RiceBran Technologies (RIBT) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies 2015 full-year financial results conference call. (Operator Instructions) As reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Rich Galterio of Ascendant Partners. Please go ahead, Mr. Galterio.

Thank you, operator, and good afternoon, listeners. Welcome to the RiceBran Technologies 2015 Q4 and full-year financial results conference call. With us today are John Short, Chief Executive Officer and President of RiceBran Technologies; Dale Belt, Chief Financial Officer; Dr. Robert Smith, SVP of Operations; and Mark McKnight, SVP of Sales and Marketing.

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

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

In addition, any projections as to the Company's future performance represented by management include estimates as of today, March 30, 2016, and the Company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided in this call include reconciliations of non-GAAP financial measures to comparable GAAP financial measures, and they are available at www.ricebrantech.com on the investor relations page.

At this time, I would like to turn the call over to John short, CEO and President of RiceBran Technologies. John, please go ahead.

Thanks, Rich, and thanks to all of our listeners for joining today's call. 2015 was a year in which we delivered a significant improvement in our bottom-line results, despite significant challenges. Severe macroeconomic, political, and currency challenges in Brazil resulted in a drop in US dollars revenue in spite of a 36% increase in local currency sales.

Revenue from our USA segment was up only slightly, as revenue related to our largest customer slowed as they completed a relocation into expanded facilities to support growth and sold off inventory of old formulas in preparation for the launch of a complete reformulation of their product line in the first quarter of 2016. Our quick responses to those challenges, which I'll discuss later in this call, enabled us to produce improved bottom-line results for the full year and deliver a strong overall performance in the fourth quarter, setting the stage for significant improvement in 2016.

In Q4 2015, consolidated revenues were $9.9 million compared to $10.3 million in the prior year due to the reasons I just mentioned. Nevertheless, every other important financial measure improved significantly. Q4 2015 consolidated gross profit rose 200% to $2.7 million compared to $900,000 in Q4 of 2014. USA segment gross profit increased to 34.9% compared to 31% quarter over quarter. Brazil segment gross profit improved to 14.5% compared to negative gross margin in Q4 2014.

We achieved $650,000 in positive consolidated adjusted EBITDA in Q4 2015, with positive contributions from both our USA and our Brazil segments, an improvement of over $2.2 million compared to the adjusted EBITDA loss of $1.6 million in Q4 2014. And our Q4 2015 consolidated net loss narrowed by 56% to $1.4 million compared to a net loss of $3.2 million recorded in Q4 of 2014.

Looking back on full-year 2015, we saw very different dynamics emerge in our two business segments. In our Brazil segment, a 3.8% decline in Brazilian GDP after 15 years of uninterrupted growth, combined with a further 28% devaluation in Brazil's currency, placed an enormous strain on our Brazilian operations throughout the year. We responded in the second quarter by significantly reducing overhead and were able to achieve positive adjusted EBITDA in Brazil in the second half of the year.

While we are pleased with that accomplishment, the Brazilian economy continues to deteriorate and Brazil's GDP is forecast to drop another 2% in 2016. In response, we are taking additional measures to further reduce costs and working capital needs in our Brazilian operations while those difficult conditions persist.

In our USA segment, we were able to increase revenue slightly year-over-year despite the major repositioning of our largest customer and the continued softness in sales to traditional packaged goods companies. We increased our sales and marketing efforts and tradeshow presence, devoted significant resources to adding new customers to diversify our revenue base, and focused on improving our sales mix to target higher-value, higher-margin products. And we continued to carefully manage expenses throughout the year, delivering a $1.4 million reduction in SG&A expenses year over year.

Our success in those efforts was evident in our fourth-quarter performance. Compared to the same period in 2014, USA segment revenues increased by 15%, gross profit increased by 30%, and adjusted EBITDA reached $511,000, an improvement of $930,000 in the quarter.

As we move into 2016, we see the improvement in USA segment revenues, margins, and EBITDA performance in the fourth quarter of 2015 as positive indicators for our business model as we continue to shift sales mix toward higher-value, higher-margin human ingredient, functional food, and packaged functional food products. Later in this call, Mark McKnight will talk about sales and marketing efforts and Dr. Robert Smith will comment on operations and supply chain management in the USA segment and new product opportunities in our Brazil segment.

I'll stop here and turn the call over to Dale to comment on our full-year financial results.

Thanks, John. For the full year of 2015, consolidated revenues totaled $39.9 million compared to the $40.1 million recorded in 2014. Our consolidated operating loss narrowed by 56% to $6.3 million for the full year in 2015. That compares to an operating loss of $12.8 million in 2014.

We recorded a consolidated net loss of $0.90 per share on 9.2 million weighted average shares outstanding in 2015, and that compares to a consolidated net loss of $3.96 per share on 5.8 million weighted average shares in 2014.

The basically flat consolidated revenues was a direct result of the negative effects of the Brazilian recession and currency collapse on our Brazil segment revenues. The 28% decline in the Brazilian real versus US dollar exchange rate for 2015 resulted in a $6.7 million negative impact on US-dollar-reported results for Brazil. As a result, reported full-year Brazil segment revenues were down by 2.4% to $16.6 million. However, on a local currency basis, Brazil segment revenues actually increased by 36%.

For our USA segment, revenues were only up 1% for the full year due to the customer repositioning mentioned by John earlier. However, it's important to note that fourth-quarter revenues were up by 15% year over year, and we see that upward momentum continuing into 2016.

Consolidated gross profit in 2015 reached $8.1 million. That's an 81% increase compared to consolidated gross profit of $4.5 million in 2014. We achieved a 9 percentage point improvement, with consolidated gross profit margin rising to 20.1%.

Our Brazil segment went from a negative gross profit in 2014 to positive gross profit of 3.9% for the full year of 2015. That represented an improvement of almost $3.2 million. Because of the persistent challenges in Brazil, both economically and politically, we are continuing our efforts to cut cost and take whatever additional steps are necessary to simplify and streamline operations with the objective of reducing both management complexity and working capital requirements in Brazil.

