UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2013

or

¨ 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: 0-24836

Parabel Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0301060
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)
1901 S. Harbor City Blvd., Suite 600 Melbourne, FL	32901
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 321-409-7500

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  x    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  x    No  ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

There were 106,920,730 shares of common stock with a par value of $0.001 per share outstanding at May 15, 2013.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 2013

PART I.		FINANCIAL INFORMATION		3
	ITEM 1.		FINANCIAL STATEMENTS	3
			CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2013 AND DECEMBER 31, 2012	3
			CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND MARCH 31, 2012, AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) THROUGH MARCH 31, 2013	4
			CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) TO MARCH 31, 2013	5
			CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND MARCH 31, 2012, AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 22, 2006) THROUGH MARCH 31, 2013	7
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2013 (UNAUDITED)	8
	ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
	ITEM 4.		CONTROLS AND PROCEDURES	29
PART II.		OTHER INFORMATION		29
	ITEM 1.		LEGAL PROCEEDINGS	29
	ITEM 1A.		RISK FACTORS	29
	ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
	ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	29
	ITEM 4.		MINE SAFETY DISCLOSURES	29
	ITEM 5.		OTHER INFORMATION	29
	ITEM 6.		EXHIBITS	29
			SIGNATURE	31

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Parabel Inc.

(A Development Stage Company)

Consolidated Balance Sheets

	March 31, 2013 (Unaudited)			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	12,558,254		$	363,399
Restricted cash		75,089			75,089
Prepaid expenses		75,497			81,901
Total current assets		12,708,840			520,389
Property and equipment		2,645,281			2,645,281
Accumulated depreciation		(2,135,183	)		(2,059,142	)
Net property and equipment		510,098			586,139
Deposits		251,723			251,723
Deferred loan cost		482,527			—
Total assets	$	13,953,188		$	1,358,251
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	862,192		$	1,155,399
Accrued expenses		1,187,813			845,867
Total current liabilities		2,050,005			2,001,266
Deferred rent		34,000			34,000
Accrued expenses – related party		21,029,699			19,070,289
Interest payable		206,666			—
Notes payable – related party		86,925,841			86,499,863
Notes payable		15,000,000			—
Total liabilities		125,246,211			107,605,418
Stockholders’ deficit:
Preferred stock - $.001 par value, 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2013 and December 31, 2012		—			—
Common stock - $.001 par value, 300,000,000 shares authorized; 106,920,730 shares issued and outstanding at March 31, 2013 and December 31, 2012		106,921			106,921
Paid in capital		40,783,451			39,391,137
Deficit accumulated during the development stage		(154,077,729	)		(148,302,262	)
Parabel Inc. stockholders’ deficit		(113,187,357	)		(108,804,204	)
Non-controlling interest		1,894,334			2,557,037
Total stockholders’ deficit		(111,293,023	)		(106,247,167	)
Total liabilities and stockholders’ deficit	$	13,953,188		$	1,358,251

See the accompanying notes to the consolidated financial statements.

3

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

							For the Period From September 22, 2006 (Inception) Through
	Three Months Ended March 31,						March 31,
	2013			2012			2013
Revenues:
License fees	$	—		$	500,000		$	650,000
Total revenues		—			500,000			650,000
Costs and expenses:
Cost of sales		—			39,792			81,393
Selling, general and administrative		3,238,010			2,513,733			76,904,660
Research and development		742,391			1,635,253			67,488,637
Interest expense - related party		2,235,388			2,074,115			27,004,485
Interest expense		224,139			—			224,139
Depreciation		76,041			139,053			3,960,493
Total costs and expenses		6,515,969			6,401,946			175,663,807
Net loss		(6,515,969	)		(5,901,946	)		(175,013,807	)
Net loss attributable to non-controlling interest		740,502			743,646			20,936,078
Net loss attributable to Parabel Inc.	$	(5,775,467	)	$	(5,158,300	)	$	(154,077,729	)
Basic and diluted common shares outstanding		106,920,730			106,920,730
Basic and diluted loss per share	$	(0.05	)	$	(0.05	)

See the accompanying notes to the consolidated financial statements.

4

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders’ Deficit

For the Period From Inception (September 22, 2006) to March 31, 2013

(Unaudited)

	Common Stock Shares			Amount			Paid in Capital			Non-Controlling Interest			Deficit Accumulated During the Development Stage			Total
Shares issued at inception for cash		100,000,000		$	100,000		$	388,532		$	—		$	—		$	488,532
Net loss		—			—			—			—			(1,410,724	)		(1,410,724	)
Balance - December 31, 2006		100,000,000		$	100,000		$	388,532		$	—		$	(1,410,724	)	$	(922,192	)
Amortization of PA LLC interests to employees		—			—			276,986			—			—			276,986
Net loss		—			—			—			—			(8,346,378	)		(8,346,378	)
Balance - December 31, 2007		100,000,000		$	100,000		$	665,518		$	—		$	(9,757,102	)	$	(8,991,584	)
Amortization of PA LLC interests to employees		—			—			2,240,041			200,000			—			2,440,041
Shares issued for cash		3,174,603			3,175			9,996,825			—			—			10,000,000
Shares issued for unearned services		1,000,000			1,000			(1,000	)		—			—			—
Amortization of unearned services		—			—			43,750			—			—			43,750
Issuance of option as additional consideration for debt		—			—			1,453,000			—			—			1,453,000
Reverse merger		99,586			99			—			—			—			99
Net loss		—			—			—			(162,400	)		(19,987,850	)		(20,150,250	)
Balance - December 31, 2008		104,274,189		$	104,274		$	14,398,134		$	37,600		$	(29,744,952	)	$	(15,204,944	)
Shares issued for services		160,524			160			537,652			—			—			537,812
Shares issued for cash		500,000			500			3,999,500			—			—			4,000,000
Shares issued with purchase price guaranty		937,500			938			(938	)		—			—			—
Shares and warrants issued for other current assets		357,143			357			3,017,787			—			—			3,018,144
Amortization of PA LLC interests to employees		—			—			—			1,987,552			—			1,987,552
Amortization of options issued to employees		—			—			588,653			—			—			588,653
Amortization of unearned services		—			—			1,575,000			—			—			1,575,000
Net loss		—			—			—			(6,554,358	)		(30,267,878	)		(36,822,236	)
Balance - December 31, 2009		106,229,356		$	106,229		$	24,115,788		$	(4,529,206	)	$	(60,012,830	)	$	(40,320,019	)
Return of common stock for other current asset		(106,126	)		(106	)		(341,620	)		—			—			(341,726	)
Shares issued for cash		810,000			810			6,479,190			—			—			6,480,000
Shares issued with put option or purchase price
Asset guaranty, net of purchase price		—			—			7,400,000			—			—			7,400,000
Amortization of PA LLC interests to employees		—			—			(794	)		12,903,744			—			12,902,950
Amortization of options issued to employees		—			—			922,549			—			—			922,549
Amortization of unearned services		—			—			1,531,250			—			—			1,531,250
PA LLC units returned for surrendered technology license		—			—			(2,283,115	)		1,683,115			—			(600,000	)
Net loss		—			—			—			(6,469,356	)		(38,010,029	)		(44,479,385	)
Balance - December 31, 2010		106,933,230		$	106,933		$	37,823,248		$	3,588,297		$	(98,022,859	)	$	(56,504,381	)
Put option exercised by former executive		(12,500	)		(12	)		12			—			—			—
Amortization of PA LLC interests to employees		—			—			(845	)		1,193,036			—			1,192,191
Amortization of options issued to employees		—			—			936,769			—			—			936,769
Amortization of stock appreciation rights issued to executive		—			—			1,041,964			—			—			1,041,964
Net loss		—			—			—			(3,639,627	)		(24,864,935	)		(28,504,562	)
Balance - December 31, 2011		106,920,730		$	106,921		$	39,801,148		$	1,141,706		$	(122,887,794	)	$	(81,838,019	)
Amortization of PA LLC interests to employees		—			—			(278	)		87,415			—			87,137
Amortization of options to acquire PA LLC interests		—			—			—			2,498,260			—			2,498,260
Amortization of options issued to employees		—			—			237,075			—			—			237,075
Amortization of stock appreciation rights issued to executive		—			—			1,923,624			—			—			1,923,624
PA LLC units returned for cash settlement		—			—			(1,117,432)			744,462			—			(372,970)
Exercise of options to acquire PA LLC interests		—			—			(1,453,000)			1,455,029			—			2,029
Net loss		—			—			—			(3,369,835	)		(25,414,468	)		(28,784,303	)
Balance - December 31, 2012		106,920,730		$	106,921		$	39,391,137		$	2,557,037		$	(148,302,262	)	$	(106,247,167	)

See the accompanying notes to the consolidated financial statements.

5

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Changes in Stockholders’ Deficit

For the Period From Inception (September 22, 2006) to March 31, 2013

(Unaudited)

Amortization of PA LLC interests to employees	—		—		—		77,799			—			77,799
Amortization of Parabel Ltd. options to executives	—		—		497,114		—			—			497,114
Amortization of options issued to employees	—		—		185,792		—			—			185,792
Amortization of stock appreciation rights issued to executive	—		—		709,768		—			—			709,768
PA LLC units returned for cash settlement	—		—		(360)		—			—			(360)
Net loss	—		—		—		(740,502	)		(5,775,467	)		(6,515,969	)
Balance - March 31, 2013	106,920,730	$	106,921	$	40,783,451	$	1,894,334		$	(154,077,729	)	$	(111,293,023	)

See the accompanying notes to the consolidated financial statements.

