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Executives

Douglas Bruggeman - Chief Financial Officer, Vice President – Finance, Treasurer

Stuart A. Rose - Chairman and Chief Executive Officer

Analysts

Rick Weinhart - BMO Capital Markets

Mike Nery - Nery Asset Management

Arnold Brief - Goldsmith & Harris

Richard Dearnley – Longport Partners

REX Stores Corporation (RSC) F1Q08 Earnings Call June 5, 2008 11:00 AM ET

Operator

Welcome to the REX Stores first quarter results conference call. (Operator Instructions) I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer.

Douglas Bruggeman

Thank you for joining the REX Stores’ fiscal 2008 first quarter conference call. We’ll get to our presentation and comments momentarily as well as your question-and-answers, but first, I’ll review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today’s conference call contains forward-looking statements that involve risk and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company’s current expectations and beliefs, but are not guarantees of future performance as such actual results may vary materially from expectations.

The risks and uncertainties associated with the forward-looking statements are described in today’s announcement and the company’s filing with the Securities and Exchange Commission including the company’s reports on Form 10-K and 10-Q. REX Stores assumes no obligation to publicly update or revise any forward-looking statements.

With that, I will turn the call over to Stuart Rose, Chairman of the Board.

Stuart A. Rose

Sales for the first quarter were $47.1 million versus $48.9 million in continuing sales last year, earnings $1.5 million this year versus $7.5 million last year. In the retail sector, earnings were roughly $0.9 million versus $1.9 million. Comps were down 0.3%. Earnings were down mostly in the margin category. Reasons for that we are cutting margins a little bit to keep our volume. We feel that during a slower economy, during tough times, it’s better to cut margins a little bit, trying to keep the volume steady.

And also during this quarter, there were less opportunistic buying opportunities than we’ve had in the past mostly due to less close-out items and big screens, tube TVs, things like that and product shortages or model change in LCD and plasma, where the manufacturers didn’t have the overstocks this time of year that they generally had in the past. They’ve done a better job controlling their inventories, which presented us with less opportunistic buying opportunities.

For the month of May, the rebate checks started going out. Our core business, our business excluding the air conditioners which is tied to the hot weather, our comps were up a little over 2%. And we seem to be getting some benefit from these rebate checks. The economy of course is still very tough. Also the signal change is going to take place at the end of the year. We expect to drive our business on the video side and we are looking forward to that.

In terms of where we are breaking down product categories, appliances were down during the quarter about 0.04%, virtually flat, audio down. This was cause of the audio. This is in relation to our overall volume audio caused our comps to be down about 1.2%, television, caused our comps to be up about 2.2% and video caused our comps to be down about 0.8%.

In terms of synthetic fuel, as everyone knows, that business ended at the end of last year. We still have some residual income of about $670,000. That was versus $6.7 million last year. That’s the biggest cause of our shortfall in earnings. That business is now over. We do not anticipate any more income this year. And if we do get any more income, it would be a bonus, although again that’s not anticipated.

In terms of ethanol, we have four partnerships in operation. Levelland, our 40 million gallon plant in Texas is now in production. We continue to make money at the Big River operation. We had some net income. And our belief in ethanol is that with oil prices where they are, that business, our feeling, has to turnaround. We are still making some money. Most or many in the ethanol field are not making money.

Our feeling is that there is going to be some realistic evening out of prices. Ethanol is traditionally sold much, much closer to wholesale gasoline than it is today. Even if that does take place and ethanol does get to a more historical spread versus wholesale gasoline, we feel that will be a very profitable business for our company, assuming corn prices stay relatively close to where they are today. And again with oil, where it is today, I can’t imagine that it’s going to continue to be forever a tough business.

In terms of our strategy, we think it’s a better strategy than any one else in the ethanol business. It’s partnerships with farmers. They have a vested interest in our plants doing well, not just in getting the best price of their corn but keeping our plant in business and doing well, and they have put money into these plants and we have so far have nothing to say but good things about our farmer partners.

