REX American Resources Corp (REX) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Rex stores fiscal first quarter earnings results conference call.

During the participants all participants will be in a listen-only mode.

Afterwards we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today, Tuesday, June 5, 2007.

It is now my pleasure to turn the conference over to Stuart Rose, Chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you, operator.

And thank you, everyone, for listening.

This conference call contains and may contain many -- may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements can be identified by use of forward looking terminology such as may, expect, believe, estimate, anticipate or continue of the (inaudible) of thereof or other variations there are on a comparable terminology.

Listeners are cautioned that there are risks and uncertainties that could cause actual events to differ materially from those referred to in such forward looking statements.

These risks and uncertainties include the risk factors set forth from time to time in the company filings with the Securities and Exchange Commission and among other things.

Risks and uncertainties related to the proposed acquisition of Rex stores interest in millennium, ethanol LLC by US bio-energy company, including but not limited to the satisfaction of conditions to close anything receipt -- including receipt of member regulatory and other consent approvals, delay and in concrement and in the proposed transaction.

Uncertainty of the financial performance of US bio-energy following the completion of proposed transaction fluctuations in the market price and trading volumes -- the US bio-energy corporation (inaudible) stock (inaudible) competitive nature of the consumer electronics, retail and industry and the national and regional (economers) whether the effect of terrorism, of acts of war and consumer spending patterns, availability of certain products, technological changes, changes in real estate markets, new regulatory fluctuations or tax law changes related to the company's synthetic fuel.

Investments (inaudible) quarterly payment received by the company with respect to these partnership interests and synthetic fuel investments have potential in section 2945 tax credits to phase out based on the price of crude oil adjusted from inflation and a certain amount of synthetic fuel production and resell to the income firm received from time to time from the companies synthetic fuel investments as it relates to the ethanol investments with risk and uncertainties include among other things insert the constructive plants on time and on budget, volatility of corn, dry, distilled or grain, ethanol gas (inaudible) natural gas prices.

In terms of our quarter, we were -- we -- our overall earnings this -- this quarter were $0.64 versus $0.13.

In actual dollars that was $7.5 million versus $1.5 million.

Retail operations from continuing operations were 661,000 versus a loss last year of 35,000.

Synthetic fuel went from 6.7 million this year versus 2.1 million last year.

And for the first quarter we had -- first time ever we had a $1.1 million gain on our -- profit on our ethanol operation.

We also gained on the disposal of real estate, $2.2 million, which was offset by a loss of 758,000 of discontinued operations.

Cash on the balance sheet was $105 million versus $15 million.

And we have a differed gain which now shows on our balance sheet of $11 million which will bring in over future quarters as related to the sales lease-back of the property -- of certain property.

Also this quarter announced at buy back, increase to 1 million shares.

Again that's something that we -- just recently announced -- or announced today, actually.

In terms of the retail side of the business, sales were down $57.9 million versus $66 million.

There earnings were up 661,000 versus 35,000 loss last year.

Comps were down 10% but that was offset by an increase in margins.

At this quarter there were 30.3 versus 27.7 on continuing operations.

Again we were able to achieve a nice growth in margins because of the slowing retail environment making, what I feel, a very good buys in the plasma area, big screen area, two television area and appliances.

On the down side we did close 29 stores.

Most of these were under performing stores.

The biggest volume declines came in big screen tube sets video and audio.

Biggest increases were in LCD where we were up over 100% followed by appliances.

In the real estate area we sold 86 properties for $74 million recorded a gain of $14.8 million.

As I said earlier $11.6 of this was the differed, $2.0 million was brought into current profit, $1 million was part of discontinued operations.

We continue to believe our real estate that we continue to hold and has very good value.

We hold $74.4 million in property and equipment and that includes 60 properties in our three -- 60 retail properties and our three distribution centers.

The alternative area -- our synthetic plants -- fuel plants are all operating $6.7 of operating income versus $2.1.

And again we expect these plants to operate to the end of the year, then we expect that business to be done.

In terms of ethanol, we shared our first profit this quarter, we had a $1.1 million profit on the -- operating profit on our big river plant which is our one operating.

We, to date we have 14 million that we have agreed to invest in millennium, 18.5 million in Levelland, Texas, 16 million in Anajuan, which is a Patriot plant, and 24.9 million in Gibson city and 20 million in big river, a total of 91.4 million.

