RiceBran Technologies (RIBT) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the NutraCea Fourth Quarter Conference Call. At this time, all participants are in a listen only mode. Later we'll conduct a question and answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded today, Monday, March 17, 2008.

And I would now like to turn the call over to Ms. Marilynn Meek from Financial Relations Board. Please go ahead.

Thank you, and welcome to the NutraCea's conference call to discuss fourth quarter and fiscal year 2007 results for the period ended December 31, 2007. On the call with us today is Brad Edson, CEO of NutraCea, Leo Gingras, Chief Operating Officer, and Todd Crow, Chief Financial Officer.

Before we begin, I would like to remind everyone of the cautionary language about forward-looking statements contained in today's press release. That language applies to any comments made on today's call.

With that said, I would like to turn the call over to Mr. Edson. Brad, please go ahead.

Thank you, Marilynn. Thanks to everyone for joining us today for our Fourth Quarter and 2007 year-end call. I'll make some opening remarks and then review with you some of the financials. I'll then turn the call over to Leo Gingras, who will provide you with an update on our operations, and then wrap up with some closing comments and then open the call up for questions.

Let's begin with a few words about the current state of the global food market. All of us have witnessed the rapid increase in prices of agricultural products and food ingredients in the last year. To some degree, this was triggered by adverse growing conditions in some parts of the world. Energy needs, particularly for transportation fuel, have also contributed, as some basic food and feed supplies such as corn have been diverted to make biofuels.

However, the biggest driver of food prices is the simple fact that 6.5 billion people must eat, couple that with diminishing farmland, water supply shortages, recent adverse weather patterns, and it's easy to surmise that NutraCea's food ingredient business will have a significant opportunity to flourish in this environment.

Now, let's take a few moments to review some of our achievements over the past year. During 2007, we aggressively invested in our business with the aim of driving improved shareholder value in the future. To set the stage for this, we built on our existing foundation by literally reshaping our Company. We substantially expanded our production capacity and extended our international presence. We forged new Research and Development alliances, exploited new applications for our proprietary technology, and took measures to protect our intellectual property.

We reinforced our leadership team, relocated our corporate headquarters to improve efficiencies, we strengthened our Balance Sheet and paved the way to set the capital we feel required to fuel our future growth.

At the same time, we continue to maximize opportunities in our three distribution channels, launching new products, securing new customers, negotiating new distribution agreements and penetrating new markets. Now when we embarked on these initiatives, we recognized that we would likely exchange short-term gain for the prospects of long term growth and profitability. This expectation was reflected in our financial results for the year.

Although our revenue set a new record of 22.2 million, which includes 5.3 million provided by royalty revenues and licensing fees, demonstrating our success and tapping the rising demand for our products, the higher operating expenses, partially related to our infrastructure investments, restricted our ability to deliver improved earnings.

2007 was a transitional period for us as we changed our customer focus away from infomercial product customers, some of whom presented us with issues, to a wider range of food ingredient customers, which is a more stable and predictable business. To help bring this into perspective, in 2006, we had revenues of approximately 8.5 million and wholesale product sales to infomercial customers with margins at times in excess of 80%.

Although this may seem attractive on the surface, it poses multiple issues due to volatility of returns, collections, and in 2007, by design, we had very little infomercial product sales as we shifted to a healthier customer base. We replaced the majority of the unstable infomercial sales to a broader and more reliable customer base. This transformation significantly reduced our margins to more historical levels, which is closer to 50%.

Now in the short-term it was painful. Longer term, it will secure future sales of increased capacity to provide nutritional food ingredients for the animal food markets and poise us more appropriately for steady bottom line growth.

Making up the margin difference with increased volume became virtually impossible when we experienced delays in getting the new plants up and running, primarily due to inclement weather conditions. This was compounded by historically limited supply of rice bran last year in the United States. This year, we will not have those issues, as more capacity comes online in our second quarter.

Our new Lake Charles facility, which will be commissioned at the end of this month, will have an additional 30,000 tons of annual capacity when fully operational. And we continue to explore other rice bran supply opportunities in the United States and around the world.

As reported earlier, our Stage 2 Dillon, Montana, plant is running at full capacity and has orders booked through year-end. Our Mermentau, LA, and Sacramento plants are processing all of the bran that they're supplied and Arbuckle is running at its contracted supply rate.

We're purchasing a building in Phoenix, Arizona, to expand our Stage 2 capacity. This facility, approximately 124,000 square feet in size, is scheduled to come online in October of 2008, with initial annual capacity of 5,000 tons. Ultimately, this can be doubled to approximately 10,000 tons of annual Stage 2 production when completely built out. This facility will also have specialty, vertically integrated packaging for our customers, and warehousing capability both for our raw materials and our finished products awaiting shipping.

