Fred Sommer - Ascendant Partners John Short - President and Chief Executive Officer Dale Belt - Chief Financial Officer Robert Smith - Senior Vice President of Operations Mark McKnight - Senior Vice President of Sales and Marketing..

Marc Nuccitelli - Dillon Hill Capital, LLC.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the RiceBran Technologies First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host, Mr. Fred Sommer, of Ascendant Partners. Please go ahead, Mr. Sommer..

Thank you, operator, good afternoon listeners. Welcome to RiceBran Technologies first quarter 2015 financial results conference call. With us today are John Short, Chief Executive Officer and President of RiceBran Technologies; Dale Belt, Chief Financial Officer; and Dr.

Robert Smith, Senior VP of Operations and R&D; Mark McKnight, Senior Vice President of Sales and Marketing is currently in Korea at the food ingredient and natural trade show.

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 the 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 to the company’s future performance represented by management include estimates as of today May 13, 2015, and the company assumes no obligation to update these projections in the future as market conditions change.

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

John, please go ahead..

Thanks Fred and thanks to our listeners for joining the call. During the first quarter of 2015 we achieved revenue growth in both our USA and Brazil segments that produce consolidated revenue of $9.7 million an increase of 25% compared to the same period last year.

As we mentioned in our year-end call on April 1st, repairs to our Irgovel facility were completed in January 2015. I'm pleased to report that our Irgovel plant can now operate consistently at an above our target rate of 300 tons per day.

While our increased production capacity strengthens our ability to achieve significant revenue growth from our Brazil segment we continue to face a number of macroeconomic and operating issues in Brazil, which we will discuss later in this call.

In our USA segment revenue was up only slightly compared to last year’s first quarter due to inventory rebalancing by major customers launch delays experienced by new customers and other issues related to demand including delays in obtaining international regulatory approvals and related product labeling and packaging design.

Those delays resulted in a pushback in sales with certain customers. However, sales to those customers so far in the second quarter have increased significantly in some of the product launch timetables have now firmed up.

As a result, we expect Q2 sales in our USA segment to show substantial increases over Q1 with continuing improvement in the second half of the year. Looking further into our 2015 plan we are focused on two key issues. Driving sales growth and managing our supply chain to improve both top and bottom line performance.

Over the course of 2014, we added 50 new customers some represent large growth opportunities that we expect to approach seven-figure annual run rate in the second half of this year. Additionally in 2015 we significantly increased our sales and marketing efforts through tradeshows and direct sales calls to build on that momentum.

As for supply chain, in Brazil we’ve historically concentrated on securing supply from local mills situated in close proximity to our plant, which allowed us to quickly truck raw bran into our Irgovel’s facility for stabilization and oil extraction which limited our sources of high-quality bran.

We’ve enhanced our sourcing strategy for Irgovel through the recently announced agreement with Cooperativa Agroindustrial de Alegrete Ltda to install our proprietary extruders in its rice milling facility in Alegrete, Rio Grande do Sul, Brazil the distance of about 300 kilometers from Irgovel.

Under this agreement Irogovel received exclusive rights to purchase and stabilize raw rice bran produced as a byproduct to CAAL's rice milling business in exchange for an agreement to take up to a 100% of CAAL's bran.

In addition to providing a source of stable low fatty acid bran the installation at CAAL will give Irogovel the option of producing full fat stabilized rice bran and derivatives for sale in the Brazilian and other [Mermentau] markets. We expect that new facility to be operating before year-end.

As we mentioned during our 2014 year-end call in April, we had previously signed a conditional commitment letter from an $8 million revolving interim credit facility from Full Circle Capital.

I am pleased to report that we’ve now closed down that facility and we will begin to deploy that capital to support working capital growth and capital expenditures necessary to support further sales growth.

In California were drought conditions remain at unprecedented levels, we continue to work toward our goal of installing our stabilization equipment in at least one additional California mill prior to the 2015 harvest. Meeting that goal will give us access to additional raw rice bran.

