NutraCea, a world leader in stabilized rice bran (SRB) nutrient research and technology, today announced that based on the preliminary findings and recommendations of the Audit Committee of its Board of Directors, it will restate its financial statements for the fiscal year ended December 31, 2007. This includes the associated second, third and fourth quarters in 2007, and all of the quarters in 2008.
-- NutraCea (the "Company") currently estimates that $4.6 million
of the approximately $22.2 million of previously reported revenue for
2007 will be affected by the restatement.
-- Approximately $2.6 million of the total adjustment is expected not to be
recorded as revenue.
-- Approximately $2.0 million of the remaining amount reported as 2007
revenue is expected to be reversed and recorded as revenue during 2008
and possibly 2009.
During December 2008, the Audit Committee commenced an internal review of certain matters with respect to the Company's accounting and reporting practices, and retained independent outside counsel and forensic accounting consultants to assist in this analysis.
Based on its review to date, the Audit Committee has determined that the Company improperly recognized revenue on two transactions in 2007 with entities that are not currently customers of the Company.
David Bensol, Chairman of the Board commented, "After a thorough review of the financials and extensive discussion with our Audit Committee and outside auditors, we determined that a financial restatement was the best means to ensure complete transparency. Our financial team and advisors will work to complete this restatement expeditiously so we may resume normalized communications with our shareholders. It is important to note that these financial restatements are driven by accounting issues and do not relate to the fundamentals underlying the Company's current business, which we believe remain fundamentally strong. Our business model has evolved significantly since 2007. We continue to make substantial progress and our future prospects remain strong."
$2.6 Million Sale of Dr. Vetz PetFlex in 2Q 2007 impacted by Customer Credit Issues That Change Applicability of Revenue Recognition Criteria
The Company recognized revenue in the second quarter of 2007 on a $2.6 million sale of its Dr. Vetz PetFlex brand product. In this sale, the applicable criteria for revenue recognition were not met. Based upon facts discovered during the Audit Committee investigation, the Company has now concluded that a $1.0 million down payment received by the Company in that transaction was provided to the purchaser through a loan from a person who at the time was a consultant to and a former officer of NutraCea, and that the evidence originally relied upon to determine and support the purchaser's ability to pay the remaining $1.6 million receivable balance was subsequently determined to be inaccurate. When the purchaser did not pay the $1.6 million receivable balance, the Company established an $800,000 reserve against the receivable balance in the third quarter of 2007 and an additional reserve of $800,000 in the fourth quarter of 2007. That reserve is expected to be reversed. Therefore, the net impact is expected to include both a reduction of revenue in 2007 by $2.6 million, as well as the reduction of the Company's reported expense for 2007 by $1.6 million.
Revenue from $2.0 Million Sale of RiceNShine in 4Q 2007 Improperly Recognized due to Bill and Hold Requirements: Revenue to be Recognized in 2008 and Possibly 2009
The Company also determined that a $2.0 million sale of its RiceNShine product in December 2007 did not meet accounting requirements applicable to recognition of revenue in bill and hold transactions and that the transaction should not have been recognized as revenue in the Company's 2007 results. However, the Company expects that approximately $2.0 million in revenue will be recognized in the Company's for 2008 and possibly 2009.
Olga Hernandez-Longan, CFO said, "Our goal now is to complete the accounting review and restatement process, file our restated 10-K for the period ended December 31, 2007, and restated 10-Qs for the affected quarters in 2007 and 2008 in addition to finalizing and filing the 2008 10K. This will allow us to direct all our efforts toward our core operations. We also intend to implement any remedial measures recommended by the Audit Committee as promptly as possible, as well as ensure all key controls are in place to prevent any future restatements. We will continue to look for ways to help ensure that our operations are conducted with complete transparency and adherence to the highest standards."
The Company and the Audit Committee are continuing to assess the preliminary findings of the investigation and are also assessing the effect of the restatement on the Company's internal control over financial reporting and its disclosure controls and procedures. Further investigation and assessment may result in additional matters that require restatement for the periods referenced above, or for additional fiscal periods. The Company will not reach a final conclusion on the restatement's effect on internal controls and disclosure controls and procedures until completion of the investigation and restatement process. The Company expects to implement remediation steps in connection with the ultimate conclusion of the investigation.
Company Voluntarily Reports Internal Investigation to S.E.C. and is Subject To Informal Inquiry Including Requests for Documents
NutraCea received a letter mid-January 2009 from the SEC indicating that it has opened an informal inquiry and another in February 2009 requesting that NutraCea voluntarily produce documents relating to a number of transactions, including the transactions mentioned above. NutraCea is in the process of responding to the request for documents, and is working closely with Perry-Smith LLP, the Company's independent registered accounting firm. NutraCea voluntarily reported to the Securities and Exchange Commission that the Audit Committee was conducting an internal review of certain matters.
For more complete information, interested parties are referred to the Company's report on Form 8-k filed with the SEC this morning.
NutraCea is a world leader in production and utilization of stabilized rice bran. NutraCea holds many patents for stabilized rice bran production technology and proprietary neutraceutical formulas ranging from arthritis, chronic bowel conditions, and effective diabetes control to cardiovascular disease treatment protocols. NutraCea's proprietary technology enables the creation of food and nutrition products to be unlocked from rice bran, normally a waste by-product of standard rice processing. Committed to helping the underfed, they're heavily involved in providing product and technology for developing countries through NutraCea's RiceAde feeding program. More information can be found in the Company's filings with the SEC, and you can visit the NutraCea Web site http://www.NutraCea.com.
This release includes "forward looking statements" that involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company's expectations or any results expressed or implied by such forward looking statements. Factors which could cause materially different results include, among others, the risk that the final conclusion of the Audit Committee's investigation could result in a determination that the effect of the issues under review are materially greater or lesser than the Company currently believes to be the case; the risk that the investigation could take longer than expected because of unanticipated issues; the risk that these matters could adversely affect the Company's ability to remain current in its filings with the Commission; additional issues that may arise in connection with the Audit Committee's ongoing investigation or the audit by the Company's independent public accounting firm; risks of damage to the Company's business and reputation arising from these matters; risks arising from the Commission's informal inquiry or other possible litigation or regulatory action; and other risks and uncertainties discussed more fully in the Company's SEC filings, including those discussed under Item 1A, "Risk Factors," in the Company's annual report on Form 10-K for the year ended December 31, 2007, and in subsequent quarterly reports on Form 10-Q. The Company disclaims any obligation to update or correct any forward-looking statements made herein due to the occurrence of events after the issuance of this report, except as required under federal securities laws.