10-Q 1 form10q.htm RICEBRAN TECHNOLOGIES 10-Q 6-30-2013

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q
 
(Mark one)

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

For the quarterly period ended June 30, 2013

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

For the transition period from __________ to __________
 
Commission File Number 0-32565
RiceBran Technologies
(Exact Name of Registrant as Specified in its Charter)

California
 
87-0673375
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
6720 North Scottsdale Road, Suite 390
 
85253
Scottsdale, AZ
 
(Zip Code)
(Address of Principal Executive Offices)
 
 

Issuer’s telephone number, including area code:  (602) 522-3000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o
 
In0dicate 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 o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act).  Yes o No x
As of August 12, 2013, shares of the registrant’s common stock outstanding totaled 226,725,547.

RiceBran Technologies
Index
Form 10-Q
 
PART I. FINANCIAL INFORMATION
Page
 
Item 1.
2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
24
 
Item 3.
33
 
Item 4.
33
PART II. OTHER INFORMATION
 
 
Item 1.
34
 
Item 1A.
34
 
Item 2.
34
 
Item 3.
35
 
Item 4.
35
 
Item 5.
35
 
Item 6.
35
35

Cautionary Note about Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue, liquidity or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.  Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words.  The forward-looking statements contained herein reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions.  Actual results may differ materially from those projected in such forward-looking statements due to a number of factors, risks and uncertainties, including the factors that may affect future results set forth in this Current Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012.  We disclaim any obligation to update any forward looking statements as a result of developments occurring after the date of this quarterly report.

 
PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements.
 
2

 
RiceBran Technologies
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands, except per share amounts)

 
 
Three Months Ended
   
Six Months Ended
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Revenues
 
$
9,388
   
$
9,711
   
$
18,097
   
$
19,457
 
Cost of goods sold
   
8,110
     
7,948
     
15,853
     
15,953
 
Gross profit
   
1,278
     
1,763
     
2,244
     
3,504
 
 
                               
Operating expenses:
                               
Selling, general and administrative
   
2,355
     
3,058
     
5,261
     
6,703
 
Professional fees
   
223
     
516
     
730
     
987
 
Impairment of property
   
-
     
1,069
     
300
     
1,069
 
Total operating expenses
   
2,578
     
4,643
     
6,291
     
8,759
 
 
                               
Loss from operations
   
(1,300
)
   
(2,880
)
   
(4,047
)
   
(5,255
)
 
                               
Other income (expense):
                               
Interest income
   
16
     
16
     
26
     
63
 
Interest expense
   
(1,024
)
   
(387
)
   
(1,653
)
   
(805
)
Foreign currency exchange, net
   
(538
)
   
(576
)
   
(288
)
   
(782
)
Change in fair value of derivative warrant and conversion liabilities
   
1,044
     
2,868
     
(2,494
)
   
506
 
Loss on extinguishment
   
(494
)
   
-
     
(526
)
   
(2,986
)
Financing expense
   
(564
)
   
(20
)
   
(564
)
   
(1,544
)
Other income
   
2
     
3
     
5
     
7
 
Other expense
   
(223
)
   
(23
)
   
(348
)
   
(117
)
Total other income (expense)
   
(1,781
)
   
1,881
     
(5,842
)
   
(5,658
)
 
                               
Loss before income taxes
   
(3,081
)
   
(999
)
   
(9,889
)
   
(10,913
)
Income tax benefit
   
571
     
369
     
1,081
     
911
 
Net loss
   
(2,510
)
   
(630
)
   
(8,808
)
   
(10,002
)
Net loss attributable to noncontrolling interest in Nutra SA
   
543
     
429
     
1,028
     
972
 
Net loss attributable to RiceBran Technologies shareholders
 
$
(1,967
)
 
$
(201
)
 
$
(7,780
)
 
$
(9,030
)
 
                               
Loss per share attributable to RiceBran Technologies shareholders
 
Basic
 
$
(0.01
)
 
$
(0.00
)
 
$
(0.04
)
 
$
(0.04
)
Diluted
 
$
(0.01
)
 
$
(0.00
)
 
$
(0.04
)
 
$
(0.04
)
 
                               
Weighted average number of shares outstanding
                 
Basic
   
214,733
     
204,589
     
211,729
     
203,634
 
Diluted
   
214,733
     
204,589
     
211,729
     
203,634
 

See Notes to Unaudited Condensed Consolidated Financial Statements
3

RiceBran Technologies
Condensed Consolidated Statements of Comprehensive Loss
Three and Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands)

 
 
Three Months
   
Six Months
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Net loss
 
$
(2,510
)
 
$
(630
)
 
$
(8,808
)
 
$
(10,002
)
 
                               
Other comprehensive loss - foreign currency translation, net of tax
   
(960
)
   
(1,584
)
   
(812
)
   
(1,237
)
 
                               
Comprehensive loss, net of tax
   
(3,470
)
   
(2,214
)
   
(9,620
)
   
(11,239
)
 
                               
Comprehensive loss attributable to noncontrolling interest, net of tax
   
1,013
     
1,205
     
1,426
     
1,578
 
 
                               
Total comprehensive loss attributable to RiceBran Technologies shareholders
 
$
(2,457
)
 
$
(1,009
)
 
$
(8,194
)
 
$
(9,661
)

See Notes to Unaudited Condensed Consolidated Financial Statements
4

RiceBran Technologies
Condensed Consolidated Balance Sheets
June 30, 2013 and December 31, 2012
(Unaudited) (in thousands, except share amounts)

 
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
ASSETS
 
   
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
213
   
$
1,040
 
Restricted cash
   
1,919
     
1,919
 
Accounts receivable, net of allowance for doubtful accounts of $409 and $518   (variable interest entity restricted $2,645 and $2,505)
   
4,003
     
3,487
 
Inventories
   
1,731
     
1,994
 
Deferred tax asset
   
223
     
234
 
Income and operating taxes recoverable
   
523
     
1,167
 
Deposits and other current assets
   
846
     
975
 
Total current assets
   
9,458
     
10,816
 
Property, net (variable interest entity restricted $5,245 and $5,757)
   
25,909
     
28,457
 
Goodwill
   
4,374
     
4,773
 
Intangible assets, net
   
1,951
     
2,575
 
Other long-term assets
   
867
     
385
 
Total assets
 
$
42,559
   
$
47,006
 
 
               
LIABILITIES, TEMPORARY EQUITY AND EQUITY
               
Current liabilities:
               
Accounts payable
 
$
3,623
   
$
3,021
 
Accrued expenses
   
4,744
     
4,509
 
Current maturities of debt (variable interest entity nonrecourse $7,277 and  $7,013)
   
8,801
     
8,003
 
Total current liabilities
   
17,168
     
15,533
 
Long-term liabilities:
               
Long-term debt, less current portion (variable interest entity nonrecourse $6,935 and  $7,454 )
   
12,334
     
11,581
 
Deferred tax liability
   
559
     
1,674
 
Derivative warrant liabilities
   
6,782
     
4,520
 
Total liabilities
   
36,843
     
33,308
 
 
               
Commitments and contingencies
               
 
               
Temporary Equity:
               
Redeemable noncontrolling interest in Nutra SA
   
7,836
     
9,262
 
Redeemable common stock (2,118,644 shares outstanding)
   
178
     
-
 
Total temporary equity
   
8,014
     
9,262
 
 
               
Equity:
               
Equity (deficit) attributable to RiceBran Technologies shareholders:
               
Preferred stock, 20,000,000 shares authorized and none issued
   
-
     
-
 
Common stock, no par value, 1,200,000,000 shares authorized, 220,300,654, and 207,616,097 shares issued and outstanding
   
211,856
     
210,396
 
Accumulated deficit
   
(212,200
)
   
(204,420
)
Accumulated other comprehensive loss
   
(1,954
)
   
(1,540
)
Total equity (deficit) attributable to RiceBran Technologies shareholders
   
(2,298
)
   
4,436
 
Total liabilities, temporary equity and equity
 
$
42,559
   
$
47,006
 

See Notes to Unaudited Condensed Consolidated Financial Statements
5

RiceBran Technologies
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2013 and 2012
(Unaudited) (in thousands)

 
 
2013
   
2012
 
Cash flow from operating activities:
 
   
 
Net loss
 
$
(8,808
)
 
$
(10,002
)
Adjustments to reconcile net loss to net cash used in operating activities:
         
Depreciation and amortization
   
1,999
     
2,524
 
Provision for doubtful accounts receivable
   
2
     
292
 
Stock and share-based compensation
   
336
     
692
 
Change in fair value of derivative warrant and conversion liabilities
   
2,494
     
(506
)
Loss on extinguishment
   
526
     
2,986
 
Financing expense
   
564
     
1,544
 
Impairment of property
   
300
     
1,069
 
Deferred tax benefit
   
(1,080
)
   
