Fred Sommer - Ascendant Partners, Investor Relations John Short - Chief Executive Officer and President Dale Belt - Chief Financial Officer Robert Smith - Chief Operating Officer Michael Goose - President of USA Ingredients.

Anthony Vendetti - Maxim Group LLC.

Good day, ladies and gentlemen, thank you for standing by. Welcome to the RiceBran Technologies' 2016 Second Quarter Results Conference Call. At that time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host, Mr. Fred Sommer of Ascendant Partners. Please go ahead..

Thank you, operator. Good afternoon, listeners. Welcome to RiceBran Technologies 2016 Q2 financial results conference call. With us today are John Short, Chief Executive Officer and President of RiceBran Technologies; Dale Belt, Chief Financial Officer; Dr. Robert Smith, Chief Operating Officer; and Michael Goose, President of USA Ingredients.

Mark McKnight is not with us today. He is at a rehearsal dinner in Utah, preparing for his son's wedding tomorrow. Mark if you are listening in on a call, congratulations to you and your spouse on getting another one out of the house.

Before I turn the call over to John, I want to remind listeners that during the call management's prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today.

Therefore, the Company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore we refer you to a more detailed discussion of these risks and uncertainties in the Company's filings with the SEC.

In addition, any projections as to the Company's future performance represented by management include estimates as of today, August 11, 2016, and the Company assumes no obligation to update these projections in the future as market conditions change.

This webcast and certain financial information provided in this call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures are available at www.ricebrantech.com on the Investor Relations page. At this time, I would like to turn the call over to John Short, CEO and President of RiceBran Technologies.

John, please go ahead..

Thanks, Fred, and thanks for our listeners for joining today. During the second quarter of 2016, we achieved record revenue of $8.8 million in our USA segment with sales increasing by 27.5% quarter-over-quarter and 13% sequentially.

These results reflect the continued strength of our functional food, human ingredient and animal nutrition businesses and mark our third straight quarter and USA segment sales growth. A number of the same factors that contributed to our strong revenue performance in Q1 continued to gain momentum into Q2.

First, revenues from functional food and human ingredient products increased 30% quarter-over-quarter based on positive growth trends with both existing and new customers. Second the exclusive agreement signed at the end of last year with Kentucky Equine Research help drive a 16% increase in animal nutrition revenue in Q2 2016, compared to Q2 2015.

And third sales from functional food customers continued to grow rapidly with further growth anticipated in the second half of 2016. While revenues in our USA segment continues at a record pace we saw strength in many other important areas as well. Gross profit at our USA segment increase by 17.5% and margins remained strong at just over 30%.

We achieved these results in spite of the growth and lower margin animal nutrition sales and a temporary supply issue at our Mermentau facility the resulted in higher costs and reduced gross margins. We're confident that the positive revenue trend in our USA segment over the last three quarters will continue as we move through the remainder of 2016.

In addition, beginning in the third quarter we expect to begin generating incremental revenue. Related to the organic RiceBran agreement signed within Narula Group and we expect to see the organic business built to significant levels as we move into 2017.

Overall we're pleased with the revenue growth of our USA segment and we expect to build on that performance in coming quarters, but the platform that is capable of sustaining significant high margin revenue growth for the foreseeable future.

Turning to our Brazil segment we continue to work to minimize losses as we explore tactical and strategic alternatives. While our cost cutting efforts have been fast and extensive the operating environment in Brazil continues to deteriorate.

We continue to experience negative gross margins and losses resulting from insufficient working capital and weather related crop losses that reduced bran availability and dramatically increased bran costs. With the plant operating at reduced levels in Q2 of 2016 revenue declined significantly on both the local currency and a U.S. dollar basis.

We continue to work closely with our private equity partners in Brazil to evaluate a full range of tactical and strategic alternatives for Irgovel.

Those alternatives include additional investments from our partners, possible investment from new strategic partners idling the Irgovel facility either temporarily or permanently and/or a possible divestiture of part or all of our interest in Irgovel.

While the full spectrum of options are being evaluated, we continue to search for solutions that can maximize the value of our investments in Irgovel for the benefit of our shareholders. As you know several changes have taken place at our company recently as a result of the proxy contest that culminated with a shareholder vote at the end of June.

As a result of that vote three new Directors have joined four incumbent Directors on our Board. I want to take a moment to highlight the backgrounds of our new directors which can be found in more detail on our website.