I'm pleased to say all indications reflect that we will utilize 100% of the capacity that will come online shortly, after commissioning the plant, and I've already authorized a further immediate expansion of capacity to slightly more than 6,500 tons of annual capacity that should be completed by the end of the first quarter of 2009.

Now, as I indicated last quarter, we expect a majority of our revenue in 2008 to come from our U.S. production. However, we should also begin to see meaningful revenue from our new acquisition of Irgovel in Brazil beginning in the third quarter of this year, with sales becoming accretive to our bottom line in the fourth quarter of this year.

Now, I would like to take this opportunity to provide an overview of our financial results for the quarter and fiscal year 2007. We were pleased to report revenues of 5.6 million, which were in line with our guidance given a 5 to 7 million in revenue for the quarter. Revenues of 22.2 million for the full year reflect the challenges that we faced during 2007, which as stated previously, were due to our not having our additional capacity up as quickly as we had expected, and from the unprecedented reduction in the amount of rice mill in the United States last year.

We're also affected by the shift in customer mix and heavier contractual demands placed on us to service our equine customers that made up a larger percentage of our total sales. These contracts were at a time when our supply wasn't keeping pace with that demand.

Net loss for the quarter was 8.9 million or approximately $0.07 per share, compared to a net income of 778,000 or $0.01 a share for the fourth quarter of 2006. That net loss was attributable to a reserve of 2.4 million and we were required to post against certain accounts where payments have been slow.

Operating expenses were up substantially, with many of these being one-time charges associated with specific non-recurring events, such as the $1 million buyout and settlement of the employment contract with our previous CEO. There were accounting issues with the treatment of goodwill, amortization and non- cash expenses, and consolidated variable interest expense with pending acquisitions, such as the $750,000 of consolidated losses in connection with Vital Living. This remains on our books because the acquisition has not been completed yet but will be removed when the asset purchase is consummated.

Also during the quarter, we took an impairment charge of 1.3 million, again Vital Living goodwill expected to be acquired when the asset purchase is completed.

For the year-ending December 31, 2007, we recorded net revenue of 22.2 million, compared to net revenue of 18.1 million for full year 2006, an increase of approximately 23%. Net loss for full year 2007, was 11.9 million or $0.09 a share, compared to a net income of 1.6 million or $0.02 per share for the full year 2006.

The decrease for the year-ended December 31, 2007, was primarily due to a net increase in revenue of 4.1 million for the corresponding increase in cost of goods sold at 768,000, resulting in an increase in gross margins of 3.3 million for 2007, compared to 2006. This was offset by a $10.2 million increase in SG&A, selling, general and administrative expenses, $3.2 million allowance for bad debt expense, and 1 million separation expense, a 1.3 million impairment expense, and an increase of 3.2 million in professional fees, and an increase in Research and Development, or R & D costs, of 501,000.

Now, some of these issues associated with the increased SG&A, much of which was taken by the Company in the fourth quarter 2007, totaling in excess of $7 million, included an increase in non-cash stock based compensation of 1.7 million, non-cash depreciation amortization, net of allocation of cost of goods sold of 1.1 million, costs associated with the separation agreement with the former CEO of the Company of a million, which extinguished a multi-year termination payment obligation for future years, and certain accounting adjustments, 2.7 million of which is an aggregate of allocations for goodwill impairment expense, increase in administrative costs, including increases in our insurance expense, and approximately 808,000 of SG&A expenses in the Vital Living asset purchase, which we are required to include on our books until we close the asset purchases pending, due to the accounting requirements detailed by the variable interest and to the accounting rules.

Gross margins increased 3.3 million to 12.3 million in 2007 from 8.9 million in 2006, due to a 4.4 million increase in licensing fees and royalty revenues, which has no associated cost of goods, offset by a 768,000 or 2% increase in cost of goods sold from 9.1 million to 9.9 million, in the 12 months ended December 31, 2007 and 2006 respectively.

NutraCea's balance sheet remains strong. We ended the year with 41 million in cash and cash equivalents, up from 15 million in the previous year-end. Our working capital position was 45.9 million at year-end 2007, up from 23.3 million December 31, 2006, an increase of 22.6 million year-over-year.

We would like to mention that our Annual Report, due to our increased market cap, we have noted that we have become an accelerated filer, and this does result in a number of differences in the way we report, one of which includes earlier filing dates for our Q's and K's, going forward.