(911
)
Other
   
(20
)
   
166
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(1,063
)
   
(766
)
Inventories
   
243
     
405
 
Accounts payable and accrued expenses
   
1,173
     
(370
)
Pre-petition liabilities
   
-
     
(1,615
)
Other
   
469
     
329
 
Net cash used in operating activities
   
(2,865
)
   
(4,163
)
 
               
Cash flows from investing activities:
               
Purchases of property
   
(1,250
)
   
(3,793
)
Proceeds from sale of property
   
836
     
276
 
Payment for license
   
(1,200
)
   
-
 
Receipts on notes receivable
   
-
     
600
 
Restricted cash
   
-
     
200
 
Other
   
-
     
(16
)
Net cash used in investing activities
   
(1,614
)
   
(2,733
)
 
               
Cash flows from financing activities:
               
Payments of debt
   
(6,511
)
   
(5,345
)
Proceeds from issuance of debt, net of issuance costs
   
8,423
     
7,052
 
Proceeds from issuance of convertible debt and related warrants
   
537
     
2,411
 
Proceeds from sale of membership interest in RBT PRO
   
1,200
     
-
 
Net cash provided by financing activities
   
3,649
     
4,118
 
 
               
Effect of exchange rate changes on cash and cash equivalents
   
3
     
(18
)
Net change in cash and cash equivalents
   
(827
)
   
(2,796
)
Cash and cash equivalents, beginning of period
   
1,040
     
3,329
 
Cash and cash equivalents, end of period
 
$
213
   
$
533
 
 
               
Supplemental disclosures:
               
Cash paid for interest
 
$
1,278
   
$
704
 
Cash paid for income taxes
   
-
     
-
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements
6

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of RiceBran Technologies and subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes and other financial information included in audited financial statements were condensed or omitted.  The Interim Financial Statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2012.  The report of our independent registered public accounting firm that accompanies the audited consolidated financial statements for the year ended December 31, 2012, included in that Annual Report on Form 10-K, contains a going concern explanatory paragraph in which our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern.  We have experienced significant losses and negative cash flows and have an accumulated deficit in excess of $200 million as of June 30, 2013.  Further, although we are focusing on raising additional funds to operate our business, there can be no assurances that these efforts will prove successful.

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

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

Recent Accounting Pronouncements

There are no recent accounting pronouncements that are applicable to us and adoption of which could potentially have a material impact on our consolidated financial statements.

NOTE 2. BUSINESS

We are a human food ingredient and animal nutrition company focused on the procurement, bio-refining and marketing of numerous products derived from rice bran.  We have proprietary and patented intellectual property that allows us to convert rice bran, one of the world’s most underutilized food sources, into a number of highly nutritious human food and animal nutrition products.  Our target markets are human food and animal nutrition manufacturers and retailers, as well as natural food, functional food and nutraceutical supplement manufacturers and retailers, both domestically and internationally.  We have developed a bio-refining approach to processing raw rice bran into various value added constituents such as stabilized rice bran (SRB), rice bran oil (RBO), defatted rice bran (DRB) and a variety of other valuable derivative products from each of these core products.

We have three reportable business segments: (i) Corporate; (ii) USA, which manufactures and distributes SRB in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; and (iii) Brazil, which extracts crude RBO and DRB from rice bran, which are then further processed into a number of valuable human food and animal nutrition products.  The Corporate segment includes selling, general and administrative expenses including public company expenses, litigation, and other expenses not directly attributable to other segments.  No Corporate allocations are made to the other segments.  General corporate interest is not allocated.

The USA segment consists of two locations in California and two locations in Louisiana all of which can produce SRB. One of the two Louisiana SRB facilities, located in Lake Charles, has been idle since May 2009.  The USA segment also includes our Dillon, Montana Stage II facility which produces RiSolubles (a highly nutritious, carbohydrate and lipid rich fraction of SRB), RiFiber (a fiber rich derivative of SRB) and RiBalance (a complete rice bran nutritional package derived from further processing SRB).  The manufacturing facilities included in our USA segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into finished products.  Approximately 50% of USA segment revenue is from sales of human food products and 50% is from sales of animal nutrition products.
7

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The Brazil segment consists of the consolidated operations of Nutra SA, LLC, whose only operating subsidiary is Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas, Brazil.  Irgovel manufactures RBO and DRB products for both the human and animal food markets in Brazil and internationally.  In refining RBO to an edible grade, several co-products are obtained.  One such product is distilled fatty acids, a valuable raw material for the detergent industry.  DRB is sold in bulk as animal feed and compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market.  Approximately 46% of Brazil segment product revenue was from sales of RBO products and 54% was from sales of DRB products.

NOTE 3. LIQUIDITY AND MANAGEMENT’S PLAN

We continue to experience losses and negative cash flows from operations which raises substantial doubt about our ability to continue as a going concern.  We currently have insufficient funds to support our operations and service our debt in the near term and have inadequate financing arrangements in place at this time.  Although we believe that we will be able to obtain the funds necessary to operate our business, there can be no assurances that our efforts will prove successful.  The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

In the ongoing effort to improve profitability, significant emphasis will be placed on growing revenues.  The growth of revenues is expected to include the following:

· growth in existing markets for stabilized rice bran (SRB), rice bran oil (RBO) and defatted rice bran (DRB);
· expanding our product offerings and improving existing products;
· aligning with strategic partners who can provide channels for additional sales of our products; and
· implementing price increases.

We may also monetize certain assets which could result in additional impairment of asset values.  Asset monetization may include some or all of the following:

· sale of certain facilities;
· sale of an interest in one or more subsidiaries; or
· sale of surplus equipment.

We continue to evaluate the possibility of raising funds through the issuance of additional subordinate debt or equity.

NOTE 4. LOSS PER SHARE (EPS)

Basic EPS is computed by dividing net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of common shares outstanding during all periods presented.  Shares underlying options, warrants and convertible debt are excluded from the basic EPS calculation but are considered in calculating diluted EPS.

Diluted EPS is computed by dividing the net income (loss) attributable to RiceBran Technologies shareholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive.  The dilutive effect of outstanding options and warrants is calculated using the treasury stock method.  The dilutive effect of outstanding convertible debt is calculated using the if-converted method.

Below are reconciliations of the numerators and denominators in the EPS computations for the three and six months ended June 30, 2013 and 2012.
8

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 
 
Three Months Ended
   
Six Months Ended
 
 
 
2013
   
2012
   
2013
   
2012
 
NUMERATOR (in thousands):
 
   
   
   
 
Basic and diluted - net loss attributable to RiceBran Technologies shareholders
 
$
(1,967
)
 
$
(201
)
 
$
(7,780
)
 
$
(9,030
)
 
                               
DENOMINATOR:
                               
Basic EPS - weighted average number of shares outstanding
   
214,732,733
     
204,588,939
     
211,728,950
     
203,633,571
 
Effect of dilutive securities outstanding
   
-
     
-
     
-
     
-
 
Diluted EPS - weighted average number of shares outstanding
   
214,732,733
     
204,588,939
     
211,728,950
     
203,633,571
 
 
                               
Number of shares of common stock which could be purchased with weighted average outstanding securities not included in diluted EPS because effect would be antidilutive-
                               
Stock options (average exercise price for the three and six months ended June 30, 2013 of $0.14 and $0.15)
   
36,978,329
     
38,821,934
     
35,815,160
     
39,335,617
 
Warrants (average exercise price for the three and six months ended June 30, 2013 of $0.09 and $0.11)
   
146,254,823
     
120,710,994
     
153,804,297
     
113,711,533
 
Convertible debt (average conversion price for the three and six months ended June 30, 2013 of $0.07)
   
89,598,240
     
49,300,000
     
91,640,490
     
44,529,813
 

The impact of potentially dilutive securities outstanding at June 30, 2013 and 2012, was not included in the calculation of diluted EPS in 2013 and 2012 because to do so would be antidilutive.  Those securities listed in the table above which were antidilutive in 2013 and 2012, which remain outstanding, could potentially dilute EPS in the future.