In terms of one of our plants, we agreed to sell our interest in millennium to U.S bio.

That should net us about 3.3 million shares, or share -- we should receive about 3.3 million shares that we bought base on last weeks price when the deal was announced.

And we think in terms of what's happened, if nothing else, that transaction has validated our strategy and we now have a proven track record in ethanol with the amount we had made in the quarter on big river, the amount that someone is willing to pay for our interest in one of our plants, we think that -- that bodes well for our future in ethanol and our abilities in ethanol.

In the future we're -- we want to continue working with the farmers, that's where we are comfortable, that's where the corn is and it's -- and it's a strategy that -- that we think is unique in the industry.

The one change that we are going to look for is possibly, although we will still take possibly take minority interests we -- we're going to try if possible to get majority interests in future plants.

With that I will leave it open to questions.

Doug Bruggerman -- is also -- our Chief Financial Officer, is also joining me to answer questions.

Operator?

Thank you sir -- yes, thank you sir.

(OPERATOR INSTRUCTIONS) One moment please for the first question.

And our first question comes from the line of Rick Weinhart from BMO Capital Markets, please proceed sir.

Hello, good morning Stuart, good morning Doug.

Hello Rick.

How are you Rick?

Good, thank you.

I have a few questions if we can start with the balance sheet, there were a few items there I wanted to ask you about.

One, your accounts payable, Doug, was up pretty sharply, about 20 million from last year.

And if you look at it versus a percentage of inventory -- your payables inventory's now at 50%, I think thats -- as far as my records go back, thats a record high for you.

So, I'm wondering what exactly happened to the payables this quarter and is it something that's sustainable?

Yes, we worked out some different arrangements with different vendors which we will defer making payments on the accounts.

I'm not sure it's stainable at this level but at this point I would expect our accounts payable to be a little bit of a higher balance as a percentage of inventory than what it historically had been.

Okay.

We have worked out arrangements with certain products to -- where the -- to get vendor financing -- longer, much longer vendor financing.

Okay, so there's nothing really unusual about this quarter other than --

No

This is kind of, maybe not this run rate, but certainly much better than what you've had historically.

I said we are rebuilding our inventory, Rick, which a record low -- for us at least long-term it was at a very low level at the end of the year, so, because we are building our inventory there might be a little higher rate of payables.

Okay, some timing as well.

Okay.

Yes.

And also looking at your cash balance, I'm just trying to dig into that to see how much of that is still necessary for the level and for the level and build out.

So, I'm wonder if being you can tells how much of the cash outlay for Levelland has been made so far and how much is left that you'll have to use that cash or debt for?

Well, we -- go ahead, Stuart.

You can answer it, Doug.

We've made our pay out on the Levelland, we really don't have any additional amount to fund unless there's project overruns or something like that, but technically we have made our full funding on that.

Yes, I guess Doug, I mean, not so much your investment but -- I'm referring to the CapEx that needs to be -- to be used to build out and you know working capital and such, and you know, the actual cash out lays.

What I show due this year is 20 -- assuming Gibson (inaudible) gets billed, we've commit to do $24.9 million there and $10 million more to big river.

That is our total commitments that we've announced to date.

So, going back to Levelland Hockley, they've got their funding both from us as well as debt arrangement and their other funding from other investors.

So, again, they should have the funding that they need.

Okay, but depending (inaudible) they'd leave on pay outs, in terms of --

The grand total is $29.9 million, just if you want a number that we've announced that we've committed to.

Okay.

All right.

Thanks.

And moving on to the -- the synthetic fuel investments, Doug, can you tell us what portion of that income, if there was some, (inaudible) up or accrual from last year?

Rick, it's about 900,000 to 1 million that related to prior year.

Okay and if we look at the balance of what's left there, first, what -- did you use a -- a rate of -- against the, you know the oil, like a 35% intake rate?

We've, based on the price of oil to date, we don't project there to be a phase out and so that would be --

Phase out, thank you.

Full recognition.

Okay, thats full recognition -- and that will -- you think that will continue based on at least for a second quarter?

You know, obviously the price of oil will change and you can change that, right.

Yes, and again, again, based upon price of oil to date, yes we would expect (inaudible) to continue.

Okay.

The good news on that, Rick, is we have now six good months -- or five good months in the -- that would have to average much higher before we get hurt.