A portion of the proceeds from Full Circle will be used upon some of the related capital expenditures. We planned to complete the new stabilization facility prior to the 2015 harvest and expect the new facility to provide sufficient additional stabilized bran to support plant sales growth for 2015 and beyond.

Nevertheless it’s unclear what the overall impact of the California drought may ultimately be for this year’s harvest of future years. In our Brazil segment having sufficient working capital to opportunistically acquire raw rice bran can provide significant benefits.

The faltering economy in Brazil has resulted in a major tightening of local bank credit which could significantly constrain production in the absence of additional sources of financing.

The Full Circle capital credit facility provides flexibility and insuring sufficient funding to support working capital acquisition even in the phase of difficult local banking conditions.

As we move through 2015 we expect our investments and expanded capacity, regulatory compliance technology and new product development to bear fruit as we focused on expanding sales through our aggressive marketing efforts. I will turn the call over to Dale to comment on first quarter financial results..

Thanks John. For the first quarter of 2015 consolidated revenues were $9.7 million which represents a 25.7% increase compared to prior year first quarter consolidated revenues of $7.7 million. The improved performance in revenues was a direct result of increased revenue from our Brazil segment, which totaled $4.6 million in the first quarter.

Let say 70.8% increase over Q1 2014 revenue of $2.7 million. While the plant was operational for much of the quarter as John mentioned earlier, we faced a number of macroeconomic issues in the first three months of the year that negatively impacted the first quarter sales.

Two particular issues stood out, first with the sharp decline in the value of Brazil's currency and second a nationwide trucking strike resulted in an inability to ship product and receive raw bran for about 12-day period.

From an operational perspective the Irgovel facility is recently been able to consistently run at our plant capacity of 9,000 metric tons per month. Borrowing further labor or external disruptions we expect our Brazil segment revenue to increase significantly in the coming quarters.

Revenue from our USA segment totaled $5.1 million at the slight improvement from revenue of $5 million recorded in Q1 last year. We achieved this performance despite certain customers pushing back new product launches that were originally anticipated to take place in Q1.

These launches are now expected to occur in the second quarter or second half of 2015. Consolidated gross profit was $1.1 million in the first quarter of 2015, down from $1.4 million in last year's first-quarter.

Our consolidated gross profit percentage declined by 7.5 percentage points to 10.9%, this decline was due solely to performance in our Brazil segment as the nationwide trucker strike halted receipt of raw materials and shipment of finished products.

Late deliveries after milling result in high fatty acid level because of the extra time between milling and delivery to the plant. High fatty acid levels in raw bran increased refining cost and reduce oil quality, which negatively impacts our ability to get premium pricing on salable finished product.

As a result our Brazil segment recorded negative gross profit of $596,000 compared to negative gross profit of $202,000 in Q1 2014. In the first quarter 2015 our USA segment recorded gross profit of $1.65 million compared to $1.62 million in Q1 2014, with gross profit percentages just above 32% in both periods.

Our consolidated operating expenses declined slightly $4 million in the first quarter of 2015 compared to $4.1 million in the 2014 period. The decline is attributable to the following factors in each of our segments.

We had $500,000 decrease in corporate SG&A that was primarily related to lower professional fees we also experienced slightly lower operating expenses in the Brazil segment due to the decline in value of the Brazilian currency, but the decline in corporate expense was offset by a $500,000 increase in USA segment operating expenses mostly related to salary wages and benefit.

As the year progresses we intend to continue working diligently to control and reduced expenses were possible while expanding our revenue base. Our consolidated operating loss was $2.9 million in the first quarter of 2015 compared to an operating loss of $2.7 million recorded in last year's first quarter.

The slight decline in performance despite a higher revenue is directly attributable to the Brazil segment gross profit challenges already discussed. On an adjusted EBITDA basis our Q1 2015 operating performance resulted in a loss of $1.6 million in the first quarter of 2015 compared to a loss of $0.9 million in the first quarter of 2014.