In terms of our balance sheet today, we have $90 million in cash. Basically free cash not tied to any investment in the ethanol or had at end of the quarter $90 million not tied to any investment in the ethanol or retail. It’s available to us to use to look for other opportunities or for other corporate purposes.

We announced today, we have an awkward company, we know it. We have a retail side. We have a very, very good real estate side and we have an ethanol side. It’s our intention now to take positive steps and maximize value and to try to do what’s best for our employees, separate these businesses if possible, and do both to maximize like I said value for shareholders and also to take care of our employees in the best way possible.

It’s very, like I said, awkward the way it is today. We are a small cap company. It’s odd and we have been this way for ten years. It’s an odd combination, alternative energy and retail, and we are now going to do what we can to stop the odd combination and make things a little bit easier for everyone to understand our company.

I will now leave it open for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rick Weinhart - BMO Capital Markets.

Rick Weinhart - BMO Capital Markets

With the retail business, can you tell me what TVs did? You gave the 2.2% as the impact on the comps, but what were TVs’ overall growth rate there?

Stuart A. Rose

What I do is, I can give it to you basically by category, if you want it at the direction and then probably it’s the best thing to do. Projection TVs were down 54.5% this year, quarter-over-quarter. Plasma was up about 15%. Small screen LCDs were down 60% by 13” to 15”, 16” to 20” down 54%, 28” to 32” up 50%, 33” to 42” up 9%, 43” to 47” up 64%, and most important for us 48-inch and larger were up 128%. Analog TVs went to virtually zero from a couple million dollars last year.

Douglas Bruggeman

Rick, it was up about 4% just the category itself in the comps.

Rick Weinhart - BMO Capital Markets

And you are interesting though, when you broke it out this way, the declines that you are seeing in LCD and the small screens, was that supply related or is that something else?

Stuart A. Rose

It’s mostly supply related. There’s the LCD, the lower-end stuff is extremely promotional and there is business out there, but they have a specialists selling televisions like we do. It’s very hard to compete in those lower end models. Again some mass-market people, the Costcos and people of that nature where once you get to a bigger television, more expensive television, a TV salesman, a specialist, can show how good he is.

And again, there’s not a huge amount. The volume just to give you an idea, was in the 13 to 15-inch category, did 39,000 last year, this year, 135.

Rick Weinhart - BMO Capital Markets

And you mentioned that 2% comps in May ex air, how is the air conditioning doing? I assume not too well given the.

Stuart A. Rose

We had a wet cold May, but it’s hot now. I think overall, if I put in air, comps were virtually flat. It wasn’t huge. It was a couple of percent. Comp store sales were virtually flat.

Rick Weinhart - BMO Capital Markets

And just the discussion this morning in the press release regarding looking at the strategic options now for the retail business, what types of, you’ve always been pretty clear that you would only be in the retail business as long as it’s profitable and I think you’ve always looked at these businesses as trying to get the best value for them. So, what is changing there? What are we doing exactly?

Stuart A. Rose

Well, our intention is to hire a firm to actively go out and help us to analyze, what is best to do for this company, and whether it’s sell the real estate separately, whether it’s to sell the retail business combined with the real estate. We want to do what’s best for our employees and we also want to do what’s best for our shareholders.

Rick Weinhart - BMO Capital Markets

On properties, these few stores that were closed in the quarter, were any of those owned properties or where they all leased.

Douglas Bruggeman

They were all leased properties that were on short-term leases Rick.

Rick Weinhart - BMO Capital Markets

Doug the unrealized gain on derivatives that 0.472 gain that you had, is that related to interest rate changes then still on the?

Douglas Bruggeman

That’s correct.

Rick Weinhart - BMO Capital Markets

And so we will continue to see those move back and forth depending where interest rates go until all the plants are online.