Additionally, we've made great strides over the last year and at the time of filing to address most of our 404 requirements, although at this time we still have a couple of items that need to be finalized and further tested. This has to do with the process only and we have no conflicts or adjustments on our audited numbers with our financials or with our auditors. We've taken steps which we fully expect to remediate this shortly.

At this point I'd like to let you know that we will be issuing an announcement on the Newswire after the Conference Call or before the market opening tomorrow, that we have appointed a new Chief Financial Officer. Todd Crow will be retiring at the end of the month and Ken Mueller will assume that role. Ken has extensive experience in working with public companies and we believe he will be a key addition to our executive staff at this stage of our growth.

Most recently, Ken was Chief Financial Officer of Collins Financial Services, where he served for the last two years. And prior to his work with Collins, Mr. Mueller was the Chief Financial Officer of Safe Net Corporation. He also previously served as Chief Financial Officer of Microsoft Business Solutions and Senior Vice President of Finance at Platinum Technology, which was ultimately acquired by Computer Associates. He holds an MBA, Marketing from de Paul, a BS in Organizational Behavior at Northwestern University, and he's a registered CPA, and on behalf of myself and the Board of Directors, I want to thank Todd for his many contributions and his many years of services to our Company.

And now what I'd like to do is turn the call over to Leo who will provide you with an update and more detail on our operations.

Thank you, Brad. Let me begin with a brief update on construction and progress.

The Lake Charles stabilization plan is coming along well and as projected, is set to begin operation at the end of March. There are pictures of the facility on our website for anyone that's interested. As previously stated, the capacity of this plan is 30,000 tons per year to bring our total system capacity to 70,000 tons. With the 85% utilization factor mentioned in earlier calls, this will provide about 60,000 tons of annual stabilized rice bran production in the U.S.

As Brad just stated, we're in the process of finalizing the purchase of an existing building for our new Stage 2 facility in Phoenix. It has 124,000 square feet of processing and warehousing space. We will begin installing equipment, most of which is already fabricated, as soon as we take possession which we anticipate before the end of March. We expect the plant to be operational by the end of September with an annual capacity of 5,000 tons of Stage 2 products and baby cereal. We'll also install systems for consumer packaging of these products.

We are moving ahead with a further expansion of an additional 1,650 tons, which will be functional in the first quarter of 2009. This additional capacity is very much needed as our Dillon, Montana, facility has been operating at full capacity and is booked for the foreseeable future.

The first phase of our expansion in Southeast Asia continues to progress. We signed agreements for bran supply at two rice mills for our initial plants. We have our proprietary equipment ready to ship from the U.S, and additional plant equipment is on order. We are comfortable with our initial projections regarding start up and intend to be operational in early 2009.

Our plans for a stabilization plant in the European Union has been delayed. The rice mill that we originally were negotiating with decided to alter their plans and co-locating at their mill is no longer feasible. Our desire to expand operations into the EU remains in place and we have initiated discussions with another major rice miller in the region. The contract, if successfully achieved, we'll be able to expedite its installation.

As indicated in previous calls, we are more than capable of servicing our EU customers from the U.S. operations and we have not compromised a single dollar of sales due to this delay.

Earlier this year, we announced an initiative to construct and operate a wheat flour mill in Indonesia. The ocean front site for this 500 ton per day operations has been obtained, prepared and is ready for construction. Currently, we are engaged in the engineering phase of this complex facility, which will include NutraCea's technology for stabilization of wheat bran.

Our intent is to make this plant an industrial proof-of-concept project with respect to wheat bran stabilization. We are confident that our technology will make wheat bran available for blending into wheat flour and as a stand-alone ingredient in many food applications.

With wheat prices at historic levels, utilization of bran and foods provides significant economic value to wheat millers, in addition to improving nutrition for consumers. We are very excited about this project, especially when we consider the more than 100 million tons of wheat bran produced annually on a global basis.

Another very significant project is the acquisition of the largest rice bran oil processing plant in South America this past February. This plant, located in Pelotas, Brazil, is capable of extracting oil from 70,000 tons of bran annually and processing this oil for sale to consumers and industrial customers. Entry into the rice bran oil business provides logical and timely product line extensions for NutraCea at a time of record vegetable oil prices.

In addition to the traditional rice bran oil business, we will also develop a line of value-added specialty products at this facility based on rice oil and de oiled rice bran, derivatives produced with proprietary NutraCea technologies. We see the acquisition as a significant step for the Company and one that broadens our markets with new products. We will continue to do business under the Irgovel name from Brazil, a name that is respected worldwide for high quality rice bran oil.