Gross margins from our USA segment improved by 1.6 percentage points to 31.8%, with gross profit reaching $7.4 million compared to $7 million in 2014. That margin improvement is due to the continuing shift in our sales mix towards human nutrition, functional food ingredients, and packaged functional food products. From a balance sheet and liquidity perspective, we ended the year with approximately $1.1 million of cash on hand.

In addition, this past Thursday, after nearly five years of arbitration in Brazil and court proceedings in the US, we successfully obtained the release of the restricted cash that was previously held in an escrow account at a US bank. These escrowed funds, totaling $1.9 million, were placed in escrow as part of the 2008 acquisition of Irgovel, our Pelotas, Brazil, bio-refining operation. We utilized these funds to pay down $1.3 million of debt and increased cash for working capital purposes.

In February of this year, we completed a capital raise that provided net proceeds of $2.6 million. Upon closing of the offering, we contributed $500,000 of additional capital to our Brazil subsidiary, Irgovel, to support operating and working capital needs. We intend to use the remaining capital to support our US operations, including our new distribution arrangement with the Narula Group, which Robert will discuss in a few minutes.

And with that, I will turn the call over to you, Mark, to discuss sales and marketing.

Thanks, Dale. Our sales and marketing team continued to work at full speed throughout 2015 and especially during the fourth quarter. We increased our tradeshow presence, increased the frequency of face-to-face customer interaction, and launched a large number of new product development projects. We increased our tradeshow presence by almost 50% throughout the year, and RiceBran Technologies was cited in 17 different trade journals during 2015.

This focus on increasing awareness helped us acquire more than 80 new customers in 2015, and each of these new customers has purchased either our proprietary and patented rice bran ingredients and/or our Healthy Natural finished functional food products. One of these new customers is a small-footprint retail chain with stores located throughout the United States and Canada. That retailer launched four SKUs of Nutri-Cosmetics' products and is currently working with us to develop five additional SKUs.

In December, we entered into a strategic supply partnership with Kentucky Equine Research, or KER, to target the high-end equine market. Under the terms of that supply agreement, we are the exclusive rice bran supplier to KER partners.

Dr. Joe Pagan, founder and owner of KER, is perhaps the leading authority globally on equine nutrition. Dr. Pagan is the nutrition advisor to the Global Olympic Committee, the US Olympic Committee, and United States Equestrian Federation.

He has developed nutrition programs for American Pharaoh, the 2015 Kentucky Derby winner, and other world-class competition horses. Our new KER partnership has already had a significant positive impact on our ingredient sales for animal nutrition and is helping us gain traction in both the large animal and companion pet markets.

The RiceBran Technologies sales team now has strategic team members located throughout the United States with extensive experience in the market for human food ingredients, functional food ingredients, sports nutrition, nondairy beverages, finished functional foods, and animal nutrition products.

As mentioned on our November 2015 conference call, October of 2015 was the largest sales month in the history of our USA segment. With a large number of new customers and numerous product development projects in our sales pipe line, our entire team is focused on meeting and consistently beating that milestone to deliver more monthly records throughout 2016.

I will now pass the call over to Robert to discuss operations and R&D.

Thanks, Mark. As a result of our efforts to improve our supply chain throughout 2015, production and warehousing of stabilized rice bran at our California and Louisiana facilities was able to keep up with customer demand and provide necessary feedstocks to produce our patented derivatives at our Dillon, Montana, facility throughout 2015.

As part of our continued efforts to ensure both short- and long-term raw bran supplies in the US, we renewed a multiyear supply agreement in December with one of our large milling partners in the Sacramento Valley. Talks are ongoing with other mills to add additional stabilization locations in California and in the mid-South as we plan for future growth in sales of our stabilized rice bran and derivative ingredients. However, with the improving drought conditions in Northern California, we believe we currently have adequate supplies of raw bran for the foreseeable future.

Similar efforts were underway late last year to secure and stabilize raw bran in Brazil for oil extraction and for production of value-added food ingredients. A stabilization facility using RBT extrusion technology is now producing full-fat stabilized rice bran at a cooperative located 500 kilometers north of our Pelotas, Brazil, rice bran bio-refinery. That newly established facility is producing a high-quality and low-acid bran that is now being used to supply Irgovel with stable, low-acid rice bran for oil extraction and will allow Irgovel to enter the Brazilian food market with stabilized rice bran and rice bran derivatives when market conditions improve.

In February of this year, we entered into supply agreements with Youji Company Limited, a subsidiary of the Bangkok, Thailand-based Narula Group of companies. The Narula Group is Thailand's largest producer of organic jasmine rice and a producer of other organic agricultural products, including organic chia, kale, and coconut, among other products.

Under the terms of the agreement, RBT has exclusive rights in most major global markets to sell organic rice bran products from the Narula Group and has established a marketing joint venture to distribute non-bran organic products in North America. We expect sales of organic bran and other organic products to begin in the second half of this year. A portion of the organic rice bran received under these agreements will be sent to our Dillon, Montana, plant for processing into certified organic rice bran derivative.

I'll stop here and hand the call over to John for some closing comments.

Before opening the floor to questions, I want to make a few summary comments on each of our operating segments. Our Brazil segment will continue to be a challenge in 2016. In the face of expected continued economic deterioration, we will have to carefully manage our way through a difficult economic and political environment that continues to put pressure on our Brazil operations. Nevertheless, with our expansion complete, we are able to operate the plant at and above post-expansion target levels of 300 tons per day of raw rice bran processed, so we are in a position to respond quickly when economic conditions in Brazil improve.

Our USA segment is well positioned to take advantage of strong and improving trends in the natural, organic, and functional food markets in the US and other developed markets globally. According to the next forecast 2016 published by New Hope Natural Media, sales of natural, organic, and functional foods reached $110 billion in 2014, or 15% of total US food and beverage sales, are the fastest-growing segment in US food and beverage market, and are experiencing double-digit growth. Within the natural, organic, and functional food segment, non-GMO products are gaining ground even faster.

RiceBran Technologies' proprietary and patented products are non-allergenic, gluten and soy-free, minimally processed, all-natural, non-genetically modified, and vegetarian/vegan, meeting all of the major criteria demanded by consumers in the fastest-growing segment of the US food market. The agreements reached with the Narula Group set the stage for further growth by adding organic rice bran and other Healthy Natural and organic products to our existing product offerings.