Brent Rosenthal our newly appointed Chairman of the Board has an outstanding track record of creating shareholder value as a Board member of several publicly listed companies in the food and technology industries.

Brent’s training in public accounting and mergers and acquisitions combined with his prior success as Chairman of the Board of Rentrak Corporation and knowledge of the food industry bring a welcome set of skills to our Board.

Beth Bronner is a Managing Director at Mistral Equity Partners a private equity firm that specializes in consumer and food sector and has enjoyed a distinguish career developing revenue and market share growth plans for marquee brands including, Jim Beam, Revlon, Nabisco and Haagen-Dazs among others.

Beth is a former Member of the Board of Directors of Jamba, Assurant, and The Hain Celestial Group. Her deep experience and successful track record in bran development and marketing are another welcome addition to our Board.

Ari Gendason is Senior Vice President, Corporate Investments at Continental Grain Company, a privately held global food and agriculture company. Prior joining Continental Grain Company in 2004.

Ari worked in several investment banking positions where he developed in depth as knowledge and experience in evaluating business strategies and structuring and financing alternatives in the food industry. With his experience at Conti which includes managing investments in food companies in Brazil.

Ari brings yet another set of welcome skills, knowledge and experience to our Board. We've begun to work with our newly configured Board to update our tactical and strategic plans with a focus on maximizing shareholder value. Well we're still early in that process.

I believe we have the strongest Board in my tenure at RBT, we're better positioned than ever to take advantage of existing market opportunities to drive future revenue growth. In addition to adding new Directors, Michael Goose has joined as President of USA Segment Ingredient Sales and Marketing. Mike is with us today.

And I've asked him to share his vision for growing our human and functional food ingredient business. I'll turn the call over to Mike now..

Thanks John. First I would like to say that I'm very excited by the opportunity to join RiceBran Technology to help drive ingredient sales growth. For those who are on the call that do not know me. Here's a brief bio of who I am.

In my previous business life, I held numerous positions at The Hain Celestial Group from Marketing Coordinator to General Manager. I have worked on a variety of businesses ranging from dry grocery, meat alternatives and poultry.

During my tenure at Hain, we identified the trend of consumer demand moving to cleaner more nutritious and better-for-you products, which is what has attracted me to RiceBran Technologies.

During my first month at RiceBran Technologies I have visited the majority of our facilities and have met with numerous customers at the recent IFT Trade Show in Chicago.

In that time, I learned a great deal about the significant opportunity that we have and believe that stabilized rice bran has a very bright future as an ingredient in the food and beverage industry.

Seeing the production of our stabilized rice bran and our value added derivatives has confirmed my previous bullish view that stabilized rice bran is indeed a superfood.

Our product offerings provide food manufacturers with an ingredient that contains a generous amount of micronutrients including protein, fiber, carbohydrate, and healthy oil all from one natural non-GMO superfood source.

As CPG companies look to decrease the number of ingredients in their nutrition fact panels, stabilized rice bran provides a solution for them to achieve key nutritional goals with a single ingredient list.

In my past experience as a brand manager and ingredients such as stabilized rice bran would have been welcomed because it satisfies key macro trends occurring in the natural food space like protein, fiber, non-GMO, and allergen-free. Meeting these trends creates value and value creates margin.

Going forward, I expect to help drive sales growth not only with new customers, but also from our current customer base. Over the coming months, I will work with our sales team and conduct an outreach program to meet face to face with our top 15 ingredient customers to understand how we can strengthen and grow our current relationship.

We currently do business with numerous highly sought-after companies. I was pleasantly surprised to see a large number of big CPG names on our current customer list. In the coming months, the question we will answer is how do we do significantly more business with these big names.

We have the ability to drive a tremendous amount of growth from these large CPG companies that already are familiar with our product, our product benefits, and we are comfortable with how to service. While we are seeking to build additional business with current customers, we are also aggressively targeting new customers.

We are focusing on the following categories, beverage, dry grocery, bakery, snacks, and protein which includes meat and meat alternatives. Our team is updating our marketing materials and sales stories to reemphasize our competitive advantage as a superfood ingredient.

For each one of these categories, while trying and focusing our sales strategy around the timing of major retailers reset calendars. In conclusion, I believe the opportunity exists to position stabilized rice bran as the next superfood and my goal is to do just that. Our product offering is on trend both nutritionally and environmentally.

Our products meet the current macro trends that consumers are demanding and we are working on building a roadmap towards a sustainable high margin and accelerated revenue streams for years to come. I look forward to working with our team and reporting back to the shareholders on our progress in the coming quarters.