As you've just heard, we have significant research and product development efforts underway. A few months ago we hired Dr. Paul Mathewson as our new Chief Science Officer. A graduate of Kansas State University, Paul has over 33 years of food product development and nutritional research experience with the U.S. Department of Agriculture, Nabisco, and Mrs. Fields. He is an excellent addition to our staff and has further refined the efforts of our Research Group, in addition to aggressively protecting NutraCea's intellectual property, a way of multiple provisional patent filings. He joins a growing team of food processing and nutrition experts within the Company.

I'll close with a few words about rice supply and seasonality. When I joined the Company last Spring we faced the slowest period of rice milling in the U.S. in decades. As you know, this lead to tight supplies of bran during the summer and early fall.

Thus far this year rice millings have been normal. However, to prepare for the possibility of another slow rice milling summer, we have been steadily building inventory of stabilized bran. While there are no indications that we will have limited supplies, we are taking appropriate steps to assure our customers of continued product deliveries.

Brad, I will now turn it back over to you.

Thank you, Leo. I'd like to make just a few additional comments and then open the call up to questions. We ended the year 2007 with record revenue. But we were also burdened by the painful but necessary infrastructure cost, customer reallocation, necessary to position the Company for the tremendous growth that we foretell ahead.

Our Stage 2 plant in Montana is now running at capacity and is booked through the end of the year. The Phoenix facility, scheduled to come online in October of 2008, at current pricing, should add significantly to our fourth quarter gross revenues. Lake Charles should be online within a month, and shortly thereafter we should be able to add, based on capacity, as much as $10 million in annual sales capacity with this facility. Our Indonesian stabilization facility should come online by the end of this calendar year and be accretive to us in early 2009.

We're also taking steps to expand our domestic supply and production, and we'll update our shareholders in the timing of these domestic initiatives as they get closer to completion.

As previously indicated, on an operational basis, we anticipate being cash flow positive in the third quarter 2008 going forward. In the first quarter, we have for the most part committed almost 100% of our production to our food ingredient customers, heavily weighted to our equine division. This final shift will result in relatively flat revenues in the first quarter compared to the fourth quarter 2007. But we expect to have a meaningful increase in revenue for the second quarter 2008 when our Lake Charles facility comes online.

And with this added production capability, we will have the flexibility having more discretion over the sale of our ingredients between animal and human markets, and although we expect continued sale increases from quarter to quarter, we should see another meaningful upsurge in the fourth quarter when the Phoenix Stage 2 facility comes online.

Additionally, NutraCea is committed to Research and Development to realize what we believe are some of the potentially hidden values within our Company's technology and products. Now our belief is that our value-added products go way beyond mere food ingredients and they rise to the level of nutraceutical and pharmaceutical compounds, with potential for therapeutic value that can positively impact the wide range of health issues that has been further validated by, this has been further validated by our relationship with Herbal Sciences.

At this time we believe it is prudent not to publicly disclose the developments and strategies that are currently being pursued to protect our intellectual property and the integrity of our relationship with the companies that are interested in this project. Now that being said, it is difficult at this time for us to put a market value or to project future revenues associated with the marketing of nutraceutical and pharmaceutical compounds until we're further down the road, and can make an appropriate and accurate assessment of the opportunities in this arena.

We have a number of research projects and clinical studies that are currently underway, which includes investigating the potential use of our RiSolubles to stimulate an immune response to AIDS and HIV patients, diabetes, cancer and other novel applications of our products. These rigorous scientific studies are being conducted at prestigious medical institutions and universities around the world, and we'll share the results with you just as soon as we're able to make them public without compromising the integrity of the data, the medical professionals and the research scientists, or NutraCea's strategic positioning from a marketing perspective.

Favorable outcomes on any of these research projects could serve as a platform for some very lucrative opportunities for NutraCea and could have a substantial effect on revenue.

There's no doubt that we have gone through some growing pains as we transition from a small, virtually unknown Company over the last few years, but we are now in a position to say with confidence that we removed many of the barriers to entry, or our barriers to entry, and secured sufficient supply of raw materials, we've overcome legal matters, we've improved and expanded our technologies, we've protected our IP, we've refined our operations, we've streamlined logistics, and we have put NutraCea into a position for future success.

And with that said, I'd like to turn the call over to our listeners for questions. And we would like to limit your questioning to one question and one follow-up.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from the line of Steve Denault from Northland Securities. Please go ahead.

Brad, with all of the fourth quarter Income Statement, I'm having a difficult time trying to figure out what happened in the quarter. The only thing I can tell is the, obviously the operating expenses went through the roof. Was there an allowance for bad debt expense in the fourth quarter of 3.2 million?

Yes.