This puts our Company in an even better position to take advantage of rapidly developing consumer trends away from dietary supplements and toward healthy whole food nutrition through functional foods and ingredients. Our recent capital infusion in February will provide working capital to take advantage of these market opportunities in coming quarters.

Helping us further as we head into 2016 is the marked improvement in the drought situation in California. The El Nino weather system has delivered considerably more wet weather through this year's winter, especially in Northern California, where rice is grown.

The significant rain and snowfall has lifted the state's three largest reservoirs to above-normal levels and has brought the snowpack to nearly average historical depth. The rice industry expects water restrictions in the area will be reduced this season and plantings are expected to increase for the first time in a number of years. California bran prices have also moderated, creating a favorable tailwind for our USA segment in 2016.

The momentum in our USA segment in Q4 of 2015 and the strong start we are seeing in 2016 validate the market opportunity in natural, organic, and functional foods. We expect our USA segment to continue to build in line with those market trends in the first quarter and throughout 2016.

That concludes our prepared comments. Operator, at this time, please open the call for questions. Note that we will limit callers to one initial question and one follow-up.

(Operator Instructions) Anthony Vendetti, Maxim Group.

I was just wondering, Mark, if you could talk a little bit more about the new customers that were added. You said 80 new customers added in 2015. And also, John, you mentioned that things are now complete with that large customer and it relaunched the products, the reformulated products, successfully in February. Can you talk about what that could mean for the US segment, which seems to be growing faster now and a little bit ahead of our expectations?

Well, Anthony, thank you for that question. RiceBran Technologies, as many of you know, has unique and proprietary healthy ingredients. And part of our challenge as a company has been getting this story out. Food scientists who went to school 15, 20, 25 years ago have never really heard of rice bran in the context of a healthy functional ingredient.

So I believe that our Company has done a great job the last two to three years of really getting the message out. We increased our tradeshow presence by almost 50% in 2015 over 2014.

Mark, just to give them a sense, how many tradeshows are you guys doing in the next 60 days?

In the next 60 days, we probably have 26 or 27 events that we will be at, our sales team. So we are talking about going from 17 to 20 events in 2013 to close to 35 to 40 in 2014 and almost 60 in 2015.

And we will double that this year.

So the message that all-white rice starts as brown rice is something that most people don't know. Everybody knows that brown rice is healthy and white rice is high glycemic and not nearly as healthy as brown rice, but they don't know why. And the story of RiceBran Technologies is a simple story. We capture the nutritional part of brown rice and we turn it into functional, healthy ingredients.

And I feel like that story has been very effectively communicated. Our marketing group has done a fantastic job, both our in-house marketing team and graphic art team, as well as consultants that we work with. And the story is engaging to journalists.

And that's where the articles come from. We were published in 17 trade journals in 2015. Those are journalists who thought our story was compelling and interesting and they wanted to write about us. That's significant. And I feel like our --

And those are unpaid.

Those are unpaid. Yes, those are unpaid. So I feel like that strategy of getting our core message out has worked. June Park and Patrick Kuruc called me earlier today because they have been at the Clean Label Conference in Chicago, Illinois. Our Company sponsored the Clean Label Conference and they had approximately 300 industry executives listening to that story of our nutritious, healthy rice bran ingredients.

So those 80 customers represent a lot of food ingredient customers who are interested in putting rice bran into formulas such as breads. We have one, a large manufacturer of confectionery products that are looking to create more healthy confectioneries with our rice bran. We have one of the largest sprouted grain bread companies in the world who has started to put our rice bran into some of their sprouted grain gluten-free formulas.

So we are getting the message out. And we are starting to see that in these customers that are coming on board. The only frustrating part from the sales team is we don't control, at the end of the day, how much they spend with us.

But we do control our message and we do control effectively communicating that message. And I believe that these 80-plus new customers are a direct result of that communication. And I see the same thing happening in 2016.

So 80 in 2015. How many new customers did you add in 2014?

Approximately 50.

Okay.

I think it's fair to say that the momentum in the USA segment that is clear in Q4 of 2015 remains -- is actually getting stronger as we move into 2016.

Just one little financial perspective on your question. Obviously, everyone would like to know, and if we had a crystal ball that worked, we would know, but how much in revenue does this new customer base -- what's a reasonable expectation?

And it's very difficult to predict that because you could have some extremely large food companies that you guys would know the names of if we named them, but they typically start with one item and put our stuff in it. If they have success with that item and it functions and works well and accomplishes whatever it is they are trying to accomplish, they will roll it out to more SKUs. So it takes a little bit of time to see these new customers move the needle from revenue.

Okay. That's helpful, thanks.

George Johnson, RiceBran.

John, I'd like to combine some old deals with new deals. This Narula deal sounds interesting. Kind of question is the price of this red rice bran; seems very expensive. But will that be tied into some of these old deals like Zurvita, Beneo, NutraBio, and so on? Are they going to maybe increase sales in those areas?

Yes. George, I think the organic brand that comes from Narula, whether it's the red bran or the jasmine bran, is going to be targeted at customers who are not traditional customers of our nonorganic products. There may be a little bit of crossover; we will have to see how that sorts out.

But as you can imagine, if you look at that -- so the next forecast for 2016 is an industry forecast that's produced by New Hope Media; I refer to it in my prepared remarks. And it's a very extensive forecast of the natural organic functional food markets -- humans, pets, etc. There's a huge amount of data in there.

What we know is that the market for organic is growing double digits. There are a lot of people knocking on the door. We've got to figure out what the best combination of products and customer for us is. As Robert says, we expect a good portion of the organic bran to be moved through Dillon to produce organic rice solubles and RiFiber and RiBalance and even derivative products, our P-35 protein products and other thing.

So it may not be the usual suspects, the same customers that have used the nonorganic brand. But in some cases, there's clearly interest, and in some cases, there will be some crossover.

Okay. And a little bit more on old deals. Is rice lecithin in candy, is that still on the table with anybody still testing that? I think the rumor was Cadbury had it, just for example, as a big company.

Well, so we don't respond to rumors. No, I'm teasing. We are selling rice lecithin out of Brazil. Now, the bulk of what we are selling is going into Europe. It's not going to a single customer. But there is absolutely interest in rice lecithin because it's non-genetically modified.