Right, okay, and so the balance, after (inaudible) of the 1 million or so from the 6.7 -- that 5.7, can you tell us approximately -- first of all there was no (inaudible) in there, I'm assuming, right?

Thats -- you're not accruing anything for that right now?

That's correct.

So, can you give us the break out as to what was Somerset and what was from Colonia?

Yes, let me get that number in front of me and you can go on and then I will fill that question in as we proceed.

Okay, and then I had a couple just -- a couple more questions on the retail business now.

The comps 10%, I know you talked about them improving from fourth quarter, I think I was looking for a little bit more, though, is the -- have we seen any additional improvements now that we're into May and into June?

Not particularly, no.

Okay, and is it -- is there a particular category that's dragging that down?

Is it all the big screen, still?

Yes, we are getting hurt very badly.

We're have, big screens are going -- drying up real fast.

CRT and light engine big screens and tube sensor are pretty much -- are drying up also.

And we have numbers that we are (anniversarying) in both those categories.

Our LCD business is up off the page but it's not making up for those numbers.

Okay, and then my last question --

Also audio and video are -- audio and video are hurting very, very badly.

Is it similar to the trends you -- you've had previously, though, right?

Yes.

And then my last question is just on the gross margins, you know, you had a very nice increase there which is, I think, its's a reverse of what we've seen from you in prior quarters recently and opposite of what the industry is doing.

So, I am wondering -- you talked about buys.

Was this -- was there a mix involved in this or was this all just you know good buying on your part?

Well, what happens when business slows up, and it's not just for us, tweeter, circuit, a lot of people have announced terrible numbers.

When the industry slows up that's sort of our -- when we are able to buy the merchandise at best because we're -- we're the place many manufacturers go to -- to -- when they hit overstocks and we take advantage of it.

Our inventory may go up a little bit like you just saw it did but that then gets passed through in margin and it's something that's kept us profitable during all types of times -- good and bad times in this industry.

Rick, let me point out also, that, you know, with the way we recognize our warranty when sales slowed down, we continue to recognize past warranties a straight line basis so that --

Good point.

Helps prop up our gross margin, also.

Any guesstimate as to how -- what impact that was, of quantifying it?

I don't have that calculation right in front of me Rick, but it did -- it certainly did impact it.

Okay.

And going back to your other question, Rick, Somerset was about 1.8 million of the first quarter number.

Great.

The rest would be Colonia.

Okay, thanks very much, guys.

Thank you Rick.

Thank you, and our next question comes from the line of Jeff Feinberg of JLF Asset Management, please proceed sir.

Thank you very much, good morning.

Hi, Jeff, haven't heard from you in awhile.

How are you?

Good, thanks.

Congratulations on your transformation.

Thank you.

I would be appreciative if you'd be kind enough just to walk people that aren't as familiar with the ethanol business through the supply demand dynamics then just to sort of help understand, I guess, perspective return on investment opportunities with the 90 million of capital that you've commit there?

Okay.

In terms of supply demand, are you talking from an industry perspective?

Yes, can we get some sense on perspective pricing and which would obviously impact whatever returns we think we might generate.

Well it's tied to basically three -- or four different variables.

It's tied to TDG, corn prices, ethanol prices and natural gas prices.

And so again all four figure into the variables.

We've worked very hard on the supply side, which is the corn side, to try and get an edge.

We -- all of our partners have local farmers as part -- all of our projects had local farmers as partners and we think that gives us an edge -- or will give us an edge in the long run.

But in terms of profits, a simple way to look at it is, and again it depends on plant, it depends on corn prices but the industry at today's levels to us should be very profitable at $2 ethanol prices and $3.50 corn.

In terms of how profitable, we are not really -- ready to -- we would rather put some real numbers out before we start giving people -- giving people projections.

Can I please ask what your hurdle rate is?

(inaudible) projections.

What's that?

May I please ask what your hurdle rate is -- ?

Oh, sorry, hurdle rate is net return on investment.

I apologize.

I don't know the

So, okay, with regard, I guess, with regard to -- just making sure I understand correctly, you have committed $90 million for future investment in ethanol.

RIght, and we would hope to get on that approximately, at today's -- we would hope to receive in some range of a 30% return on investment.

We received much more than that -- we invested $14 million and received -- and will receive over $40 million in stock in US bio-energy based on -- for about a seven-month investment.