Douglas Bruggeman

Well, it may have continued even when the plant is online until the swap completely unwinds itself. Once the construction is completed, and its for the term loan that Levelland/Hockley is a two-year swap and the One Earth is a five-year swap that will continue out there.

Rick Weinhart - BMO Capital Markets

But once the construction is completed, you will start flowing interest costs through so, those will offset each other, right?

Douglas Bruggeman

Well, yes. But it will still be a separate line item, but yes, to your point, they do offset each other but it will continue to be a separate line item.

Rick Weinhart - BMO Capital Markets

Doug, you mentioned what the cash was. How much of the debt was in the balance sheet was related to the ethanol facilities or how much was the mortgage if you wanted to do it that way?

Douglas Bruggeman

REX has $13 million left of long-term debt, and the $32 million was for Levelland/Hockley.

Rick Weinhart - BMO Capital Markets

Did the CapEx in the quarter, do you have that number?

Douglas Bruggeman

For Levelland/Hockley, it was $5.5 million and One Earth was $23 million.

Operator

Your next question comes from Mike Nery - Nery Asset Management.

Mike Nery - Nery Asset Management

Did you sell any stores in the quarter or close any?

Douglas Bruggeman

We didn’t sell any stores. We did close four leased locations.

Mike Nery - Nery Asset Management

How many stores were currently on the market as vacant to be sold?

Douglas Bruggeman

We currently have six or seven stores on the market to be leased or sold.

Mike Nery - Nery Asset Management

So you have not yet hired a firm that would help you analyze the best way to do this or?

Stuart A. Rose

We are in the process. We haven’t completed the contract. We have identified a firm. We just haven’t completed the contract.

Mike Nery - Nery Asset Management

And are they going to look at everything or are they just going to look at the store and real estate side?

Stuart A. Rose

The retail side, and again we have $90 million in cash depending on what we do, the retail side, in our opinion especially the real estate is worth significantly more than it’s on the books, and even retail without real estate due to the service policies and the fact that it’s profitable for this value.

Mike Nery - Nery Asset Management

The remaining shares on that purchase are 124,000?

Douglas Bruggeman

142.

Mike Nery - Nery Asset Management

Would your intention be to re-up that if you purchased all those shares?

Stuart A. Rose

Our history has always been when the stock sells below book value to look at doing some buyback. What the next one would be, I don’t know or whether there’s no guarantee submitted and the Board would have to approve that. But our history has always been to do something of that nature.

Operator

Your next question comes from Arnold Brief - Goldsmith & Harris.

Arnold Brief - Goldsmith & Harris

You’ve bet a lot of this company on the ethanol business. We have a Republican nominee for President who has got a reasonably good chance of winning, who has taken a pretty negative posture on ethanol. Has that influenced your thinking at all?

Stuart A. Rose

We have a Democratic candidate from Illinois, who likes ethanol, and our biggest plant is in Illinois. So, I don’t think that this country can afford to just shutdown basically a 15 million gallon a year business. If they did and they really analyzed it through, yes, it does use corn, but the by-product also is used as a feedstock and the protein is still left in.

And if we didn’t have ethanol, the price per barrel of oil would even be higher and we’d have a worse balance at trade and I refuse to accept that the industry should go away. I think there will be better seeds coming along. I think, we have one of the few sorghum plants in the United States. Sorghum grows in much dryer conditions, There are all sorts of new feedstock coming along in that area. There’s cellulosic ethanol.

This isn’t an industry as much as some people in Wall Street would like to see it disappear. It’s not going to disappear and if you look at it in terms of helping our balance at trade and if you look at it in terms of lessening our dependence on foreign oil, it’s a great benefit to this country. And the Democratic candidate at the moment sees it.

I think the Congress, they just passed in their latest farm bill. They see it, pass some things to benefit cellulosic ethanol. And I don’t think that even if the President wanted to get rid of it, and he was Republican, I don’t think he would have that capability.