A reconciliation of adjusted EBITDA can be found on our website. We recorded a net loss attributable to shareholders of $3.0 million in the first quarter of 2015, or $0.33 per share based on approximately $9.2 million weighted average shares outstanding.

This compares to a loss of $1.9 million in the first quarter of 2014 or $0.62 per share based on approximately $3 million weighted average shares outstanding. From a balance sheet liquidity perspective we ended the quarter with $1.2 million in cash and cash equivalents compared to $3.6 million as of December 31, 2014.

Two important events impacting liquidity have occurred thus far this year. First, we received an award of R$3.6 million from a Brazilian arbitration panel related to the 2008 acquisition of Irgovel.

With this positive outcome we are now navigating the legal steps necessary here in the USA to release from escrow the $1.9 million of restricted cash that’s being held in an escrow account at a U.S. Bank branch in San Francisco, which was established in connection with our acquisition of Irgovel in 2008.

We are confident that we will be able to recover those funds which when received will be used to support ongoing operations. And second as John mentioned earlier, we now have the Full Circle Capital $8 million senior secured financing facility in place to help us grow our business throughout the world.

You will recall that this new facility replaces the high cost working capital facility paid off last summer with the proceeds of last years capital raises.

We believe these events coupled with operational improvements and sales growth expected in the coming quarters provide us with sufficient resources to deliver on our business plan, start generating positive consolidated cash flow in 2015. And with that at this time, John I’ll turn this back over to you..

Thanks, Dale. Well with market food ingredient tradeshow in Seoul with our VP of Human Ingredient Sales Joon Park. I will turn the call over to Robert to update us on both sales and operations..

Thanks John. As described previously by John and Dale USA segment sales in the first quarter were only slightly ahead of last year's pace due to a number of customer product launch pushback, while we would have liked to see those launches takes place on schedule.

The good news is that the slower pace of growth in the first quarter if not in anyway a reflection of lagging consumer demand. In fact 2014 natural products sales in the food sector are reported to have grown by 12% and sales of organic products grew at 17% last year.

As we move into the second quarter we are already seeing increasing demand for our turnkey finished products from Healthy Naturals. And this in turn is increasing demand for Stage II derivatives from Dillion. Healthy Naturals largest U.S.

customer recorded its two highest sales month in company history in March and April and they are forecasting that their business will continue to trend positively throughout 2015.

Consumer preference for whole nutrition as it means to a healthier lifestyle while reducing their dependence on medications and dietary supplements is a growing trend in the U.S. and abroad.

After successful completion of product development, market research and regulatory approvals, Healthy Natural added a finished goods customer in the Japanese market that we expect to grow rapidly in the second half and into the future. Shipments have already begun and the initial consumer response is strong.

We expect to see significant growth of turnkey finished goods from Healthy Natural not only in Japan, but also in Korea and other North Asia market in the second half of this year and in 2016.

And April of this year we exhibited at the Expo, Natural, [Annie Braun] in Mexico City and had strong interest for major retail chains for both our functional ingredients in our turnkey finished product formulation and packaging capabilities.

Those efforts have resulted in ongoing product development efforts for a large Mexican distributor that fell to over 11,000 stores throughout Mexico. We expect these efforts will turn into sales in the second half of this year.

We have also placed new product concepts in the hands of one of the largest multilevel marketing companies in Mexico, which distributes products throughout Mexico, Central and South America. We also expect purchase orders from that company in the second half of this year.

Additionally our direct sales efforts have garnered significant attention among major food companies in the food, snack and beverage sectors in Mexico. Samples have been distributed to several R&D groups and joint product development is already underway. We will next exhibit at the Food Expo in Mexico City scheduled for this coming fall.

As John mentioned earlier Mark McKnight and Jim Parker exhibiting our functional ingredients in Healthy Natural’s turnkey product development and packaging capabilities at the Seoul food show in Korea this week. They have scheduled numerous meetings with major food, nutri-cosmetics, direct sales and MLM companies in Korea and in Japan.