Assuming that transaction closes.

So, again our returns have been through the roof so far but, in general, if you added them all up going into these projects we -- and again it all ties to those variables, but we would expect some sort of return in that area.

And in terms of the 90 million that you mentioned, there was one project I might have heard incorrectly, Patriot, how much was the number there?

Hold on and I will get you that exact number.

$16 million?

16 or 60?

One six -- one six, $16.

But of the total $91.4 million that you have committed, how much of that has already been -- cash has been spent, because I was confused --

We've spent everything but $29 million.

So about thirty -- about $60 million has been spent -- or $62 million.

And just so I can understand the way you think about it is if it were --

Actually it's except for $30 million, not $29 million I am sorry.

Okay, that's fine.

On the $90 million we would expect, you know, if I were assuming a 20% annual return that would be $18 million of pretax profit per year on that investment?

I just want to make sure I'm thinking about it the way --

Yes, and going into these projects we would hope to do better than that.

Okay.

And the projected out -- on initial investment had better numbers than that, to answer your question.

And when would these projects begin to generate those normal returns?

Well, I will give you the startup dates.

This is, again a best estimate, but Millennium which again has been (inaudible) was scheduled to start spring of '08, Levelland, Texas, which we have a majority interest in, early '08, Ana Juan, Illinois, which is Patriot, spring of '08 in Gibson City, our best estimate, right now, is spring of '09.

Big river is already producing, and that's where we showed our first -- our first income.

Okay.

And then final question, just your big picture view with regard to the ethanol market.

I had read some pieces that had suggested that there was some deterioration in pricing.

There was much more supply expected to come on.

I just wanted to understand to what extent that might impact your appetite for future investment in the area and is that your perspective?

Our perspective is so far is there hasn't been a huge deterioration and I think everyone is projecting deterioration based on some many plants coming into operation.

In the long run, though, I think its -- there's going to be little bumps in the road -- little supply bumps but in the long run it's tied to the price of gasoline, as long as there's a huge refinery shortage, as long as gasoline is going though the roof, and ethanol is a viable alternative and people can make more money, gasoline stations and the like can make more money selling blended ethanol with their gasoline, ethanol is going to do fine.

They stop making more money -- then ethanol is going to have a problem.

Okay, terrific.

So, I think -- again, it's -- ethanol is a small part of the equation.

The big part is the price of refined gasoline and this is just something that can -- that can add -- it burns cleaner, it does get less mileage, it has good and bad but if it -- if it can be sold -- can be blended into gasoline and the station owners and the -- can make more money it will do just fine.

And US bio-systems is the only current public company that's doing this?

No, there is Verisun, there is -- you know, there's a number of public -- there's four or five ethanol public companies right now Jeff.

Okay, thank you very much.

Thank you, Jeff.

Thank you for -- for being on the call.

Thank you.

And our next question comes from the line of Mike Neary of Neary Asset Management.

Please proceed, sir.

Hello.

I'd just like to say it looks like you are getting a very good price on your Millennium investment.

Thank you, and again we-- we -- the price to -- to expand a little further on that investment we were a minority interest and we are happy to get the price but we -- we have a long-term interest in -- being a big player in the ethanol business and the good thing about this, from our shareholders stand -- we were very confident of our strategy in ethanol that certainly validates our strategy for our shareholders and they can see we know what we're -- we know what doing and have some abilities in that area -- not just mine -- we think we have some real abilities in that area.

It certainly does.

Would you consider other -- other opportunities like this if they came around?

Absolutely.

We are out looking for them every day.

Okay.

I know in terms of --

And we certainly have the cash to do it.

We are going to use some of the cash for buy back.

We are still sitting with over $100 million and we will also have the flexibility when we do get the US bio-stock of -- of -- raising more capital should we choose.

Okay.

And -- and I know long-term you want to be in this business.

It is a capital intensive cyclical business that's going to go through boom and bust cycles.

And now this sale looks to me, I mean they are going to be paid $2.20 or $2.25, several times replacement cost for the facility.

If buyers are willing to pay several times replacement cost for things, are you willing to pay that?

Or --

No, we are not, we're -- we've been on the ground up.

We've been with the (inaudible) from our organization.

I don't think they are paying two to three times replacement cost.

That's not really the case.