I'll stop right now and turn the call over to Dale Belt..

Thanks Mike, and welcome to the team. For the second quarter of 2016, consolidated revenues totaled $10.5 million, compared to $11.4 million recorded in Q2 of 2015. Our consolidated operating loss increased to $5.7 million compared to an operating loss of $1.5 million in Q2 of last year.

We recorded a net loss $0.72 per share during the quarter compared to a net loss of $0.38 per share in third quarter of last year. USA segment revenues increased 27% to a record $8.8 million for the quarter. As John already mentioned, this is the second straight quarter of record revenue for our USA segment.

Second quarter revenue levels also represent a 13% increase over a record first quarter 2016 revenues. Growth was seen in both the human and animal nutrition categories as John stated. Gross profit from our USA segment remained strong at 30.1% with gross profit dollars increasing 17.5% to $2.6 million this quarter, compared to $2.3 million last year.

Our USA segment gross profit percentage declined by 2.6 percentage points due to two primary factors. We experienced a temporary issue with supply from the rice milling facility that supplies our Mermentau plant in Louisiana.

The interruption in supply resulted and are having to ship product from California at higher brand and freight costs for an eight-week period during the quarter. And second, the increase in animal nutrition revenues had a modest negative overall sales mix impact on gross profit percentage.

The decline in consolidated revenues was entirely related to the 61% decline in quarterly Brazil segment revenue, which totaled $1.8 million. The revenue decline in Brazil resulted from significantly reduce raw bran processing levels combined with a 12% decline in the Brazilian real versus U.S. dollar exchange rate for Q2 of 2016.

Sourcing raw bran in Brazil continues to be a challenge for three reasons. First adverse weather cause flooding during the rice harvest which in turn has significantly reduced the amount of rice being milled in the region. Second there is increased competition for purchasing a raw bran from other more credit worthy raw bran buyers.

And third, Irgovel continues to lack having sufficient funds necessary to meet raw bran supplier payment demands. As is the case with the revenues the 11% decrease in consolidated gross profit in Q2 2016 is directly related to the significantly increased negative gross profit in the Brazil segment.

Consolidated gross profit decline from last year's $2.2 million to $2 million for the current quarter. The Irgovel plant is operating at significantly reduced levels which is very inefficient and costly. On a comparative quarterly basis brand processing volumes that Irgovel have declined quarter-over-quarter by 60%.

A nearly $400 increase in USA segment gross profit partially offset some of the negative impact of the Brazil segment. Moving on to expenses consolidated operating expense was $7.7 million for the second quarter of 2016 compared to $3.8 million dollars for the second quarter of 2015 that's an increase of $3.9 million.

However, it's important to note that the increase in operating expense was due to two items that occurred during the current quarter. We recorded an estimated goodwill impairment charge of $3 million which of course is a non-cash charge. This goodwill was originally recorded as part of the 2008 acquisition of Irgovel.

The second expense item is the $1.1 million of incremental expense related to the proxy contest that ensued in conjunction with our annual shareholder meeting in June. These expenses include a descent of legal fees, dissident group settlement cost, proxy solicitation services, filing and mailing fees et cetera.

If you exclude these two items and do the simple math operating expenses actually declined by approximately $200,000. We're looking at our Q2 performance on an adjusted EBITDA basis. We recorded consolidated negative adjusted EBITDA of $616,000 for the second quarter of 2016 compared to last year's positive adjusted EBITDA of $13,000.

Our USA segment actually recorded positive adjusted EBITDA $425,000 compared to $543,000 in Q2 of 2015. In our Brazil segment the decline of performance previously discussed resulted in quarterly negative adjusted EBITDA of $1 million compared to a negative $530,000 last year.

From a balance sheet and liquidity perspective, the combined USA and corporate segments ended the quarter with $2.4 million in total liquidity which represents the combined cash on hand and borrowing availability under our senior secured debt facility. This represents an increase of approximately $0.6 million since the end of 2015.

As already mentioned by others the Brazil segment on the other hand is a challenge. There is little or no liquidity at the moment and only essential payments are being made while a solution is being sought.

As an example of solutions being considered or implemented Irgovel began working with some of its raw bran suppliers in July to provide toll processing. Where the brand is provided by the supplier or Irgovel extract the oil, keeps the oil for sale and gives the defective brand back to the supplier.