Ongoing efforts with a major food company in Korea on the new rice-based beverage are in late stage development and are expected to turn into initial purchase orders in the third quarter. In the U.S. market we have successfully completed product development for two nutri-cosmetics products for U.S.

retailer with over 4,000 owned and franchised retail stores located throughout the U.S. First shipments of finished products are anticipated to begin in the third quarter of this year and those products are slated to be rolled out throughout the company’s retail store network and included and included in its annual catalog in the fourth quarter.

Sales and other sectors of our USA segment remains strong and on budget, this includes sales of stabilized rice bran from Mermentau and California for the animal nutrition sector.

Adding additional warehouse based in Louisiana to build inventory reserve has been particularly helpful in this regard and the cost of raw rice bran in this region has supported our efforts to regain animal nutrition sales at attractive markets.

In summary we are just beginning to see the significant product development efforts at our USA segment begin to move through the sales channels both domestically and internationally. We expect sales revenues in the second quarter to grow significantly over our first quarter with further growth in the second half of this year.

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

Thanks Robert. Before taking questions I want to a take a few minutes to talk about financial guidance and some underlying strategy issues. During our Q3 2014 conference call in November of last year we issued 2015 financial guidance of $67 million in consolidated revenues with adjusted EBITDA on the range of 10% to 12%.

While we remain confident in growing our USA segment revenues approximately half of the consolidated revenue in our 2015 guidance was expected to come from our Brazil statement. To arrive at the Brazil statement revenue number we use then prevailing currency exchange rate of roughly R$2.4 per U.S. dollar.

A short time after announcing that guidance crude oil markets crashed causing a shockwave to ripple through the world oil-based economy. The negative impact was felt particularly hard in Brazil were economic activity collapsed in an already weakening economy.

In turn this is led to significant political and labor unrest in the first quarter of 2015 in Brazil and that has disrupted the operations of many industries including the entire rice industry. The Real fell 240 to a low of 329 per dollar that’s a 35% devaluation in five months.

As of today it’s recovered to 305 but futures contracts take the value of the currency at 332, 333 out to the latter part of this year. While some industry experts forecast a quick rebound in crude oil prices that’s becoming increasingly clear that the country's economic problems may be more long-lasting.

Additionally, as we’ve mentioned earlier in the call the trucking strike which disrupted our operation for 12 days in the first quarter did more than just delay receiving in shipping. It also degraded the bran we purchased resulting in the production of lower quality oil that is still being sold at significantly lower prices.

We’re responding to these challenges by attempting to wait our business mix in Brazil more to the export markets and through supply contracts like the one with CAAL where we can stabilize bran at the mill, which mitigates raw bran transportation risks, but those solutions will not happen overnight.

We had management meetings at Irgovel this past week and remain encouraged by the consistently higher production levels. Additionally, within recent nationwide truckers strike result for now we believe raw material receiving and finished product shipping are back on track and should result in improved performance in the coming quarters.

We are closely monitoring the macroeconomic situation in Brazil as well as evaluating its impact on Irgovel operation.

We intend to provide revised guidance for 2015 early in the third quarter however, as of today the devaluation of the Brazilian currency coupled with the lost revenue caused by the trucking strike can be expected to reduce full year 2015 Brazil segment revenues by as much as $10 million with a corresponding negative impact to adjusted EBITDA.

While we are still evaluating the extent of that impact, at this time we continue to believe RBT will achieve positive adjusted EBITDA for the full year.

In closing, I want to emphasize that while the first quarter was challenging on a number of fronts, the increased sales activity in USA segment thus far in Q2 bodes well for the balance of the year and we expect that production at Irgovel will improve significantly in the second half of 2015 as well.

With demand for healthy natural products and functional foods continuing to grow, we are confident that our solid installed operating base will allow us to take advantage of that growing market to generate incremental profitable sales growth for the foreseeable future.

Our talented and committed management team is focused on delivering significant revenue growth and positive EBITDA in 2015 and beyond. That concludes our prepared comments. Operator at this time please open the call for questions. Note that we will limit callers to one initial question and one follow-up..