Arnold Brief - Goldsmith & Harris

Could you give us a summary of your real estate in terms of number of stores that you are operating, that you still own, number of stores that are closed that you own, number of stores that you lease, number of stores that are closing, that thing, you manage your warehouse space that you still have, etc?

Give us some metrics that we can evaluate your real estate? I don’t think you are going to do it for us, but maybe you can give us some numbers?

Douglas Bruggeman

Of the 111 stores that we operate, 39 are owned and 72 are leased. Besides the 39 operated stores, there is about another 10 stores that are closed that we either have leased out to another party or are vacant and we are looking to get a tenant or to sell the property.

Arnold Brief - Goldsmith & Harris

Do you own those, those 10?

Douglas Bruggeman

Yes. And then in addition we do still have our three distribution centers in Dayton, Ohio 470,000 square feet; Pensacola, a 180,000 square feet; and Cheyenne a 145,000 square feet.

Arnold Brief - Goldsmith & Harris

You can put different numbers on warehouse space in different areas of the country, but is it conceivable that space is worth less than $40 million?

Stuart A. Rose

It’s conceivable. It’s worth less than $40 million. Yes, but what’s it on the books for, Doug?

Douglas Bruggeman

In total, it’s on the books for about $12 million.

Stuart A. Rose

Is it conceivable, it is worth less than $40 because Dayton is a tough warehouse market, Cheyenne is a good warehouse market, Pensacola is a good warehouse market, but our opinion is it’s worth significantly more than book value. What that number is as part of this process we hope to find out.

Arnold Brief - Goldsmith & Harris

Your comments at this point intending to rationalize the company, you mentioned the three categories, retail, real estate and the ethanol. How do you separate the real estate from the retail?

Stuart A. Rose

We have done that in the past. Someone buys a real estate and they choose to use it for either a sale lease back to us or they choose to use it for.

Arnold Brief - Goldsmith & Harris

Yes, a store at a time, but as.

Douglas Bruggeman

No, we have done it last year. We did it a lot more than a store at a time. We had that big real estate transaction last year.

Arnold Brief - Goldsmith & Harris

So you could do a real estate transaction and then do a retail transaction later, if you had to.

Stuart A. Rose

Absolutely or together again that’s right, that’s why we will hire eight firms to help us work on all of that stuff, to work actively. Before, we have done it. We have done a couple of real estate transactions, but never tied in with a retail, this time we are tying it all together.

Operator

Your next question comes from Richard Dearnley – Longport Partners.

Richard Dearnley – Longport Partners

The discussion about the tender of the exercise price of the options, on Page 75 of the Annual Report. What’s going on there, are you exercising options? What does that mean?

Stuart A. Rose

No but I exercised a bunch of options at a higher price and I used shares that I owned to pay for that, although I paid a large amount of the taxes in cash and I think that’s what that’s about.

Richard Dearnley – Longport Partners

Do the shares that you used to exercise the option to the company then count as a share repurchase?

Stuart A. Rose

That does not count against our share repurchase, but it does reduce the number of shares outstanding. Yes, it would count on our financial against our, how much cash we’re spending to repurchase, right.

Richard Dearnley – Longport Partners

So, it does count against cash and does that count?

Stuart A. Rose

It does not count against the cash. It does not count at all against the cash. No cash was involved.

Douglas Bruggeman

It just goes under treasury.

Richard Dearnley – Longport Partners

In the Annual Report there is a paragraph that discusses the possibility of the dividend and the availability under your credit agreements. I don’t remember that being in previous annual reports, which gets to the question of if you rationalize the retail and it generates cash. What would you do with the money on a dividend discussion.

Stuart A. Rose

There is lots of opportunities just throwing few things out there and not that we are committed but one is paying a dividend, second one is doing some sort of Dutch auction compared to some sort of tender offer. We will have virtually our whole market value assuming we could get just book value for the rest of the company, our whole market value will be equal to, today’s market value almost will be equal to, will be all in cash.

