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   Non-TechSmart Balance (SMBL) A smart and balanced investment!


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From: Arthur Radley4/10/2008 4:38:42 PM
   of 33
 
Interesting trading day...stock spiked down to $7.76 only to roar back at the close and ended up by .04 cents. The $8.00 level seems to be the floor for the stock...at least for now!

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From: Glenn Petersen4/10/2008 6:55:12 PM
   of 33
 
I am looking forward to reviewing Smart Balance’s first quarter numbers. Anyone holding the stock should be encouraged by the fact that the stock moved up after the company reported its fourth quarter and year-end results, particularly because the fourth quarter margins showed some erosion.

When you back out the non-cash charges, SMBL’s numbers look like this:

Fourth quarter – 2007

Sales: $50.7 million
Gross profit percentage: 46.2%
Adjusted operating profit: $4 million
Adjusted operating profit percentage: 9.1%

Fourth quarter – 2006

Sales: $40.1 million
Gross profit percentage: 48.4%
Adjusted operating profit: $5.8 million
Adjusted operating profit percentage: 14.5%

Full year – 2007

Sales: $175.5 million
Gross profit percentage: 47.9%
Adjusted operating profit: $30.2 million
Adjusted operating profit percentage: 17.2%

Full year – 2006

Sales: $137.4 million
Gross profit percentage: 49.2%
Adjusted operating profit: $23.8 million
Adjusted operating profit percentage: 17.3%

Full year – 2005

Sales: $98.8 million
Gross profit percentage: 51.7%
Adjusted operating profit: $15.1 million
Adjusted operating profit percentage: 15.3%

The 10-K can be found here:

sec.gov
__________

The 2008 outlook from the March 14 press release:

Smart Balance's outlook for 2008 reflects continued growth in net sales on an operating basis in line with its long-term target of approximately 30% through both volume and pricing growth. Three innovations developed in 2007 will be expanding in 2008: extra virgin olive oil spreads, omega-3 enhanced spreads and 50/50 butter blend. These new products have created a catalyst for our "Plus Six" distribution initiative. Pricing will reflect the prior year increases as well as the announced price increase on most spreads in February, 2008. Gross profit as a percent of net sales will be lower in 2008 versus 2007 as pricing actions are expected to continue to trail rising input costs, notably oils used in the majority of Smart Balance's products. Marketing and infrastructure investments are expected to increase in order to support growth. In March 2008, the Company paid down an additional $30 million in debt and expects to continue to pay down debt as appropriate. The Company also expects to continue to meet all covenants related to long-term debt.

biz.yahoo.com

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To: Glenn Petersen who wrote (2)4/10/2008 10:27:11 PM
From: Arthur Radley
   of 33
 
Glenn,
As with you, I would like to see the GPM going up, but as they indicated in SEC filings, '08 will not show an improvement in this area. Marketing and infrastructure expenses will impact this number, but addition of three key marketing employees recently is wise investment. Also, the national TV ad campaign will be short-term negative on growing GPM, but long-term benefit.

Key is growing revenues and profits will come, but this will not be an overnight wonder....and I still think they will be a buyout candidate when the numbers are right.

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From: jrhana4/11/2008 6:56:15 AM
   of 33
 
I don't know anything about this stock but its products sure taste good.

Well I am hungry so I am going to spread some of that delicious buttery spread on my toast. I wouldn't use anything else.

Could this be a Peter Lynch moment?


<A story about legendary mutual fund manager Peter Lynch tells how he shrewdly and profitably invested in the stock of Hanes Corp. after his wife praised its L'eggs pantyhose sold in grocery stores.>

marlinllc.com

csulb.edu

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To: Arthur Radley who wrote (3)4/11/2008 11:41:02 AM
From: Glenn Petersen
   of 33
 
TexasDude,

2008 may be a transitional year for Smart Balance. As you note, if they can continue to grow the top line the profits will follow.

I have always thought that the acquisition of Smart Balance was one of the better blank check transactions and it got overwhelming shareholder approval:

Of the 11,439,610 eligible common shares voted at the meeting (representing 89.6% of shares entitled to vote on the merger proposal), 99.9% voted in favor of the acquisition, with only 500 shares abstaining from the vote. No holders of shares issued in the company's initial public offering voted against the acquisition and none elected to have such shares converted into a pro rata portion of the IPO trust account.