Thank you, sir. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from the line of Marc Nuccitelli with Dillon Hill Capital, LLC. Please go ahead with your question..

Hey, John. Thanks for the update..

Pleasure Marc.

How are you?.

Okay. I realize you talking about revising guidance to potential negative impact at Brazil from the strike and the currency being as much as $10 million, but you also – you kind of alluded that there maybe an offset it the U.S.

segment to the upside, when do you anticipate giving better guidance on some of those numbers being the Real has moved back in our favor and that could continue obviously nobody knows which way until at this point, but when would you anticipate giving better guidance for the balance of the year?.

Marc, our target at this point in time is to provide some updated guidance sometime early in the third quarter.

I know you do the same thing we do which is look at the futures contracts on the Real and what you see if you look at the contracts out into June, July, August, September they added 330 so it doesn't look like there is going to be at least in the short-term that much positive move, but I know the currency will round.

However, if you look way out to July of 2016 it looks like there maybe some improvement in the currency. I guess our view we’ve been down a few times this year already because it’s an important issue for us and in our view is that Brazil maybe nearing the bottom of a very ugly period.

Where as disappointed as anyone in the situation in Brazil and we feel like it's about as bad as it can get in Brazil generally and in Irgovel specifically we have an economy that went from 5% to 7% growth for 10 years its now in recession a currency that is added to lowest point in the last 10 years.

The truck strike people probably don't understand the impact if anybody's interested at the end of this you can stand for five minutes I’ll give you the details of what happens to our business if we have to wait to get raw rice bran for a couple of weeks.

And then we have to process that through and ultimately catch up it spins us for many weeks after the impact of this truck strike itself.

So that whole cocktail of ugly issues has really hurt us in Brazil but we believe that Brazil is near the bottom I don’t think that can get much worse the government’s doing some of the right things actually to stabilize the economy, they are jumping up in interest rates get inflation down et cetera.

So we look at that situation and we believe that going forward Brazil still represents a very significant opportunity for RBC and our shareholders and we’ve got to get through this ugly patch but with the plant operating normally with a good harvest good quantities of bran available we believe that the original economic model – the original reason for making those investments are still valid and will begin to payoff in the second half of this year and payoff quite handsomely actually in 2016.

So it’s ugly and its tough but we believe there's an upside then we’ll be able to take advantage of it..

So assuming that you had your $67 million projected revenue was Brazil and now you are looking at much of the $10 million decline I assume that’s going to be into the negative EBITDA cash burn certainly in the short-term I assume part of this new fundings we have to be need to put more capital down the Brazil and have you collected I missed the first part of call I know if you have collected on that litigation yet to move money back to Brazil..

Yes, Marc we have the award in hand we’re going through the process to get our hands on that money and a portion of that money will absolutely support Brazil.

While, yes there is burn in that business in the first quarter particularly due to the truck strike and the problems related we think Brazil for the full year will still be able to be EBITDA positive though not at the levels we had originally forecast..

Okay. And I really look at it’s been a difficult past 20 to 24 months there has been a lot of triage with droughts and some of these things that have been out of your control, but it seems that the triage you are doing should put you in a better position in the second half of calendar 2015.

It would be great to get some kind of enthusiasm what you see happening once you put all these building blocks back in place and start to reach some of the benefits of efforts..

Yes, we’re actually – the situation as I said earlier been about as ugly as that can get in Brazil and the drought in California hasn’t been helpful, but as we run into those challenges we’re doing the things that we need to do to ensure that we have a solid supply of high-quality bran.

The contract that we signed with CAAL is a big cooperative in Alegrete 300 miles from Irgovel. That has immediate positive impact because when we stabilize bran at their mill to ship it forward the bran doesn’t degrade.

And that gives us a lot of flexibility in terms of moving around production in relation to the local bran we get et cetera So that is a big positive and putting down the third footprint in California that project is on schedule and we believe it will move forward and execute before the 2015 California rice harvest which will be in September.

So even though the drought is ugly and not getting any better we think we are in good shape to support sales growth in the business in the U.S. as well..