Okay.

I'll turn that question over to Todd. And maybe you could break out --

The detail in our operating expense for the third quarter, yes we did take a charge of $3.2 million of bad debt expense, increasing the reserves, we took a $1.3 million impairment expense on goodwill, and we took a $1 million charge for the separation agreement of our former CEO.

Okay, so that's Patty McPeak. The asset impairment is Vital Living?

Correct.

The bad debt expense, who is the customer?

We had three customers that roll up into the 3.2 million and that's about all I'd like to disclose at this time.

Thank you. Our next question comes from the line of Brad Orr from Prospector Partners, please go ahead.

On your expectations for Stage 2 production for the year, with all of the negative developments in those product lines, because of your end customer mix changes, we don't have a very good feel anymore for the revenue contribution that can come out of the Stage 2 output at Dillon.

You'd said publicly that facility was operating at pretty high levels of capacity utilization, starting about the middle of the fourth quarter but it's hard to see if there was much of a revenue impact in the quarter, and I wonder if you could just give us some guidance going forward as to how that facility might show up in your Income Statement at the top line.

The Dillon facility has annual capacity of approximately 2,700 tons, which would equate to about 650 tons capacity. We only got to use that perhaps maybe half of the fourth quarter.

Right.

And then going forward to this year, it should run at full capacity. Now, one of the things that we've done, as I spoke in the call, is reallocation of customer, the reality is if you're gearing up for a large production of these higher end products, the pricing needs to be put into line so that the industrial use customers, the large, big customers, and that it's priced appropriately. So the pricing overall has come down mildly on what we had historically used for what we call novelty-type customers.

Right, I understand. That unit value has been very volatile over the last four or five or six quarters, and you're not willing to give us any guidance as to what the revenue impact of that facility might be, on a quarterly or annual basis at this time?

Well, probably not at this time. I think that what we will do is, once we have the next quarterly call, we'll address what we think that the level of our customers pricing will be. We have the tail end of customers that we're servicing from last year and we have the new customer mix that's coming in from this year.

So it's still transitioning?

It's still transitioning but I think the new pricing that we'll have for the large order customers that are taking these products, we're probably going to have that formalized and in a place that we can give revenue guidance at the end of the first, when we give our first quarter guidance in first quarter conference call.

Okay, thank you.

Thank you. Our next question comes from the line of Jonathan Moreland from Insider Asset Management. Please go ahead.

Hi, guys, no lack of vision once again, no feeding the world and curing AIDS. This is wonderful and it will be great if this investment thesis does turn out. A little concerned about the cash expenditures to get there. Obviously, you started the year with 41 million, you've spent a bit of that, the pay off would seem to be longer term there. What can you do to assuage concerns about the cash leaving the bank account so quickly?

For the year forward, Jonathan, as we will state in, as stated in the K, we feel that we have adequate cash resources on the books today to being able to adequately meet all of our existing operating expenses until we're cash flow positive, as well as meeting our existing capital projects that we have on the books over the next 12 months. So for the existing projects that we have and the existing operations that we have until we turn cash flow positive, we have adequate cash on the books to do so. If there are new projects that come on board that specifically would be project specific, then that would bring up the issue of whether you need additional capital for that, but on the books at the moment we feel we're able to cover all of the next 12 months and handle all of our necessary Capital Expenditures and operating expenses.

Well, handling is great but with what you have in mind now, would you reach cash flow positive with 15 million on the books or 1 million? Is it cutting it close, or how much wiggle room do we have here to feel confident that we're not going to be dilutive again with more equity offerings down here.

Well, to give guidance, a little guidance on the operating expenses, we think the stabilized operating expenses, not counting the Brazil initiative because Brazil is a stand alone initiative and comes with its own revenue model and its own expenses, but our Company as it stands today, again excluding that, has a SG&A expense in the range of about $4 million a quarter, in that range and then you have total operating expenses that add about another million.

And lastly --

That's what your core SG&A and operating expenses run quarter to quarter.

And lastly, again, on the cash forefront, I assume you guys are not still giving product to these customers who have had trouble paying in the past; correct?

That goes without saying and although we've taken a reserve against these receivables, that doesn't mean that we're not going to collect on the receivables. It just means that we've taken a very prudent approach to the receivables we have on our books. Management is still highly confident that we're going to collect much if not all of those receivables. We are just taking an accounting treatment to reserve it.

All right, I'll step back in.

Thank you. Our next question comes from the line of Tom Bishop from BI Research. Please go ahead.