NOTE 5. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA

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

 
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
Cash and cash equivalents
 
$
132
   
$
562
 
Other current assets (restricted $2,645 and $2,505)
   
4,836
     
5,675
 
Property, net (restricted $5,245 and $5,757)
   
18,155
     
19,690
 
Goodwill and intangibles, net
   
5,390
     
6,215
 
Other noncurrent assets
   
155
     
54
 
Total assets
 
$
28,668
   
$
32,196
 
 
               
Current liabilities
 
$
5,507
   
$
5,141
 
Current portion of long-term debt (nonrecourse)
   
7,277
     
7,013
 
Long-term debt, less current portion (nonrecourse)
   
6,935
     
7,454
 
Other noncurrent liabilities
   
559
     
1,871
 
Total liabilities
 
$
20,278
   
$
21,479
 

Nutra SA’s debt is secured by its accounts receivable and property.  Our parent company and our non-Brazilian subsidiaries do not guarantee any of Nutra SA’s debt.
9

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
A summary of changes in redeemable noncontrolling interest for the three and six months ended June 30, 2013 and 2012, follows (in thousands).

 
 
Three Months Ended
   
Six Months Ended
 
 
 
2013
   
2012
   
2013
   
2012
 
Redeemable noncontrolling interest in Nutra SA, beginning of period
 
$
8,849
   
$
9,545
   
$
9,262
   
$
9,918
 
Investors' interest in net loss of Nutra SA
   
(543
)
   
(429
)
   
(1,028
)
   
(972
)
Investors' interest in other comprehensive loss of Nutra SA
   
(470
)
   
(776
)
   
(398
)
   
(606
)
Redeemable noncontrolling interest in Nutra SA, end of period
 
$
7,836
   
$
8,340
   
$
7,836
   
$
8,340
 

In December 2010, we entered into a membership interest purchase agreement (MIPA) with AF Bran Holdings-NL LLC and AF Bran Holdings LLC (Investors).  The Investors’ interest was 49.0% in all periods presented.  The Investors’ share of Nutra SA’s net income (loss) increases (decreases) redeemable noncontrolling interest.

The Investors have the right to purchase from Nutra SA up to an additional 750,000 units for another $1.5 million.  If immediately prior to such purchase Nutra SA and Irgovel have sufficient cash to complete certain projects, then the units will have no voting rights.  In the second quarter of 2013, we transferred $0.7 million in cash from the Parent Company to Nutra SA.  In exchange, title was returned to us for certain equipment contributed to Nutra SA in December 2012 with an historical cost of $0.2 million.

Redeemable noncontrolling interest in Nutra SA is recorded in temporary equity, above the equity section and after liabilities on our consolidated balance sheets, because the Investors have the right to force a sale of Nutra SA assets in the future (see Drag Along Rights described below).  We have assessed the likelihood of the Investors exercising these rights as less than probable at June 30, 2013, in part because it is more likely the Investors will exercise other rights prior to January 2014.  We will continue to evaluate the probability of the Investors exercising their Drag Along rights each reporting period.  We will begin to accrete the redeemable noncontrolling interest up to fair value if and when it is probable the Investors will exercise these rights.

We are restricted from competing with Nutra SA and Irgovel in Brazil as further described in the MIPA.

Under the limited liability company agreement for Nutra SA (LLC agreement), as amended., any units held by the Investors beginning January 1, 2014, accrue a yield at  8% (the Yield).  Commencing with the first quarter of 2014, Nutra SA must make distributions to the Investors quarterly in the amount equal to the previously accrued and unpaid Yield plus any additional distributions owed to the Investors.  Until March 31, 2014, or if at any time Nutra SA is past due on its obligations to pay the Investors the Yield, all amounts due to us for management fees or for shared employees as provided under the LLC Agreement shall be tolled and remain unpaid until all past due amounts, if any, owed to the Investors have been paid in full.

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

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

As of June 30, 2013, there have been no events of default.  Events of default, as defined in the MIPA, are:
· A Nutra SA business plan deviation, defined as the occurrence, for either 2013 or 2014, of a 20% unfavorable variation in two out of three of the following: (i) revenue, (ii) earnings before interest, taxes, depreciation and amortization (EBITDA) or (iii) debt,
· A Nutra SA EBITDA default, which is defined as the failure to achieve 85% of planned EBITDA for three consecutive quarters, or
· A material problem, which is defined as a material problem in a facility (unrelated to changes in law, weather, etc.) likely to cause a Nutra SA business plan deviation or Nutra SA EBITDA default, which results in damages not at least 80% covered by insurance proceeds.
10

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
As of June 30, 2013, there have been no qualifying events.  The LLC agreement, defines a qualifying event as any event prior to September 16, 2014, which results, or will result in, (i) a person or group of persons exercising the right to appoint members to our board of directors holding one third or more of the votes of all board members, (ii) the sale, exchange, pledge or use as guarantee of one half or more of our ownership interest in Nutra SA to a third party or (iii) the bankruptcy of RiceBran Technologies or Nutra SA.

The Investors have certain rights, summarized below, under an investor rights agreement and the LLC agreement, as further defined in the agreements.
· Conversion Rights – The Investors may exchange units in Nutra SA for equity interests in Irgovel.  After any exchange, the Investors would possess the same rights and obligations with respect to the securities of Irgovel, as they have in Nutra SA.
· Global Holding Company (GHC) Roll-Up – If we form an entity, GHC, to hold our Brazil segment assets, the Investors may exchange units in Nutra SA for equity interests in GHC.  The investors may exercise this right after the second anniversary of the formation of GHC or, if an event of default has occurred, after the GHC formation date.  The appraised fair value of the Investors’ interest in Nutra SA would be used to determine the amount of ownership interest the Investors would receive in GHC.
· RiceBran Technologies Roll-Up – The Investors may exchange units in Nutra SA for our common stock..  This right is available upon the earlier of January 2014 or upon an event of default.  We may elect to postpone our obligation to complete the roll-up to January 2015 if the roll-up would result in over 25% of our common stock being owned by the Investors.  The appraised fair value of the Investors’ interest in Nutra SA and the market price of our stock would be used to determine the amount of ownership interest the Investors would receive.
· Drag Along Rights – The Investors have the right to force the sale of all Nutra SA assets after the earlier of January 2014 or the date of an event of default or qualifying event.  The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined).  We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale.

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

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

NOTE 6. INVENTORIES

Inventories are composed of the following (in thousands):

 
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
Finished goods
 
$
1,211
   
$
1,146
 
Work in process
   
138
     
330
 
Raw materials
   
127
     
255
 
Packaging supplies
   
255
     
263
 
Total inventories
 
$
1,731
   
$
1,994
 

11

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
NOTE 7. PROPERTY

Property consisted of the following (in thousands):

 
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
Land
 
$
390
   
$
403
 
Furniture and fixtures
   
357
     
358
 
Plant
   
15,023
     
14,362
 
Computer and software
   
1,400
     
1,407
 
Leasehold improvements
   
200
     
189
 
Machinery and equipment
   
15,402
     
15,053
 
Construction in progress
   
6,390
     
9,118
 
Property
   
39,162
     
40,890
 
Less accumulated depreciation
   
13,253
     
12,433
 
Property,  net
 
$
25,909
   
$
28,457
 

Included in accounts payable at June 30, 2013, is $0.7 million related to amounts payable for capital expansion project additions.

NOTE 8. EQUITY METHOD INVESTMENT

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

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

We also entered into a cross license agreement with Wilmar.  We agreed to license to Wilmar all of our intellectual property with respect to processing of rice bran and its derivatives for use in China.  Wilmar agreed to license to us (i) its intellectual property with respect to processing of rice bran, and its derivatives, based on the intellectual property licensed to Wilmar under the License for use worldwide, excluding China and (ii) its other intellectual property with respect to processing of rice bran, and its derivatives, for use worldwide, excluding certain countries in Asia.

Under the agreements, we obtained the right to purchase 45% of the capital stock of any entity Wilmar establishes to develop new products relating to rice bran or its derivative, as defined in the agreement, using the intellectual property licensed to Wilmar.  If we decline the right to purchase 45% of the capital stock of any such new entity, we have the option to purchase 25% of the entity within two years of the entity’s formation.  The exercise price for the option will equal 25% of the capital investment made in the entity, plus interest, as defined in the agreement.

There was no gain or loss recognized on these transactions because we entered the agreement with the partner in contemplation of the agreements with Wilmar.  Our investment in RBT PRO is zero as of June 30, 2013 and RBT PRO has had no net income or loss since inception.
12

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
NOTE 9. DEBT

The following table summarizes current and long-term portions of debt (in thousands).