So, the other thing is, again our history in alternative energy and we think we know what we are doing and we’ve proved it over 10 years now. It’s been very, very good and we will see what happens in ethanol, but we do look for opportunities right now, we don’t have any to present to our shareholders, but we are out there looking all the time.

There is a dollar, Congress came up with a dollar per gallon tax credit on cellulosic ethanol. That’s a huge incentive to try for us or anyone else to find something that works in that category where our ethanol plants, again we think we have a lot better way of doing ethanol plants than most of the other ones because of our farmer partners. So, which gives us and in our opinion that you judge in the buying of the raw materials. So we hope to be able to take advantage of that, we will see what happens.

One thing about our ethanol projects, so they are not tied to REX in any way. Each one stands on its own.

Richard Dearnley – Longport Partners

On the subject of ethanol plants, is the $20 million investment in Big River. Does that cover the operating plant for say $10 million and a $10 million to equity contribution or a participation in the second plant or was the $20 million all for the first operating plant?

Douglas Bruggeman

It puts us into both of the plants. We put $20 million into it.

Richard Dearnley – Longport Partners

And it gives you 10% above them?

Douglas Bruggeman

Yes.

Stuart A. Rose

Also included an expansion of the first plant and they continue to make money as you saw in the first quarter during a very, very difficult period for ethanol.

Richard Dearnley – Longport Partners

Yes, it looks like your 9.2 million gallon participation which is your 10% net earns you $2.4 million, is that?

Stuart A. Rose

And does not even count, that does not even count a lot of that $20 million. But the good way, you’re looking a $10 and $10.

Douglas Bruggeman

I think we put $20 million in the 92 million gallon plant that’s operating and they are building the 100 million gallon plant. Actually the earnings in the first quarter, I thought were more like $1 million and I’m not sure of $2.4 million.

Stuart A. Rose

To answer to your question, no I think what you are getting at is, we are at the moment during the first quarter got a very good return on that part of the investment.

Richard Dearnley – Longport Partners

Yes, I’m sorry, that the $2.4 million was for the year back on?

Douglas Bruggeman

Yes, last year, yes.

Stuart A. Rose

It’s been a very good investment so far. Last year also we made another good investment in ethanol. Many companies struggling, we sold one of our plants and made $24 million that has now been monetized and it is sitting on our balance sheet. And we actually, that pure profit $24 million for an investment of REX, over a 100% return in less than a year or approximately 100%.

Richard Dearnley – Longport Partners

My calculation suggests you sold the U.S. Bio stock at around $7.60, is that in the ballpark?

Stuart A. Rose

No, I think it was higher.

Douglas Bruggeman

I do not have that number in front of me.

Stuart A. Rose

The bottom line, our profit was $24 million, I thought we sold that closer to $9. Well, I think the number you are bringing up is the market value, the last time we put down the market value of U.S. Bio stock. But then the stock when they merged with VeraSun and for a short period the stock went up significantly and during that period we sold our shares.

Douglas Bruggeman

I have it now. We averaged out at about $9.40 a share when we sold it.

Richard Dearnley – Longport Partners

Now, is that $9.40 for the U.S. Bio or $9.40 for the VeraSun?

Stuart A. Rose

No, it was U.S. Bio. We never took VeraSun.

Richard Dearnley – Longport Partners

You’ve mentioned you wrote up, not by very much, but wrote up the holding/carrying value of some of the plants, one, I think, or maybe more. This is in the Annual Report again, and the numbers are trivial, it was $1 million or $3 million or something like that, do you recall what happened there?

Douglas Bruggeman

We had an initial calculation that is subject to finalization and as things finalized, I think the numbers did moved around a little bit, but I don’t remember there being any thing much beyond that.

Operator

Your next question is a follow-up from Rick Weinhart - BMO Capital Markets.

Rick Weinhart - BMO Capital Markets

I’m trying to walk through the P&L and get a sense of what some of these components were in terms of ethanol versus retail. First of all, the little over $1 million that you got from the partnerships that you are invested in, was that all Big River or was there any meaningful expenses associated with it from some other projects or does that just get capitalized at this point?