Yes, hi. Just to clarify that last comment there. The SG&A of 4 million a quarter, does that include or exclude professional fees, which I'm not used to seeing broken out separately, but --

The professional fees are under your operating expenses and they're broken out. The SG&A expenses do not include the professional fees. That's included in that additional million that I was talking about that $5 million number.

That covers the professional fees.

Accountants, lawyers, things of that nature.

Now, your recent press release on RiSolubles was, generated some interest, I know amongst people I talk to, and I'm wondering what sort of a commercial opportunity that might unleash and whether, is RiSolubles for sale somewhere now and what are your commercial plans there? I mean are you going to capitalize on that somehow?

We feel that there's tremendous opportunity in the nutraceutical applications to our products, and I think that the announcement that we put out there only further reinforces the confirmation of that. And we're exploring many avenues at the moment that would allow us to go ahead and capitalize on the possibilities that would be associated with those ingredients. We're not probably able to speak today on exactly how we're going to roll that out, but--it's a product that's certainly available on our website, if anyone wanted to buy it they certainly could do so, and we hope to have an initiative that would give wider distribution on that that we could talk about later.

Oh, okay, but there's no plans on the infomercial front for that?

No, we're not. We have several possibilities that are before us on ways to monetize their different assets. I'm not really in a position today to tell you exactly how we're going to do it because there's too many possibilities in front of us, but that's one possibility, not one that would probably be foremost in our mind.

Just to clarify that, we were talking about infomercials and you were saying that that business sort of went away but I understood you were sort of waiting for Christmas to wash past and then you were going back into the infomercial business with something, and now it sounds like you're kind of pulling away from that whole concept. Can you just clarify?

Let me clarify that for a second. The infomercial customers that we were talking about previously were, as we were selling at a wholesale basis to resellers that were in the infomercial market. What we talked about at the end of the year before was controlling our own destiny, and in that space, taking measures and proactive steps ourselves to test that market, and the infomercials when we tested the product would allow us also to enter into the retail space, whereas the infomercials would provide the advertising mechanism which was self-funding and then would allow us to use that advertising to get into the retail space without inordinate costs such as end cap displays and shelving costs and slotting fees. So the infomercial space is still of interest to us, but more from the standpoint of us controlling it and having a direct exposure to it than relying secondhand on customers who are in the wholesale, that we're wholesaling to them.

So you are not waiting to unleash an infomercial campaign? You're kind of --

We currently have an ongoing infomercial campaign that's in the testing phase, that's been testing since last year. It's resulted in several retail sales that we've made directly into national retailers. I think we've mentioned that PetCo is one of them. And then we're continuing to explore those avenues and the results preliminarily look very good. But in that space, it's one where we control it, we're running the advertising, we're running the show and we control the product, we're selling directly to the consumer or retail outlets but it's a different model.

I'll get back in line.

Thank you. (OPERATOR INSTRUCTIONS). Our next question is from the line of Peter Trapp from Bifrost Capital. Please go ahead.

Yes, just going back to the cash again, the 41 million that you have on the Balance Sheet, how is that invested and have you had any need to review or write down any of the investments that might have been made in short-term instruments?

Well we're keeping our idle cash is in short-term instruments no longer than 30 days and some commercial paper, but our philosophy right now while we're in the acquisition and expansion mode, we're trying to keep our capital as liquid as possible. And so what we are doing is we've split it up between money-markets account and some commercial paper but nothing longer than 30 days.

And to answer your question further, we've not experienced any losses whatsoever in our short-term liquidity. We take a very conservative approach and at times most of it is even in Treasury bills.

Okay.

Thank you. Our next question comes from the line of Steve Denault from Northland Securities. Please go ahead.

Just coming back to the operating expense in the fourth quarter. What was the stock based compensation and what was the uptick in professional fees related to?

The stock based compensation for the quarter was about $1.6 million and essentially, that is the non-cash transaction where we go and we value the options and the warrants that have been issued to employees and consultants.

Okay, so that would explain the bulk of the-- as paired within SG&A?

Correct. We've got that between SG&A and professional fees, and then there's a little bit that goes to the R & D section as well.

Okay, Brad it seems as if you made reference to what operating expenses should look like next year. Can you run through that again? What should we be looking for in terms of total operating expenses?

Well your total operating, you have your SG&A and you have your operating expenses, which are two categories. If you take your total operating expenses, as they spend, moving into the first quarter and going through the year, you're looking at approximately $5 million per month, with the understanding that you're striking from that the Brazilian operation because that's a stand alone unit. In addition built into that you have the Vital Living consolidated numbers, which when that asset purchase closes will put out of those numbers.

Say that again, 5 million per month?

5 million per quarter. If I said month, I meant quarter. 5 million per quarter.