Message 23553559

A couple of observations:

-- The EBITDA for 2007 was $30.2 million. Because the impact of the revenue growth in 2008 will be partially offset by margin pressures, the EBITDA generated in 2008 may be limited to $35 million.

-- The company currently has a market cap of approximately $500 million.

-- If you back out the goodwill and the other intangible assets, the company has a negative tangible net worth of $122.4 million.

-- The company had $119.5 million in long-term debt at the end of the year, of which $40 million was paid down after year end. On the plus side, $76.9 million of the remaining debt is not due until 2013.

It would be nice if the could do a follow-on offering and raise another $40 to $50 million, though that would be difficult, if not impossible, in the current market.

IMHO, the stock may drift a bit lower. The first quarter numbers may set the tone for the remainder of the year.

Regards,

Glenn

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To: Glenn Petersen who wrote (5)5/1/2008 5:28:26 PM
From: Arthur Radley
   of 33
 
Interesting trading in SMBL today...late in the trading day several huge blocks were being placed on the bid side....saw one block of 40,000 taken out and then another nice size block of shares.

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To: Arthur Radley who wrote (6)5/7/2008 8:49:50 AM
From: Glenn Petersen
   of 33
 
SMBL has reported its first quarter results. They beat the consensus analyst estimates for their sales numbers ($50.8 million vs. 49.79 million) but appear to have fallen short on the earnings estimates (a $1.2 million GAAP loss vs. break even).

Smart Balance Announces 2008 First-Quarter Results

Wednesday May 7, 8:30 am ET

- Net sales $50.8 million, up 25% versus year ago on operating basis (1)

- Gross profit margin 45% - despite historic high commodity costs

- Net loss $1.2 million, includes non-cash charges of $3.2 million

- 2008 Outlook - Targeted 30% growth in net sales on operating basis (1)

PARAMUS, N.J., May 7 /PRNewswire-FirstCall/ -- Smart Balance Inc. (Nasdaq: SMBL - News) today announced its results for the first quarter ended March 31, 2008. The Company reported net sales of $50.8 million, an increase of 25.1% versus year ago on an operating basis(1), and a net loss of $1.2 million, reflecting the $3.2 million after-tax impact of non-cash items, including $2.1 million of stock-based compensation expense and $1.1 million of amortization and depreciation. The net loss was $0.02 on both diluted and basic shares.

Gross profit margin was 45.0%, as the rate of selling price increases lagged the rate of input cost increases, reflecting historic high levels in commodity raw materials. Selling prices in the Company's core category of spreads were increased in February and the Company has announced additional price increases to take effect in June.

The Company continued the recapitalization of its balance sheet with the January conversion of its preferred stock to common stock. In March, an additional $30 million of cash was used to pay down debt. Long-term debt was $89.5 million on March 31, 2008, down $70.5 million (44%) since the acquisition of GFA Brands Inc. in May, 2007.

"We continue to make excellent progress executing against our strategy, despite the unprecedented cost environment," said Stephen B. Hughes, Smart Balance Chairman and CEO. "We increased market share in spreads for the 25th consecutive quarter and had a record quarter in sales, growing 25%."

The Company continued to expand distribution with 'Plus Six', its initiative to increase average items on shelf at retail from 12 to a target of 18 by the end of June. Smart Balance has also forged a strategic agreement with Ventura Foods, Inc. to develop, market and distribute Smart Balance branded products in the foodservice channel.

"I believe the retail commitments on 'Plus Six' and Butter Blends national launch are exceptional, with key customers expanding our placements by 50% or more," said Hughes. "We expect accelerating growth in the second half of 2008 once the retail store resets are completed by July."

(1) In addition to its GAAP results, the Company has provided operating basis results to explain year-over-year changes. The operating basis results should not be viewed in isolation or as a substitute for GAAP results. A reconciliation of operating basis results to GAAP results is provided in the accompanying tables.

