NutraCea Announces Second Quarter 2008 Financial Results

For the first six months of 2008 the Company recorded net revenues of $15.4 million, compared to revenues of $15.0 million for the first six months of 2007, a 3% increase.

12/08/08 NutraCea,a world leader in stabilized rice bran (SRB) nutrient research and technology, announced financial results for its second quarter ended June 30, 2008.

The Company reported net revenues of $10.3 million for the second quarter of 2008, compared to net revenues of $13.0 million for the second quarter of 2007. The net revenues for the second quarter of 2007 included a one-time license fee of $5.0 million (non-recurring) without which net revenues for the second quarter 2007 would have been $8,000,000. Sequentially, net revenues for the second quarter of 2008 rose 102% over first quarter 2008 net revenues of $5.1 million.

The Company's two business segments, NutraCea and Irgovel, recorded net revenues of $3.9 million and $6.4 million, respectively, for second quarter 2008. The decrease in product sales by our NutraCea segment in the second quarter of 2008 over the prior year's second quarter was primarily due to an increase of $615,000 in sales in the SRB product lines offset by sales for the period ended June 30, 2007 to two customers of $2.1 million and $2.6 million of proprietary finished products and an intentional inventory build by NutraCea to handle the roll out of new customers and new customer product lines anticipated to begin in the fourth quarter of this year..

Net loss for the second quarter of 2008 was $6.1 million, or $(0.04) per share, compared to net income of $2.0 million or $0.01 per share for the same period last year. The second quarter 2008 loss was primarily due to the decreased margin of $6.1 million, an increase of $371,000 in operating expenses, and a net increase in other expenses (net of other income), and income taxes of $1.1 million. (Sequentionally, NutraCea reported a reduction in net loss from $6.8 loss in the first quarter of 2008 to $6.1 million in the second quarter of 2008). Our NutraCea segment had a loss before income taxes of $(6.9) million, while our Irgovel segment reported income before income taxes of $1.0 million for second quarter 2008.

Sales, General and Administrative (SG&A) expenses were $5.9 million for the second quarter of 2008, compared to SG&A expenses $5.7 million for the second quarter of 2007. The $214,000 increase was due to $1.4 million of SG&A costs for our Irgovel segment, offset by a reduction of $1.1 million in SG&A expenses at our NutraCea segment.

Brad Edson, President and CEO of NutraCea commented, "We are pleased to have exceeded our revenue estimate for our second quarter. Irgovel, which we acquired in late February of this year, has come on rapidly and is already proving to be a major contributor to both our top and bottom line performance. As stated previously, by the end of this year, we expect this facility to have an annual sales run rate of approximately $30 million. We are also on track to add an additional 45,000 tons of annual capacity at Irgovel by the end of first quarter 2009 which would give us a total annual capacity of 115,000 tons, based on existing results this would produce a corresponding increase in gross and net of at least 60%. We also anticipate that our proprietary and new patent filed technology will have been installed and operating when this additional capacity comes on line. When fully operational, we believe this could additionally more than double the estimated level of profitability of Irgovel for each quarter going forward. Further, we are moving forward with another planned expansion which is currently estimated to increase the Irgovel annual capacity to over 200,000 tons by the first quarter of 2010.

Mr. Leo Gingras, COO of NutraCea, added, "It is important to note that during the second quarter our NutraCea segment operated at 30% capacity overall due to difficulties in obtaining adequate quantities of rice bran. Our Mermentau plant was not operational from May through July because the rice mill that serves that facility was not milling rice. Additionally our Lake Charles facility production levels have not been reached because the rice mill was phasing in our contract for rice bran. Beginning this month, we anticipate that both of these mills will be operational and our plants will be receiving 100% of the output from each mill."

Six Month Results

For the first six months of 2008 the Company recorded net revenues of $15.4 million, compared to revenues of $15.0 million for the first six months of 2007, a 3% increase. The net revenues for the first six months of 2007 included a non recurring license fee of $5.0 million in the second quarter of 2007, without which NutraCea would have recorded net revenues of $10.0 million for the first six months of 2007.

The Company reported a loss of $(12.9) million for the first half of 2008, or $(0.09) per share, compared to a net income of $1.8 million, or $0.01 per share, for the first six months of 2007. The decrease for the first six months of 2008 was primarily due to a $5.4 million increase in product sales, offset by the $5.0 decline in license fee revenue, and a $7.1 million increase in cost of goods sold. Operating expenses also increased $4.9 million and other expenses (net of other income) increased $3.1 million.

Sales, General and Administrative expenses for the first six months of 2008 were $11.0 million, compared to SG&A expenses of $8.0 million for the first six months of 2007. The increase was due to a $1.7 million increase in our NutraCea segment due to an increase in personnel, infrastructure and sales and marketing activities and $1.4 million in SG&A expenses at our Irgovel segment.

Mr. Edson continued, "We feel that we are making great strides at our Company. Most importantly the value of our business model to establish facilities in major rice producing countries is being validated by the early success of Irgovel. We are moving ahead with our China facility and it will be over seven times the size of our existing facility in Brazil. This project will incorporate state of the art technology and because of scale is anticipated to generate results that are more than seven times greater than what we are currently achieving in Brazil. This project is progressing and we hope to obtain all the necessary permits and approvals shortly and break ground later this year.

'We anticipate that revenues for the third quarter will increase modestly over those for the second quarter of this year, with a more significant increase in the fourth quarter as we begin to move our inventory to new and existing customers."