As I mentioned earlier, that's the fastest-growing segment of this whole natural foods market is the non-GMO piece. And so there's a lot of interest in that. And we are selling what we are making, yes.

Okay. And Wilmar is dead?

No, Wilmar is not dead at all. There's a lot of work being done on product development. Everything going through Wilmar is certainly not moving as quickly as maybe we would like to see. But for right now, our focus is on the US market. There's no question that the US market for natural organic functional foods is the fastest-growing market in the world.

I don't know if you guys connected the dots, but sometime last year, off of a similar forecast, we had said we thought that that natural organic functional food market in the US would hit $74 million in 2014. And it hit $110 million. It's totally outgrowing itself; it's exploding. And so we are very, very focused on that opportunity in US market and we are starting to get some very nice traction.

We are seeing that interest also coming from Europe, coming from some of the developed, the advanced economies, coming from Japan, Korea, Taiwan, etc. And interestingly, we are seeing a lot of interest in some of our derivatives from people who would like to bring it into China.

Now, that's something that we are working on through the Wilmar guys. It's a little further out than some of the immediate stuff here. But there are opportunities in all of those markets. And no, Wilmar is not dead.

Okay, I've taken up enough time here. I'll let somebody else call in.

Harry [Glodshaw], a private investor.

I must say I'm somewhat disappointed that revenue didn't really grow from last year. In fact, it dropped. I guess the good news is that the net loss also dropped. But looking at revenue over the last four years, it's basically flat. Yet, the share price has been diluted by over 90% due to a large amount of CapEx expending.

And I'm wondering what you can do to alleviate the share price. We are just not seeing the growth. We've seen lots of spending in expanding capabilities, but the sales revenue has not increased to meet that capability.

And secondly, last quarter, you mentioned some booming first two months of the quarter, yet the fourth quarter wound up flat to down and as well as not hearing any reorders on the Nutri-Cosmetic side of things. Is that just such a slow growth area? Or is there some hope for that?

So Harry, you have several points. Let me see if I can address them one by one. Maybe I will do them in reverse order. I don't think we've said there weren't reorders on Nutri-Cosmetics. I'm not sure where the comment came from. But we certainly do have reorders on Nutri-Cosmetics. And that business is starting to build and we are happy about it.

If you look at the quarter, we also mentioned that on the USA segment, the quarter is up 15% year over year. We are actually very happy about that as well. We have very nice momentum coming into this year. There's no question that on a consolidated basis, the sales were flat. We were $39.997 million versus $40.1 million. And yes, they are modestly down.

I think Dale tried to explain in his prepared comments that a lot of that is related to currency in Brazil and the investments we are making in Brazil. I think the real was BRL1.8 to the dollar, and through the end of the year, it was BRL3.7. It reached BRL4 or BRL4.17. So there's a huge currency impact there.

That doesn't -- I'm not making excuses for the fact that revenue is not up. We are not at all pleased that revenue was not up in the full year. And we are focused on driving revenue and actually driving profitable sales.

But if you look at -- there has been a lot of capital investment to expand Dillon, to expand the Healthy Natural plant in Dallas and, of course, to expand the operation down in Brazil. With the problems down in Brazil, that currency deterioration means we were up 36% for the year down in Brazil, but we are actually down in US dollars because of the currency moves.

So there are moving parts. Brazil is a challenge. It's going to continue to be a challenge in 2016. But nevertheless, when you look at what's going on in the US side of the business, our US segment is trending in line with the market opportunities and we expect that to continue and even built into 2016.

For Brazil, we are in the foxhole. Right? Brazil is very, very difficult. We are hunkered down, working to ride out the storm. But as I said in my prepared comments, we completed the expansion of the plant down there. And when things start to turn economically, we will have the opportunity to respond quickly to improvements in the local economic environment there.

Would there be any benefit to selling off the Brazilian operation and using those dollars to expand where it's really profitable?

Harry, those are absolutely fair questions. They are the kinds of questions we discuss regularly at our monthly board meetings. And when you look at a situation like the one in Brazil, you have an economy that grew for 15 years. Brazil was one of the BRICs, a rising star, all of that kind of stuff. And then it fell off the end of the table.

Yes, the situation is ugly. But my sense is, and I think this is a sense that's shared by our Board and the management team here, now is not the time to sell. The plant is stable. It's expanded. It's very stable. It can run at 300-plus tons a day.

There's some dislocations that come from these economic events that are maybe not so obvious to people. Probably the biggest dislocation comes from the fact that when the currency deteriorates, rice farmers in Brazil have an incentive to export their rice in husk because they get more money for it, rather than selling to local mills, who mill it and give us bran.

Right now, because the currency has devalued so significantly, there's a huge amount of rice being exported in husk. And the availability of bran in Brazil is very tight. That's driven a little bit, as well, by the seasonality. Brazil is just coming into harvest now. They will be harvesting over the next six, eight weeks. There will be more bran, that sort of thing.

But the economics do drive dislocations into the domestic economy. And one of the things we are challenged with right now is difficulty getting all the bran we would like to have because rice is going out of the country in whole-grain.

So if the currency -- the currency has started to move back the other way just a little bit recently with the announcement that they think they are going to impeach the President and that she maybe out by May 4. Right? Who would think that is good news? But the market actually thought that was good news because the market likes stability.

So we saw the currency move from BRL4.17 at its all-time low to, I don't remember, BRL3.59, BRL3.65, something like that, over the last couple of days. We see it every day and it bounces around. But who'd have thunk that impeachment would drive the Bovespa up 6% or 8% and the currency up? Right?

So there's some real odd things going on there, for now, Harry. Specifically to your question, we do not believe it would be an appropriate time to sell the business. But if things get worse and worse and worse, at some point in time, you'll say doesn't make sense to continue to invest in it. But we are not there at this point in time. But those are fair discussions to have, and we have them on an ongoing basis.

Yes. Would you consider temporary shutdowns there to save money as long as you don't have product available for processing and then perhaps --

Harry, those are day-to-day operational things that the management deals with. We are very involved --

^

Okay. I'll pass on, then.