6

Parabel Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

							For the Period From September 22, 2006 (Inception) Through
	Three Months Ended March 31,						March 31,
	2013			2012			2013
Cash flows from operating activities:
Net loss	$	(6,515,969	)	$	(5,901,946	)	$	(175,013,807	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of original issue discount		—			—			1,453,000
Amortization of Company options		682,906			28,170			3,367,953
Amortization of stock appreciation rights		709,768			480,906			3,675,355
Amortization of unearned services		—			—			3,150,000
Amortization of PA LLC interests to employees		—			(27,946	)		18,886,857
Amortization of options to acquire PA LLC interests		77,799			—			2,576,059
Expenses paid and interest added to notes payable - related party		275,977			264,585			12,737,589
Expenses paid by issuance of common stock		—			—			1,214,230
Gain on settlement of accrued liability		—						(433,295	)
Depreciation		76,041			139,053			3,960,493
Impairment loss		—			—			651,348
Loss on disposition of equipment		—			—			277,708
Write-off of other non-current assets		—			—			2,067,637
Change in operating assets and liabilities:
Decrease (increase) in restricted cash		—			253			(75,089	)
Decrease (increase) in prepaid expenses		10,139			19,607			(91,376	)
(Increase) in other current assets		—			(169,488	)		(417,555	)
(Increase) in deposits		(3,734	)		(362	)		(235,843	)
(Increase) in other non-current assets		—			—			(109,720	)
(Decrease) increase in accounts payable		(293,207	)		21,483			1,200,129
Increase  in accrued expenses		2,301,356			1,741,976			18,691,158
Increase  in interest payable		206,666			—			206,666
(Decrease) in deferred revenue		—			(500,000	)		—
Increase in deferred rent		—			53			34,000
Net cash used in operating activities	$	(2,472,258	)	$	(3,903,656	)	$	(102,226,503	)
Cash flows from investing activities:
Proceeds from sale of asset		—			—			278,071
Acquisition of property and equipment		—			(40,377	)		(5,677,718	)
Net cash used in investing activities	$	—		$	(40,377	)	$	(5,399,647	)
Cash flows from financing activities:
Member contributions		—			—			488,532
Reverse merger		—			—			99
Exercise of put option		—			—			(100,000	)
Exercise of put option to acquire PA LLC interests		—			—			2,029
Common stock and warrants issued for cash		—			—			27,980,000
Borrowings under note payable - related party		150,000			1,500,000			76,269,601
Borrowings under note payable		15,000,000			—			15,000,000
PA LLC units returned for cash and surrendered technology license		—			—			(600,000	)
PA LLC units returned for cash settlement		(360	)		—			(373,330	)
Deferred loan cost		(482,527	)		—			(482,527	)
Issuance of common stock and warrants for cash		—			—			2,000,000
Net cash provided by financing activities	$	14,667,113		$	1,500,000		$	120,184,404
Net increase (decrease) in cash		12,194,855			(2,444,033	)		12,558,254
Cash and cash equivalents - beginning of period		363,399			8,842,269			—
Cash and cash equivalents - end of period	$	12,558,254		$	6,398,236		$	12,558,254
Non-cash investing and financing activities:
Liability incurred for other non-current asset	$	—		$	(47,598	)	$	—
Common stock issued for unearned services	$	—		$	—		$	3,150,000
Issuance of shares for other current asset	$	—		$	—		$	1,200,000
Return of common stock for other current asset	$	—		$	—		$	(341,726	)
Liability repaid with restricted cash	$	—		$	—		$	4,000,000

See the accompanying notes to the consolidated financial statements.

7

Parabel Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

March 31, 2013

(Unaudited)

Note 1 Organization

Parabel Inc. (the “Company”), began its operations through its controlled subsidiary, PA LLC (formerly known as PetroAlgae LLC), on December 19, 2008, as a result of the reverse acquisition described below. PA LLC was formed by XL TechGroup, LLC (“XL Tech”, a related party and its sponsor and parent until December 19, 2008) on September 22, 2006 as a Delaware limited liability company to develop technologies to commercially grow, harvest and process locally-available aquatic plants (“micro-crops”). PA LLC is a technology development and licensing company that provides micro-crop technology to address the global demand for new sources of feed and food. The Company has developed proprietary technology, which it believes will enable customer licensees to grow, harvest and process micro-crops to produce Lemna Protein Concentrate (“LPC”) and Lemna Meal (“LM”). In the near-term, the Company is positioning LPC and LM in animal feed markets, as fish meal and alfalfa meal alternatives, respectively. In addition, the Company expects LPC to be applied in human food markets.

Reverse Acquisition

In August 2008, XL Tech exchanged certain of its assets, including the equity it held in PA LLC, for the outstanding debt of XL Tech that was held by our principal stockholder. Subsequent to that exchange, our principal stockholder transferred the equity it received and certain related debt to PetroTech Holdings Corp. (“PetroTech”), a holding company controlled by our principal stockholder. In December 2008, PetroTech acquired a shell company that traded on the OTC Bulletin Board and assigned its interest in PA LLC to this shell company, which it then renamed PetroAlgae Inc. As a result of the acquisition, PetroTech became the owner of 100,000,000 shares of common stock of PetroAlgae Inc. which, at the time, represented 99.9% of the total issued and outstanding common stock of PetroAlgae Inc. As the former members of PA LLC controlled PetroAlgae Inc. after the transaction, the merger was accounted for as a reverse acquisition under which, for accounting purposes, PA LLC was deemed to be the acquirer and PetroAlgae Inc., the legal acquirer, was deemed to be the acquired entity. No goodwill was recognized as PetroAlgae Inc. was a “shell” company. The former shareholders of PetroAlgae Inc. retained an aggregate of 99,586 shares of common stock, which were recorded at par value of $99. PetroAlgae Inc. changed its name to Parabel Inc. on February 7, 2012.

Parabel Ltd.

On December 5, 2012, PA LLC formed a wholly-owned subsidiary, Parabel Ltd., organized under the laws of the Cayman Islands, to which it transferred on January 29, 2013 substantially all of the assets of PA LLC. The Company’s principal stockholder released its security over the assets transferred to Parabel Ltd.

Parabel USA Inc.

On March 25, 2013, Parabel Ltd., formed a wholly-owned subsidiary, Parabel USA Inc. organized under the laws of the state of Delaware.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and Rule 8-03 of Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management are necessary for the fair statement of the Company’s results for the interim period presented. The consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2013 or any future period. For further information, refer to the consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on April 01, 2013.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiaries, PA LLC and Parabel Ltd. Non-controlling interests are accounted for based upon the value or cost attributed to their investment adjusted for the share of income or loss that relates to their percentage ownership of the entire Company. All intercompany transactions and balances have been eliminated in consolidation.

8

Use of Estimates

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense. Actual results may differ from these estimates.

Revenue Recognition

The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. To the extent cash is received in advance of the Company’s performance under a license agreement or such receipts are refundable at the customer’s option, these amounts will be reported as deferred revenue.

During the fourth quarter of 2011, the Company completed the construction of its pilot-scale bioreactor for its customer licensee in South America, Asesorias e Inversiones Quilicura S.A. (“AIQ”). On March 31, 2012, the testing period during which the Company monitored and evaluated growth within the bioreactor was concluded and AIQ concurred in writing with the Company’s report declaring the success of the preliminary phase. As a result, the Company recognized $0.5 million of previously deferred revenue in its consolidated statement of operations during the three months ended March 31, 2012.

In May 2011, the Company entered into a PA Select license agreement with the Republic of Suriname, initially providing for pilot-scale testing in exchange for a limited license fee of $150,000. The Company did not believe at the time of entering into the agreement that the agreement was material. During the first quarter of 2012, the Company concluded its pilot-scale testing in Suriname. During the second quarter of 2012, the parties to the agreement mutually agreed not to proceed to commercial-scale operations in recognition of the Company’s evolving business model and strategic priorities. As a result, the Company recognized $0.2 million of previously deferred revenue in its consolidated statement of operations during the three months ended June 30, 2012.

Restricted Cash

As of March 31, 2013 and December 31, 2012, restricted cash consisted of $0.1 million that was held in escrow per a credit card arrangement with the Company’s financial institution.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2013. The respective carrying values of certain financial instruments approximate their fair values. These financial instruments include cash and cash equivalents, restricted cash, accounts payable, and accrued expenses. Carrying values are assumed to approximate fair values for these financial instruments because they are short-term in nature and their carrying amounts approximate the amounts expected to be received or paid.

The carrying value of the Company’s fixed-rate notes payable-related party approximate their fair value based on the current market conditions at the time of issuance for similar debt instruments.

9

Property and Equipment

Property and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs which do not extend the useful lives are expensed. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term.

Long-Lived Assets

The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that suggest permanent impairment. Specifically, senior management of the Company considers in each reporting period the effectiveness of the Company’s significant assets to determine if impairment indicators such as physical deterioration, process change or technological change have resulted in underperformance, obsolescence or a need to replace such assets. The Company groups its assets into three primary categories for this purpose. Due to the nature of the Company’s business, cash flows are not derived from specific asset groups; therefore, this grouping is merely to aid the Company’s analysis:

• Office equipment, including leasehold improvements

• Demonstration system and engineering equipment

• Computer software and hardware – applications and networking

The Company does not consider its net loss or cash outflow from operations to be an indicator of asset impairment as such financial results are typical for technology companies that are in the development stage. Rather, management evaluates the state of the technology, its process toward technical and business milestones, and relevant external market factors to ascertain whether a potential impairment has occurred. During 2012, the Company identified certain changes in its process development plans that eliminated or changed the need or expected use of certain assets. As a result, during the year ended December 31, 2012 impairment charges of $0.1 million were recorded as a reduction of property and equipment and an addition to research and development expense in order to reduce these assets to their estimated realizable value.