 
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
Corporate segment:
 
   
 
Senior convertible revolving note, net
 
$
1,291
   
$
-
 
Senior convertible debentures, net
   
198
     
1,048
 
Subordinated convertible notes, net
   
5,397
     
4,041
 
Other
   
38
     
28
 
 
   
6,924
     
5,117
 
Brazil segment:
               
Capital expansion loans
   
5,070
     
5,555
 
Equipment financing
   
175
     
201
 
Working capital lines of credit
   
3,726
     
2,227
 
Advances on export letters of credit
   
3,165
     
3,953
 
Special tax programs
   
2,075
     
2,531
 
 
   
14,211
     
14,467
 
Total debt
   
21,135
     
19,584
 
Current portion
   
8,801
     
8,003
 
Long-term portion
 
$
12,334
   
$
11,581
 

Corporate Segment

As of June 30, 2013, our convertible debt consists of the following components (in thousands):

 
Senior
Convertible
Senior
Subordinated
Convertible Notes
 
 
Revolving
Note
   
Convertible
Debentures
   
Halpern
Entities
   
Other
Investors
   
Total
 
Principal outstanding
 
$
(1,268
)
 
$
(195
)
 
$
(2,600
)
 
$
(3,373
)
 
$
(7,436
)
Discount
   
58
     
15
     
511
     
3,373
     
3,957
 
Derivative conversion liabilities
   
(81
)
   
(18
)
   
(1,371
)
   
(1,937
)
   
(3,407
)
Debt
 
$
(1,291
)
 
$
(198
)
 
$
(3,460
)
 
$
(1,937
)
 
$
(6,886
)
 
                                       
Debt - current portion
 
$
(1,291
)
 
$
(195
)
 
$
-
   
$
-
   
$
(1,486
)
Debt - long-term portion
   
-
     
(3
)
   
(3,460
)
   
(1,937
)
   
(5,400
)

Senior Convertible Revolving Note

Under a revolving credit facility with TCA Global Credit Master Fund, LP (TCA), effective May 2013, as amended July 2013, we may borrow up to $8 million, based on the amount of eligible accounts receivable we provide to secure the repayment of the amounts borrowed.  We expect the amount of our eligible receivables will limit our ability to borrow under this facility, such that our outstanding borrowings at any time are less than approximately $2.4 million.  Borrowings under the agreement are evidenced by a revolving note which accrues interest at the rate of 12% per year and is due in January 2014.  We owe TCA various other fees under the agreement that are expected to average approximately 7% of average borrowings per year.
13

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
USA segment accounts receivable collections are required to be directed to a TCA owned account.  Collections TCA receives, in excess of amounts due for interest and fees, are treated as additional repayments and reduce amounts outstanding.  Minimum cumulative repayments are $0.1 million as of October 2013, $0.2 million as of November 2013 and $0.3 million as of December 2013, or 15% of the total initially borrowed in each tranche, if greater.  Until cumulative repayments equal the required minimum, TCA may withhold 20% of collections.  We may request, on a weekly basis, that TCA advance us any amounts collected in excess of amounts (i) due for interest and fees and (ii) required to meet the minimum cumulative repayments.

In May 2013, we borrowed $1.4 million under the TCA revolving note (first tranche).  The proceeds net of cash expenses totaled $1.2 million and were used to (1) pay down $0.4 million of debt, (2) fund a $0.5 million investment in Nutra SA and (3) for general corporate purposes.  In addition to cash expenses we issued TCA 2,118,644 shares of our common stock with a market value of $0.2 million ($0.08 per share) at issuance.  We also issued equity warrants to investment bankers with a fair value of $0.1 million for the purchase of 1,200,000 shares of common stock, exercisable at $0.08 per share, through May 2018.  The total $0.5 million costs incurred with the first tranche closing, consisting of $0.3 million of cash expenses and the $ 0.2 million fair values of the common stock and warrants are recorded as debt issuance costs in other long-term assets and are being amortized to interest expense over the term of the note.  During the second quarter of 2013, amounts outstanding under the agreement averaged $1.3 million.

In July 2013, we borrowed an additional $0.6 million under the TCA revolving note (second tranche).  The net proceeds of $0.6 million were used to make a $0.1 million investment in Nutra SA and for general corporate purposes.  In addition to cash expenses, we issued TCA 4,000,000 shares of our common stock with a market value of $0.2 million ($0.08 per share) at issuance.  We issued equity warrants to investment bankers with a fair value of less than $0.1 million for the purchase of 514,286 shares of common stock, exercisable at $0.08 per share, through July 2018.  The total $0.3 million costs incurred with the second tranche closing, consisting of $0.1 million of cash expenses and the $0.2 million fair values of the common stock and warrants will also be recorded as debt issuance costs in other long-term assets and be amortized to interest expense over the remaining term of the note.

We have guaranteed that TCA will realize a minimum $0.08 per share when shares of our common stock issued in connection with the first tranche are sold and a minimum $0.07 per share when shares issued in connection with the second tranche are sold, if the shares are sold within the period beginning one year from the date of issuance and ending three years from the date of issuance.  We are required to issue additional shares in the event of a shortfall, sufficient for TCA to realize the minimums.  Or TCA may elect for us to redeem the shares for a cash amount equal to the minimum for the related tranche in January 2014.  As of June 30, 2013, the 2,118,644 shares of common stock issued to TCA in May 2013 are recorded in temporary equity at $0.2 million, the fair value of the shares at issuance, which exceeds the redemption value of the shares at June 30, 2013.  The 4,000,000 shares of common stock issued to TCA in July 2013, will also be carried in temporary equity at the greater of their fair value at issuance or their current redemption value, until the redemption feature lapses.

Upon an event of default, as defined in the agreement, TCA has the right to voluntarily convert all or any portion of the outstanding principal, interest and other amounts due under the agreement into shares of our common stock at a conversion price equal to 85% of the lowest daily volume weighted average price during the five trading days immediately prior to the conversion date.  Because the conversion feature could require us to issue an indeterminate number of shares for settlement, the conversion feature is a derivative liability, classified as debt on our balance sheets.  If TCA voluntarily converts, we have guaranteed that TCA will realize a minimum per share, when shares of our common stock issued in connection with the conversion are sold, equal to the volume weighted average price of our common stock during the five trading days immediately prior to the conversion date.  As a result of the $0.1 million conversion liability associated with the first tranche, we recorded a debt discount at issuance of $0.1 million which is amortizing to interest expense over the term of the revolving note.  At June 30, 2013, the conversion liability on the revolving note is $0.1 million.

During the term of the agreement, the Corporate and USA segments may not without TCA’s consent or approval, among other things, (i) enter into new debt (ii) make any new investments, except capital expenditures less than $0.3 million per year, (iii) issue or redeem stock, (iii) declare or pay dividends or make other distributions to shareholders, and (iv) make loans and distributions of assets to any persons, including affiliates.

In connection with the TCA transaction, our factoring agreement was cancelled and we paid the $0.1 million outstanding balance on the agreement in the second quarter of 2013.
14

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
Senior Convertible Debentures

In the first and second quarter of 2013, the holder of the debentures converted $0.1 million and $0.3 million of the outstanding principal into 1,400,000 shares and 4,285,714 shares of our common stock, at a conversion price of $0.07.  We recognized, for each conversion, a loss on extinguishment of $0.1 million, representing the difference between the market values of the shares of common stock issued and the $0.1 and $0.4 million carrying amounts of the debt (including the related derivative conversion liability), on the date of conversion.

Under a May 2013 amendment to the senior convertible debenture, we agreed to prepay $0.3 million of the of the outstanding principal and issue 1,714,286 shares of common stock to the holder, and the holder agreed to share its  senior interest in its collateral pari passu with TCA.  The remaining $0.2 million principal is payable in equal monthly installments from July 2013 through December 2013.  Prior to the amendment, principal was due in equal monthly installments from June 2013 to January 2014.  We expensed the $0.3 million fair value of the shares issued in connection with the amendment and $0.01 million cash amendment fees as loss on extinguishment.

Subordinated Convertible Notes

In the second quarter of 2013, we issued subordinated convertible notes and related warrants, which are described in the chart below.

Issuance
 
 
Principal
Amount of
Notes (in
thousands)
 
Creditor's
Debt
Conversion
Right
 
Stated
Annual
Interest
Rate on
Debt
 
Maturity
Date of Debt
 
Number of
Shares
Under
Warrant
 
Exercise
Price of
Warrant
Expiration
Date of Warrant
 
 
 
 
 
 
 
 
 
 
        
Subordinated Convertible Notes and Warrants
 
$
538
 
Convertible immediately at $0.07 per share
   
10
%
July 2015 or July 2016
   
7,680,038
 
Exercisable immediately at $0.08 per share
July 2017 or May 2018

The convertible debt and warrants listed in the table above contain full ratchet antidilution provisions and require the holders to provide us with 61 day notice prior to conversion or exercise if the holder would have a beneficial ownership interest in excess of 4.99% immediately after conversion or exercise.  The $0.5 million of proceeds from issuance of the convertible notes and related warrants was used for repayment of debt and for general corporate purposes.