While toll processing in this manner results in less revenues being recorded. It does alleviate having to pay for the raw bran. While this is not a 100% solution that does offer some relief while a long-term solution is being sought. And with that, I will stop here and turn the call over to Dr. Robert Smith..

Thanks Dale. As Dale previously mentioned we had supply issues in the mid-south and negatively impacted our gross margins in our USA segment. These supply issues are not new to the region. In 2014 supply shortages resulted in significant revenue losses for our company.

As for this reason that last year we invested in additional warehouse space and inventories so we could seamlessly supply our customers from strategic inventory reserves. Because of those investments we have been able to create significant supply chain flexibility and meet our target of 99% service level.

Meanwhile, we continue to examine additional measures to derisk our raw rice bran supply chain in both Louisiana and California as we grow the business. I'll now discuss the newest opportunity at RBT. The introduction of organic rice bran and organic rice bran derivatives into our product portfolio.

In February of this year we announced a strategic supply partnership with the Narula Group of companies for organic rice bran. In June we also announced an exclusive multi-year agreement with an existing customer to supply certain organic certified derivatives produced from organic stabilized rice bran.

I'm pleased to report that we have completed the organic certification of our Dillon, Montana’s stage two derivatives plant received the first container of organic rice bran and successfully converted that rice bran into organic derivatives.

We expect to ship our first order of organic derivatives in the coming weeks, we have also sampled organic rice bran and organic rice bran derivatives to several parties interested in developing organic health and wellness products fortified with protein and fiber and we expect to generate initial orders in the third quarter.

I'll stop here and hand the call back to John..

Thanks, Robert. In conclusion, we expect the challenges in our Brazil segment to continue, we’ve taken a non-cash charge of $3 million to write-down all of the goodwill associated with our Brazil segment investments and unless a comprehensive solution is found, we did not plan to provide additional funding to Irgovel.

Nevertheless we continue to aggressively pursue a full range of options that include identifying additional strategic partners, idling the facility or a partial or full sale of our interest in an effort to maximize value for our shareholders.

Our USA segment on the other hand has reached record revenue levels for two consecutive quarters and delivered over 83% of consolidated revenues in Q2 while continuing to reduce normal SG&A expenses.

With projected double-digit growth in the natural, organic and functional food segments and installed capacity that can support more than a 200% increase in revenues, we’re well positioned for continued growth.

We're seeing strong growth from a number of USA segment customers and have some exciting new product launches taking place in the second half of 2016.

In addition to the organic rice bran from the Narula Group, we’re launching a new functional beverage product with a customer that will be sold through [indiscernible] beginning this fall, should this launch be successful these products could generate substantial incremental revenue for us in 2017 and beyond.

While we still face challenges demand for healthy natural foods with clean labels is growing at a robust pace. Our USA segment continues to gain momentum and we have significant installed production capacity to support rapid sales growth as we move through the second half of this year and into 2017.

As mentioned earlier on this call, we’ve assembled a strongest Board of Directors our company has seen during my tenure at RiceBran Technologies.

And with the addition of Mike Goose to our senior management team and sales organization we're very well positioned to take advantage of existing opportunities for accelerated revenue growth in the natural, organic and functional food markets.

Our Management Team and Board are committed to moving our company forward to maximize value for all of our shareholders. We look forward to discussing our progress and providing more detail on a go forward strategy during our third quarter call in November. That concludes our prepared comments. Operator, at this time please open the call for questions.

Note that we will limit callers to one initial question and one follow-up..

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Anthony Vendetti with Maxim Group. Please proceed..

Thank you. I was wondering if you could as you've done in some of the past quarters give us the number of new clients you were able to sign up this quarter for some of your products particularly in the human and functional ingredient category..

Anthony I apologize. Normally we would have a Mark here with all of those numbers in front of him and he's out getting into son married, tonight and tomorrow. We do have a very nice build in our functional food business from a number of points of view.

I mentioned one of the new customers that we have coming on right now, the folks who are doing the functional beverage for infomercial. That is a relatively fast product development. It took us about a year from initial meetings to first samples out the door.

Those guys went out, develop their infomercial, did their initial testing and then we've now received the first couple of purchase orders for August and September, and we expect that to be a significant piece of new business going forward based on those initial PO’s and particularly based on the test results in the readings they have from their infomercial testing.

So they're very excited. We're very excited. We think that can be a big one in a big ad. We've added a couple of additional animal nutrition customers. And while that said lower margin than our human food ingredient or functional food business. They tend to be relatively large volumes that help with plant absorption.