Harry, we do all of those things. We do all of those things today on a regular basis in response to bran availability and other things that are going on in the market. But those are good questions as well. And yes, we consider all of those.

You mentioned 17 trade journal articles, yet I haven't seen a single one in the financial arena. Don't you think that would help to bring that message out that lots of exciting things are happening?

Absolutely. Next week I'm going to be in New York actually presenting at an institutional investor conference that Maxim is putting on. We'll be at -- presented at a conference in Florida put on by SeeThruEquity and The Brewer Group three or four weeks ago. We will be at the Markham event in New York at the end of May, beginning of June. Yes, we think those things are important.

Okay. And one last question is are you at a point where you are ready to make projections again for the coming year? Or have you abandoned that altogether?

Harry, can you tell me what's going to happen in Brazil in the next six months?

Yes. The sun will come up and the sun will set.

(laughter) We can make that prediction, yes. No, we are not.

Very good.

Gregg Hillman, First Wilshire Securities Management.

Just a couple things. For your Brazilian sales, what percentage of your Brazilian sales are into the Brazilian market right now?

Roughly 63/37. 63 domestic, 37 export.

Okay. And in the -- those machines that you have that take the husks off or that create the rice bran, how many do you have now? And how many are being utilized right now and what's going to happen to the unutilized ones?

So we have extruders operating in Brazil, in the US, and in China. We have, for the most part, multiple extruders in all locations except the one we just opened up down in Brazil. We always have a number of extruders -- these are made in-house. So they are a trade secret. We send parts and pieces out to be made. We have a stock of replacement -- wasting resources, but we have a stock of replacement machines that we make available to these guys.

And so when we look at locations, different locations may take two, three, four, or even five of these things set up in series to produce. But some locations maybe we only need one or two. So it depends on the size of the mill. It depends on how much bran is available. It depends on a lot of different things.

But we don't take husks off of -- just to be clear, we don't take husks off of rice. The mill buys the rise. They de-husk it. They mill it to take the bran layer off. And what we do is we intercept that bran layer just as it comes off the white rice endosperm and we run that through our extruders immediately to deactivate the lipase that causes it to degrade. So what we are trying to do is capture the highest-value component of the rice kernel as soon as it's milled and while we can retain the vast majority of the nutritional value.

Right. But how many of these extruders are unutilized right now? How many -- what's the total number? And how many are not being used currently?

We don't think of it that way. We have backup -- we have backup parts and pieces that we can assemble to make a new extruder to date. Right? Take a week to build one. But we don't view them as unused. All the extruders that are installed in all the locations are working. None of them are unused.

Okay. And then if I was going to ask you what would you say your constraints to growth are at this point?

The Brazilian real is -- I'm saying that a little bit facetiously. We grew a 36% and our US dollar sales dropped. So obviously, the extremely high cost of trying to hedge a position in Brazil makes it unrealistic. And as result, we are exposed to the movements of the currency. So that's a problem with the operation down in Brazil.

Right now, when we look at the USA segment and the opportunities not only in the North American market, but in Europe and Asia, it takes time to sell in. But we're actually quite excited about where we are. The business is gaining nice traction, moving forward quite quickly in functional food ingredients, packaged functional foods, as well as our traditional rice bran ingredient sites. So all of the pieces of the business are starting to move nicely on the USA segment side, and we are excited about that.

We are also excited to start adding organic because that's something we haven't had in the past, and we have our customers constantly pushing us to find sources of organic. So the deal we just signed with the Narula Group in February will be a very nice add to the product portfolio and it will start to add to revenues and margin in the second half of the year.

Okay. And can you get traction with a major customer and not do a press release on it? Like for this year, if something starts happening, like they have a product that's really selling through well and then it's causing your orders, your sales in the United States, to go up a lot? Would you have to do a press release or can you just [with that just] --

If they'll let us.

Yes, Greg. For the most part -- it's interesting and I'll give you a couple of examples. We have stuff. We have, as Mark said, a very, very large number of product development projects in the pipeline. So we measure a bunch of things. Every week -- daily, we are tracking sales and weekly, we are tracking sales and customer visits and all of that.

But Mark mentioned a number of 80 new customers who bought stuff this last year. Those customers range from very small single-store health food stores to multibillion-dollar food companies. But they all start off the same way. And so when you look at what happens, we get small initial purchase orders.

Where do those purchase orders come from? They come from product development. So we look at our product development pipeline at any point in time and we say, how many -- who are the customers on our target list and what project do we have in the pipeline where we are actually developing product for a specific target for those customers? And right now -- I don't know; the last one we saw, Mark, we had more than 60 product development projects in the pipeline, aside from the 80 new customers.

So when you start to look at how those things actually convert, they convert as the product development project turns into a purchase order. Now, we have -- I'm doing this from memory, but I'm going to say we have at least six product development projects with customers with sales that are in the multi-billions of dollars. But again, you are developing for a specific product and you go forward.

None of those people -- we signed -- before we start, we sign confidentiality agreements, nondisclosure agreements. They specifically tell us we can't use their name in any of our advertising, we can't share any of their product formulation data, etc.

And just imagine, right -- and that is their arrangement, by the way, with all of their suppliers. We have one project where we know the company has 10,000 vendors, all of whom have signed the same agreements that we've signed. And we were one of 32 of those vendors picked to develop ingredients into healthy snacks for them. They are no more going to let us use their name then they are going to fly to the moon.

The different situation occurs -- we recently issued a press release that Mark talked about earlier with Kentucky Equine Research. In that situation, you have a company which is clearly at the top end of equine nutrition globally. Dr. Pagan is the man. And our association with him is great. But that's more of a strategic partnership, where we mutually agreed in advance that if we got the deal together, we would be in a position to make announcements to the public.

So it really depends a lot on who the counterparty is and what the nature of that relationship is. But for the big guys, imagine that -- it doesn't matter who it is, Unilever or Nestle or any of those guys -- allowed their vendors to use their name in marketing and advertising. They would be out hundreds of thousands of times a day, and they just don't permit it.

Okay, great. And then finally, Dale, could you just review the financial situation just a little bit in terms of your fixed and working capital requirements necessary to support growth? And that financing you just did and the money that's coming in with that court settlement, whether that will hold you well for this year with your burn versus your cash, given the lumpy nature of the quarters? Can you just have the bird's eye view of that whole thing?