When the Company identifies an impairment indicator, it measures the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds its best internal estimate of the value of the asset while it remains in use, plus any proceeds expected from the eventual disposal of the impaired asset. Since the Company uses most of its property and equipment to demonstrate its technology to prospective customers and continue technology and product enhancement efforts and not to generate revenues or cash flows, a cash flow analysis of the categories above or the assets as a whole is not practicable. Instead, a depreciated replacement cost estimate is used for assets still in service and equipment secondary market quotes are obtained for assets planned for disposal. Depreciated replacement cost is determined by contacting vendors of the same or similar equipment or other assets to obtain an estimate of the market price of such assets, and then reducing this amount by a formula derived from the age of the equipment and the typical useful life of that equipment. For assets planned to be disposed, descriptions of the equipment are circulated to a number of purchasers of used machinery and equipment to solicit bids for such assets. The Company’s best estimate of selling price based upon these purchasers’ responses is used to estimate the value of such assets, net of any costs to remove, recondition and/or ship the equipment to the buyer.

No impairment indicators were noted during the three months ended March 31, 2013 or 2012 and the Company’s process of monitoring these assets was unchanged during this period.

Research and Development

Research and development costs incurred in the discovery of new knowledge and the resulting translation of this new knowledge into plans and designs for new products, prior to the attainment of the related products’ technological feasibility, are recorded as expenses in the period incurred.

Loss Per Share

Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents are not considered as their effect would be anti-dilutive.

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The effect of 2,592,143 and 2,592,143 weighted average warrants and 766,236 and 1,242,168 weighted average options were not included for the three months ended March 31, 2013 and 2012, respectively, as they would have had an anti-dilutive effect.

Recently Issued Accounting Pronouncements

Comprehensive Income

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires disclosure about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. ASU 2013-02 is to be applied prospectively and is effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of this guidance did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Note 2 Going Concern

As of March 31, 2013, the Company is in the development stage as it continues to develop its products and has not yet recognized any significant revenues. The Company intends to transition from the development stage to the commercialization stage depending upon the timing and its success in achieving its business development milestones. The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has never been profitable and has incurred significant losses and cash flow deficits. For the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, the Company reported net losses of $6.5 million, $5.9 million, and $175.0 million, respectively, and negative cash flows from operating activities of $2.5 million, $3.9 million, and $102.2 million, respectively. As of March 31, 2013, the Company had an aggregate accumulated deficit of $154.1 million. The Company anticipates that it will continue to report losses and negative cash flows during 2013. As a result of these net losses, cash flow deficits, and substantial debt that is due on June 30, 2017, there is substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ability to continue as a going concern is dependent upon generating sufficient cash flows from operations and obtaining additional capital and financing. The principal amount of related party debt obligations as of March 31, 2013 was $86.9 million. The principal balance of notes payable – related party and the $19.9 million of interest payable thereon is due June 30, 2017. The principal amount of unrelated party debt obligations as of March 31, 2013 was $15.0 million.  The principal balance of notes payable – unrelated party and the $0.2 million of interest payable thereon is due on January 29, 2018.

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The Company had cash and cash equivalents (on a consolidated basis) of $12.6 million as of March 31, 2013 and believes it has sufficient working capital to continue its operations through the end of 2013.

Note 3 Accrued Expenses

Accrued expenses are comprised of the following components:

	March 31, 2013		December 31, 2012
Accrued payroll and bonus	$	277,201	$	247,460
Accrued vacation compensation		99,029		121,741
Accrued legal, accounting and engineering fees		253,928		170,814
Other accruals		557,655		305,852
Total Accrued Expenses	$	1,187,813	$	845,867

Note 4 Notes Payable

During the three months ended March 31, 2013, PetroTech Holdings Corp. (“PetroTech”), a holding company controlled by the Company’s principal stockholder, funded a total of $0.2 million to PA LLC pursuant to the terms of separate senior secured term notes, all of which are included in the $55.3 million notes payable in the following table.

On January 29, 2013, Dhabi Cayman One Ltd., an unaffiliated investor based in the United Arab Emirates (“Dhabi”), funded a total of $15.0 million to Parabel Ltd. in the form of a senior secured convertible note.

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Notes payable consist of the following:

	March 31, 2013		December 31, 2012
Note Payable to Valens U.S. SPV I, LLC	$	417,512	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Notes Payable to PetroTech		55,297,089		55,147,089
- Interest accrues monthly at an annual rate of 12%
- Notes are due on June 30, 2017
Convertible Note Payable to PetroTech		10,000,000		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below
Up to $25,000,000 Note Payable to PetroTech		21,211,240		20,935,262
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at March 31, 2013 and December 31, 2012)
-Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total Notes Payable – Related Party	$	86,925,841	$	86,499,863

	March 31, 2013		December 31, 2012
Senior Convertible Note Payable to Dhabi Cayman One Ltd.		15,000,000		—
- Interest accrues monthly at an annual rate of 8% and is compounded quarterly		206,666		—
- Note is due on January 29, 2018
Total Notes Payable – Unrelated Party	$	15,206,666	$	—

The notes payable - related party are secured by all of the assets of Parabel Inc. and PA LLC. The convertible note payable to PetroTech allows the holder (at the holder’s option) to convert all or any portion of the issued and outstanding principal amount and/or accrued interest then due into shares of Parabel Inc.’s common stock at a fixed conversion price of $5.43 per share.

Each note payable - related party and the related master security agreement and equity pledge and corporate guaranty agreement contain provisions that specify events of default which could lead to acceleration of the maturity of the debt. These provisions prohibit the encumbrance or sale and require the maintenance and insurance of the secured assets. The loan agreements do not contain any required financial ratios or similar debt covenants. Generally, an event of default would arise if PA LLC became insolvent, filed for bankruptcy, allowed a change in control or had unresolved judgments against its assets. Through the date of this quarterly report, none of these events have occurred.

As of March 31, 2013 and December 31, 2012, interest in the amount of $19.9 million and $18.0 million, respectively, was accrued related to the notes payable - related party and is recorded in accrued expenses - related party on the accompanying consolidated balance sheets. During the three months ended March 31, 2013 and 2012, additional accrued interest of $0.3 million   was added to the principal balance of the floating-rate note and is recorded in notes payable - related party on the accompanying consolidated balance sheets.

During the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, interest charged to operations on these related party notes was $2.2 million, $2.1 million, and $27.0 million, respectively. No interest was capitalized during any of these periods.

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The notes payable –unrelated party is secured by a first priority security interest in all of the assets of Parabel Ltd.   Parabel Ltd. is a wholly-owned subsidiary of PA LLC and an indirect controlled subsidiary of Parabel Inc. PA LLC transferred  substantially all of its assets to Parabel Ltd. on January 29, 2013. The note payable and any accrued and unpaid interest are convertible at Dhabi’s option into the number of shares of common stock of Parabel Ltd. (the “Common Stock”) equal to the dollar amount being converted divided by $1.00 per share of Common Stock, subject to adjustment if certain events of dilution occur. In addition, the Senior Convertible Note and any accrued and unpaid interest are also convertible by Parabel Ltd. upon the approval of the holders of a majority of the Senior Convertible Notes then outstanding or upon a public offering in which Parabel Ltd. receives net proceeds of at least $50.0 million.

As of March 31, 2013 interest in the amount of $0.2 million was accrued related to the notes payable – unrelated party and is recorded as interest payable on the accompanying consolidated balance sheets.

Note 5 Stockholders’ Deficit

The Company’s equity consists of 300,000,000 shares of $.001 par value common stock, of which 106,920,730 shares had been issued and were outstanding as of March 31, 2013 and December 31, 2012, respectively. In addition, the Company may issue up to 25,000,000 shares of preferred stock. No preferred stock is outstanding.

Estimation of Common Stock Fair Value

In each reporting period, the Company has determined its best estimate of the fair value of its common stock by considering the following indicators of value:

• Level 3 valuations based upon a discounted cash flow analysis using inputs which were not externally observable, in this case the Company’s estimate of future cash flows from the Company’s business; and

• Prices paid in cash for shares of stock or securities units comprised of equity shares and five-year warrants to purchase equity shares; and

• Over-The-Counter (“OTC”) quotation closing price and related statistics such as trading volume, volatility and recent price ranges.

Level 3 estimated cash flow valuations. The Level 3 fair value estimate of the Company’s equity value applied discounted cash flow valuation techniques to expected future cash flows from the Company’s business as of each valuation date. Key assumptions utilized in determining this fair value estimate include the expected amount and timing of revenue from expected future sales of the Company’s technology along with the associated cost of sales and other operating cash outflows. These cash flows are discounted back to present value using an interest rate consistent with development stage technology companies and the resulting enterprise value is converted to an equity value per outstanding share.

The most significant uncertainty inherent in these calculations is the risk of obtaining and performing the contracts necessary to produce the estimated future revenues. In addition, the risk of collection of amounts that are expected to be due under projected contracts, the risk of unanticipated product development or delivery costs and the risk of increased operating and overhead costs may each cause the estimates of future revenues to vary from the assumptions that are made in these projections, and these variations may be material.

The fair value of the warrants was estimated using the Black-Scholes valuation model, based on the estimated fair value of the common stock on the valuation date, an expected dividend yield of 0%, a risk-free interest rate based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining term of the instruments, an expected life equal to the remaining term of the instruments and an estimated volatility of 96.5%.  Because the Level 3 indications of value were able to take into account important information pertaining to the amount, timing and risk of Company cash flows, they were given the most weight in the Company’s estimate of share value.

Third party transactions. The Company has completed several private sales of equity shares and securities units comprised of both equity shares and warrants to purchase additional equity shares over the reporting periods. The transactions were completed with both related and unrelated parties in exchange for cash. Given the size of these transactions and the sophisticated nature of the parties involved in their negotiation, these indications of value were given significant weight in the Company’s estimate of share value. However, because most of these transactions were with affiliates, sole or primary reliance was not placed on these values.