So last one, if you look at the U.S.

business could there be upside in these – what's caused in the September quarter, December quarter you get some of those things done in California?.

We expect progressively each quarter to get better through the year. Robert mentioned a number of things that are going on some of the new product development efforts from last year we added 50 customers, we developed a whole bunch of new products for those guys.

One of our – we think it will be a quite significant launch was scheduled for early this year and we got stuck with the Japanese Ministry of Health not giving us label approvals for quite an extended period of time.

And we've only recently gotten those label approvals, but the initial orders that have now come in from that customer, we have some sample orders in the market before.

But the initial orders that have come in from that are very strong and we think that that's a very big opportunity not only with the customer that’s already launched, but with some additional customers that we are working with in that market and in Korea.

So I don’t want to say there will or won’t be upside where we are working all of the product and market opportunities, we got a skin the cat in Brazil, we think we are about there now as I said at the bottom and moving up, but we will come back with some guidance with their quarter and let know how we see the year coming out and what we think 2016 look like..

And Marc this is Dale. Hi Marc..

Hi Dale..

John having been in Brazil last week and sitting in some management meetings one of the things that we do like all companies do is that first quarters as ended we filed our Q, we had this call today and we are now essentially a little over one-month into the second quarter.

This is the normal time we kind of take a fresh look at our models and kind of sit down with the management group and take a hard look at where we are and what we expect and kind of see how that we are - we think will shake out in relation to what we originally had modeled out.

So we need to go through that exercise and that’s what we will be doing here right soon..

Okay, great. All right guys thanks for the time..

Thank you, Marc..

Thank you. Our next question comes from the line of [indiscernible] with UBS Financial. Please go ahead with your question..

Hey John. Thanks for the update.

Just a quick question you mentioned customers all the time in the generic sense but we never hear about who these customers are, will there be a day or time where we might learn the names of some of these customers?.

There will be a day or time when you can actually go into retail stores and buy the product and I'll point you that we’re not allowed to use customer names in any of our regulatory filing, updates, press releases or the like and those are customer restrictions we have in our supply agreements and we don't want to violate those and system often and lose them..

Understood, so in other words once finished products are on the shelves you can identify them in a call like this?.

No we cannot now without their permission no, but what we can do is buy some incentive to you..

It would be helpful.

Any credibility for small companies like this associated with large companies obviously aren’t valuable?.

I’ll tell you something we ask every single time, we got some very nice nutri-cosmetics products that will launch now in Q3 with the big holiday boost in a catalog offering and I would love to be able to tell you who the retailer is, but it’s somebody everybody knows they got 4,000 stores in an end, but we asked if we could in fact use their name in joint press release on product launches and we were told no.

So we have to respect that, I know you appreciate that, but it’s just as part of the problem of being little and dealing with all the big guys right..

Yes, so is that common place for suppliers in this field or is this just because you’re a small company and they don't need to bother with any possible negative price or….

Well it is in all of our supply agreements there is a limitation and I suppose if you're a big guy if you're ADM and you're doing a deal with Cargill and you decide to issue a joint press release that that something that that happens but the supply agreements we have from the customers who buy from us specifically prohibit us from doing that we ask anyway and say hey can we use your name in the press release, the answer is no.

I don’t think that’s the change..

And even with the new finished product division that you have you don't marketed under a specific name that wouldn't be included on the labels or anything along those lines..

No we are not permitted to use customer names. At some point in time in the future it will…..

No I mean, I am sorry yes John I mean the customer using your name..

We have a couple of the situations we have co-branded deal with [indiscernible] in Europe where the product that actually goes out is co-branded RiceBran Technologies RBT on the bags.

So the customer sees that we have a co-branded arrangement with [Manna pro] in the animal nutrition world in those cases there were specific reasons why we were able to negotiate those terms as part of the related supply agreements.

And we try every time we would love to have our names out there attached to a whole bunch of big multibillion dollar companies, but you know they have their own internal policies and procedures that put some limitations on what we’re permitted to do..