Well, the summary view of it -- I would refer to my prepared comments in the sense that we feel like we have adequate working capital right now going forward. We've got over $3 million in cash in the bank as we sit here today and a working revolver line that has some availability on it. So for US purposes, we feel like we've got what we need going forward.

You mentioned burn, and I would say that we are at a point now where we are not burning cash here in the US. We may have one nostril above waterline when it comes to looking at EBITDA and debt service. We've already, as everyone I think who has been following us recently knows, we just underwent spending money last year on CapEx and improving our plants. So we don't have any major capital projects on the drawing board right now. So we have already done that.

And actually, I'm glad you raised that point. I do think it's important to make one point is that the CapEx spending that happened at the plants last year -- you have to remember that for almost four years, or at least my tenure, for sure, we spent nothing at our plants on CapEx for four years. And we were just trying to hang in there and survive the economy and everything else and coming out of a restructuring effort and so on.

So while yes, we spent a couple mil or more at our plants, at that point in time, that was the backlog of a lot of things that really needed to be done, on top of the fact that regulatory laws were changing and we have to respond to that as a food manufacturer. We've got to meet those regs. So all of those things were addressed last year on CapEx.

The good news is that we don't have anything major going forward. We feel like we are well positioned. And the bottom line is that we just need to sell more and fill capacity. It's as simple as that, and we will be fine.

Okay. And how much is your line, your bank line, right now?

Well, it's an $8 million facility. There is a term loan that we just paid down $1 million, down to $1.5 million. And then we have a working capital revolver that's capped at $3.5 million and it's an asset-based lending facility tied to inventory and receivables. So obviously, that fluctuates.

Okay. Anyway, it's a situation. Given what's happening, you would expect just things, the base to strengthen, the financial base of the Company, so you could maybe do more things by the end of the year?

We'll cross that bridge when we get to it, depending on what's going on. It's hard to say.

Yes. But Gregg, just generally, what we saw at the end of the year in Q4 on our USA segment particularly is positive. And we are seeing the same thing as we -- maybe the same thing on steroids as we move into the first quarter of this year.

And then Brazil -- and can you get the Brazil burn down? Is the cash -- I take it you're trying to manage that downward, whatever the burn is in Brazil right now?

Brazil -- so we all lived through 2008 and 2009 in the US. And we understand what happened to the economy, to the banking system, availability of financing through lenders and all of that kind of stuff. Brazil is in that mode right now. They actually didn't live through that because they were riding the tail of a big oil find, huge investment, one of the BRICs, growing at 5%, 6%, 7% per year, whatever their deal was. So they didn't suffer at that time the way the US did.

In Brazil today, everybody talks about the commodities supercycle and the fact that global commodities prices are collapsing, the slower growth in China, oil prices have come off hand in hand. Brazil is now going through its -- this is my view, right? -- is going through its version of what we lived through in 2008 and 2009. That is a very, very difficult situation for everybody, not just for us. But we are suffering along with everybody else.

And our approach, I mentioned earlier, is to hunker down, manage the heck out of cost, expenses, overhead, staffing levels, all of that, and work our way through a very difficult period. We will have to just see how all of that stuff sorts out.

My wife tells me my crystal ball is made of onyx, so I'm not going to forecast the Brazilian economy -- back to Harry's question from earlier. But our view is we can hunker down and ride it out as we sit today. We saw the currency actually appreciate very significantly this last couple of weeks. We saw the stock market start to make a comeback with some of the things that are happening in the local political environment. So if things improve, that's good for us.

If things fall off the table another notch, then we are going to have to go back and ask the questions that Harry was asking earlier. Is it better to sell that off, do something else, etc.? That is not where we are today; I want to be 100% clear. But we can't forecast any better than anybody else where this is going to go. We didn't forecast that oil was going to go from $110 to $80 to $50 to $30. Right? And now we are all living with that.

So where are we going to go in Brazil? We don't know. We are going to manage it day to day. We are all over it in terms of the way it is being managed. It is being managed very, very closely on a daily basis. But where is that going to take us? I don't know. I would love to say we are at the bottom and headed up. And if that's true, that's a good thing. But I can't say that.

Okay. Thanks for all of your comments.

Anthony Vendetti, Maxim Group.

Yes, just a couple quick questions. Dale, you mentioned that the number of shares -- did you say 9.2 million for the fourth quarter?

Well, that's the weighted average shares utilized in calculating EPS. We currently have approximately -- I'm going to round up to the nearest 100,000. We have 10.5 million shares outstanding right now. And that's on the face of our 10-K, by the way.

Right, right. Okay.

Anthony, that is also post the deal that was done with the Narula Group. And just to be clear, the way that deal was done is they are giving us product effectively at cost. There's a credit for an agreed margin. And they have -- the essence of the deal is they have the right to buy shares at $2.80 a share based on performance.

So the number that Dale just mentioned, which is the 10.5 million shares, includes -- I'm going to say this; Dale, you will correct me -- 950,000 shares related to the Narula deal that are actually set aside in escrow, technically issued because they are issued into the escrow, and they are sitting there to be earned over time as this deal performs, at a price of $2.80 a share. Does that make sense?

Yes, yes. So Dale, just for the fourth quarter, the 9.2 million used to calculate the loss per share, what was the fourth-quarter EPS number?

Anthony, I would have to calculate EPS for a quarter. I would have to look. I don't know.

Okay. But $0.90 was the loss for the year, correct?

Correct, that's correct.

Okay. And then just a question on the margins. Looks like your gross margin was better than we expected. Is that due to lower costs for raw rice bran or is that a combination of lower cost as well as you are getting higher prices for your products?

Well, it's a couple things. It's not any one big thing; it's two or three combined. Bran costs last year slowly and steadily came down. And I believe, if I had the chart in front of me -- I believe, from memory, the second half of the year it just remains stable. And to was -- they were pretty good prices, all in all. And that's California and Louisiana both.

What we've noticed here just in the last -- early part of this year is that it's ticked up a little bit in California. And in Louisiana, it has ticked up, oh, I'd say, I don't know, 10% or 15% above what it was near the end of last year. So we're keeping an eye on that.