OTC Values. The Company’s common stock is currently traded on the OTCQB tier of OTC Markets Group. A very small percentage of the issued and outstanding shares are available for active trading since approximately 94% of the Company’s outstanding shares are held by its controlling stockholder. Due to the very limited size of the Company’s public float and the resulting low trading volume in the Company’s common stock, its public shares are susceptible to very large swings in price based on very few trades. As a result of these considerations, value indications provided by the OTC price quotation service were given the least weight of the three factors in the Company’s estimate of share value.

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Issuance of Common Stock and Warrants

On January 15, 2009, the Company entered into a Stock Purchase Agreement with Engineering Automation and Design Inc., a Nebraska corporation (“EAD”), pursuant to which it issued 151,057 shares of common stock as partial consideration, in advance, for certain services relating to the design, engineering, and construction of facilities for the growth, harvesting and processing of micro-crops for demonstration of the Company’s technology to potential customers. In February 2010, EAD returned 106,126 shares of common stock to the Company, which were canceled. The shares earned and retained by EAD under the related agreements were accounted for at their estimated fair value at issuance of approximately $144,678 (44,931 shares at $3.22 fair value per share) and charged to research and development expense.

During December 2009, the Company issued approximately 9,500 shares of common stock valued at an estimated fair value of $5.50 per share for legal services.

During December 2009, the Company issued 357,143 units consisting of one share of common stock and a warrant to purchase a share of common stock at $15.00 for a period of five years in exchange for a 30% interest in Green Sciences Energy, LLC, a subsidiary of Congoo, LLC. The units were valued at $8.00 per unit or $2.9 million. The $8.00 fair value per unit was determined based upon contemporaneous issuances of identical units for $8.00 in cash. In addition, the Company used its fair value estimate to allocate the value of the units issued between the fair values of the common stock and warrants of $2.0 million ($5.66 per share) and $0.9 million ($2.34 per warrant), respectively. This allocation indicated that a very small premium (less than 5%) should be attributed to the allocated share price compared to its fair value.

In addition, during December 2009, the Company issued an additional 250,000 warrants exercisable at $8.00 per share for a period of six months and 250,000 warrants exercisable at $15.00 per share for a period of six months. The Company estimated the fair value of the 500,000 additional warrants using the Black-Scholes option pricing model and the same assumptions stated above, resulting in an estimated fair value of the options of $0.2 million. The sum of the estimated fair value of the securities issued was approximately $3.0 million.

From February 12, 2010 to August 6, 2010, the Company sold 797,500 units, each unit consisting of one share of common stock and a warrant to purchase a share of common stock at $15.00 for a period of five years, for $8.00 per unit or $6.4 million as follows:

• 687,500 units to an affiliate; and

• 110,000 units to third parties.

The proceeds of the 797,500 units issued were allocated between the common stock and the warrants based upon their respective estimated fair values on the date of the issuance. This allocation attributed $4.5 million (or $5.52 to $5.60 per share) to the common stock issued and $1.9 million to the warrants issued (or $2.40 to $2.48 per warrant). For the warrants, the Company estimated the fair value using the Black-Scholes valuation model, based on the estimated fair value of the common stock on each valuation date ($5.89 to $6.67 per share), an expected dividend yield of 0%, a risk-free interest rate based on the yield of 5-year U.S. Treasury securities on each valuation date (1.78% to 2.62%), an expected life of five years and an estimated volatility of 75.2%.

The 687,500 units sold to the affiliate contained share price and warrant exercise price guarantees. The purchase price of the common stock and the exercise price of the warrants would have been adjusted in the event that the Company issued common stock or warrants at a price below $8.00 for common shares or a $15.00 exercise price for warrants for a period of six months from the purchase date. All of the aforementioned share price guaranty periods expired during 2010 and no adjustments were necessary.

The former President and Chief Operating Officer also received a put option which gave him the option to sell any or all of the shares back to the Company for a purchase price of $8.00 at any time within one year of the original transaction. In accordance with (“ASC”) 480-10-25-8, the proceeds were recorded as liabilities related to equity issuance on the accompanying consolidated balance sheet as of December 31, 2010. During January 2011, he exercised his option and the Company repurchased all 12,500 shares of common stock for $100,000.

No shares were issued during the first quarter of 2012 or 2013, respectively.

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Non-controlling Interest and PA LLC Equity Incentive Plan

Class A Units

During 2006, the Company issued 5% of the Class A voting units (1,000,000 units) of PA LLC as partial consideration for a license to certain technology from Arizona Technology Enterprises, LLC (“AzTE”). AzTE was granted anti-dilution rights and was entitled to 5% of the fully diluted capitalization of PA LLC. On June 2, 2010, the Company entered into an agreement with AzTE that provided for recovery of the 1,000,000 Class A voting units of PA LLC and the cancellation of all existing and future obligations and agreements between the Company and AzTE, in exchange for the return of certain AzTE-licensed technology and a payment of $0.6 million. The Company remitted the payment to AzTE on June 3, 2010 and the units of PA LLC were received and cancelled on June 3, 2010. The return of the Class A voting units of PA LLC effectively nullified the anti-dilution rights that were previously granted to AzTE.

The transaction with AzTE was accounted for as a return or repurchase of equity interests of PA LLC. The Company followed the guidance of ASC 810-10-45-23 and handled changes in the parent’s ownership by adjusting the carrying amount of the controlling and non-controlling interests based on the change in their respective ownership share in the subsidiary. This transaction increased the parent or controlling interest from approximately 82% to approximately 87%, which gave rise to a debit of $1.7 million to paid in capital attributable to Parabel Inc., since PA LLC had a large deficit accumulated during the development stage. In addition, the amount paid of $0.6 million was also recorded in paid in capital since it represents the cost to the controlling interest of acquiring a portion of the interest in the subsidiary that it did not previously own. The net effect of this transaction increased shareholders’ deficit attributable to Parabel Inc. by $2.3 million.

Class B Units

PA LLC has an equity compensation plan which allows it to grant employees and consultants awards of profits interests in restricted Class B ownership units (the “Interests”). These Interests give the recipient the right to participate in the income of PA LLC and any distribution that may arise from a liquidity event to the extent that such realized amounts exceed the ownership unit fair value at the date of grant.  The Company granted 2,816,471 and 674,500 Interests during 2008 and 2007, respectively, to a number of its employees as of the date that they began employment with the Company.

During the third quarter of 2008, five senior officers were granted an aggregate 1.34 million Interests that were subject to repurchase for $0.01 per unit until a significant liquidity event occurred. Because that condition had not yet been met, these grants were considered contingent and had not been amortized. The amount and nature of the liquidity event was changed in July 2009 from a requirement to obtain $150.0 million of distributions and/or debt repayments to the Company’s principal stockholder to a requirement to obtain $25.0 million of new liquidity for the Company. This change resulted in a $4.6 million increase in the unrecognized compensation expense to $6.0 million.

During the fourth quarter of 2010, the Company’s principal stockholder modified the terms of the grant to remove the right of the Company to repurchase the Interests held by all five officers, causing these grants to be immediately vested. This decision required a revaluation of the Interests held by the officers and immediate recognition of the calculated expense. Based upon current estimates and applying the same discounted cash flow methodology used as of the prior valuation dates, the compensation cost was increased to $11.4 million during the fourth quarter of 2010 and recognized as selling, general and administrative expense of $9.1 million or research and development expense of $2.3 million depending upon each officer’s role in the Company.

On June 8, 2012, the Company entered into an agreement with certain of its former employees and senior officers that provided for the recovery of 980,000 Class B units of PA LLC and the release of claims for deferred compensation related to their employment with PA LLC, in exchange for a payment of $0.4 million. The Company remitted the payment on June 13, 2012 and the units of PA LLC were received and cancelled on June 13, 2012. The settlement paid to the former employees and officers was allocated between the deferred compensation liability and the Class B units based upon the proportionate fair market value of each to the total of $0.4 million. The transaction was accounted for as a gain on the settlement of an accrued liability and a return or repurchase of equity interests of PA LLC. A gain of $0.4 million associated with the settlement of the deferred compensation claim was recognized in selling, general and administrative expense during the three months ended June 30, 2012. The Company followed the guidance of ASC 810-10-45-23 with respect to the recovery of the Class B units and handled the change in the parent’s ownership by adjusting the carrying amount of the controlling and non-controlling interests based on the change in their respective ownership share in the subsidiary. In addition, the amount paid of $0.4 million was also recorded in paid in capital since it represents the cost to the controlling interest of acquiring a portion of the interest in the subsidiary that it did not previously own. The net effect of this transaction increased shareholders’ deficit attributable to Parabel Inc. by $1.1 million.

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During the third quarter of 2012, the Company gave each Class B unit holders the option to elect to convert their Class B units into Class C units, which would enable them (at the discretion of the board of directors) to convert their Class C units into shares of Parabel Inc. common stock at a conversion ratio of 4.2 shares per Class C unit. The Company accounted for this transaction as a modification of an award, and the Company accordingly computed the fair value of the new awards as compared to the fair value of the original awards immediately before their terms were modified. There was no additional compensation cost recorded for the 712,170 units that were converted from Class B to Class C as the fair market value of the Class B units ($6.48 per unit) was in excess of the OTCQB trading price of the Parabel Inc. shares of $1.22 per share (multiplied by the 4.2 conversion ratio) as of the conversion date.

During the fourth quarter of 2012, the Company repurchased 819,853 Class B Units from former employees and cancelled those units. During the year ended December 31, 2012, 28,857 of unvested units were forfeited as a result of employees leaving the Company. During the third quarter of 2012, the Company offered Class B unit holders an opportunity to convert their Class B units into Class C units. As a result, 712,170 Class B units were converted into Class C units.

During the first quarter of 2013, the Company repurchased 36,000 Class B Units from former employees and cancelled those units.