They are paying, in fact they are basically paying -- the paying replacement costs they happen to be a very, very fine company and they absolutely know what they are doing.

They are not --the cost of a brand new plant today if you were to go out and do it is not that much more than what they are paying for this transaction.

On the other hand we've been, we look for things that have older contracts, where the -- where we can get in at -- at a lower price than this and develop them and work with the farmers to develop -- developing the plants from groundbreaking on up and they did not -- they are not -- they are making a good buy in this plant.

We are happy to see them make a good buy on the plant.

We make money but we expect them to also make money on this transaction which is what makes a good -- which is what makes a good transaction.

Okay.

Other public companies, you know, looking at what they've paid for properties, they have paid several times replacement costs for several transactions that I have seen.

Absolutely the case, that's right.

I would hope we would not do that.

No, you don't need to worry about that.

We are developers.

We get in on the very, very ground floor.

And get in usually, on the older contracts, well below what the current price for a contract would be today to develop a plant.

Okay.

And -- and whats the status -- And again that's one of the unique things that we've developed, most companies will not go in with farmer operated -- or they won't own 100%.

We are happy and prefer to own less than 100%.

We -- again, we are getting in on older contracts -- older farmer contracts that maybe haven't been able to raise other capital they need.

We allow them to get out -- the plant off the ground.

We allow them a good market for their corn and we end up being right where the corn is and we think that's a huge advantage.

Good.

Well, you've done well so far.

What's the status of one earth?

Is that Gibson?

One earth is Gibson and we have publicly committed $24.9 million.

That's still in the (funrate) -- the capital raising end of the business and we -- we are working hard to make that project happen.

We will -- we will do our part and again nothing is done until it's done but we are working very, very hard to make that project happen.

We think it's a great project.

Okay, and we should no something on that in the next couple of months, correct?

Yes.

Okay.

Great.

And last question, how much of the cash on our balance sheet today is consolidated cash from Levelland?

Doug?

I don't have that number in front of me.

If -- I will see if I can get that for you on the call and if I do I will tell you what that number is.

It's something $60.5 or less million, correct?

Yes.

Yes, the majority of the cash is obviously ours because of the coventry transaction.

So, again, let me see if I can find that number.

Great.

And I just want to say you guys are doing a great job and as a shareholder I really appreciate what you're done.

Thank you very much.

I appreciate you being a shareholder.

(OPERATOR INSTRUCTIONS) And out next questions comes from the line of Richard Dearnly of Longport Partners, please proceed sir.

Good morning.

I think first I'd lake to say thank you for the added disclosure in the annual report.

It (demistifies) a lot of things.

Okay, thank you.

Going back to Millennium for a second.

What was the debt level of -- that the joint venture had on that or, if the equity was about a $55 million investment, what was the debt?

And I suppose US bio is assuming that?

Yes, they are assuming the debt.

Absolutely, that's what made the price go over $200 million that they announced.

Doug, do you have the exact number for that.

The debt level was somewhere around $90 million, I think that they are assuming.

Okay, and same -- same question on Patriot, what would the debt level there be?

Would that be $80 or $90 million.

Somewhere in that range, yes.

They are all roughly the same --

Generally a bank will lend on production between $0.90 to maybe $1.00, and that's pretty typical.

Yes, do I would say $90 to $100 million is what a typical debt level would be on a $100 million-gallon plant.

Alright, okay, then in -- the equity income of $1.1 million, is that -- is that comparable to -- back, or -- does that include the second $5 million, is that why the -- why it bumped up from the $0.5 million dollars in the fourth quarter of '06?

Yes, we did increase our investment from five to ten million right at the end of January or beginning the February, so, yes, that definitely plays into it.

And -- and was that a -- was that a full run rate or -- or -- was -- was there a partial quarter in there, that --

No, I mean their in production with you know the plant that's been in production, so, you know, I don't -- I don't think there's any partial quarter of any sort.

Okay.

Well, if the -- if the 4.3% made half a $0.5 million in the fourth quarter, the additional 2.6% would have made 600,000 if the 0.5 million run rate from the fourth quarter stayed the same.

In fact, there was a little income related to -- related to selling of one of --

Yes, there may have been a one time event during the quarter.

And sorry, what was that related to?

It may have been in the quarter related to selling one of their building slots.

There -- they have some old building slots that are very, very valuable that (inaudible) and that's probably the difference.

