technologies for the year ended December 31, 2014.  Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

/s/ Marcum, LLP
Marcum, LLP
New York, NY

March 31, 2015
 
 


Exhibit 23.2
 
Consent of Independent Registered Public Accounting Firm

RiceBran Technologies
Scottsdale, Arizona

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-196541, 333-196950 and 333-199646) and on Form S-8 (Nos. 333-110585, 333-135814 and 333-199648) of RiceBran Technologies (the Company) of our report dated March 31, 2014, relating to the consolidated financial statements which appears in this Form 10-K.  Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

/s/ BDO USA, LLP
Phoenix, Arizona

March 31, 2015
 
 


Exhibit 24.1

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
RICEBRAN TECHNOLOGIES
     
Date: March 31, 2015
By:
/s/ W. John Short
 
W. John Short
 
Director and Chief Executive Officer

Power of Attorney

Each person whose signature appears below constitutes and appoints W. John Short, true and lawful attorney-in-fact, with the power of substitution, for him/her in any and all capacities, to sign amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
Principal Executive Officer:
       
         
/s/ W. John Short
 
Director and Chief Executive Officer
 
March 31, 2015
W. John Short
       
         
Principal Financial Officer and
Principal Accounting Officer
       
 
/s/ J. Dale Belt
 
Chief Financial Officer and Secretary
 
March 31, 2015
Jerry Dale Belt
       
         
Additional Directors:
       
         
/s/ David Goldman
 
Director
 
March 31, 2015
David Goldman
       
         
/s/ Baruch Halpern
 
Director
 
March 31, 2015
Baruch Halpern
       
 
/s/ Henk W. Hoogenkamp
 
Director
 
March 31, 2015
Henk W. Hoogenkamp
       
 
/s/ Robert S. Kopriva
 
Director
 
March 31, 2015
Robert S. Kopriva
       
         
/s/ Robert C. Schweitzer
 
Director and Chairman
 
March 31, 2015
Robert C. Schweitzer
       
 
/s/ Peter A. Woog
 
Director
 
March 31, 2015
Peter A. Woog
       
 
 


Exhibit 31.1

CERTIFICATION

I, W. John Short, Chief Executive Officer of RiceBran Technologies, certify that:

1) I have reviewed this annual report on Form 10-K of RiceBran Technologies, a California corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report was prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Dated:   March 31, 2015
 
/s/ W. John Short
 
Name: W. John Short
 
Title: Chief Executive Officer
 
 



Exhibit 31.2

CERTIFICATION

I, Jerry Dale Belt, Chief Financial Officer of RiceBran Technologies, certify that:

1) I have reviewed this annual report on Form 10-K of RiceBran Technologies, a California corporation;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report was prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Dated:   March 31, 2015
 
/s/ J. Dale Belt
 
Name: Jerry Dale Belt
 
Title: Chief Financial Officer
 
 
 


Exhibit 32.1

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)

In connection with the Annual Report of RiceBran Technologies (the Company) on Form 10-K for the year ending December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), we, W. John Short., Chief Executive Officer of the Company, and Jerry Dale Belt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of -operations of the Company.
 
Dated:  March 31, 2015
 
By:  /s/ W. John Short
 
W. John Short
 
Chief Executive Officer
 
 
 
By:  /s/ J. Dale Belt
 
Jerry Dale Belt
 
Chief Financial Officer