So one item was bran costs were a little better than we had budgeted all of last year. The other thing is that it's a sales mix issue for us. The more and more you shift towards our derivative products and the more and more we formulate and make finished product in our contract manufacturing group that utilize high inclusion rates of our ingredients, where we kind of get a double impact, if you shift towards those items, then our margin goes up as well.

And the third issue, which is one that most people don't see, but for me sitting here in my seat is something I constantly monitor and keep an eye on, is the capacity utilization and use of our manufacturing facilities that we own. And that would be primarily our Dillon facility and our Mermentau, Louisiana, facility.

When we are running those plants efficiently and driving good volume through there, we do well. And the reason that that is more true for us than maybe your classic widget maker is that we have a certain sunk fixed cost of running those facilities with labor and people. And whether we are running all out or at half, those costs don't change much.

So by running a lot through those facilities, we see a nice uptick for our margin. And that is clearly what we have said for awhile now in our conference calls that we are attempting to do. We put some money into our facilities. We spiffed them up and increased our capacity, improved some machinery issues that we needed to deal with. And we need to fill that capacity. And that's --

And as you mentioned earlier, we upgraded our compliance with the new --

Right.

-- With safety modernization [upgrades], which is significant time and people spend.

So Anthony, those three items are what really are moving the needle for us.

Okay, great. Thanks, that's helpful. And just lastly, on the Narula Group deal that you struck, that sounds like, based on everything that we've looked at, looks like something very positive for your Company. Was that a competitive bid? Looks like a good win for you guys.

It's actually a good win for us. And it was -- I won't say exactly a competitive bid, not in the sense that you think of what Unilever does when they put out a bid for a raw ingredient. But they had options to tie up all of their organic with multibillion-dollar companies, and they actually decided to go with us because there's, I would say, a philosophical meeting of the minds.

And when I say philosophical meeting of the minds, one of the things that we like about our business is we are taking a waste product that you can do a lot of around the world, you can do a lot of good things with it around the world, you don't need any more arable land, you don't need any more water, you don't need to put any more fertilizer out in the planet to run down the rivers, go in the ocean, and all of that kind of stuff. We can take an existing resource and convert it into a bunch of very healthy, cool stuff.

The guys on the other end of this, Arvind Narula, who is the founder, is very committed to what we would all describe in our markets as social impact investing and making sure that you do good and do good. So make your businesses perform and do well and put some of that back into the communities that you are working with to enable your companies do good.

So I think the fact that we have the same philosophical approach to business and the environment and these economies generally was quite -- a big part of the decision. He could have done a deal with much, much larger, much stronger financial partners, and decided to work with us. And we are very happy about that. We think we have a great partner.

And Anthony, I think a very important point for all to keep in mind, which goes back to your earlier question, is that those shares that are in escrow have to be earned. And they will be earned based on this deal performing. And if it didn't perform, then the shares aren't going to be earned.

So one of the internal debates that came up when this deal first started taking shape in this form was are you really going to give 950,000 shares to somebody? And the answer was absolutely yes, because if this thing does what we hope that it will and he earns all of those shares, it will be a win-win-win all the way across the board for everyone.

And the ultimate outcome of that -- and Dale, I'm way out of my league here, but I'm going to say it -- is that assume that over the course of the first six, 12, 18, 24 months all of those shares are earned, that will result in an increase in our net equity of $2.5 million, $3 million because the effect of that transaction is that the Narula Group is buying equity at $2.80 a share.

And Anthony, we are buying product that is ready for sale, unless we decide to make a derivative out of it. So this is not a cost issue for us.

Thanks, guys.

Gary Herman, Strategic Turnaround.

Just a quick question. John -- the last conference call, back in November, I'd asked you, and I'll quote, do you anticipate the need to raise additional capital at this point in time, considering what you have in the bank and the anticipated collection from the arbitration award?

In November you said, quote, as we sit here today, no. With the good performance you had in Q4 and based on your response to my question at that time, why the need to do a round of financing last month in the hole as deep as you did?

I think there's two pieces to that puzzle, Gary. The first one is we see a need to have additional working capital to support the growth we see in the business. And the deal that we did with both the Narula Group and with KER is going to add some working capital requirements to the business.

And quite honestly, the release of those escrow funds dragged on and on and on and on. And you never know -- we spent five years trying to get them. And you never know when they are actually going to release. And we thought it appropriate to have some capital defensively for the situation down in Brazil.

Okay. So if I was to ask you the question again now, with what you have in the bank today, the $3 million, and where you anticipate the business is going, do you believe as of today, as we sit here today, you are good for capital for the remainder of this calendar year?

We do.

Okay.

Michael [Siegel], a private investor.

About Brazil. So if I remember correctly, you were running at 200 tons per day in November. Are you saying that run rate went down currently?

What's happening in Brazil these days is really a function of what is happening with the currency and in the market generally. Bran availability is literally a day-to-day issue, depending on how markets and currencies are moving. To the extent -- pardon? Michael?

Another issue. It was like 200 [day still] or down 150. What is it?

That isn't the way the business works. So think about an active market on the commodity side where, because of international prices this week, nothing is exported, everything has to be pushed into the local market, and next week everything is exported and nothing is available for local milling. And these are the kinds of swings we're getting in Brazil right now.

So we will have days -- we had a number of days recently where we get some big chunks of bran. And the good news is we can run the plant very stably at and well in excess of 300 tons a day. But it may turn out that our traditional -- I'll give you an example.

Recently, very recently, with the run-up of the currency to over BRL4 to the dollar, the guys who were selling year and a half or two years ago would have -- just think about it in these terms. A year and a half ago, the currency was BRL2 to the dollar.

The local miller, the local rice grower, could grow his rice in-house. He could export at BRL2 per dollar, or he'd sell into the local market. At some level, an equilibrium develops because Brazilians eat a lot of rice. And all of that sorts out so that there's enough rice either imported or produced locally, but mostly produced locally for the Brazilian market.

When that rice is produced locally for the Brazilian market, Michael, the millers buy from the growers, take the husks off, mill the bran off, and we have bran to run our oil facility. So 18 months ago at BRL2 to the dollar, you have a certain dynamic.