Although if you -- it's not that significant (inaudible).

It's (inaudible) to us at that came up and that's -- it's not significant.

In that particular plant, Big river, what's significant about our investment is they are doubling the size of the plant which -- which it's already a great plant, it should be a phenomenal plant.

On top of that they -- for our investment which will be $20 million in total we will end up with a piece of this plant, another $100 million plant and half of a plant with US bio, assuming everything gets built which again everything is in the plant -- everything is in the permitting stage and planting stages right now.

They have the money if they don't do those plants to do other plants so.

So, it should show -- the next couple of years should continue, on its own, to show nice growth in earnings.

So after the 80 million gallons, you have a 100 million-gallon edition planned after that.

Big river does, yes.

Plus -- plus a joint venture deal of some sort with U.S bio for --

We have 50% of another 100 million planned.

Okay.

So the US bio deal is more far reaching than just a one plant --

No that -- well, no, one has really nothing to do with the other.

Oh okay.

The -- this -- Big river was done a long time ago before, and they are totally independent events.

I notice that you have a different marketing agreement in general for each of your plants.

Is that --

That's right, we again think it's an edge.

We -- we've -- by having every different plant with a different marketing company, we can then see which one is doing the best job, we can then question one versus the other.

If you go with one marketing company you are stuck with questioning -- your -- whatever price they give you, that's the price.

When you have different marketing company's we think we can -- we can learn a lot more and become much, much more professional in this business.

Right, that makes sense.

Could you update us on the -- the sale lease-back and which of the stores, you know, you've decided to keep or give to them or update us, that kind of store count?

We've closed 29 stores, of which, Doug, how much were related to the sale lease-back?

25 of those are classified as continued operations -- or discontinued operations, I should say.

So, it's probably about 25 stores that are related to the sale lease-back.

We are still in the process of closing some stores after April 30 that we are closing here in the second quarter.

That's correct.

In total we will end up with 40 of the stores on a sale lease-back transaction, most of those, all of them but I believe 12, will be on some sort of, they are longer leases but will have kick out rights should the stores not perform and they have the right to leave those stores.

Right.

Let me try it again.

And these 40 were again our best performing of the group that we chose.

So are you saying your current plan is to keep 40 of the sale lease-back stores?

Yes, it is.

Oh, okay -- and then -- okay.

We do have again, same what I said before, we have the right to leave those stores if they stop making money, so, we -- as always and as we've always done in this business we watch our stores very closely and if they stop doing well then -- and then -- and then we have closed stores.

Right.

We've given ourselves the flexibility in this transaction to do the same.

And to clarify, going back, I'm sorry to the Big river, approximately 40% of their income related to non-normal business or a one time transaction at the event we were referring to, so.

Right.

I see.

Is the -- am I reading it correctly that of the -- the 23 properties you've leased seven are a sublease and then of the 16 that are fully leased, would they account for the rental income in '06 of the $1.8 million?

Is that -- do they hook-up to that and then the sub leasing I think was listed as $218,000.

Is that the seven sub leased stores or?

That sounds right.

I mean the subleased income should continue on some of the leased stores were sold as part of the sale lease-back transaction.

Oh, okay.

Given your numbers the lease income will go down but obviously the interest income will go way up.

Right, and then the -- there are currently five vacant stores three of which are for sale?

That was the number I think we disclosed at January 31.

That number has changed here in the first quarter and we will put that into our Q.

That will be filed either late this week or early next week.

Right.

Okay.

Do -- on the Colonia sale, the expected deferred cash receipts through '07, what do you guess at current run rates that the actual cash collections from that would be?

A simple way to look at it is just multiply what we made in the first quarter by four.

That would be both plants together.

That should give him --

After backing out the $1 million, so, you know $5.7 million for the quarter and it runs through December 31.

So come up with a monthly amount and then project it out.

That's quite nice.

Yes, it is.

Thank you very much.

And then to answer the earlier question, we consolidated about $8 million in cash from Levelland Hockley.

Okay.

And, again on this synthetic fuel that was on -- on a very -- that was our -- to give people some background that was our first investment, synthetic fuel, and we recently invested a few million dollars and got a great return on investment.

We don't expect that type of return on ethanol but again our strategy at least has been validated by the latest transaction.

Any other questions?