With regard to the issuances of convertible notes and related warrants listed in the table above, the total of (1) the $0.5 million fair value of the conversion features issued, (2) the $0.5 million fair value of the liability warrants issued and (3) the $0.1 million fair value of our common stock issued, exceeded the $0.5 million proceeds from these issuances, therefore we recorded financing costs of $0.6 million in the second quarter of 2013.  The initial debt discounts recorded for the convertible notes equaled the principal amount of the notes at issuance.  Because the fair value at issuance of the conversion features and warrants exceeded the proceeds from these issuances, in each case, under the effective interest method, this will result in the debt discount being expensed when the principal of the note matures or is redeemed, in proportion to the principal reduction.

In May 2013, we entered into agreements to allow each holder of existing subordinated convertible notes and warrants to invest in additional notes and related warrants and provided that each holder making an additional investment (i) receive 2.5 shares of our common stock for each dollar invested and (ii) agree to extend the maturity date for all of their notes to July 2016.  Further, each holder of outstanding convertible notes could elect (PIK Election), in lieu of receiving cash interest payments otherwise payable though June 2014 on their existing convertible notes to receive (i) an increase in the number of shares of common stock underlying their notes (ii) an equity warrant to purchase shares of our common stock and (ii) 2.5 shares of our common stock for each dollar of interest otherwise payable through June 2014.

One holder made an additional investment in a subordinated convertible note and related warrant of $0.4 million in May 2013 (included in the issuances discussed two paragraphs above), and, as a result, (i) the maturity date on the holder’s outstanding convertible notes in the principal amount of $1.1 million was extended from July 2015 to July 2016 and (ii) we issued 1,000,000 shares of common stock.  No gain or loss was recognized as a result of the extension of the maturity date of the existing notes as the terms were not substantially different.
15

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
Other holders of convertible notes in the principal amount of $0.3 million made the PIK Election, without making an additional investment.  As a consequence, in the second quarter of 2013, we issued 605,255 shares of common stock with a fair value of $0.2 million and, in lieu of paying interest of $0.1 million accrued through June 30, 2013, we (i) increased the shares of common stock underlying the holders convertible notes 869,171 shares and (ii) issued equity warrants for the purchase of up to 869,171 shares of common stock, at an exercise price of $0.08 per share, and a May 2018 expiration.  The equity warrants were recorded in equity, at their $0.1 million fair value as of the date of issuance.  The change in fair value of the convertible notes from the increase in the underlying shares was less than $0.1 million.  We recognized a loss on extinguishment for the difference between the fair value of the consideration issued and the accrued interest as of the date of the PIK election.  Changes in fair value after the PIK elections, from increases in the shares of common stock underlying the PIK warrants and underlying the related convertible notes are recorded as interest expense.

Other Notes

In the second quarter of 2013, we also issued to Mr. Halpern a promissory note in the principal amount of $0.1 million, which was paid in full later in the quarter.

Brazil Segment

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

In the first quarter of 2013, Irgovel received R$2.0 million ($1.0 million) under a working capital line of credit agreement.  The lending bank withheld R$1.0 million ($0.5 million) of the amount borrowed in a bank account, until  the second quarter of 2013, when Irgovel had sufficient accounts receivable to withdraw the funds.

NOTE 10. PRE-PETITION LIABILITIES

On November 10, 2009, our parent company (formerly known as NutraCea) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Arizona in the proceeding entitled In re:  NutraCea, Case No. 2:09-bk-28817-CGC.  None of our subsidiaries were included in the bankruptcy filing.  Creditors voted overwhelmingly in favor of an amended plan of reorganization which called for the payment in full of all allowed claims, and the plan became effective on November 30, 2010.  In January 2012, we made our final $1.6 million distribution to the general unsecured creditors.

NOTE 11. EMPLOYEE BONUS PLAN

In 2010, our board of directors approved a cash incentive bonus plan.  As of August 14, 2013, the plan, as amended, provides for payment of $0.6 million to employees, still employed at the time of payment, when (1) we are cash flow positive, defined by our board as earnings before interest, taxes, depreciation, amortization and certain non-cash charges, and (2) cash is available for the payment as determined by our board at its sole discretion.  In 2013, our board of directors approved an executive bonus plan which provides for payments of $0.3 million to employees, still employed at the time of payment, when cash is available for the payment as determined by our board at its sole discretion.  Because the consolidated operating cash flow and cash availability conditions were not met as of June 30, 2013, and December 31, 2012, our board of directors has not approved payments and no accruals have been recorded for these bonuses.

NOTE 12. COMMITMENTS AND CONTINGENCIES

In addition to the matters discussed below, from time to time we are involved in litigation incidental to the conduct of our business.  When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.  While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations.  Defense costs are expensed as incurred and are included in professional fees.
16

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
Litigation

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

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

On February 6, 2009, the Sellers filed a collection lawsuit against us seeking payment of the second installment of the purchase price under the Purchase Agreement, which the Sellers allege is approximately $1.0 million.  We have withheld payment of the second installment pending resolution of the Resyng lawsuit noted above.  The Parent Company has not been served with any formal notices in regard to this matter.  To date, only Irgovel has received formal legal notice.  In addition, the Purchase Agreement requires that all disputes between us and the Sellers be adjudicated through arbitration.  As part of the Purchase Agreement, $2.0 million was deposited into an escrow account to cover contingencies with the net remaining funds payable to the Sellers upon resolution of all contingencies.  We believe any payout due to the lawsuit will be made out of the escrow account.  As of June 30, 2013 and December 31, 2012, the balance in the escrow account was $1.9 million and is included in restricted cash in our balance sheets.  There is an escrow liability related to the lawsuit in accrued expenses on our balance sheets as of June 30, 2013 and December 31, 2012, totaling $1.3 million and $1.4 million.  When the escrow account was funded, we established an accrued liability equal to the amount of the escrow for contingencies and the net balance due to the Sellers under the terms of the Purchase Agreement.  As of June 30, 2013, $0.7 million of pre-acquisition contingencies have either been paid or specifically identified and accrued, leaving a balance of $1.4 million to settle any remaining contingencies.  We believe that there is no additional material exposure as any amounts determined to be owed as a result of the above noted litigation and contingencies will be covered by the escrow account.  The Parent Company has agreed to pay ninety percent of any funds received from the escrow account to Nutra SA, with no resulting change in our Nutra SA voting rights.

NOTE 13. EQUITY, SHARE-BASED COMPENSATION AND LIABILITY WARRANTS

A summary of equity activity for the six months ended June 30, 2013, (in thousands, except share data) follows.

 
 
Common Stock
   
Accumulated
   
Accumulated
Other
Comprehensive
   
Total
 
 
 
Shares
   
Amount
   
Deficit
   
Loss
   
Equity
 
Balance, December 31, 2012
   
207,616,097
   
$
210,396
   
$
(204,420
)
 
$
(1,540
)
 
$
4,436
 
Share-based compensation, options
   
-
     
234
     
-
     
-
     
234
 
Conversion of senior subordinated debenture
   
5,685,714
     
500
     
-
     
-
     
500
 
Common stock issued for fees and services
   
6,998,843
     
588
     
-
     
-
     
588
 
Warrants issued for fees and services
   
-
     
138
     
-
     
-
     
138
 
Foreign currency translation
   
-
     
-
     
-
     
(414
)
   
(414
)
Net loss
   
-
     
-
     
(7,780
)
   
-
     
(7,780
)
Balance June 30, 2013
   
220,300,654
   
$
211,856
   
$
(212,200
)
 
$
(1,954
)
 
$
(2,298
)

In June 2013, our shareholders approved an increase in the number of our authorized shares of common stock from 500,000,000 to 1,200,000,000.
17

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
A summary of stock option and warrant activity for the six months ended June 30, 2013, follows.

 
 
Options
   
Equity and Liability Warrants
 
 
 
Shares
Under
Options
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual Life
(Years)
   
Shares Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
Outstanding, December 31, 2012
   
33,850,895
   
$
0.16
     
6.3
     
161,353,777
   
$
0.12
     
3.5
 
Granted
   
5,750,000
     
0.08
             
9,749,205
     
0.08
         
Impact of anti-dilution clauses
   
-
     
-
             
416,437
     
-
         
Exercised
   
-
     
-
             
-
     
-
         
Forfeited, expired or cancelled
   
(2,642,143
)
   
0.41
             
(29,221,130
)
   
0.33
         
Outstanding, June 30, 2013
   
36,958,752
   
$
0.13
     
6.4
     
142,298,289
   
$
0.08
     
3.8
 
Exercisable, June 30, 2013
   
29,184,863
   
$
0.13
     
5.8
     
142,298,289
   
$
0.08
     
3.8
 

Options

In April 2013, our board increased the number of shares of common stock that each non-employee director automatically receives annually each January 1 under our 2010 Equity Incentive Plan from 250,000 to 1,000,000 shares.  In connection with the increase in the automatic director grant, in April 2013, our board granted each of our five non-employee directors a stock option to purchase up to 750,000 shares of common stock.  Each option has an exercise price of $0.08 per share, vests in nine equal monthly installments ending December 31, 2013, and expires in April 2023.  In January 2013, we issued each of those five non-employee directors an option for the purchase of up to 250,000 shares of common stock under the non-employee director automatic grant provision.  Each option has an exercise price of $0.08 per share, vests in twelve equal monthly installments ending December 2013, and expires in January 2023.