Change in Accounting Principles

In 2008, the Company began accruing for certain trade incentives and marketing costs as prepaid expenses to better match recognition of expense to revenue, consistent with the general practice in the consumer product goods industry. This methodology is a change from prior years. While this methodology may create timing differences between prior year's quarters on an operating basis, it has no impact on full year results. In accordance with FAS No. 154, a retrospective application of the change in accounting principle is being applied to 2007 quarterly results to improve comparability. This retroactive application is already reflected in the Company's discussion of results on an operating basis for the first quarter. The Company anticipates publishing the changes to the other quarters in the near future.

2008 First Quarter GAAP Results

The Company indicated that its reported GAAP financial statements include the results of its acquisition of GFA Brands, Inc. since the date of acquisition on May 21, 2007. Because there were no operations prior to the acquisition, prior periods are not comparable. The Company has provided results on an operating basis following the GAAP results. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results. A reconciliation of operating basis results to GAAP results is provided for in the accompanying tables.

Net sales were $50.8 million for the first quarter. Operating income was $2.0 million, which included $4.6 million of non-cash charges. First quarter net loss was $1.2 million. The $30 million in debt pay down required a cash prepayment penalty of $0.6 million, reflected in pretax interest expense. In addition, the debt prepayment accelerated $0.9 million of deferred financing amortization, reflected in pretax other expense net. See the tables below for the non-cash items affecting operating income and net loss. Net loss for the quarter was $0.02 on a per share basis, both diluted and basic.


Items Affecting GAAP Operating Income - 2008

$ in Millions First Quarter

Operating Income 2.0
Non-cash charges affecting Operating Income:
FAS 123R Stock Option Expense (3.5)
Depreciation & Amortization (1.1)
(4.6)
Operating Income less non-cash charges 6.6

Items Affecting GAAP Net Loss - 2008

$ in Millions First Quarter

Net Loss (1.2)
Non-cash charges after-tax affecting Net Loss:
FAS 123R Stock Option Expense (2.1)
Depreciation & Amortization (0.6)
Accelerated Financing Amortization (0.5)
(3.2)
Net Loss less non-cash charges after-tax 2.0


2008 First Quarter Operating Basis Results

The following discussion of operating basis results includes the operating results of Smart Balance Inc. from the date of its acquisition of GFA Brands, Inc. on May 21, 2007 and the operating results of GFA Brands prior to the acquisition. Management believes that this presentation provides more useful information because it reflects the performance of the operating entity in both the current and prior periods presented. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results. A reconciliation of operating basis results to GAAP results is provided in the accompanying tables.

Net sales increased 25.1% to $50.8 million in 2008, from $40.6 million in 2007, due to higher prices across almost all categories and a 10% increase in case volume. The case increase was due to shipments of new products (extra virgin olive oil spreads, omega-3 enhanced spreads, 50/50 butter blend, milk and cream cheese) and higher sales of peanut butter. The gains in prices and volume were partially offset by higher trade and promotion costs.

Both dollar and volume market shares for spreads increased versus the prior year for the 25th consecutive quarter. During the Easter promotion period, the Company raised promoted prices to maintain margins in step with the February price increase, while the category generally kept previous holiday pricing levels in place. As anticipated, this resulted in a lower holiday performance at retail for Smart Balance products in March. Market shares for peanut butter and cooking oil also increased while mayonnaise and popcorn declined.

Gross profit increased $2.9 million to $22.8 million in 2008 from $19.9 million in 2007 as the impacts of higher pricing and sales volume were greater than increases in input costs and trade related spending. Gross profit as a percent of net sales decreased to 45.0% in 2008 from 49.1% in the first quarter of 2007, as the rate of selling price increases lagged the rate of input costs increases, primarily in commodity raw materials

Operating income declined $6.2 million to $2.0 million in 2008 from $8.2 million in 2007 as the gain in gross profit was more than offset by increased selling costs and general and administrative expenses. Selling costs increased $1.6 million due to higher overhead, warehouse and freight costs. General and administrative expenses increased $7.2 million primarily due to higher infrastructure costs and non-cash expenses of $3.5 million in FAS 123R Stock Option expense, and $1.1 million for depreciation and amortization. Excluding these non-cash charges, operating income would have declined $1.6 million to $6.6 million in 2008 from $8.2 million in 2007.