Yes sir thank you, the next question is a follow-up question from fr from the line of Jeff Feinberg of JLF Asset Management, please proceed sir.

With regard to the synthetic fuel just to make sure I understand that income sounds like is just through the end of this calendar year or you know --

We expect that will be the end of it unless the legislation gets extended -- the tax benefit that comes from making synthetic fuel goes, we do not expect the tax benefit to get extended.

Should they extend it, which is a long shot but anything is possible, then that will continue.

Okay.

So when we think about prospective value beyond this year it's mostly that will $90 million of investment in ethanol?

Correct.

Okay.

And when you think about --

Well -- I -- again, we -- we haven't given up on retail, either.

We expected to better.

We have done better this quarter.

Not a lot better.

The same store sales need a lot of work but there will be one -- there will be a boom in consumer electronics it's just when -- when all the, when the signal switches over there's a lot -- going to be a lot of obsolete sets out there.

Okay, because it looks like, they just take the trailing 12 months income from retail that that will be less than the run rate just Big river?

Correct, you're right.

Okay.

You're right.

And the big future, I mean the big investments that we are making are in ethanol and we know what we are doing there.

We've done very well there and we are going to do more there, period.

You're right to look at it that way.

I just want you to know that we are not going to throw away money in retail.

We think we can make money there, too, but that's not going to be where our big investments go, its going to be in ethanol.

Okay, and just to make sure I'm thinking about this one investment that you have, some positive results with your Big river, whatever the returns are on that, are those normal returns or is this a usual -- is this a normal project?

I would think the returns are higher because a lot of that money is going into future plants so the return on equity in Big river, to answer your question, is very good.

So this --

A lot of it is the money we are making -- a lot of our investment in Big river isn't just for the 40 million.

It's to expand that plant to 80 million in those other two plants.

I guess, (inaudible) when you say for the million, 80 million, what metrics --

40 million gallons, I'm sorry, Jeff.

No problem.

So I guess the 1.1 million that you made this quarter that was based on 10 million of investment which was how many gallons?

40 million.

40 million.

Okay.

But the 10 million -- we are going to put in another 10 million which is 20 total that will pay for increasing the plant to 80 million also our -- our same percentage in 100 million plant and 0.5 million -- a partnership with US bio for another 0.5 million-gallon plan.

Big river's currently operating a 52 million-gallon plant and again, during the first quarter there was one unusual gain in there which would not be ongoing.

There was an unusual gain included in the 1.1 million.

Yes, about 40% of that related to the sale of a construction slot that they had, so, that number for the first quarter was somewhat inflated.

Okay so, what I am trying to think about, if we could perhaps walk through this together to understand this one investment.

You have 10 million invested.

Currently operating a 52 million-gallon plant that they are in the process of expand to go an 80 million-gallon plant.

Just to look at sort of the status of where we are now we had -- if I exclude the one time gain we made 660,000.

Is it --

But don't look at it as on a $10 million investment because a lot of that $10 million is going to that plant expansion and it's going to two -- and two additional plants.

Not the whole investment is tied to that income.

We are buying into the partnership but it's not like that -- the partnership now has a huge amount of cash which they will spend opening these other, so a large amount of their equity is just earning normal interest.

Just because I am a little behind on all the other calls, maybe what I'd do, if it's not too much of an imposition, maybe we could just set up a separate call just to get me up to speed on some of the investment.

I apologize.

I don't want to take up others time but --

It will be good to talk to you again.

I would love to learn more.

Thank you very much.

Appreciate it, Jeff.

Thank you.

Thank you.

And our next question comes from the line of Arnold Brief of Goldsmith and Harris.

Hello Arnold.

Good morning.

Three quickies.

One, in the past you said you were basically -- your equity interest in your investments represented 100 million gallons of ethanol.

Someone just did a valuation on the Internet of the whole company and they used a figure of 50 million gallons.

I just wanted to make sure -- what is your latest equity interest in all the investments that you've made?

I'll just go over -- I will go over each plant and let you do it.

Marian, which we are selling, is 100 million-gallon plant.

We have roughly 33% of that.

Levelland is a 40 million-gallon plant.

We will have, when we convert, when we have a convertible note, 56%.

N.

one, which is Patriot, is 100 million-gallon plant.

We'll have roughly 33%.

Levelland is a 40 million-gallon plant we will have including -- when we convert our --- we have a convertable note, 56%.