So we like those guys as well, but Anthony I apologize for not having a specific number for you..

That’s okay. So Robert mentioned that you've been able to convert the Dillon, Montana – you’ve been able to convert that facility to organic derivatives.

Is there a plan underway to try to do that in Louisiana as well and is that possible in California or how does that situation look right now?.

In California the way that product is brought in. It's brought in from international locations in Asia into California ports and so our facilities in California are also certified organic to handle this material. And that's important because we also warehouse finished products in California.

So those facilities are also organic certified and certification agency is a French group called ECOCERT. And the ECOCERT also certifies the rice bran and the rice that is produced in Asia that we source. Dillon is now certified by ECOCERT as organic. We are going through a process at our Healthy Natural facility to get that organic certified.

And with respect to Mermentau, today that service is primarily the animal sector. We are looking to bring that up to speed to become a facility that would also service ingredients that go into the human food market. And with that we would potentially look at organic certification, but that's not in our plans today..

Anthony just one more thought on that. We do not have domestic sources of organic brand. One of the things that I don't know if you ever talked about on these calls, but we have a plant and everybody saw and suppose the press release an organic by nature.

Organic by nature challenged us two years ago to find the source of organic brand, a significant source of organic brand. So we hunted in the U.S., in Central and South America and various other places to try to get long-term access to organic brand. And at the end of the day we did the deal that was announced with Narula Group in February.

So the organic brand is actually coming and as Robert said internationally, moving through organic certified facilities in handling through Dillon. Right now, virtually I'm going to say this Robert and you correct me.

Like I say virtually everything that's coming in is going up to Dillon to be converted to derivatives and we will start shipping right now under the contract that we signed with the OBM..

That's correct. Most of the product right now is coming in and that’s been converted to derivatives. However, we are holding back small quantities of the organic stabilized rice bran and we are shipping those samples to a number of interested parties, because there is significant interest in the organic derivatives.

But I would also say that there is significant interest in just the stabilized rice bran as is. And so we're looking at growth and all of those different markets. And we hope that two to three months down the road we will be keeping some of that stabilized brand as a finished product to supply to customers..

Okay. That's helpful and Mike you mentioned there's five categories you see using stabilized rice bran, beverages, dry goods. I missed the other couple..

Hey, Anthony.

How are you? The main reason behind highly in the categories is were we shutdown with the team over the past month and you know we wanted to really get leads or focus on where the best opportunity overall was and where the best usage for rice bran would be and you know we really challenge the sales team to focus on you know one thing where could rice bran be a top three ingredient and buy top three ingredient we are hoping rice bran in you know the debt that would always show up in the third level of the ingredient amount.

So the use would be the highest allow there and we best identified our major opportunities and beverage, dry grocery, bakery, snacks and protein. Protein includes meat and meat alternatives. And there's been a lot of development that the team has already done way before me.

In the meat and meat alternative world and you know there's a lot of opportunity in all those categories..

Okay great. And then just a quick question for Dale.

When should we expect to have the Q filed?.

You talk about Q2 or Q3?.

This Q..

Yes, you talk about this Q, it’s being it’s file today..

Oh! Yes okay..

We posted the file one minute before the start of this call..

Yes, it should be there are now..

All right. Awesome. Thanks guys. Appreciate it..

Yes, thank you, Anthony..

[Operator Instructions] Our next question comes from Harry Ghoshal, Private Investor. Please proceed..

Hi..

Hey, Harry.

How are you?.

I am doing okay. I am unfortunately disappointed by the results and I'm sure you are too. I'm a little confused about what's going on in Brazil.

Numerous times in the past you had stated that you could sell all the oil you produce there yet we're still you know reducing the amount of product being sold and produced and blaming it on a decline and processing and supply issues.

So even after we put in more processing equipment at other locations why is there still a supply and processing issue outside of the money that you don't have to spend are there no orders.

Is there no demand?.

Harry, we talked about this a little bit on our May call and let me go back and recap. There are lots of challenges in Brazil, the challenges for the rice industry or the worst they've been and probably 60 years this year because of El Nino. And while El Nino has been a huge benefit to us in terms of our Sacramento Valley or California supply chain.

And we expect it to be a big benefit over the next couple of years because with the additional water that’s come from El Nino, the California growers are back up to planning in the 540,000 acre range of rice. Near historic highs after three years of decline that depending on who you talk to went down to 380,000 to 400,000.