Okay, but that's just SG&A.

No, that's operating.

That's total operating expenses of 5 million.

And SG&A is about 4 million of that 5 million.

Okay, so we should be looking for total operating expenses being down in '08 versus '07?

That's correct.

Okay. Knowing what we know today, what we've got on the ground, things that are in our capital spending, Lake Charles, Phoenix, assuming some conservative timing, you talked about flat March quarter revenue with a build from there. What's a reasonable sort of minimum level you believe you can get to in '08 from a revenue standpoint?

I'm not in a position today to give you guidance for the year, although I do believe that when we do our next conference call, we'll be in a position to probably give you a better overlooking forecast, because at that point, we'll have our facility in Louisiana up and running, we'll have some operating data back that's concrete from our facility in Brazil.

But to give you some sense, again, we said in the first quarter, we're basically looking at flat, for the first of this call if you're looking for maybe moving out into the second quarter, I think that we could say on a very conservative basis that you're, with the facility our second facility in Louisiana going online, some minor contribution perhaps in Brazil, you'll look at conservatively a 50% increase or more in the second quarter, up from the first quarter numbers, without really having any material effect on your total operating expenses. With the understanding that the Brazil will stand on its own as a separate entity.

To guide to a first quarter flat revenue guidance, with the understanding that you've got a full quarter's contribution from Dillon, suggests that maybe the way in which you've sold out Dillon is by way of bringing on a large customer too and it sounds like at a little bit lower ASP's. Am I correct in assuming that?

What we have right now is, we have a number of large customers, some that are too large to be able to service out of Dillon, that are anticipatorily being lined up to be serviced out of Phoenix. And with that said, you have to do your pricing model on your basis infrastructure with the understanding that you're going to give them the pricing once you have the volume. So that is correct, pricing has been slightly reduced with the anticipation of these larger customers taking up your volume.

Okay, thank you.

Thank you. Our next question comes from the line of Jonathan Moreland, from Insider Asset Management. Please go ahead.

Excuse me if I missed this but how are we going to see contributions from the 15.5 million investment in Brazil on the Income Statement?

The Brazil transaction, which was an investment on our part of approximately $14 million, should as we said in the conference call be reflective in a meaningful way we think by the third quarter, and we think that it will be accretive to our earnings by the fourth quarter.

And so the money is out the door and nothing is coming from this for two or three quarters? Wasn't there some revenue coming in from this?

No, there's definitely revenue coming in from Brazil. Understand that the plant as we stated in the Press Release, is running at a nominal amount of production, and we also have some infrastructure that we're putting into the plant, both from the standpoint of improving what's there and expanding what we have, so there will be revenue that will accrete but the, to be accretive to the bottom line, we expect that to occur in a meaningful way in the fourth quarter. There will be additions based on revenues that are coming in on an immediate basis but I'm talking about meaningful numbers.

How many times revenues did you pay for this? There was nothing of substance that could show up even given that you bought it in February, nothing that would even show up in Q1 to help the revenues not be flat in Q1?

No, I think that you will see revenues that will come into the first quarters, no question. There's a couple things that we're doing to the facility. One we're taking down parts of it to do the work that needs to be done to it and the expansion that needs to be done to it, and it's running at a modest rate. Against the expenses that you have on that facility. We feel, as we said in the Press Release, that that facility by year-end has potential and we expect that we'll reach it right at a $30 million revenue rate and will be uniquely accretive to our bottom line, probably as early as fourth quarter.

It just seems a lot of money to pay out for something that far in the future for a Company your size.

Let me put it in perspective for you. When we looked at it and we have many opportunities out there to expand the ability for us to drive value from the rice bran model that we have, and most of our models as we've seen take anywhere from as much as 18 months to two years to get them up and running. So for us to be able to secure an investment from the day we write the check to the day that it's materially accretive to our earnings and being in a position of doing that in less than 10 months, for us is comparatively much faster than if we had done a project from scratch.

If we had done this project from scratch and went into that country to do it, assuming we had all of the regulatory provisions in place, you'd be looking at two years before you'd see anything out of it. So in the scheme of major capital improvement projects, especially one where you've been able to completely isolate any potential competition because you have that threshold of not only the supply contracts but the infrastructure itself and strategic locations, you've really, in our opinion, scored a great opportunity and we'll realize it again in the world of capital intensive projects on a lightning fast speed.