Stuart A. Rose

The only other project would have Patriot, but the vast majority of that was for Big River.

Rick Weinhart - BMO Capital Markets

And Patriot would have been a drag at this point still right in expense?

Stuart A. Rose

Yes, except for whatever happened on their swap.

Rick Weinhart - BMO Capital Markets

So, the majority of this is Big River gains.

Stuart A. Rose

Yes, that’s correct.

Rick Weinhart - BMO Capital Markets

And can you breakout for us some details on what Levelland did in the quarter? Were you were producing, do you have similar to what other.

Douglas Bruggeman

They did not produce too much. Our revenues from Levelland for the quarter were about $1.1 million. They sold about 428,000 gallons at $2.05 a gallon was the biggest number that I have at my fingertips. And then the DDGs, again would not have been a significant number for the quarter.

They got into production very late on the quarter. And their GP was down quite a bit in the first quarter, to start the plant up we had to use corn, which was at higher cost to the plant. So, going forward, we expect it to perform a little better, but at startup used corn instead of sorghum.

Rick Weinhart - BMO Capital Markets

Have you made the switch now to sorghum in the second quarter?

Douglas Bruggeman

Yes, we have.

Rick Weinhart - BMO Capital Markets

And then just in terms of the details regarding like, lot of the ethanol companies provide what their average cost of corn was and what they are getting on DDGs? Do you plan on reporting that information in the Q’s at all?

Douglas Bruggeman

We will over time, Rick, but in the first quarter it’s just.

Rick Weinhart - BMO Capital Markets

It’s not material. So that $1.1 million that is DDGs and ethanol total revenues?

Douglas Bruggeman

Yes.

Rick Weinhart - BMO Capital Markets

Was it profitable in the quarter though or was it?

Douglas Bruggeman

No, because of the startup it was not profitable.

Rick Weinhart - BMO Capital Markets

Do you have what, you did provide with us a number that you put in the press release in terms of what the total profits were from the alternative energy, but I’m just wondering what went into that. Did that include the $6.7 for synthetic fuel? Did that include the gain on the derivative?

Douglas Bruggeman

No, it would include the derivative, it would not include the synthetic fuel that gets reported in corporate and other. So, you would have the Big River profit of about $1 million. Levelland generated a loss, I think of $500,000 to $600,000, because of the startup. We’d had corporate costs go against that, certain corporate allocated costs go against it. And then you would have had the swap change in value.

Rick Weinhart - BMO Capital Markets

Just in terms of looking forward now into second quarter with Levelland, any idea what your run rate is right now either on a revenue basis or any information that you feel comfortable providing on what the components will be?

Douglas Bruggeman

It should be generating. It should be a full production, it’s a 40 million gallon plant. So it should be at full production and be doing the DDGs and today I think or yesterday ethanol was about $2.30 on the spot market I believe.

Rick Weinhart - BMO Capital Markets

But you haven’t hedged any of these or sold into the future for any of that stuff yet?

Douglas Bruggeman

We have not done too much into the futures. We have done mostly spot.

Operator

Your next question is a follow-up from Mike Nery - Nery Asset Management.

Mike Nery - Nery Asset Management

On the ethanol partnerships, how and when do you get cash for your income?

Douglas Bruggeman

It would have to be in the form of a dividend payment. Currently they’re about all they are really paying out is enough for everyone to pay their taxes. So it would just be in the form of a dividend payment over time from the partnerships.

Mike Nery - Nery Asset Management

So, are there regular dividends scheduled every quarter or every year or is it something where there is?

Douglas Bruggeman

They normally done it more on annual basis again toward a time when people need to pay their taxes.

Mike Nery - Nery Asset Management

And are there restrictions on the payment of dividends for the [inaudible] debt terms?