So El Nino was a big benefit for us in California. The same El Nino that benefited us they have the Southern Hemisphere version and it happens that this year it came with a vengeance and we mention on the May call that Brazil and particularly the State of Brownie where we are and where most of the rice is grown suffered the worst flooding since 1940.

And that flooding wiped out 30% of the rice crop in Brazil. So the harvest is down 30%, one major issue, so in principle your starting point is - there is 30% less bran.

This morning as we wake up and we look at the impact of the weather related problems, bran raw rice bran in Brazil is between R$650 and R$690 a ton more than doubled the same time last year.

So you start with that initial crop related shortage that has been exacerbated by the currency issues with the currency significantly depreciated a lot of growers are happier to export their rice for U.S. dollars which they convert for a larger number of reals.

So if you look at the amount of rice that is being milled, it’s more than half the amount that was being milled last year at this time, but it's less than the 70% that you would expect based on the reduction of the crop losses from the weather related patterns from the flooding.

So we really have a supply problem and many rice mills are suffering badly because you know what happens in - what's happening to us as a large industrial plant that can only operate at a fraction of its capacity you're trying to absorb the cost of those plant of the entire plant into a much smaller amount of product running through, rice mills are having the same problem.

So the entire race industry in Brazil is suffering significantly.

Our problems are exacerbated by banking issues and working capital issues as well, because as we completed our expansion, the investment we made to get the plant to 300 plus tons a day, you had a situation where the banks are generally experiencing big losses and reducing their portfolios across the board.

So funding is a challenge in Brazil and that combination of the weather related issues that have specifically impacted the rice industry combined with working capital put the business in a very difficult situation..

And so adding that additional hardware 500 miles away didn't really help that situation at all.

Did it?.

Oh the investment into put the stabilization curve certainly not going to help this year. That’s right. The other part of your question from a demand point of view and a sales point of view, we sell every single thing we can push through the plant at the end of every month.

The only thing that remains to be sold at any given point in time we have no oil to be sold at the end of the month, we have no product to be sold at the end of the month because it is all sold other than what is actually in process in the last one or two days of the month.

So we don't have a demand related problem, we have a supply related problem and a working capital problem..

Is it not cost feasible to bring in bran from other countries like the Far East?.

Yes it is not..

Okay.

And do you have oil processing capabilities in this country now or is it all go to Brazil?.

We acquired prior to any of us trying Irgovel business was acquired in Brazil and that is the only oil processing facility the company owns..

I see. And one last question John..

Hey, Harry ask what you want. We're happy to take your questions..

Okay.

You said you are extremely happy with the structure of the current Board and given that you know how do you justify spending $1.1 million to fight that that current structure?.

Well we didn't launch the proxy challenge. Harry..

Don’t know that you have a choice..

Yes. We have an obligation to our shareholders, so that if a group of shareholders decides that they want to lunch a proxy contest. We have no option, but to see that that process is fairly run.

So I would much prefer that there was no proxy contest and we didn't spend the $1.1 million, but it’s an adoption of mine to say we're going to ignore a group of shareholders who wants to launch that process..

Harry, this is Dale. I would say no one here – when you enter into one of those types of contest, you have no idea how it's going to go.

It could be a short process and you reach some terms and you settle under some arrangement and that happens frequently, but this process – this contest began in earnest early May and literally went all the way through the first week or two of July. And I don't think any of us anticipated that it was going to be that long and protracted.

All of the best expert advice we could get legally and otherwise was that most of the time these things settled prior to even reaching the shareholder meeting and have vote. So you have no idea how to weigh cost versus benefit because you frankly don't know how it's going to go or what's going to happen or whatever – however it plays out..

Okay. Well, thank you for your answers..

Yes. Thank you, Harry..

Thank you. Our next question comes from [indiscernible]. Please proceed..

Hi, there. Thank you so much for taking my question. As stated I'm a reporter and I'm interested in RiceBran from the perspective of its use of what was otherwise a waste product, but I'm hearing a lot on the call today about supply problems particularly in Brazil. And in the U.S. you are importing at least organic rice bran from Asia.

However, I've heard that there is a tremendous amount of rice bran that goes to waste. So if someone could speak to the issue of the supply and availability of rice bran and the potential of your Company to utilize what was otherwise a waste product and sort of speak to sort of the issue that I’m hearing regarding supply.

Is there a lot out there or not? Thank you..

