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As part of the agreement, RBT has secured an option to acquire the assets of Golden Ridge Rice Mills.
The new three-year supply agreement calls for Golden Ridge to supply RiceBran Technologies with (and RiceBran Technologies to purchase) at least 9.6 million pounds of SRB annually, which would represent a 32% increase in the company’s SRB supply when compared to the total 2017 SRB production volume. To fulfill that obligation, Golden Ridge is building a new SRB production facility that is expected to begin production no later than Aug. 1.
Brent Rystrom, chief operating officer and chief financial officer at RBT, noted: “Our supply agreement with Golden Ridge achieves two important goals for us. First, it provides us entry into the Arkansas rice market, where more U.S. rice is produced and processed than any other state. Second, it provides us a source of SRB that is closer to many of our customers in the Midwest and Eastern U.S.”
RBT has agreed to lend $400,000 to Golden Ridge and an additional $165,000 for the purchase of equipment from RBT to complete the upgrades to Golden Ridge’s SRB storage and production capabilities. These loans will be repaid by Golden Ridge through discounting the price of delivered SRB, with any unpaid amounts payable in cash in 18 months.
As part of the supply agreement, RBT has secured a six-month option to purchase Golden Ridge’s milling assets. Upon exercising that option, RBT will have 120 days from the exercise date to complete the purchase of the milling business assets. It is anticipated by the company that the Golden Ridge milling assets purchase would include a combination of the assumption of certain liabilities and the issuance of RBT common stock.
“We are excited to have the option to purchase Golden Ridge’s rice milling operation, a growing and profitable participant in the Arkansas rice farming and processing region,” Rystrom said. “Golden Ridge would give us a permanent physical presence to locate additional product and production capabilities as we strive to be a highly profitable and valuable company focused on stabilizing rice bran. The successful completion of this transaction would also make Wayne Wilkison, the primary owner and operator of the mill and a major farming entrepreneur in the region, an important part of the RBT team and a significant shareholder.
“We believe owning and operating mills will become an important part of our operating model going forward in addition to maintaining and building our partnerships with non-owned mills.”
Dennis Dykes, chief accounting officer of RBT, added, “Golden Ridge Rice Mills has been generating meaningful EBITDA in 2018, and planned efficiency and process enhancements should further increase profitability over the next six to nine months. We believe the addition of the stabilized rice bran production facility to support the supply agreement will serve to further enhance that EBITDA, making this a highly attractive acquisition candidate for RBT.”
Bran supply issues hurt second-quarter results, likely to also impact early part of third quarter.
Dykes said RBT’s 2018 second-quarter results were negatively impacted by the bran supply disruption at its Louisiana facility. This will likely cause RBT’s sales to fall 4% to 6% in the second quarter as RBT was unable to fill all orders from its existing customers and new customer activity for SRB was limited, he said.
The SRB supply issues will persist through at least part of July until production of SRB begins at Golden Ridge and production resumes in Louisiana, and RBT expects to complete most of the certification-related projects by October, he said.
“We remain confident that our sales growth will accelerate as we improve our SRB production and supply by August,” Rystrom said.
RBT’s financial position remained strong in the 2018 second quarter, helped by warrant exercises. There were 4.092 million RBT warrants with a 96¢ strike price exercised during the 2018 second quarter, generating cash proceeds of $3.928 million to the company. As a result, RBT ended the second quarter with approximately $7 million of unrestricted cash and cash equivalents, strong liquidity and shareholders' equity, and approximately 24 million shares outstanding.