Well again, the project may be fabulous when looked at in a certain way over a certain amount of years but again, from a Company your size with the resources you have, obviously concerned that so many companies aren't investing for the future as they should be. You guys seem to be doing an awful lot of that and obviously we have a lot of noise in the quarters in the near term and everything is always a few quarters away, and 14.5 million was spent out of a $41 million till and --

Well we raised the $41 million specifically for Capital Investments. Most of the money that was raised was looking at Capital Investments that took 18 to 24 months out so in the scheme of things we've accelerated the deployment of that capital on a more expedited basis. We did it in an area of the world which was specifically identified as only three or four areas in the world that are rice growing regions, this is one of them.

And it did a number of things for us in one fell swoop that we could not have done individually at anywhere near close to the same time. You secured supply, you secured distribution, you secured regulatory approval, you secured out capital investment, you have secured a strategic location, and you secured the ability to expand and drive incredible value.

The process of having it take some of this down and do some retro-fitting and do the expansion and work through this is just a fact of life in the business that we're in.

Well it also seems a fact of life that we may have 250 or 300 million shares out by the time this stuff gets on a per share earnings basis and obviously that's diluted like heck.

Well actually, you have just a little over 140 million shares outstanding with options on top of that of about 40 million, so the number that you're throwing out would only be in place if there's additional specific projects that would call for additional capital because as I said earlier in the call, you do not need money to run the Company and you do not need money to finish the existing projects.

The Vital Living investment also doesn't seem to be generating much revenue in the near term. When is the, when do you expect some payback from that money out the door from last year?

Well, that's somewhat dependent on the other side of the equation. They're looking right now and waiting for the approval from the SEC to allow them to solicit their proxy, in which case we would close shortly thereafter, so it's in their ballpark at the moment. And we're waiting hopefully that will be within the next couple quarters.

Thank you. Our next question comes from the line of Tom Bishop from BI Research. Please go ahead.

As long as we're on Vital Living, if I could just follow-up on that, Brad, what will Vital Living then do for us? Let's say you close on it. What will it mean to the Company? What will it sell? How will it benefit us?

Well Tom, the initial reasoning for it has remained unchanged, to have a number of products that we've reformulated all to include our very high end ingredients that we get the highest dollar for. It's in the hands of thousands of individual practitioners that take those products on a regular basis. So we get instant high value recognition for our ingredients instead of doing it as a bulk sale, as a finished product and we'll realize both the finished product sale and the ingredient sale.

These sales are not going forward at the moment while this is all going on?

Well you have all kinds of issues right now, between trying to close the transaction, who controls the sales process, and ultimately, it all falls into our company's books at the time that we close the transaction. So it's really a timing issue and it's somewhat, for us to be able to control the marketing and the sales and the channel directly, that only comes really with closure of the project, and I'm hopeful again that that will happen in the next two quarters.

I mean, hopefully this will mean some millions of dollars of revenue for products going forward?

I'm hopeful that it will mean several millions of dollars of revenue for us going forward but it will happen when the project closes. And we fully expect that it will but again it's a procedural process that has to go through by them with the SEC.

Okay, and the five year, $5 million license amount that got accelerated, what was behind that, and also, when did you say you thought you'd have plants in operation in Southeast Asia ?

Potentially, the first part of the question, the part of the process of negotiating with our Indonesian partner was we came to agree to wave the interest expense through the end of the year. In return, part of that process they agreed to accelerate the payment and it's due in payable to us on or before the end of this month, which we expect to receive within the next week or two. And then the timing for the projects going up in Indonesia right now, as we stated from as far back as last June in our public statements, we expect that the plants will be up and running and ready to go at the end of this year, and operating the first quarter of 2009.

Thank you.

Thank you. We have no further questions at this time. Please continue with any closing remarks.

In summary what I'd like to say, this is the year for NutraCea to shine. This year is going to form the basis of what I believe will be a validation and confirmation of everything that we have strived for to date.

If you can meet your customer's supply demands, service them properly, you'll become integrated into the business and you'll become an invaluable partner. We continue to broaden our customer base with loyal, reliable customers, and build our foundation of core competencies, we believe we're poised to capture historical opportunity.

Grain prices such as wheat and corn are at unprecedented highs and even predicted to go higher. We've begun to penetrate the market with a viable, economical solution to rising grain prices. Never before in recent history have we experienced food shortages that we face now on a global scale.

There are six and a half billion people in the world to feed and we believe that NutraCea is the right Company with the right product at the right time to focus on these unprecedented circumstances. We believe that we have a way to address the world's food shortages, and we intend to continue to explore and execute on the many ways to improve the quality of life with our unique products in a way that is accretive to shareholder values.

We thank you for your continued support and we look forward to giving you further updates along the way and to talking with you on our next conference call, which is currently scheduled for on or before the 12th of May, 2008.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.