As of March 31, 2013 and December 31, 2012, total Class B units outstanding were 170,691 and 206,691, respectively, or 0.8% and 0.9%, respectively, of total outstanding units.

The Company determined the fair value of these grants by estimating the proceeds that it may obtain from a range of possible future liquidity events such as a public equity offering or the sale of the Company. The timing of such liquidity events and the likelihood of their achievement was estimated based upon the information that existed as of the grant or valuation date. The weighted average future cash value was then discounted using an annual discount rate and the weighted average time from grant or valuation date to the liquidity event. This estimated cash present value was converted to a per share cash value and, based on the structure of the grant, the carrying amount per unit was subtracted to determine the fair value of each of the Interests.

The grants of Interests contain restrictions that allow the Company to repurchase the units for $0.01 per unit until a service period or other condition is met. This restriction is removed over a service period (generally four years) with regard to approximately 2.15 million Interests. On March 4, 2011, the Company modified the terms of the Interests granted to a former employee, causing the Interests to be immediately vested. This decision required a revaluation of the Interests and immediate recognition of additional compensation cost in the amount of $0.8 million, recorded as research and development expense, based upon the nature of the former employee’s role with the Company.

For the three months ended March 31, 2013 and 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, compensation expense related to these Interests was $0.0 million, $0.0 million, and $21.5 million, respectively. The related compensation expense is recognized as selling, general and administrative expense or research and development expense depending upon the recipient’s role in the Company. Amounts recognized as selling, general and administrative expense were $0.0 million, $0.0 million, and $14.8 million for the years ended March 31, 2013, 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, respectively. Amounts recognized as research and development expense were $0.1 million, $0.0 million, and $6.7 million for the years ended March 31, 2013, 2012, and for the period from September 22, 2006 (inception) to March 31, 2013, respectively. An aggregate of 36,000, 26,000, and 828,600 of these Interests were forfeited during the periods ended March 31, 2013, 2012, and the period from September 22, 2006 (inception) to March 31, 2013, respectively.

Management Options Class C Units

The Company issued an option in 2008 to XL Tech to acquire 2,029,337 ownership units in PA LLC at a price of less than one cent each, in connection with continued borrowings under a Company debt facility outstanding with XL Tech. The debt facility and the option were subsequently acquired by PetroTech. The issuance of this option was accounted for as an original issue discount on the related debt in the initial amount of approximately $1.5 million and was amortized over the original term of the debt. During the third quarter of 2012, PetroTech exercised their option to acquire 2,029,337 ownership units in PA LLC and simultaneously elected to convert them to Class C units. The $1.5 million that was originally accounted for as an original issue discount has been reclassified to non-controlling interest on the accompanying consolidated balance sheet as of December 31, 2012, along with the $2,029 exercise price received by the Company.

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As of March 31, 2013, a total of 2,741,507 Class C units were outstanding. This represents 12.5% of total outstanding units. These units are convertible into 11,514,329 shares of common stock of Parabel Inc. at the discretion of the Company’s board of directors.

Class D Units

On November 8, 2012, the limited liability company agreement of PA LLC was amended and restated to provide for a new class of units (“Class D Units”) that are issuable to Parabel Inc. upon such terms and conditions as the board of directors of PA LLC may authorize. Unless specifically required otherwise by non-waivable provisions of the PA LLC operating agreement and notwithstanding anything contained herein to the contrary, Class D units shall not be entitled to vote on any matter submitted to the Members, but shall have such other rights, privileges, preferences, and obligations as are specifically provided for in this Agreement for Class D units. No Class D units shall be issued other than to the Company and upon such terms and conditions as the Board shall authorize.

Non-controlling Interest

As of March 31, 2013 and December 31, 2012, non-controlling interests collectively owned approximately 13.3% and 13.3%, respectively, of PA LLC, and have absorbed their respective portion of the loss of PA LLC. The amount of loss absorbed was $0.7 million, $0.7 million and $20.9 million, for three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, respectively.

Options to Acquire PA LLC Units

From May 21, 2012 to December 31, 2012, the Company granted certain of its employees 440,000 options, in the aggregate, to purchase Interests at an exercise price of $1.00 per Interest. The options vest over various terms, with 390,000 vested immediately upon grant, 30,000 vesting over a one-year period and 20,000 vesting based upon completion of a project. The fair value of the options when granted aggregated to $2.7 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the Interest of $6.48, expected term of 10 years, risk free interest rates ranging from 1.46% to 1.74%, an estimated volatility of 96.5%, and a dividend yield of 0%.

During the three months ended March 31, 2013, approximately $0.1 million was charged to operations related to the outstanding options. The total $0.1 million was recognized as research and development expense, depending upon the recipient’s role in the Company. The fair value related to unvested options totaled $0.1 million and will be charged to operations over the remaining term of the options.

All of the holders of the above options elected to convert their options into options to acquire Class C units during the third quarter of 2012.  The conversion was treated as a modification that did not result in any additional compensation expense as the fair market value of the options to acquire Class C units was in excess of the OTCQB trading price of the Parabel Inc. shares of $1.22 per share (multiplied by the 4.2 conversion ratio) as of the conversion date.

As of December 31, 2012, the options granted, net of forfeitures, totaled 420,000.  There were no options granted during the quarter ended March 31, 2013. Upon exercise, these options would be convertible into 1,764,000 shares of common stock at the discretion of the Company’s board of directors.

Management Options to Acquire Common Stock of Parabel Ltd.

On January 29, 2013 the Company granted its CEO, CFO and COO 6,780,000, 1,692,250 and 1,692,250 options respectively, to purchase common stock of Parabel Ltd at an exercise price of $1.11. The Option shall vest quarterly over a three (3) year period, 40% of the Option shall vest equally at the end of each of the first four consecutive quarters following the grant date, 30% of the Option shall vest equally at the end of each of the next four consecutive quarters, and the remaining 30% of the Option shall vest equally at the end of each of the next four consecutive quarters.

The fair value of the options when granted aggregated to $7.8 million and was calculated using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, expected term of 6.05 years , risk free interest rate of 2.03%, an estimated volatility of 96.5%, and a dividend yield of 0%.  As of March 31, 2013, the compensation costs related to these options was $0.5 million.

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Stock Options

On June 17, 2009, the Company adopted the 2009 Equity Compensation Plan (the “2009 Plan”). The 2009 Plan is intended to provide employees, consultants and others the opportunity to receive incentive stock options and is limited to 4,000,000 shares of the Company’s common stock. The exercise price shall be equal to or greater than the fair value of the underlying common stock on the date the option is granted and its term shall not exceed 10 years. Awards shall not vest in full prior to the third anniversary of the award date.

On January 1, 2011, the Company granted its employees 623,000 options, in the aggregate, to purchase common shares at an exercise price of $8.00 per share. The options generally vest over a period of four years from the grant date and expire 10 years from the grant date. The grant date fair value of the options aggregated to $1.9 million and was calculated using the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 6.25 years, risk free interest rate of 2.0%, an estimated volatility of 75.2%, and a dividend yield of 0%. The expected term of options granted to employees was based upon the simplified method allowed for “plain vanilla” options as described by SEC Staff Accounting Bulletin (“SAB”) No. 110. The fair value will be charged to operations over the remaining vesting periods commencing on the employee’s hire date or the grant date, depending upon terms of individual grants.

On June 30, 2011, the Company’s board of directors authorized the re-pricing of all outstanding stock options, changing the exercise price from $8.00 or $8.50 to $5.50 per option. In accordance with ASC 718-20-35-3, the Company computed the additional compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of June 30, 2011: estimated fair value of the common stock of $5.10, remaining terms ranging from 4.75 years to 5.89 years (depending on the date of the original grant), risk free interest rate of 1.76%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 1,240,000 options and resulted in aggregate additional compensation cost of $0.4 million. Of the total additional compensation cost, $0.2 million was expensed immediately as it related to options which were vested as of June 30, 2011, and $0.2 million will be expensed through 2014.

Due to the significant number of equity transactions that occurred during June of 2011, including the stock option modification discussed above and the stock option and the stock appreciation rights (“SARs”) issuances discussed below, the Company re-examined its volatility estimate and consequently increased it from 75.2% to 96.5% on a prospective basis. The Company estimates volatility in accordance with SEC SAB No. 107, “Share-based Payment” based on an analysis of expected volatility of share trading prices for a peer group of companies. Over a period of time similar to that of the expected option life, the volatility in share price of these alternative energy and clean-tech companies averaged 70.4%. To account for the fact that the Company is in the development stage and can be expected to have a higher volatility at its present stage than the average of the comparable companies, the Company adjusted upward its volatility estimate. Specifically, the Company estimated its share volatility by calculating the average volatility of those members of its peer group that exhibited volatility measures in the top quartile of the group. Using this approach, the Company determined that a volatility estimate of 96.5% is appropriate in its fair value calculations.

On June 30, 2011, the Company’s board of directors authorized the grant of 616,000 options to employees, in the aggregate, to purchase common shares at an exercise price of $5.50 per share. Of the 616,000 options authorized, 351,000 were granted on June 30, 2011 and the remaining 265,000 were granted on July 21, 2011. The options generally vest over a period of four years from the grant date and expire 10 years from the grant date. The fair value of the options when granted aggregated to $2.4 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 6.25 years, risk free interest rate of 1.76%, an estimated volatility of 96.5%, and a dividend yield of 0%. The expected term of options granted to employees was based upon the simplified method allowed for “plain vanilla” options as described by SEC SAB No. 110. The fair value will be charged to operations over the remaining vesting periods commencing on the employee’s hire date or the grant date, depending upon terms of individual grants.