In April 2013, the Board granted each of the two directors serving on the Strategic Committee and consulting special counsel a stock option to purchase up to 250,000 shares of common stock.  Each option has an exercise price of $0.08 per share, vests in twelve equal monthly installments ending in March 2014 and expires in April 2018.

Warrants

We have outstanding warrants classified as equity (equity warrants) and as derivative warrant liability (liability warrants).  We have certain warrant agreements in effect for outstanding liability warrants that contain antidilution clauses.  Under the antidilution clauses, in the event of equity issuances, we may be required to lower the exercise price on liability warrants and increase the number of shares underlying liability warrants.  Equity issuances may include issuances of our common stock, certain awards of options to employees, and issuances of warrants and/or other convertible instruments below a certain exercise price.

The April 2013 issuances of convertible debt and related warrants triggered the antidilution clauses in certain warrants and, as a result, we lowered the exercise price and increased the number of underlying shares on those liability warrants in April 2013.  The affected warrants subsequently expired in April 2013 with 29,221,130 underlying shares.
18

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
The following table summarizes information related to outstanding warrants:

 
  
 
As of June 30, 2013
   
As of December 31, 2012
 
Range of
Exercise Prices
 
Type of
Warrant
 
Shares Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Shares
Under
Warrants
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
 
$
0.07-$0.08
 
Liability
   
139,077,938
   
$
0.08
     
3.8
     
131,397,900
   
$
0.08
     
4.2
 
$
0.08
 
Equity
   
2,069,167
     
0.08
     
4.9
     
-
     
-
     
-
 
$
0.23
 
Equity
   
605,730
     
0.23
     
3.4
     
605,730
     
0.23
     
3.9
 
$
0.33
 
Liability
   
-
     
-
     
-
     
28,804,693
     
0.33
     
0.3
 
$
0.69
 
Equity
   
545,454
     
0.69
     
0.3
     
545,454
     
0.69
     
0.8
 
     
 
   
142,298,289
   
$
0.08
     
3.8
     
161,353,777
   
$
0.12
     
3.5
 
 
NOTE 14. SEGMENT INFORMATION

The tables below present segment information for the periods identified and provide reconciliations of segment information to total consolidated information (in thousands).

Three Months Ended June 30, 2013
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
3,125
   
$
6,263
   
$
9,388
 
Cost of goods sold
   
-
     
2,358
     
5,752
     
8,110
 
Gross profit
   
-
     
767
     
511
     
1,278
 
Depreciation and amortization (in selling, general and administrative)
   
(5
)
   
(118
)
   
(195
)
   
(318
)
Intersegment fees
   
(56
)
   
-
     
56
     
-
 
Other operating expense
   
(1,219
)
   
(144
)
   
(897
)
   
(2,260
)
Loss from operations
 
$
(1,280
)
 
$
505
   
$
(525
)
 
$
(1,300
)
 
                               
Net loss attributable to RiceBran Technologies shareholders
 
$
(1,909
)
 
$
505
   
$
(563
)
 
$
(1,967
)
Interest expense
   
599
     
-
     
425
     
1,024
 
Depreciation (in cost of goods sold)
   
-
     
233
     
479
     
712
 
Purchases of property
   
2
     
116
     
416
     
534
 
 
                               
Six Months Ended June 30, 2013
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
6,034
   
$
12,063
   
$
18,097
 
Cost of goods sold
   
-
     
4,563
     
11,290
     
15,853
 
Gross profit
   
-
     
1,471
     
773
     
2,244
 
Depreciation and amortization (in selling, general and administrative)
   
(11
)
   
(239
)
   
(399
)
   
(649
)
Intersegment fees
   
-
     
-
     
-
     
-
 
Other operating expense
   
(2,335
)
   
(1,121
)
   
(2,186
)
   
(5,642
)
Loss from operations
 
$
(2,346
)
 
$
111
   
$
(1,812
)
 
$
(4,047
)
 
                               
Net loss attributable to RiceBran Technologies shareholders
 
$
(7,122
)
 
$
411
   
$
(1,069
)
 
$
(7,780
)
Interest expense
   
875
     
-
     
778
     
1,653
 
Depreciation (in cost of goods sold)
   
-
     
458
     
891
     
1,349
 
Purchases of property
   
6
     
128
     
1,116
     
1,250
 

19

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
Three Months Ended June 30, 2012
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
3,153
   
$
6,558
   
$
9,711
 
Cost of goods sold
   
-
     
2,154
     
5,794
     
7,948
 
Gross profit
   
-
     
999
     
764
     
1,763
 
Depreciation and amortization (in selling, general and administrative)
   
(43
)
   
(308
)
   
(35
)
   
(386
)
Intersegment fees
   
56
     
-
     
(56
)
   
-
 
Impairment of property
   
-
     
(1,069
)
   
-
     
(1,069
)
Other operating expense
   
(1,447
)
   
(628
)
   
(1,113
)
   
(3,188
)
Loss from operations
 
$
(1,434
)
 
$
(1,006
)
 
$
(440
)
 
$
(2,880
)
 
                               
Net loss attributable to Rice Bran Technologies shareholders
 
$
1,259
   
$
(1,015
)
 
$
(445
)
 
$
(201
)
Interest expense
   
166
     
9
     
212
     
387
 
Depreciation (in cost of goods sold)
   
-
     
278
     
421
     
699
 
Purchases of property
   
-
     
64
     
2,186
     
2,250
 
 
                               
Six Months Ended June 30, 2012
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Revenues
 
$
-
   
$
6,564
   
$
12,893
   
$
19,457
 
Cost of goods sold
   
-
     
4,553
     
11,400
     
15,953
 
Gross profit
   
-
     
2,011
     
1,493
     
3,504
 
Depreciation and amortization (in selling, general and administrative)
   
(71
)
   
(639
)
   
(460
)
   
(1,170
)
Intersegment fees
   
112
     
-
     
(112
)
   
-
 
Impairment of property
   
-
     
(1,069
)
   
-
     
(1,069
)
Other operating expense
   
(2,723
)
   
(1,297
)
   
(2,500
)
   
(6,520
)
Loss from operations
 
$
(2,682
)
 
$
(994
)
 
$
(1,579
)
 
$
(5,255
)
 
                               
Net loss attributable to Rice Bran Technologies shareholders
 
$
(7,009
)
 
$
(1,010
)
 
$
(1,011
)
 
$
(9,030
)
Interest expense
   
321
     
17
     
467
     
805
 
Depreciation (in cost of goods sold)
   
-
     
535
     
819
     
1,354
 
Purchases of property
   
-
     
66
     
3,727
     
3,793
 

The tables below present segment information for selected balance sheet accounts (in thousands).

 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
As of June 30, 2013
 
   
   
   
 
Inventories
 
$
-
   
$
801
   
$
930
   
$
1,731
 
Property, net
   
57
     
7,697
     
18,155
     
25,909
 
Goodwill
   
-
     
-
     
4,374
     
4,374
 
Intangible assets, net
   
-
     
935
     
1,016
     
1,951
 
Total assets
   
3,100
     
10,791
     
28,668
     
42,559
 
 
                               
As of December 31, 2012
                               
Inventories
   
-
     
764
     
1,230
     
1,994
 
Property, net
   
36
     
8,731
     
19,690
     
28,457
 
Goodwill
   
-
     
-
     
4,773
     
4,773
 
Intangible assets, net
   
-
     
1,133
     
1,442
     
2,575
 
Total assets
   
3,201
     
11,609
     
32,196
     
47,006
 

20

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
All changes in goodwill between December 31, 2012 and June 30, 2013, relate to foreign currency translation.  Corporate segment total assets include cash, restricted cash, property and other assets.

The following table presents revenue by geographic area for the three and six months ended June 30, 2013 and 2012 (in thousands).