Ana Juan, which is Patriot, is 100 million-gallon plant, will have 23%.

Gibson City, which is 100 million-gallon plant, we'll have anywhere from let's say 25% to 40% of that plant depending, again, we are working on that very hard.

It could end up even more than that.

We are doing our best to make sure that project happens and we'll be able to announce some time in the next couple of months exactly what our percent of that plant is.

Big river, which is going to into an 80 million-gallon plant.

On top of that there is 100 million-gallon that they building and another 50 million taking half of it we will have roughly 9% of that whole production.

So, you can add it up and see where it comes out.

And your investment in US bio now, is that --?

We are going to, assuming US bio takes over the Marian plant, then you can either subtract it out or take our percentage -- as of the close -- of the --

Well you have a different percentage, you will have the equity interest in US bio which is.

Which is again you can look at it a lot of different ways.

What is your US bio capacity going to be after this -- after this -- acquisition?

I'm not sure.

I can't -- I would have to look it up for you, Arnold.

Second question, the transaction with US bio, does that represent an opportunistic kind of deal or does that represent a philosophy of where you'd like to go with your investments?

I think -- I think the biggest thing it shows is we are good partners to our farmer partners and they -- our co-op partners, they thought that was the best direction for the company.

We did not own a majority and we did not -- we would have gone either way but what it does show is that we pick good plants, we pick good sites, we pick good partners and people want our plants.

This -- this was a good site but so is everyone that we're invested, every single one.

And it validated our strategy to go with the farmers in the future.

You may see more operations where we have the majority interest because we want to build a business.

We don't want to just go in, out, in, out, that type of thing.

But where we didn't have the majority we certainly were very supportive to what the co-ops wanted to do with this plant and again it's a nice profit for our shareholders so we are not in any way upset.

In fact we -- our shareholders -- from a shareholder and I am a share holder -- from a shareholders standpoint I'm very happy.

From building a large ethanol company, it's a little bit of a slip but again we have lots of opportunities and we have every chance in the world to make it up.

And finally it's not as important obviously but I'm just curious, how many stores at this -- when you finish with all this latest transaction how many stores will actual will be sublet?

How many will be sublet?

Well, very few.

They bought most of the sublet stores.

No, I mean all together with all --

You mean where we lease or where we sublet?

Where you sublet to somebody else, where you own the store and they are sub letting?

There aren't that many more, Arnold, because a lot of those were included in the sale lease-back transaction Most of what we will have left -- is -- are locations where we occupy a portion of it and lease out a portion to someone else, or that we have closed our store and are receiving rental, sublease income.

But again that won't be a significant number and we will have all that disclosed in the 10(Q) when we file it.

Okay, and finally on the SG&A line with the closing of this many stores is there -- are you -- is there any effort to have to -- is there any impetus or a need to, lets say right size your company a little bit in terms of the SG&A line?

I think we've done it, Arnold, in just about every area.

We've had -- we've had -- we've cut back equal to the volume cut backs.

It should be -- it's an ongoing process but we are right there.

Right now I can tell you we are pretty comfortable with our overhead.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) And our next question is a follow up from the line of Richard Dearnly of Longport Partners.

please proceed sir.

To follow up on that last question, as you've down sized the stores, are you -- is this creating excess distribution capacity?

We probably do have some excess distribution capacity and our warehouses are worth a lot of money in my opinion.

So there may be, again, that's a very valuable asset.

We own them out right.

We own them.

We don't lease them.

So, if anything if we do decide to sublease some of that space in our warehouses or possibly sell the warehouse or something of that nature, we would look for that to be an income producer.

Somewhere in the back of my mind my handy dandy price for distribution capacity is $40 or $50 a foot.

Is that still true or?

That probably is as good a number as any but I can't tell you.

Every market is different.

That is probably what it would cost us to build a new distribution center today, maybe even a little more but whether these could sell for that, I don't know.

I don't know, we have not put them on the market to find out.

Okay.

It may sell -- it may sell for more, I don't know.

I just don't know.

Okay.

Thank you.

Sure.

Thank you, and sir, there are no further questions I will turn the conference back to you.

I'd like to thank everyone for listening.

And again, we -- we appreciate all the support from our shareholders and we will do our best to do what we can to increase value.

Thank you.

Good bye.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.

Thank you once again for attending and have a great day.