On January 29, 2013 the Company’s board of directors authorized the re-pricing of all of Parabel Inc.’s outstanding stock options, changing the exercise price from $5.50 to $1.23 per option. In accordance with ASC 718-20-35-3, the Company computed the compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, remaining terms ranging from 3.75 years to 5.71 years (depending on the date of the original grant), risk free interest rate of 0.90%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 615,000 options and resulted in aggregate additional compensation cost of $0.2 million. Of the total compensation cost, $0.1 million was expensed immediately as it related to options which were vested as of January 29, 2013, and $0.1 million will be expensed through 2016.

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The weighted average period over which options not vested through March 31, 2013 are expected to vest is 34 months. During the three months ended March 31, 2013 and 2012, approximately $0.2 million and $0.0 million, respectively, was charged to operations related to all of the outstanding options. The fair value related to unexercisable stock options as of March 31, 2013 totaled approximately $1.5 million and is expected to be expensed over the next three years.

A summary of stock option activity is as follows:

	Number of Shares			Weighted Average Exercise Price			Weighted Average Fair Value
Balance at December 31, 2008		—		$	—		$	—
Granted June 2009		1,072,500		$	5.50		$	2.70
Granted July 2009		45,000		$	5.50		$	2.83
Forfeited		(200,000	)	$	(5.50	)	$	(2.70	)
Balance at December 31, 2009		917,500		$	5.50		$	2.37
Granted January 2010		322,000		$	5.50		$	3.80
Forfeited		(247,750	)	$	(5.50	)	$	(2.95	)
Balance at December 31, 2010		991,750		$	5.50		$	2.68
Granted January 2011		623,000		$	5.50		$	3.27
Granted June 2011		351,000		$	5.50		$	3.96
Granted July 2011		265,000		$	5.50		$	3.96
Forfeited		(885,750	)	$	(5.50	)	$	(3.11	)
Balance at December 31, 2011		1,345,000		$	5.50		$	3.49
Granted May 2012		200,000		$	5.50		$	0.98
Granted August 2012		100,000		$	5.50		$	0.98
Forfeited		(867,750	)	$	(5.50	)	$	(3.31	)
Balance at December 31, 2012		777,250		$	5.50		$	2.73
Forfeited		(17,250)		$	(1.23	)	$	(3.25	)
Balance at March 31, 2013		760,000		$	1.23		$	2.11

The weighted average grant date fair value for vested options as of March 31, 2013 and 2012 was $3.95 and $3.09, respectively. The weighted average grant date fair value for unvested options as of March 31, 2013 and 2012 was $2.66 and $3.71, respectively.

The weighted average contractual life of stock options at March 31, 2013 and 2012 was as follows:

	2013		2012
Vested (yrs)		9.1		7.9
Unvested (yrs)		8.5		9.0
Total outstanding (yrs)		9.2		8.7

As of March 31, 2013, a total of 148,833 of the options granted were exercisable and the fair value of such options was $0.6 million. Because the Company has very little history from which to estimate forfeiture of options or grants, it accounts for such forfeitures prospectively, that is, in the period in which they actually occur.

Inputs to both the Interest fair value calculation and the stock option Black-Scholes model are subjective and generally require significant judgment to determine. If, in the future, the Company determines that another method for calculating the fair value of its stock-based compensation is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, the fair value calculated for stock-based compensation could change significantly. Regarding stock options, higher volatility and longer expected terms generally result in an increase to stock-based compensation expense determined at the date of grant.

As of March 31, 2013, the aggregate intrinsic value of all stock options outstanding and expected to vest was $0.00 and the aggregate intrinsic value of currently exercisable stock options was $0.00. The intrinsic value of each option share is the difference between the estimated fair value of the Company’s stock and the exercise price of such option.

No stock options have been exercised as of March 31, 2013.

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Stock Appreciation Rights

In November 2010, the Company issued one million SARs to its President and Chief Operating Officer, under the 2009 Plan. The vesting of these SARs was tied to continued employment with the Company and the accomplishment of certain milestones. He resigned from the Company during the first quarter of 2011, forfeiting all such SARs. The impact on all periods presented was not material.

In June 2011, the board of directors of the Company authorized the grant of one million SARs at a base grant price of $5.50 per share to its newly appointed Chief Executive Officer under the 2009 Plan. The SARs have a ten-year term and will vest in equal quarterly installments over a two-year period. In the event of a change of control (as defined in the 2009 Plan) or a qualified public offering (as defined in the executive’s employment agreement), the SARs will become 100% vested. The grant date fair value of the SARs aggregated to $3.9 million and was calculated using the Black-Scholes pricing model with the following assumptions determined as of the date of grant: estimated fair value of the common stock of $5.10, expected term of 5.75 years, risk free interest rate of 1.55%, an estimated volatility of 96.5%, and a dividend yield of 0%. The fair value will be charged to operations over the remaining vesting periods commencing on the grant date.

On January 29, 2013 the Company’s board of directors authorized the re-pricing of all outstanding SARS, changing the exercise price from $5.50 to $1.23 per option. In accordance with ASC 718-20-35-3, the Company computed the compensation cost as the fair value of the new awards in excess of the fair value of the original awards immediately before their terms were modified, using the Black-Scholes pricing model. This calculation used the following assumptions determined as of January 29, 2013: estimated fair value of the common stock of $1.00, remaining term of 4.75 years (depending on the date of the original grant), risk free interest rate of 0.90%, an estimated volatility of 96.5%, and a dividend yield of 0%. The modification affected 1,000,000 SARs and resulted in aggregate additional compensation cost of $0.2 million. Of the total compensation cost, $0.2 million was expensed immediately as it related to SARS which were vested as of January 29, 2013, and approximately $40,000 will be expensed through 2013. For the three months ended March 31, 2013 and 2012 and the period from September 22, 2006 (inception) to March 31, 2013, compensation expense related to these SARS of $0.7 million, $0.5 million, and $3.9 million respectively, was charged to selling, general and administrative expense.

Note 6 Related Party Transactions

As described in Note 4, the Company’s principal stockholder has funded notes payable in support of the Company’s operations. These notes payable provide for the accrual of interest through their June 30, 2017 maturity date and $19.9 million and $18.0 million, of such accrued interest is included in accrued expenses-related party as of March 31, 2013 and December 31, 2012, respectively. In addition, the Company’s principal stockholder has invoiced the Company for loan and corporate oversight expenses as well as out-of-pocket costs related to strategic and capital markets assistance. The total amount of such accrued expenses as of March 31, 2013 and December 31, 2012 was $1.1 million and $1.1 million, respectively, and is included in accrued interest and expenses-related party on the accompanying consolidated balance sheet. The interest expense for the three months ended March 31, 2013 and March 31, 2012 was $2.2 million and $2.1 million, respectively. The Company’s principal stockholder has indicated that it will not require repayment of these accrued amounts until significant additional new funding is obtained from an unaffiliated source.

Note 7 Subsequent Events

None.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. The MD&A is organized as follows:

• Overview of Our Business. This section, beginning on page 23 provides information about the following: our business; our strategy; and our business development initiatives.

• Analysis of the Results of Our Operations. This section begins on page 23, and consists of the following sub-sections that analyze the results of our operations for the three months ended March 31, 2013 compared to the three months ended March 31, 2012:

◦ Revenues. This sub-section provides an analysis of our revenues.

◦ Total costs and expenses. This sub-section provides a discussion about our total costs and expenses.

◦ Selling, general and administrative expenses. This sub-section provides a discussion of changes in our selling, general and administrative expenses.

◦ Research and development expenses. This sub-section provides a discussion of changes in our research and development expenses.

◦ Interest expense. This sub-section provides a discussion of changes in our interest expense on notes payable--related party and on notes payable--unrelated party.

◦ Depreciation expense. This sub-section provides a discussion of changes in our depreciation expense.

◦ Non-controlling interest. This sub-section provides a discussion of changes in non-controlling interest of PA LLC.

• Analysis of Financial Condition, Liquidity and Capital Resources. This section begins on page 24, and consists of the following sub-sections:

◦ Overview. This sub-section provides an overview of how we have financed our operations.

◦ Cash and Cash Flow. This sub-section provides an analysis of selected measures of our liquidity and of our capital resources as of March 31, 2013, December 31, 2012 and the three months ended March 31, 2013 and 2012.

◦ Senior Secured Credit Financings. This sub-section provides an analysis of our borrowings from third parties under a senior secured structure.

◦ Contractual Obligations. This sub-section discloses, as of March 31, 2013, information about our contractual obligations and future periods in which payments are due.

◦ Dividends. This sub-section discloses the Company’s dividend policy.

• Forward-Looking Information and Factors That May Affect Future Results. This section, beginning on page 28 provides a description of the risks and uncertainties that could cause actual results to differ materially from those discussed in forward-looking statements set forth in this MD&A relating to our financial and operating performance, business plans and prospects, strategy, and business-development plans. Such forward-looking statements are based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances.

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Overview of Our Business

Parabel Inc. provides micro-crop technology to address the global demand for new sources of feed and food. The Company’s proprietary technology is designed to enable customer licensees to grow, harvest and process locally-available aquatic plants (“micro-crops”) to create feed and food products for global markets. Currently, the Company has three license agreements, each of which provide frameworks for commercial-scale build-out, with customer licensees in China, Malaysia, and Ecuador.

The Company’s strategy is to license and provide management support for production facilities at locations with suitable climates for its technology to achieve maximum productivity, which are generally located within equatorial or tropical regions. To allow customer licensees to build out rapidly and efficiently, the Company has developed a scalable and flexible solution, based on replicable micro-crop growth increments, enabling phased construction and production operations. The Company intends to generate revenue from customer licensees engaged in the global feed and food markets, as well as from investment groups.

Using indigenous, non-genetically modified plants from the Lemnaceae family, the Company’s technology platform enables the production of Lemna Protein Concentrate (“LPC”) and Lemna Meal (“LM”). In the near-term, the company is positioning LPC and LM in animal feed markets, as fish meal and alfalfa meal alternatives, respectively. Third-party testing commissioned by the Company has indicated the value and viability of the products in these applications. Based on initial third-party testing, the Company also believes that LPC could be applied in human food markets. The Company continues to perform research and development related to additional product applications.