 
 
Three Months
   
Six Months
 
 
 
2013
   
2012
   
2013
   
2012
 
United States
 
$
6,202    
$
2,787
   
$
9,797    
$
5,816
 
Brazil
    2,391      
4,855
      6,662      
9,771
 
Other international
    795      
2,069
      1,638      
3,870
 
Total revenues
 
$
9,388
   
$
9,711
   
$
18,097
   
$
19,457
 

NOTE 15. FAIR VALUE MEASUREMENT

The fair value of cash and cash equivalents, accounts and other receivables and accounts payable approximates their carrying value due to their shorter maturities.  As of June 30, 2013, the fair value of our USA segment debt is approximately $2.5 million higher than the carrying value of that debt, based on current market rates for similar debt with similar maturities.  The fair value of our Brazil segment debt approximates the carrying value of that debt based on the current market rates for similar debt with similar maturities.

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

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

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

For instruments measured using Level 3 inputs, a reconciliation of the beginning and ending balances is disclosed.

The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):

 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
June 30, 2013
 
   
   
   
 
Derivative warrant liabilities
(1
)
$
-
   
$
-
   
$
(6,782
)
 
$
(6,782
)
Derivative conversion liabilities
(2
)
 
-
     
-
     
(3,407
)
   
(3,407
)
Total liabilities at fair value
   
$
-
   
$
-
   
$
(10,189
)
 
$
(10,189
)
 
                                 
December 31, 2012
                                 
Derivative warrant liabilities
(1
)
$
-
   
$
-
   
$
(4,520
)
 
$
(4,520
)
Derivative conversion liabilities
(2
)
 
-
     
-
     
(2,199
)
   
(2,199
)
Total liabilities at fair value
   
$
-
   
$
-
   
$
(6,719
)
 
$
(6,719
)

(1) These warrants are valued using the lattice model each reporting period and the resultant change in fair value is recorded in the statements of operations.  The lattice model requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants.  The risk-free interest rate is determined by reference to the treasury yield curve rate of instruments with the same term as the warrant.  Additional assumptions that were used to calculate fair value follow.
21

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
June 30,
2013
   
December 31,
2012
 
Risk-free interest rate
   
0.0% - 1.4%
   
0.1% - 0.7%
 
 
(1.0% weighted average)
   
(0.6% weighted average)
 
Expected volatility
   
85%
   
93%

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

 
 
 
June 30,
2013
   
December 31,
2012
 
Risk-free interest rate
   
0.1-0.7%
   
0.2-0.3%
 
 
(0.5% weighted average)
   
(0.3% weighted average)
 
Expected volatility
   
85%
 
   
93%

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis (in thousands):

 
 
Fair Value
as of
Beginning of
Period
   
Total
Realized
and
Unrealized
Gains
(Losses)
   
Issuance of
New
Instruments
   
Net
Transfers
(Into) Out of
Level 3
   
Fair Value,
at End of
Period
   
Change in
Unrealized
Gains
(Losses) on
Instruments
Still Held
 
 
 
     
(1
)
 
     
(2)
 
 
   
 
Six Months Ended June 30, 2013
 
           
           
   
 
Derivative warrant liability
 
$
(4,520
)
 
$
(1,724
)
 
$
(538
)
 
$
-
   
$
(6,782
)
 
$
(1,724
)
Derivative conversion liability
   
(2,199
)
   
(770
)
   
(537
)
   
99
     
(3,407
)
   
(896
)
Total Level 3 fair value
 
$
(6,719
)
 
$
(2,494
)
 
$
(1,075
)
 
$
99
   
$
(10,189
)
 
$
(2,620
)
 
                                               
Six Months Ended June 30, 2012
                                               
Derivative warrant liability
 
$
(1,296
)
 
$
(667
)
 
$
(4,969
)
 
$
711
   
$
(6,221
)
 
$
(272
)
Derivative conversion liability
   
-
     
1,173
     
(3,686
)
   
-
     
(2,513
)
   
1,173
 
Total Level 3 fair value
 
$
(1,296
)
 
$
506
   
$
(8,655
)
 
$
711
   
$
(8,734
)
 
$
901
 

(1)
Included in change in fair value of derivative warrant and conversion liabilities in our consolidated statements of operations.
(2)
Represents transfers to equity as a result of the exercise of a warrant in 2012 and conversion of debt in 2013.

The following tables summarize the fair values by input hierarchy of items measured at fair value in our balance sheets on a nonrecurring basis (in thousands) .

 
   
   
   
   
   
2013
 
 
   
As of June 30, 2013
   
Impairment
 
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Losses
 
 
   
   
   
   
    (1)
 
Property, net
(1
)
 
$
-
   
$
-
   
$
394
   
$
394
   
$
300
 
Property, net
     
$
-
   
$
-
   
$
394
   
$
394
   
$
300
 
 
 
   
   
   
   
   
2012
 
 
   
As of December 31, 2012
   
Impairment
 
 
   
Level 1
   
Level 2
   
Level 3
   
Total
   
Losses
 
  (1)
Property, net
(1
)
 
$
-
   
$
-
   
$
1,058
   
$
1,058
   
$
1,069
 
Property, net
     
$
-
   
$
-
   
$
1,058
   
$
1,058
   
$
1,069
 
 
(1) Machinery and equipment not currently in use was evaluated for impairment and as a result was written down to estimated fair value in the first quarter of 2013 and the second of quarter of 2012. Fair value is an estimate of net realizable value comprised of an estimate of proceeds from sale, based on an internal evaluation of market conditions, less estimated costs to sell. The estimate of net realizable value is subject to change.
22

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements
 
NOTE 16. RELATED PARTY TRANSACTIONS

Transactions with Director Baruch Halpern

In January 2012, Baruch Halpern became a member of our board of directors.  Mr. Halpern is the principal in Halpern Capital, Inc. (HC).  Under a February 2011 financial advisor agreement we were obligated to pay HC success fees ranging from 2.5% to 5.0% of the consideration received from certain equity, convertible securities or debt transactions.  We were also required to issue warrants to purchase shares of common stock that equaled from 2.5% to 5.0% of the consideration received in those transactions, divided by either the market price of the common stock or the conversion price of the securities issued in the transaction.  This agreement terminated April 1, 2012, however we remained obligated to pay HC success fees and issue HC warrants on any transaction with an investor introduced by HC though March 31, 2013.

During the three months ended March 31, 2012, in connection with the January 2012 issuances of the subordinated convertible notes and senior convertible note, and related warrants, HC received $0.1 million in cash fees under the financial advisor agreement.  Mr. Halpern also received warrants exercisable for 712,500 shares of our common stock at $0.10 per share and warrants exercisable for 150,000 shares of our common stock at $0.15 per share, which were owed to HC under the financial advisor agreement.  During the three months ended March 31, 2013, HC received no success fees or transaction warrants.

In January 2012, we agreed to extend the expiration dates on certain liability warrants, held by Mr. Halpern and his family, for the purchase of 5,166,520 shares of common stock at an exercise price of $0.10 per share from July 2014 to January 2017.  The resulting $0.1 million change in the fair value of the warrants increased other income (expense).

Mr. Halpern held as of June 30, 2013 and December 31, 2012, $2.6 million of subordinated convertible notes.  During the three and six months ended June 30, 2013, we accrued $0.1 million of interest on the convertible notes beneficially owned by Mr. Halpern, paid less than $0.1 million of interest and made no principal payments.  During the three and six months ended June 30, 2012, we received $0.1 million of cash in connection with issuances of convertible debt and related warrants to entities beneficially owned by Mr. Halpern.

In April 2013, we issued a promissory note in the principal amount of $0.1 million to Mr. Halpern.  The note bore interest at 10% and was repaid in full in May 2013.

During the three months ended March 31, 2012, we paid HC $0.4 million relevant to HC’s class 6 general unsecured creditor claim as part of our payment obligations under the Amended Plan of Reorganization.  The claim represented payment for services rendered prior to the November 2009 bankruptcy petition filing.

Other Transactions with Directors  and Officer

W. John Short, CEO and director, invested $50 thousand in the January 2012 subordinated convertible notes and related warrants and $25 thousand in the April 2013 subordinated convertible notes and related warrants.  During the three and six months ended June 30, 2013 and 2012, we paid less than $0.1 million of interest on the convertible notes.  In June 2013, Mr. Short made a PIK Election for interest accruing under the notes from February 2013 through June 2014.  In connection with the election, we issued to Mr. Short 16,490 shares of common stock and  an equity warrant with 22,799 underlying shares and we increased the shares underlying Mr. Short’s convertible notes by 22,799 shares as payment for interest accruing under the convertible notes from February 2013 through June 2013.
23

RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis addresses material changes in the results of operations and financial condition of RiceBran Technologies and subsidiaries for the periods presented.  This discussion and analysis should be read in conjunction with the consolidated financial statements, the related notes thereto, and management’s discussion and analysis of results of operations and financial condition included in our Annual Report on Form 10-K, for the year ended December 31, 2012.