Douglas Bruggeman

Yes, there normally is, yes.

Mike Nery - Nery Asset Management

So, One Earth for instance, once that plant comes in production, then the income from that although it will be on our balance sheet, we won’t be getting cash out of it.

Stuart A. Rose

We will be able to declare, that one we control. So we will be able to decide what we want to do on that. Yes, it’s within the covenants of the bank agreements, but it’s after the covenants are met and assuming it’s making a lot of money then we will control. It will be our call on how much to pay out in dividends.

Mike Nery - Nery Asset Management

The only two that are not that way are Patriot and Big River.

Stuart A. Rose

Correct.

Mike Nery - Nery Asset Management

And in the past, has Big River paid a dividend to you?

Douglas Bruggeman

It has. It’s not been to the amount of what the income has been, but there have been dividend payments out.

Mike Nery - Nery Asset Management

Roughly to the extent of what the taxes were?

Douglas Bruggeman

Yes, but roughly. If I could make a correction, Rick, that number I gave you on Levelland that was overall once you net out minority interest, the loss was more like $400,000 for the quarter, just a minor correction.

Operator

Your last question is a follow-up from Richard Dearnley – Longport Partners.

Richard Dearnley – Longport Partners

You were saying you were selling your ethanol mostly on the spot market. But you also talked about hiring a commodities marketing firm and I think maybe the same group was doing ethanol risk management.

Stuart A. Rose

We have a very, very good one. The thing that, the reason we are still in the startup part of the operation at this plant. You can get caught pretty good of your production when you sell a long-term you have to deliver and if the price were to go up and you sold cheap, you’d actually go out and buy on the open market and deliver and it would be really hard to buy in the open market in Texas to deliver.

So, we would have to pay a lot of freight to get it where it needs to go and so we’ve been very cautious and just and have not taken that risk. Now once our plant and it is now going full production and we will work with that company to decide what risk to take. What I think the best strategy to do is when possible lock up our profit, because they are also are the people selling us the raw material. So if we can lock the profit in then that’s a great situation.

Richard Dearnley – Longport Partners

I thought the raw material was largely coming from your farmer partners.

Stuart A. Rose

It is, but they are the middlemen. They come from our farmer partners, but our farmer partners are a diverse group. So they sell to them and then they resell to us or should they choose to sell them.

Richard Dearnley – Longport Partners

Are Fagan or ICM partners in any of your plants?

Stuart A. Rose

Fagan owns in the ones that they are building they always keep some small percentage.

Richard Dearnley – Longport Partners

But it is a small percentage?

Stuart A. Rose

From Fagan’s standpoint it’s a rounding error. From our standpoint they are shareholder, but from Fagan’s standpoint it’s not.

Richard Dearnley – Longport Partners

Did you ever figure out what’s the surge in volume in your stock was back in May, I think it was?

Stuart A. Rose

It’s a mystery to me, we’ve asked. We didn’t see any in the filings on the institutions. There was no one that just stood out as selling like crazy. We really don’t understand it to this day.

Richard Dearnley – Longport Partners

And on cellulosic, some here locally or somewhat near here. One partner just dropped out of cellulosic project leaving far or less recognizable names in the project. Where would you say we are on the science project of making cellulosic efficiently?

Stuart A. Rose

Well, I am not sure on the science project, I think my own opinion that it’s going to come from the seed side. And that there is going to be super sorghums developed that’ll work cellulosically instead of trying to take the corn stock and all that other stuff.

My own opinion is what I call super sorghum grows and in very arid conditions that aren’t suitable for other crops. I think that’s going to be in the long-term that would be in the direction that I would bet on. And again having one of the few sorghum-operated plants in the United States that to me is very, very interesting.

Operator

And there are no further questions at this time.

Stuart A. Rose

Well, thank you for listening everyone, I appreciate it very much. Thank you.

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Source: REX Stores Corporation F1Q08 (Qtr End 04/30/2008) Earnings Call Transcript

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