When the currency goes over to BRL4 to the dollar, the same grower says -- and that's an exchange rate issue only, right. But the same grower says I get twice as much money exporting. So I'm not going to sell my rice to the local millers. Or if I do, I want the same price I can get internationally if I export my rice.

So those growers, those rice growers over the course of the last three, four, five, six months have exporting their rice in wholes, which means no milling. And if there's no milling, there's no bran. What that has resulted in is real dislocation and underutilization of capacity in the rice milling market in Brazil.

We have several of our traditional suppliers of raw rice bran, the guys who normally buy rice locally, take the husks off, mill the bran off, who have temporarily closed their operations down there because they can't afford to pay the BRL4 per dollar equivalent compared to the BRL2 they paid a couple years ago. They can't make any money, number one. And number two, they can't push it through the local supermarket chains at those kinds of prices because people won't pay those prices for rice.

So there are literally millers shutting down operations in Brazil, the smaller guys and the less financially stable guys. A lot of rice is still being milled, but the prices are moving around. The availability is moving around. So we may get 50 tons or 100 tons one day and 350 tons the next day. And it really moves around like crazy.

And as Dale just commented, at the same time, the Brazilian economy is living through our 2008-2009. The banks are pulling in their horns. They are pulling back financing like crazy to everybody, both to the mills, to us, to the supermarkets, everybody else. So there is a real version of the banking crisis we went through.

And with all of that going on, what we get from day to day is a function of what mill is operating, whether or not they are getting rice, if they are traditional vendors or exporting. And it's a real crapshoot. So that is literally what we are living with on a day-to-day basis down in Brazil, what our team is living with. And we are averaging slightly under 200 tons a day right now for the last month or so.

So how are you dealing with that? Do you run short shifts, do you have days off, you have the plant closed for a day? Or how do you do --

Of course. We do all of those things and many more.

And overall picture, (inaudible) rice is a basic staple foods in Brazil. So are you saying people in Brazil buys less rice right now than before? It doesn't make sense to me. They still have to eat. It's not an expensive food (multiple speakers).

Well, you know, it may or may not make sense. But at the end of the day, unemployment is going through the roof, inflation is going through the roof, people are putting their hands in their pockets and trying to figure out how they can save money and do more with less money. And part of that is they are not willing to pay increased prices for rice. So they probably eat a little bit less. Right? And that's the reality of what's going on.

What happened in our economy in 2008-2009 when this economy collapsed. What happened to consumer spending? Same thing is happening in Brazil.

And about -- are you guys still look for another supplier, like the Paraguay, like that deal would be 500 kilometers away? Would it make sense to put extruders in another couple of mills to get --

At some point in time in the future, strategically it makes sense, Michael. But remember, there's a complex I'll call it an ecosystem in the rice milling industry in Rio Grande, where we are. The entire industry is being severely impacted. The amount of milling that's happening in those mills in southern Brazil is being reduced dramatically because the rice is going out in husks.

And so people have lots of excess capacity. They are laying off people right, left, and center in the big mills. Some of the smaller mills are shutting down. They have a huge recession in Brazil. I don't know if you want to call recession or depression, but minus 3.8% GDP is a big deal. And 2016 is a big deal as well; it's going to be another -- depending on who you talk to, minus 1%, minus 2%, minus 3%, minus 4%.

But this is a complicated situation. As you guys can imagine, while we let everybody know that last spring in the second quarter we went through a major downsizing because we said this is getting bad, we need to be positioned for it. That gave us a fairer outcome. We had positive EBITDA in the last two quarters of the year down in Brazil.

But as things have continued to deteriorate, and we don't see them getting any better in the short term, we are going through additional rounds of cost-cutting and downsizing because we don't see things getting better. And we see things very complicated in the milling world there.

So our objective is to hunker down, ride out the storm -- it is a real storm in Brazil -- and be in a position when things stabilize and start to move up to take advantage of the investments that we made in the plant down there. We've produced spotty. Right? When we have bran available, we produce very nicely at 300 tons a day or more. The plan operates very nicely.

The problem at this point in time is not the plant or the ability to run the plant at that level, it's a combination of rice being exported, limited amounts of bran, the banks not financing the millers or us or anybody else. The market is extremely complicated. So we manage it every single day. We do the kinds of things that you alluded to and that Harry alluded to.

Right now, we are not running on Sundays. We are cutting off shifts here and there. We are doing all sorts of things to appropriately manage those assets and to protect those assets so that we can take advantage of them at the point in time when the economy turns. Like all other economies, it will turn. The question is how long does it bounce along the bottom. And that's where my crystal ball fails me.

Yes. So you say in Rio Grande, there are no big major mills that you could step into to get [extra] bran? You'll treat too much [cover forward] --

Michael, that is not the way the industry works. I don't want to give you a simplistic answer to a question that would mislead people. There are 235 mills in Rio Grande within 700 kilometers of us. We deal with between 35 and 40 at any given point in time. With each of those mills that we have relationships with, they may or may not be milling today if their growers decided to export instead of sell to them.

So there's a huge amount of daily management and complexity to this, and it's not a question of walking down the street to the next mill. But we have a very, very strong management team in place that is dealing with that complexity as best they can under very difficult circumstances. Brazil hasn't seen anything like this for 20 years. Right?

But if you could get stabilized bran, which sit for couple weeks, you could kind of manage it much more efficiently if you could get extra [gold] so you could pretty much turn it around. If tomorrow everyone starts milling, you can kind of still (inaudible) of that bran.

Dale Belt

I think that goes without saying. If we can get all the grain we want at the right price, we can do very well down there. That's easy to say, though.

So how much -- what are the -- if you're going to lose in Brazil on cash basis like the next quarter or two?

Michael, we are not providing any forward-looking financial forecast.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

We just want to thank everyone for joining today's call. We appreciate the support we have gotten from our shareholders and investors and lenders. As we've said throughout the call, we are very excited about the market opportunities and where our business is heading in the USA segment.

We are very closely managing what is clearly a difficult situation in Brazil. And we are in a position from an operating point of view to be able to take advantage when that market turns.

So we want to thank everybody for supporting us. We appreciate it. That ends the call for today. Thank you, operator.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.