We continue to experience losses and negative cash flows from operations on a consolidated basis which raises substantial doubt about our ability to continue as a going concern.  We currently have insufficient funds to support our operations and service our debt in the near term and have inadequate financing arrangements in place at this time.  Although we believe that we will be able to obtain the funds necessary to continue as a going concern there can be no assurances that our efforts will prove successful.  The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We are a human food ingredient and animal nutrition company focused on the procurement, bio-refining and marketing of numerous products derived from rice bran.  We have proprietary and patented intellectual property that allows us to convert rice bran, one of the world’s most underutilized food sources, into a number of highly nutritious human food and animal nutrition products.  Our target markets are human food and animal nutrition manufacturers and retailers, as well as natural food, functional food and nutraceutical supplement manufacturers and retailers, both domestically and internationally.  We have developed a bio-refining approach to processing raw rice bran into various value added constituents such as stabilized rice bran (SRB), rice bran oil (RBO), defatted rice bran (DRB) and a variety of other valuable derivative products from each of these core products.

We have three reportable business segments: (i) Corporate; (ii) USA, which manufactures and distributes SRB in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes; and (iii) Brazil, which extracts crude RBO and DRB from rice bran, which are then further processed into a number of valuable human food and animal nutrition products.  The Corporate segment includes selling, general and administrative expenses including public company expenses, litigation, and other expenses not directly attributable to other segments.  No Corporate allocations are made to the other segments.  General corporate interest is not allocated.  For further information on segment results see the Segment Information note to the consolidated financial statements included herein.

The USA segment consists of two locations in California and two locations in Louisiana all of which can produce SRB. One of the two Louisiana SRB facilities, located in Lake Charles, has been idle since May 2009.  The USA segment also includes our Dillon, Montana Stage II facility which produces RiSolubles (a highly nutritious, carbohydrate and lipid rich fraction of SRB), RiFiber (a fiber rich derivative of SRB) and RiBalance (a complete rice bran nutritional package derived from further processing SRB).  The manufacturing facilities included in our USA segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into finished products.  Approximately 50% of USA segment revenue is from sales of human food products and 50% is from sales of animal nutrition products.

The Brazil segment consists of the consolidated operations of Nutra SA, LLC, whose operating subsidiary is Industria Riograndens De Oleos Vegetais Ltda. (Irgovel), located in Pelotas, Brazil.  Irgovel manufactures RBO and DRB products for both the human and animal food markets in Brazil and internationally.  In refining RBO to an edible grade, several co-products are obtained.  One such product is distilled fatty acids, a valuable raw material for the detergent industry.  DRB is sold in bulk as animal feed and compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under Irgovel brands in the Brazilian market.  Approximately 46% of Brazil segment product revenue was from sales of RBO products and 54% was from sales of DRB products.

Results of Operations

THREE MONTHS ENDED JUNE 30, 2013 AND 2012

Consolidated net loss attributable to RiceBran Technologies shareholders for the three months ended June 30, 2013, was $2.0 million compared to $0.2 million, for the three months ended June 30, 2012.  A $1.6 million improvement between periods in loss from operations was more than offset by a $3.7 million increase in other expense.  The increase in other expense)was comprised of (i) a $3.3 million increase in interest expense, financing expense, and loss on extinguishment recognized in the Corporate segment as a result of debt repayments, modifications and issuances and (ii) a $0.3 million increase in interest expense and penalties in the Brazil segment due to increased debt levels.
24

Revenue and Gross Profit

Revenues (in thousands):

 
 
Three Months Ended June 30,
 
 
 
2013
   
% of
Total
Revenues
   
2012
   
% of
Total
Revenues
   
Change
   
%
Change
 
USA segment
 
$
3,125
     
33.3
   
$
3,153
     
32.5
   
$
(28
)
   
(0.9
)
Brazil segment
   
6,263
     
66.7
     
6,558
     
67.5
     
(295
)
   
(4.5
)
Total revenues
 
$
9,388
     
100.0
   
$
9,711
     
100.0
   
$
(323
)
   
(3.3
)

Consolidated revenues for the three months ended June 30, 2013, were $9.4 million compared to $9.7 million in the prior year period, a decrease of $0.3 million, or 3.3%.  Second quarter 2013 USA segment revenues remained largely unchanged from the second quarter of 2012.  Brazil segment revenues decreased $0.3 million, or 4.5%, in the second quarter of 2013 compared to the second quarter of 2012, as a result of the 5.3% decline in the average exchange rate between these periods.

Gross profit (in thousands):

 
 
Three Months Ended June 30,
 
 
 
2013
   
Gross
Profit %
   
2012
   
Gross
Profit %
   
Change
   
Change
in Gross
Profit %
 
USA segment
 
$
767
     
24.5
   
$
999
     
31.7
   
$
(232
)
   
(7.1
)
Brazil segment
   
511
     
8.2
     
764
     
11.6
     
(253
)
   
(3.5
)
Total gross profit
 
$
1,278
     
13.6
   
$
1,763
     
18.2
   
$
(485
)
   
(4.5
)

Consolidated gross profit in 2013 decreased $0.5 million, or 4.5 percentage points, to $1.3 million for the three months ended June 30, 2013, compared to $1.8 million in the prior year period.

The USA segment gross profit declined $0.2 million, to $0.8 million in the second quarter of 2013, from $1.0 million in the second quarter of 2012, due to higher raw bran prices in 2013 compared to 2012.  Raw bran costs were approximately 22% higher as of June 30, 2013, compared to June 30, 2012.

The Brazil segment gross profit declined $0.3 million, or 3.5 percentage points, from 11.6% to 8.2%.  Raw bran costs were approximately 19% higher as of June 30, 2013, compared to June 30, 2012.  Revenue per kilo increased 8% between periods.  The volumes of bran processed and sold were approximately the same each period.
25

Operating Expenses (in thousands):

 
 
Three Months Ended June 30, 2013
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
1,010
   
$
262
   
$
1,083
   
$
2,355
 
Professional fees
   
214
     
-
     
9
     
223
 
Intersegment fees
   
56
     
-
     
(56
)
   
-
 
Total operating expenses
 
$
1,280
   
$
262
   
$
1,036
   
$
2,578
 
 
                               
 
 
Three Months Ended June 30, 2012
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
1,261
   
$
936
   
$
861
   
$
3,058
 
Professional fees
   
229
     
-
     
287
     
516
 
Intersegment fees
   
(56
)
   
-
     
56
     
-
 
Impairment of property
   
-
     
1,069
     
-
     
1,069
 
Total operating expenses
 
$
1,434
   
$
2,005
   
$
1,204
   
$
4,643
 
 
                               
 
 
Favorable (Unfavorable) Change
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Selling, general and administrative
 
$
251
   
$
674
   
$
(222
)
 
$
703
 
Professional fees
   
15
     
-
     
278
     
293
 
Intersegment fees
   
(112
)
   
-
     
112
     
-
 
Impairment of property
   
-
     
1,069
     
-
     
1,069
 
Total operating expenses
 
$
154
   
$
1,743
   
$
168
   
$
2,065
 

Consolidated operating expenses were $2.6 million for the second quarter of 2013, compared to $4.6 million for the second quarter of 2012, an improvement of $2.1 million.  The reduction in USA segment impairment charges between periods contributed $1.1 million to the improvement.  During the second quarter of 2012, machinery and equipment not currently in use was evaluated for impairment and as a result was written down $1.1 million to estimated fair value.

The improvement in Corporate segment selling, general and administrative expenses (SG&A) of $0.3 million related to a reduction in compensation expense for stock options.

USA segment SG&A expenses decreased $0.7 million due to a $0.5 million change in gain on sale of excess property and $0.2 million lower depreciation expense.  Depreciation expense was lower as a result of impairment charges taken in the second quarter of 2012.

Brazil segment SG&A increased $0.2 million due to increases in payroll and related expenses as a result of government mandated annual cost of living adjustments that were effective beginning June 2012.  Brazil segment professional fees decreased $0.3 million because the Brazil segment no longer pays investor fees to the investors in Nutra SA LLC (Nutra SA).  The investors in Nutra SA have agreed to waive all investor fees until further notice.
26

Other Income (Expense) (in thousands):

 
 
Three Months Ended June 30, 2013
 
 
 
Corporate
   
USA
   
Brazil
   
Consolidated
 
Interest income
 
$
-
   
$
-
   
$
16
   
$
16
 
Interest expense
   
(599
)