Analysis of the Results of Our Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Revenues. No revenue was recognized during the three months ended March 31, 2013. During the three months ended March 31, 2012, the Company recognized $0.5 million of previously deferred licensing revenue as a result of the completion of the construction and successful testing of a pilot-scale bioreactor for a customer licensee in South America.

Total costs and expenses. Total costs and expenses increased by $0.1 million, or 1.8%, to $6.5 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase between comparable quarters was attributable to an increase in selling, general and administrative expenses and interest expense, partially offset by a decrease in research and development expenses.

Selling, general and administrative expenses. Selling, general and administrative expenses include senior management and overhead costs, business development expenditures, system infrastructure support costs, finance and accounting costs, and intellectual property management costs. The net increase in selling, general and administrative expenses was $0.7 million, or 28.8%, to $3.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase in selling, general and administrative expenses was largely attributable to (i) an increase in equity compensation by $0.9 million, or 212.4%, during the first three months of 2013 as compared to the same period in 2012, which was primarily related to the options granted in PA LLC and Parabel Ltd and due to the re-pricing of Parabel Inc.’s SARS and options and (ii) $0.4 million of expenses incurred in connection with the $15 million of unaffiliated funding received on January 29, 2013.  This increase was offset by the reduction in headcount and other selling, general and administrative expenses as a result of the Company’s cost reduction initiatives.

Research and development expenses. Research and development expenses decreased by $0.9 million, or 54.6%, to $0.7 million in the three months ended March 31, 2013 as compared to the same period in 2012. The decrease was partially attributable to a $0.5 million decrease in compensation expenses in the first quarter of 2013 as compared to the same period in 2012 due to a 67.4% reduction in employee headcount within research and development as a result of consolidating the Company’s lab facilities and other functions. Equity compensation expense increased by approximately $40,000 during the first three months of 2013 as compared to the same period in 2012.

Interest expense – related party. Interest expense on notes payable – related party increased by $0.2 million, or 7.8%, to $2.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase was due to additional funding of the Company’s operations through notes payable from its principal stockholder over the last year. The balance of these notes totaled $86.9 million at March 31, 2013 and $80.7 million at March 31, 2012.

Interest expense – unrelated party. Interest expense on note payable– unrelated party increased by $0.2 million, or 100% to $0.2 million in the three months ended March 31, 2013 as compared to the same period in 2012. The increase was due to the funding of $15.0 million from Dhabi One Cayman Ltd. on January 29, 2013.

Depreciation expense. Depreciation expense decreased by approximately $63,000, or 45.3%, to approximately $76,000 in the three months ended March 31, 2013 from approximately $139,000 in the same period in 2012. The decrease during 2013 as compared to the same period in 2012 was due to assets which were fully depreciated or impaired over the last year, offset partially by the depreciation of new capital assets.

Non-controlling interest. As of March 31, 2013 and 2012, non-controlling interests collectively owned approximately 13.3% and 12.6% of PA LLC, respectively, and have been attributed their respective portion of the loss of PA LLC. The amount of loss assigned to non-controlling interests was $0.7 million and $0.7 million for the three months ended March 31, 2013 and 2012, respectively.

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Analysis of Financial Condition, Liquidity and Capital Resources

Overview

To date, the Company has financed its operations primarily through loans from, and debt securities issued to, its principal stockholder. To a lesser extent, the Company has also raised funds by issuing equity securities to unrelated third parties. Since its inception through March 31, 2013, the Company has raised in the aggregate $131.5 million in debt and equity investments, with $106.6 million of this total raised from its principal stockholder and $24.9 million raised from unrelated third parties. On January 29, 2013, Dhabi Cayman One Ltd, an unaffiliated investor based in the United Arab Emirates, invested $15 million in Parabel Ltd in the form of a senior secured convertible note (the “Dhabi note”)The funds from the Dhabi notewill be used to support the working capital needs and operations of Parabel Ltd.  The Company does not anticipate receiving significant additional funds from its principal stockholder.

Cash and Cash Flow

At March 31, 2013, the Company (on a consolidated basis) had unrestricted cash and cash equivalents of $12.6 million, compared to $0.4 million at December 31, 2012.

Net cash used in operating activities was $2.5 million and $3.9 million, during the three months ended March 31, 2013 and 2012, respectively. The decrease in cash usage from 2012 to 2013 was primarily attributed to cost savings resulting from the Company’s year-over-year headcount and associated compensation reductions described above in “Results of Operations”.

Net cash used in investing activities, which consisted primarily of the purchase of capital assets, was $0.0 million and approximately $40,000, for the three months ended March 31, 2013 and 2012, respectively.

Net cash provided by financing activities was $14.7 million and $1.5 million during the three months ended March 31, 2013 and 2012, respectively, and consisted of advances from the Company’s principal stockholder and financing from Dhabi Cayman One Ltd.

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Senior Secured Credit Financings

Affiliates and an unaffiliated source of the Company have provided borrowings under a senior secured structure, as described in more detail below:

	As of March 31, 2013
Note Payable to Valens U.S. SPV I, LLC	$	417,512
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017
Notes Payable to PetroTech		55,297,089
- Interest accrues monthly at an annual rate of 12%
- Notes are due on June 30, 2017
Convertible Note Payable to PetroTech		10,000,000
- Interest accrues monthly at an annual rate of 12%
- Note is due on June 30, 2017 unless converted to common shares as described below
Up to $25,000,000 Note Payable to PetroTech		21,211,240
- Interest payable monthly and is drawn into note on a monthly basis at Prime + 2% (5.25% at March 31, 2013 and December 31, 2012)
-Note is due on June 30, 2017
- Permits additional draws to fund interest. Maximum balance of this note is limited to $25,000,000
Total Notes Payable – Related Party		86,925,841
Senior Convertible Note Payable to Dhabi Cayman One Ltd.		15,000,000
- Interest accrues monthly at a fixed rate of 8% compounded quarterly		206,666
- Notes is due on January 29, 2018
Total Notes Payable – Unrelated Party		15,206,666
Total Notes Payable	$	102,132,507

As of March 31, 2013, the principal balance of notes payable– related party was classified as a noncurrent liability on the accompanying consolidated balance sheet based on the maturity date of June 30, 2017 of the full balance plus accrued noncurrent interest of $19,933,360. The notes payable – related party are secured by all of the assets of Parabel Inc. and PA LLC (but not the assets of Parabel Ltd.) The convertible note payable allows the holder (at the holder’s option) to convert all or any portion of the issued and outstanding principal amount and/or accrued interest and fees then due into shares of the Company’s common stock at a fixed conversion price of $5.43 per share.

As of March 31, 2013, the principal balance of the note payable– unrelated party was classified as a noncurrent liability on the accompanying consolidated balance sheet based on the maturity date of January 29, 2018 of the full balance plus accrued noncurrent interest of $206,666.  The Senior Convertible Note is secured by a first priority perfected security interest in all of the assets of the Company. The Senior Convertible Note bears interest at 8% per annum, compounds each calendar quarter and is payable in arrears on the maturity date, or at such earlier date or dates when the Company has cash available to be distributed as determined in the sole discretion of the board of directors of the Company. The interest rate increases to 10% per annum upon the occurrence of, and during the continuance of, certain events of default. The Senior Convertible Note and any accrued and unpaid interest are convertible at the Purchaser’s option into the number of shares of common stock of Parabel Ltd. (the “Common Stock”) equal to the dollar amount being converted divided by $1.00 per share of Common Stock, subject to adjustment if certain events of dilution occur.  In addition, the Senior Convertible Note and any accrued and unpaid interest are also convertible by the Company upon the approval of the holders of a majority of the Senior Convertible Notes then outstanding or the Company conducting a public offering in which the Company receives net proceeds of at least $50,000,000.

Each note payable and the related master security agreement and equity pledge and corporate guaranty agreement contain provisions that specify events of default which could lead to acceleration of the maturity of the debt. These provisions prohibit the encumbrance or sale of the Company’s assets and require maintenance and insurance of the Company’s assets. The loan agreements do not contain any required financial ratios or similar debt covenants. Generally, an event of default would arise if the Company became insolvent, filed for bankruptcy, allowed a change in control or had unresolved judgments against its assets. As of March 31, 2013, none of these events had occurred.

Interest charged to operations on these notes, including amortization of original issue discount, was $2.4 million, $2.1 million, and $27.2 million during the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, respectively.

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The principal amount of debt obligations as of March 31, 2013 was $102.1 million, of which $21.2 million was outstanding at a floating rate of 2% over the prime interest rate, $65.7 million was outstanding at a fixed rate of 12% and $15.2 million was outstanding at a fixed rate of 8%.  Floating rate borrowings will lead to additional interest expense if interest rates increase.

Contractual Obligations

The following table discloses aggregate information about the Company’s contractual obligations and period in which payments are due as of March 31, 2013:

	Payments due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt: principal – related party	$	86,925,841	$	—	$	—	$	86,925,841	$	—
Debt: principal – unrelated party		15,000,000		—		—		15,000,000		—
Debt: accrued interest to date –related party (1)		19,933,360		—		—		19,933,360		—
Debt: accrued interest to date –unrelated party (2)		206,666		—		—		206,666		—
Debt: estimated future interest –related party (3)		41,374,973		—		—		41,374,973		—
Debt: estimated future interest –unrelated party (4)		9,085,472		—		—		9,085,472		—
Operating lease commitments		451,081		401,328		49,753		—		—
Total contractual obligations	$	172,977,393	$	401,328	$	49,753	$	172,526,313	$	—

(1)	Represents the amount of related party interest that has been accrued through the balance sheet date on approximately $65.7 million of outstanding debt at a fixed annual rate of 12% and $21.2 million of outstanding debt which is compounded monthly at prime + 2% (assumed to be 5.25%). These amounts are due at the June 30, 2017 maturity date of the related debt.
(2)	Represents the amount of related party interest that has been accrued through the balance sheet date on approximately $15.0 million of outstanding debt at a fixed annual rate of 8% compounded quarterly. This amount is due at the January 29, 2018 maturity date of the related debt.