2008 Outlook

Smart Balance's outlook for 2008 continues to reflect growth in net sales on an operating basis in line with its long-term target of approximately 30%. Progressively increasing distribution through the Company's 'Plus Six' drive will be supported by the innovations in its core category: extra virgin olive oil spreads, omega-3 enhanced spreads and 50/50 butter blend. The Company expects that the second half of 2008 will see accelerating sales growth as a result of these initiatives. Pricing actions include the increase that was effective in February 2008 and the announced increase for June 2008. Gross profit as a percent of net sales will be lower in 2008 versus 2007 as pricing actions are expected to continue to trail rising input costs. Marketing investments are expected to increase in order to support growth. Infrastructure costs increases versus prior year will diminish as 2008 progresses. The Company also expects to continue to meet all covenants related to long-term debt.

<snip>


SMART BALANCE, INC. AND SUBSIDIARY
Consolidated Balance Sheets

March 31, December 31,
2008 2007
Assets (Unaudited)
Current assets:
Cash and cash equivalents $7,032,468 $37,648,754
Accounts receivable, net of allowance
2008- $226,891 and 2007-$228,871 11,827,242 11,733,117
Accounts receivable - other 1,190,127 799,470
Inventories 7,676,319 7,202,198
Prepaid taxes
8,068,740 6,517,833
Prepaid expenses and other assets 5,743,983 1,454,866
Deferred tax asset 1,079,509 1,079,509
Total current assets 42,618,388 66,435,747
Property and equipment, net 2,628,319 1,805,331
Other assets:
Goodwill 374,885,923 374,885,923
Other intangibles, net 158,273,243 159,645,634
Deferred costs, net 2,559,021 3,519,412
Other assets 113,882 74,975
Total other assets 535,832,069 538,125,944
Total assets $581,078,776 $606,367,022

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $22,699,613 $20,355,419
Income taxes payable 1,050,149 1,035,149
Total current liabilities 23,749,762 21,390,568
Long term debt 89,504,174 119,504,174
Deferred tax liability 53,293,528 53,293,528
Other liabilities 35,626 --
Total liabilities 166,583,090 194,188,270
Commitment and contingencies:
Stockholders' equity
Series A Convertible Preferred stock,
$.0001 par value, 50,000,000 shares
authorized; 15,388,889 preferred shares
converted into 19,516,832 shares of common
stock on January 3, 2008 -- 175,659,013
Common stock, $.0001 par value,
250,000,000 shares authorized; 62,630,683
(March 31, 2008) and 43,113,863
(December 31, 2007) issued and
outstanding 6,263 4,311
Additional paid in capital 494,631,114 315,479,759
Retained deficit (80,141,691) (78,964,331)
Total stockholders' equity 414,495,686 412,178,752
Total liabilities and stockholders' equity $581,078,776 $606,367,022

SMART BALANCE, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)

Three months Three months
ended ended
March 31, 2008 March 31, 2007

Net sales $50,765,739 $ --
Cost of goods sold 27,938,186 --
Gross profit 22,827,553 --

Operating expenses:
Marketing 7,225,344 --
Selling 5,056,418 --
General and administrative 8,583,697 --
Formation and operating costs -- 672,873
Total operating expenses 20,865,459 672,873
Operating income (loss) 1,962,094 (672,873)

Other income (expense):
Interest income 251,360 1,078,207
Interest expense (3,231,721) --
Loss on derivative liability -- (7,784,112)
Other (expense), net (944,000) --
Total other income (expense) (3,924,361) (6,705,905)
(Loss) before income taxes (1,962,267) (7,378,778)
Provision (benefit) for income taxes (784,907) 148,183
Net (loss) $(1,177,360) $(7,526,961)

(Loss) per share:
Basic $(0.02) $(0.52)
Diluted $(0.02) $(0.52)
Weighted average shares outstanding:
Basic 62,196,988 14,355,945
Diluted 62,196,988 14,355,945

Smart Balance, Inc.
Operating Basis Results(1)

(in 000's) Three Months Three Months
Ended Ended
March 31, 2008 March 31, 2007

Net Sales $50,766 $40,583
COGS 27,938 20,672
Gross Profit 22,828 19,911
Gross margins 45.0% 49.1%

Marketing 7,225 6,901
Selling 5,057 3,450
G&A 8,584 1,403
Total SG&A 20,866 11,754

