NOTE 6. REDEEMABLE NONCONTROLLING INTEREST IN NUTRA SA

We hold a variable interest which relates to our equity interest in Nutra SA. Our variable interest in Nutra SA is our Brazil segment. We are the primary beneficiary of Nutra SA, and as such, Nutra SA’s assets, liabilities and results of operations are included in our condensed consolidated financial statements. The other equity holders’ (Investors) interests are reflected in net loss attributable to noncontrolling interest in Nutra SA in the condensed consolidated statements of operations and redeemable noncontrolling interest in Nutra SA in the condensed consolidated balance sheets. Due to the goodwill impairment charge recorded in the second quarter of 2016 combined with continuing operating losses, the carrying amount of the redeemable noncontrolling interest reflects a deficit balance beginning in the second quarter of 2016. This deficit balance is reflected in the total (deficit) equity attributable to RiceBran Technologies shareholders section of our condensed consolidated balance sheet at June 30, 2016. Prior to June 30, 2016, the redeemable noncontrolling interest was reflected in the total temporary equity section of our condensed consolidated balance sheet. A summary of the carrying amounts of Nutra SA balances included in our condensed consolidated balance sheets follows (in thousands).

	June 30, 2016		December 31, 2015
Cash and cash equivalents	$	201	$	104
Other current assets (restricted $378 and $1,003)		2,130		2,760
Property, net (restricted $2,427 and $2,102)		11,491		9,502
Goodwill and intangibles, net		-		2,468
Other noncurrent assets		63		43
Total assets	$	13,885	$	14,877

Current liabilities	$	7,160	$	4,647
Current portion of long-term debt (nonrecourse)		6,831		2,750
Long-term debt, less current portion (nonrecourse)		-		3,553
Total liabilities	$	13,991	$	10,950

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

During the first six months of 2016, we invested an additional $1.1 million in Nutra SA. Upon receipt of the escrow funds by us on March 24, 2016 (see Note 9), Nutra SA redeemed a certain number of units held by us equal to $1.7 million, which resulted in a slight decrease in our membership interest in Nutra SA. Our membership interest subsequently increased due to additional investments.

A summary of changes in redeemable noncontrolling interest in Nutra SA follows for the three and six months ended June 30, 2016 and 2015 (in thousands).

	Three Months Ended						Six Months Ended
	2016			2015			2016			2015
Redeemable noncontrolling interest in Nutra SA, beginning of period	$	(224	)	$	1,376		$	69		$	2,643
Investors' interest in net loss of Nutra SA		(1,508	)		(432	)		(1,946	)		(1,076	)
Investors' interest in other comprehensive loss of Nutra SA		133			62			278			(418	)
Accumulated Yield classified as other current liability		-			(144	)		-			(287	)
Redeemable noncontrolling interest in Nutra SA, end of period	$	(1,599	)	$	862		$	(1,599	)	$	862

Investors' average interest in Nutra SA during the period		32.4	%		33.2	%		32.1	%		33.7	%
Investors' interest in Nutra SA at the end of the period		32.4	%		32.1	%		32.4	%		32.1	%

The Investors have drag along rights which allow the Investors to force a sale of Nutra SA assets after January 1, 2018. The right terminates upon the occurrence of certain events (a $50 million Nutra SA initial public offering or a change of control, as defined in the original limited liability company agreement (LLC Agreement). We may elect to exercise a right of first refusal to purchase the Investors’ interest instead of proceeding to a sale. We have assessed the likelihood of the Investors exercising these rights as less than probable at June 30, 2016. 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.

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 us and the Investors in proportion to our additional capital preference percentages (with respect to us, this means total contributions we make on or after June 3, 2015 as a percentage of the total contributions we make after June 3, 2015, plus the amount contributed by the Investors as of April 30, 2015; with respect to the Investors, this means the amount contributed by the Investors as of April 30, 2015, as a percentage of the amount contributed by the investors as of April 30, 2015, plus total contributions we make on or after June 3, 2015), (ii) second, to the Investors in an amount equal to 2.0 times the Investors’ capital contributions, less the aggregate amount of distributions paid to the Investors, (iii) third, to us in an amount equal to twice the capital contributions made by us, less the aggregate amount of distributions paid to us; and (iv) fourth, 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, 2016, there have been no unwaived events of default. Events of default, as defined in the Membership Interest Purchase Agreement (MIPA) and the October 2013 amendment of investment agreements, are failure of Irgovel to meet minimum annual processing targets or failure to achieve EBITDA on a local currency basis of at least R$4.0 million annually.

As of June 30, 2016, there have been no qualifying events. The LLC Agreement defines a qualifying event as the bankruptcy of RiceBran Technologies or Nutra SA.

The Investors may elect, until January 1, 2018, to exchange units in Nutra SA for our common stock (the Exchange Right). 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. The shares issued to the Investors may not exceed 49% of our outstanding common stock; however, a combination of common stock and warrants not to exceed 49% of our fully diluted shares outstanding must be issued if this limitation applies.

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