(3)

Estimated future related party interest represents the amount of interest expected to accrue until the maturity date of the related debt, which in all cases is June 30, 2017. The estimated amount is calculated from the current balance sheet date as of March 31, 2013 through maturity of June 30, 2017 012 2 12 a senior secured convertible note.nvestor based in the United Arab Emirates, invested $15 Million in is based upon the principal balance of each note and the applicable interest rate, which is compounded monthly at prime + 2% (assumed to be 5.25%) on approximately $21.2 million of floating rate debt and calculated on a non-compounded basis at 12% on the remaining $65.7 million of fixed rate debt.

(4)

Estimated future unrelated party interest represents the amount of interest expected to accrue until the maturity date of the related debt, which in all cases is January 29, 2018. The estimated amount is calculated from the current balance sheet date through maturity based upon the principal balance of each note and the applicable interest rate, which at a fixed annual rate of 8% compounded quarterly.

The Company is currently in the development stage and anticipates accomplishing a transition from the development stage to operational status, depending upon the timing and extent of success achieved in accomplishing milestones, including:

• preparation of technology and related processes for commercial deployment;

• securing profitable license agreements with global customer licensees, which in turn depends upon the demand for new micro-crop technologies and, consequently, the demand for and price of the ultimate products produced by the Company’s technology;

• the timing and cost of delivery of technology as required by license agreements with prospective customer licensees, which is expected to include the completion of design work specific to such customer licensees and oversight of the construction and successful operation of pilot plants at customer licensee locations; and

• the ability and willingness of future customers to abide by the terms of the technology agreements and to make payments at agreed-upon rates.

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While the Company has a limited but growing list of prospective customer licensees, the Company’s costs are mostly variable and the Company does not have significant commitments other than its debt and lease obligations. The Company anticipates that its net loss from operations and net cash used in operations over the next 12 months will continue to decline as a result of cost reduction measures.  The Company has never been profitable and has incurred significant losses and cash flow deficits since its inception. For the three months ended March 31, 2013 and 2012, and the period from September 22, 2006 (inception) to March 31, 2013, the Company reported net losses of $6.5 million, $5.9 million, and $175.0 million, respectively, and negative cash flows from operating activities of $2.5 million, $3.9 million, and $102.2 million, respectively. As of March 31, 2013, the Company has an aggregate accumulated deficit of $154.1 million. The Company anticipates that it will continue to report losses and negative cash flows during 2013. As a result of these net losses, cash flow deficits, and other factors, there is a substantial doubt about the Company’s ability to continue as a going concern.

The Company’s accompanying consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty. As of March 31, 2013, these adjustments would likely include the substantial impairment of the carrying amount of the Company’s non-cash assets of $0.5 million and potential contingent liabilities that may arise if the Company is unable to fulfill various operational commitments. In addition, the value of the Company’s securities, including common stock and warrants, would likely be significantly impaired. The Company’s ability to continue as a going concern is dependent upon it generating sufficient cash flow from operations and obtaining additional capital and financing.

On January 29, 2013 the Company secured an investment of $15.0 million in the form of a senior secured convertible note issued by Parabel Ltd. The funds from this note will be used to support the working capital needs and operations of Parabel Ltd.

Off-Balance Sheet Arrangements

As of March 31, 2013 and 2012, the Company did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Dividends

The Company has no plans to declare any dividends or other distributions to shareholders. To the extent the Board of the Company were to declare a dividend or other distribution to shareholders, it would only occur, firstly, to the extent that the Company had working capital available for such dividend or other distribution that was in excess of the sum of $25 million and the principal amount (and unpaid accrued interest) of the Dhabi note then outstanding (“available working capital”) and, secondly, after any accrued interest on the Dhabi note and accrued interest and outstanding principal on the Company’s notes payable – related party are paid out of available working capital.

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Forward-Looking Information and Factors That May Affect Future Results

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written or oral statements that we make from time to time contain such forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Such forward-looking statements involve substantial risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast,” “goal,” “objective,” “aim” and other words and terms of similar meaning or by using future dates in connection with any discussion of future operating and financial performance, business plans and prospects, strategy, and business-development plans. In particular, these include statements relating to future actions, business plans and prospects, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies (such as legal proceedings), government regulation and financial results. Among the factors that could cause actual results to differ materially from future plans and projected future results are the following:

• the success of external business-development activities;

• the ability to successfully market our micro-crop technology both domestically and internationally;

• difficulties or delays in constructing production facilities at locations with suitable climates for our technology;

• the exposure of our operations outside the U.S. to possible capital and exchange controls, expropriation and other restrictive government actions, changes in intellectual property legal protections and remedies, as well as political unrest and unstable governments and legal systems;

• our ability to protect our patents and other intellectual property both domestically and internationally;

• interest rate and foreign currency exchange rate fluctuations;

• governmental laws and regulations affecting domestic and foreign operations, including, without limitation, tax obligations and changes affecting the tax treatment by the U.S. of income earned outside of the U.S.;

• any significant issues that may arise related to the outsourcing of certain operational and staff functions to third parties, including with regard to quality, timeliness and compliance with applicable legal requirements and industry standards; and

• growth in costs and expenses.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of anticipated results is subject to substantial risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports and our other filings with the SEC.

Our 2012 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from past and projected future results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. Reference is also made to Part II, Item 1A, “Risk Factors,” of this Form 10-Q. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Legal Proceedings and Contingencies

Information with respect to legal proceedings and contingencies required by this Item is incorporated herein by reference to Legal Proceedings in Part II, Item 1, of this Form 10-Q.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

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ITEM 4.      CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s management, including the Company’s principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be disclosed in its periodic reports filed with the SEC.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

On February 1, 2013, Asesorias e Inversiones Quilicura S.A. (“AIQ”), of Chile, initiated an arbitration before the International Chamber of Commerce (“ICC”) against PA LLC, a subsidiary of the Company, alleging that PA LLC is in breach of an Amended and Restated License Agreement with AIQ entered into as of October 25, 2011 (the “Agreement”). AIQ seeks: (i) damages of $974,238, (ii) a declaration that the Agreement is void, and (iii) a declaration that AIQ owes PA LLC no further obligations under the Agreement. On March 15, 2013, PA LLC sent AIQ a notice of default under the Agreement on account of unpaid license fees in the amount of $500,000 plus accrued interest. AIQ had ten days from receipt of the notice to cure the default. AIQ did not cure the default. On April 8, 2013, PA LLC submitted its Answer and Counterclaim in the ICC arbitration that denied all of AIQ’s substantive allegations and claims for relief and asserted a claim against AIQ for the $500,000 plus accrued interest that AIQ owes PA LLC under the Agreement. AIQ submitted its reply to PA LLC’s counter-claim on May 13, 2013, denying PA LLC’s claims. No further proceedings have been had in the arbitration. PA LLC believes that it has meritorious defenses and will defend vigorously against AIQ’s claims. Nevertheless, there can be no assurance that PA will prevail in the arbitration. Arbitration proceedings are inherently unpredictable, and excessive awards do occur.

Item 1A.     RISK FACTORS

Information concerning certain risks and uncertainties appears in Part I, Item IA “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “10-K”).

Since the filing of the 10-K, there have been no material changes to the Company’s risk factors.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.      OTHER INFORMATION

On January 29, 2013, in connection with the investment by Dhabi Cayman One Ltd. in Parabel Ltd., we amended and restated our employment agreements with our Chief Executive Officer, our Chief Financial Officer and our Chief Operating Officer in order to update and revise the agreements in several respects, including to add Parabel Ltd. as a party to each of those agreements and to provide that the respective executives of Parabel Inc. and PA LLC will also hold the same executive position at Parabel Ltd.

The preceding description of the revisions to the employment agreements does not purport to be complete and is qualified in its entirety by reference to the employment agreements, copies of which are filed as Exhibits 10.1, 10.2 and 10.3 to this Form 10-Q and are incorporated herein by reference.

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ITEM 6.     EXHIBITS

10.1*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Anthony John Phipps Tiarks.
10.2*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Syed Naqvi.
10.3*	Amended and Restated Employment Agreement, as of January 29, 2013, by and among Parabel Inc., PA LLC, Parabel Ltd. and Peter Sherlock.
31.1*	Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from Parabel Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, are formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012; (ii) Consolidated Statements of Operations for the three months ended March 31, 2013, and March 31, 2012, and for the period from inception (September 22, 2006) through March 31, 2013; (iv) Consolidated Statement of Changes in Stockholders’ Deficit for the period from inception (September 22, 2006) to March 31, 2013; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and March 31, 2012, and for the period from inception (September 22, 2006) through March 31, 2013; and (vi) Notes to Consolidated Financial Statements March 31, 2013 (Unaudited).

These exhibits are available upon request. Requests should be directed to the Investor Relations Department at Parabel Inc., 1901 S. Harbor City Blvd., Suite 600, Melbourne, FL 32901, telephone: 321-409-7500, email: investorrelations@parabel.com. The exhibit numbers followed by an asterisk (*) indicate exhibits physically filed with this Form 10-Q. The exhibit numbers followed by two asterisks (**) indicate exhibits included pursuant to Rule 406T of Regulation S-T and are deemed not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PARABEL INC.
Date: May 15, 2013	By:	/s/ SYED NAQVI
	Name:	Syed Naqvi
	Title:	Chief Financial Officer

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