Part of the issue in the food ingredient industry that I've learned as the financial guy is that you know when you're selling an ingredient to a company and your ingredient is one of many ingredients in their finished product they don't want all their suppliers out there saying I sell to ABC Company.

That is not something that they can control and their name get starts getting out there getting associated with the companies, they may not feel as a message they want out there..

Got it well listen I appreciate it and the way was set up I felt that come second quarter and on is when the story knock on wood finally starts as you know John I have been following the company for a few years we initiated positions little bit in the summer of 2014, but we've been waiting for the story to start.

It's my opinion that the story should start now, so good luck for the execution make my prediction come true..

We are working on tales how to do that. Nobody will be happier when that happened then the management team here and we will get there..

Good luck..

Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of Michael Siegel. Michael Siegel a Private Investor. Please go ahead with your question..

Hi, I have a question about Irgovel, you say the strike ended March 12 right and there is couple of more weeks to wrap up the bran [indiscernible] second quarter should be kind of good quarter, do you say you are on 100 tons per day or whatever your run rate is?.

Michael let me do the following for anybody who doesn't want to hear a long drawn out explanation of how bran impacts processing you might want to jump off the call now. But we’ll wrap up with is and I’d like to take this is the last question if we can.

Michael let met try to explain to those who want to listen, what happened to our business in the first quarter down in Brazil.

Several things happened, first of all we had a currency devaluation in the absence of devaluation if we've been steady state on the currency we would had a 110% increase in revenues and not a 70% increase, but that’s secondary.

Here is what happens from a rice bran processing perspective and this is why it is so important that we have a continuous low – of high-quality brand that isn’t interrupted. So stick with me, it’s a complicated explanation, but I think it's important and when we’re done I’ll open it up and folks can ask questions about this as well.

We get raw rice bran from many mills that are within 10 or 15 or 20 or 30 kilometers of Irgovel many very large mills that bran is milled, it comes in with relatively low free fatty acid content and we processed it.

As we mentioned earlier the plant is operating very stably at 300 tons a day, we done as high as 400 tons a day even 420 tons a day on occasion when bran flow is there and everything is running in order, but what we are really targeting to do right now is operate stably 300 to 325 tons.

Here is the problem that the truck strike caused for us and you guys can do roughly the economics. Assume 100,000 tons of bran annually assumes 16% to 17% oil off tick, crude oil off tick that comes from stable healthy bran.

When the stable healthy bran comes in if we get that bran at a 9%, 10%, 11%, 12% free fatty acid level it runs through the plant very nicely and we can process it from crude oil into the gummed oil and to neutralized oil into refined oil.

And each of those oils has a market price; fully refined rice bran oil fells out of our facility today about $1,600 a ton. Neutralized oil fells about $1,250 a ton, the gummed oil fell at $1,150 to $1,200 a ton, crude oil if it is low free fatty acid can fell in the $750, $800, $900 a ton depending on uses and that sort of thing.

When the truck strike occurred you may have noticed that when the truck strike occurred in Brazil it shut down all shipping in/and out of the ports extra and it caused an 18% spike in global soybean prices because Brazil is such a huge global exporter of soybean particularly to China.

But in addition to shutting down soybean and everything else – sugar everything else comes out of Brazil it shut down shipments in/and out of our plants for a couple weeks.

While that's happening the raw bran that was processed that we need by agreement with the millers to take sat on the floor in those mills for a couple of weeks before we could get added again. And while its sitting there the free fatty acids are building up and over a couple of weeks they can build to 25%, 30%, 35%.

So we received bran with extremely high free fatty acids and of course from the point of our relationships with the mills we have to take what’s sitting on the floor before we can get back into the cycle of fresh bran. When free fatty acid gets that high we are unable to refine the oil.

So we extract the oil and we end up with a very high what we call FFA for free fatty acid crude oil and we get stuck in a good bit of a trap where the market both domestically and internationally for that oil is in the $500 a ton range.