This is Robert Smith. Happy to take your question. On a global basis that I would say around 60 million metric tons of rice bran are produced every year that's from milling brown rice to make white rice of that 60 million metric tons about 10% of that goes to produce rice bran oil and 1% or less ends up in the food ingredient markets.

And so you can see just from the start that the majority of the rice bran that is produced on a global basis really doesn't make it to markets where it captures the value, the true value that could be captured from rice bran..

Our technology as you maybe aware stabilizes that product and put it back into various markets where we can capture the value. Having said that, what it requires is a company that can efficiently take the brand that's been produced in the mills and stabilize it.

And today we sit in two mills in California where it's our equipment and we draw as much of the brand as we can. And we also have a facility in Louisiana that draws on a neighboring mill.

As we look forward to our growth and our plans, we are looking at developing systems that will allow us to draw brands from all of the mills and all of these reasons in the U.S. and we're looking at possibilities of doing the same in other countries.

But you have to put in the right kind of receiving equipment to be able to draw as much brand as possible. So to answer your question in terms of supply brand, there's plenty of brand out there and we are looking at how we can capture more of that brand and not have any of these supply issues in the future..

That helps a lot. So when you're receiving organic brand from Asia how is that stabilized, because it would obviously be passed one day and just to clarify you’re receiving this brand particularly from a milling facility into your facility when you stabilize it.

So it's a question of proximity is that right?.

So let me deal with that. Let me answer the question too far and let me talk about why we don't source the brand here in the U.S. There is some organic rice grown and U.S., but the customers are basically that that rice goes to our customers that prefer to have whole grain or brown rice. So they want brown rice and they want organic brown rice.

And so that rice isn't milled and that's why we don't have a supply of organic rice bran in the U.S. or it's very little. So we've had to go look for organic rice bran in other parts of the world and we found a very good source, very high quality, organic rice bran being produced in Thailand today.

And that facility that is basically contract growing that rice and also milling that rice does have technology in-house for stabilization and we are working with them today to improve that technology with our own equipment. And so we have equipment that will be going over to their facility to help with that process.

But the brand we are receiving from that location today is stabilized already. We bring it into the U.S. and we further process it into value-added derivatives in our facility up in Dillon, Montana..

Understood and this John speaking..

This is Robert Smith..

Robert speaking. Thank you so much. Thank you for taking the question..

You’re welcome..

Thank you. Our next question comes from Michael Siegel with Private Investor. Please proceed..

Yes, hi, guys. So you are say, you’re not going to provide any more financial any more money to Irgovel right? So my question is what are you waiting for….

Yes, Michael that's correct.

Hi, How are you?.

Yes. I am fine. Thank you. Yes, it’s nice growth in the U.S. and it looks like U.S. segment is pretty much breakeven it might be profitable in the next quarter right. So what are you waiting for Brazil..

Michael we are headed in the right direction in the USA segment and we think the business will continue to trend yes..

Yes, so my question is if you're not going to provide any more money to Irgovel as they losing million dollar every quarter plus or minus.

They're going to run out of money any time now right? So if you walk away, can you walk way cleanly, can you walk away and not have any financial obligation or do you have some financial obligation? If you just walk away?.

Michael that is a complex issue that we were in the process of reviewing internally with our Board. Including our new Board members legal counsel in Brazil and in the U.S., but let me say it is not our objective to see that happen. Our objective is to work with our partners in Brazil.

And with our milling partners and others to do our very best to see that that business does not go away. We think that while things are very difficult in Brazil right now because of the combination of factors. That the economy collapsed and the President is impeached and all of those things that are going on.

The additional challenge came from the flooding as I said in response to Harry's question worst in 40 years we were down to look at it's crazy machines can't get in the field and all of those things. So we have an extremely unusual year and that creates great difficulty for Irgovel, but also for the industry as a whole.

So our partners at [indiscernible] who have offices in São Paulo are spending a lot of time with the management at Irgovel and are milling partners looking for solutions and it is our objective to find a solution that keeps the business moving forward.

Can we go on in the current status permanently right? But we're not - we haven't given up on that business and we do not want to see it go away, we will do everything in our power to make sure that it doesn't. And if we can figure out how to bring it through what is a very, very difficult situation.

We have a business that has produced consistently 300 tons a day of bran has produced peak of I think 425 tons in a day based on the investments we made and has a real reason to be from a market point of view.

I mentioned in response to Harry's question, everything is sold, we don't have a demand problem we have a supply and a working capital problem.