So normally we [technical difficulty] would have a mix of product going out at $1,600 a ton $1,250 a ton, $1,100 to $12 a ton $800 to $900 a ton. And for the second half of February and much of the month of March we had bran - we had bran, we had a oil because of the high FFA bran that could only be moved out at $500 a ton.

Dale commented in his recap of financials we had a negative gross margin in Brazil in the quarter. On higher revenue that should never happen, but because of the impact of the strike we got stuck. Now the strike only last 12 days but we still have 300 tons were trying to feathered and move it through et cetera.

300 tons one day’s worth of production left of that high FFA oil that diminishes the market value of the products we can actually produce because we blended in and balanced and all sorts of thing. When was the last time they had a nationwide trucking strike in Brazil that shutdown the whole country? I don’t know.

Nobody we talked to can remember, but it happened in the middle of this quarter and it comes at a terrible time for our business.

As we’re mostly through all of those problems right now we have sold through the vast majority of that very high FFA oil at low prices and we’re back to producing quality oil with decent quality bran now there's still some minor disruption in the entire rice milling system. As we move through the third quarter we are fully out of that.

We expect the second half of this year to actually be very good and we expect in spite of the really ugly start, we expect Irgovel to manage to be EBITDA positive for the year after taking a big hit in the first quarter.

So the impacts you think 12-day truck strike how bad can that be, can actually be very bad, so it took up to two thirds out of our oil related revenue and oil is the driver of margin into our business. So we’ve suffered a lot in Q1 little bit a hangover at the beginning of Q2, but mostly out of it.

We now expect that barring any further disruptions which will there be another truck strike will the sky fall who knows, we’re assuming not and we’re full speed ahead on driving the plant to operate at 300 tons average per day, which should give us – the reason we made the investment to expand capacity at Irgovel is that running additional volume over that plant increases the absorption and leaves actually very attractive margins.

So we believe that as we get into the last part of this quarter and then the next couple of quarters, we’ll be able to demonstrate that and take advantage of it.

But we have – Michael we’ve really suffered badly in the first quarter of this year based principally on the impact of the truck strike and knock on effects of the truck strike as it ripples through the industry. I don’t know if that answered really your question. So if it didn’t try me one more time..

Yes, thank you. So you faced probably April was still continuing from that best bran, so as you kind of lost some revenues.

So starting in May sometime in May you are running pretty much a full capacity right?.

Yes we are..

Okay..

Yes, we are and we did indeed loose a significant amount of revenues more importantly we lost latterly all of the margin on the oil sales for the last half of February most of March and the first part of April.

So when you asked how could you increase your sales by 70% right and have a negative margin, we got stuck with bad quality product because of the high FFAs..

That’s why you are going to change how you build it prior to stabilized bran that you have more flexibility?.

Michael we had actually developed that strategy prior to this problem and I wish the strategy was already implemented prior to the truck strike and the problem because we can stabilize bran at the mill and just leave it on the floor and wouldn’t be great, right, but we don’t have any place yet, it is an important part of the go forward strategy..

In the California you are going to imply the same kind of strategy to get some bran and kind of time and kind of harvest season shortages?.

Yes, Michael one of the things we've done and we commented about this last year, we took some of the proceeds of the capital raises from last year and we took additional – we upgraded facilities of course we doubled the capacity - and sort of thing, but we took additional warehouse space both in Louisiana and in California to allow us to plan way ahead in terms of bran availability imagining that the drought situation in California wasn't going to get better.

We also laid out plans to put down our third footprint. What we have done is we have optimized the amount of bran we can take out of the existing facilities and we built some pretty significant inventories to allow us to support sales in those markets.

Robert had mentioned that earlier in his prepared remarks and we continue to do that both in California and in Louisiana, we will continue to do that because of the California situation is very complicated..

Yes, thank you very much..

Yes, thank you I appreciate the question Michael..

Thanks. End of Q&A.

Adam let’s leave it there, we appreciate everybody joining the call and we look forward to delivering some better numbers when we report Q2. Thanks to everybody..

Thank you ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..