So we will work very, very hard to nurse the business through what we believe is the bottom of the economic cycles those of you who look probably have noticed that thus for this year, the best performing currency in the world is the Brazilian Real.

And because of the terrible currency depreciation that we experienced at the end of last year and the beginning of this year is starting to move back in a favorable direction. And people believe in the market place that with the changes in the government with Michel Temer coming in as President and Dilma Rousseff now out and under Pietschmann.

I think things are starting to settle a little bit. So Michael our belief is that we are at or very near the bottom and our challenge is to nurse the business through the bottom of the economic cycle, we believe that as it turns up that business has real opportunities to perform and provide value for ourselves and our partners.

So we're not - I don't want to give people their impression. From an accounting point of view you had to - we've had we thought it was appropriate to impair that investment in the goodwill, so we've done that. But we haven't - don't take that as the fact that we're giving up on this business and we're going to see it close down and go way..

Yes. But if worth comes and you have to way away do have some financial obligations or separate entity from USA site..

This is Dale. The USA segment has no cross default or debt guarantee arrangements with regard to Brazilian debt. There are no relationships, cross border whatsoever with regard to debt. I don't know if that answers your questions..

My question is if you walk away, do you have any financial obligation as a company?.

Michael that is an issue, we do not believe so. But that’s an issue that has a lot of legal complexity to it..

Okay, thank you.

And one more question usually you will say how you see the current quarter developing? Or do you feel the Q3 how it is going, is it going to be on track as previous one or better?.

Michael, we have to kill you because we're not providing forward-looking guidance. No I am only teasing. Listen we continue to perform very well, we expect this quarter to significantly be the same quarter last year, we are talking about our USA segment now that was your question right..

Yes..

Sorry USA segment continues to trend very well. Our existing base of business is growing nicely.

We expect it to continue to do that in the quarter and as I said earlier we're super excited to have Mike on Board because he brings a wealth of experience in big CPG that creates a whole another level of opportunities, so when you look at what we have going on. The current base business is trending and is going to grow. That's great news.

Organic we'll add a layer to that and in all fairness Mike has been here for 30 days. He found the bathroom last week and he found the customer last week gone through all those things, but we are genuinely very excited about the business and about the opportunities in the U.S.

segment, so we have – we talked about in the last call sort of a tale of two segments here. Our USA segment is strong, trending, right place at right time, installed capacity that can allow us to grow to north of $100 million. So our challenge is to sell into that installed capacity and we have great momentum and great opportunities to do that.

Brazil is very challenging, but I repeat we are not giving up on Brazil. We believe that Brazil, Irgovel can still be successful, it plays a vital role in the vertically integrated supply chain in the rice world and in Rio Grande do Sul where it operates. And we believe we will find a solution.

Our objective is to find a solution for the business, not to walk away from it and see it close down..

Okay. Yes. It sounds great. And how about USA capital news, Dale if you are very well in cash right now.

Are you expecting Narula group to convert some shares to provide you some cash or how you are going to deal with that growth?.

Hey, what happens in that deal Michael is Narula group will convert some shares by essentially forgoing margin and mechanically – Dale do you want to describe what happens with that from an accounting point of view and how it impacts equity?.

Yes. Once organic brand that we have purchased from the Narula group is sold by us, the gross profit on the sale of those products, we will take half of the gross profit and through just a mathematical formula which is described in our public release filings on this that will determine how many shares we release to them.

Those shares are already setting in escrow, they've already been issued, they're included in our outstanding share count. So they're there, but they're under escrow. And they will be released as we sell product and as John said we're essentially sharing a part of the gross profit from the sale of that product..

Okay. Thank you very much..

Thank you. [Operator Instructions] Mr. Short, there are no further questions at this time. Please continue with your closing remarks..

I just want to thank everyone for joining the call. We would like to repeat again what you heard earlier on. Disappointing numbers, if you – Brazil of course remains a huge challenge, but if you remove the one-time goodwill impairment and the proxy costs, we continue to grow sales dramatically in our USA segment.

On a reduction in SG$A mentioned in response to Michael's question that we're trending at same direction for Q3 and we're very excited about the addition of some very strong new board members who are already strong team and Michael as Dale earlier, welcome, still very excited to have you as part of the team.

So thanks to everyone for joining our call and we look forward to reporting back when we get together again in November to talk about Q3. Stacy, thank you for handling the call for us..

Thank you. Have a good night..