Operating Income 1,962 8,157
% of Net Sales 3.9% 20.1%

Operating Income includes the following
non-cash items
FAS 123R Stock Options 3,534 --
Depreciation 53 6
Amortization 1,022 --
4,609 6

Operating Income net of non-cash items: 6,571 8,163
% of Net Sales 12.9% 20.1%


(1) The Company's GAAP financial statements include the results of its acquisition of GFA Brands, Inc. since the date of acquisition on May 21, 2007. Because there were no operations prior to the acquisition, prior periods are not comparable. The operating basis results should not be viewed in isolation or as a substitute for reported GAAP results. Please refer to the reconciliation of operating basis results to GAAP results provided for in the accompanying table.

Smart Balance, Inc. Reconciliation of Operating Basis to GAAP Basis

Prior to Smart Balance, Inc.'s May 21, 2007 acquisition of GFA Brands Inc., operating income consisted largely of formation costs and other expenses incurred in seeking and evaluating potential business combinations. We have added these expenses back to the operating basis results below, as GFA incurred its own operating expenses for these periods, and the inclusion of the parent company's expenses prior to the date of acquisition make it difficult to compare operating results period to period. Additionally, in 2008, the Company began accruing for certain trade incentives and marketing costs as prepaid expense to better match recognition of expense to revenue. While this methodology may create timing differences between prior year's quarters on an operating basis, it has no impact on full year results. A retrospective application of the change in accounting principle is being applied to 2007 quarterly results to improve comparability. With the information set forth below, management and stockholders would be better able to determine whether or not sales or operating income of the acquired business have improved in 2008 compared with prior periods. The operating basis results provided below are intended to assist the reader in comparing the operating performance of the GFA business we acquired, for the periods before and after the acquisition. However, they do not indicate what consolidated results would have been had we acquired GFA on January 1, 2007.

The operating basis results should not be viewed in isolation or as a substitution for GAAP results.

GAAP Basis Operating Basis
($ in 000's)

(1)
Add GFA (2)
Three Months Ended As reported Results For Add Operating
March 31, 2008 Form 10-Q the Period Adjustments Basis

Net Sales 50,766 -- -- 50,766
Operating Income 1,962 -- -- 1,962

Add GFA
Three Months Ended As reported Results For Add Operating
March 31, 2007 Form 10-Q the Period Adjustments Basis

Net Sales -- 40,583 -- 40,583
Operating Income (673) 8,157 673 8,157


(1) To add GFA results for the entire reporting period as necessary

(2) To remove parent company pre-acquisition expenses from the results prior to the acquisition date, May 21, 2007.

--------------------------------------------------------------------------------
Source: Smart Balance Inc.

biz.yahoo.com

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To: Glenn Petersen who wrote (7)5/8/2008 9:27:40 AM
From: Arthur Radley
   of 33
 
Not a bad quarter...tracking to become profitable sooner than I thought. Can't beat 30% revenue growth!!!

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From: Arthur Radley5/20/2008 8:31:28 PM
   of 33
 
Nice plug for SMBL on CNBC....stock is performing well as of late!

cnbc.com|headline|quote|video|&par=yahoo

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From: Glenn Petersen6/4/2008 9:39:17 AM
   of 33
 
Food's next billion-dollar brand?

Industry veteran Steve Hughes is out to turn Smart Balance into a household name.


June 4, 2008

By Matthew Boyle, writer

(Fortune) -- Success has followed Steve Hughes wherever he has roamed in the food industry the past two decades.

In 1988, Hughes spearheaded the launch of ConAgra's (CAG, Fortune 500) Healthy Choice line of low-calorie frozen and prepared foods, which became a billion-dollar brand in just four years. He then moved to Tropicana, where he turned around the orange juice maker's struggling U.S. business over a similarly short period. Since then, Hughes has also worked his marketing magic on brands like Celestial Seasonings tea and Silk soy milk - once niche products that have now gone mainstream.

Today, Hughes is betting that he can take another small, fast-growing, good-for-you product and turn it into a billion-dollar brand with a wide assortment of items found all across the grocery store. But it won't be easy - he'll have to battle entrenched, deep-pocketed competitors, sky-high commodity prices and increasingly pinched consumers to do so.

The brand is Smart Balance (SMBL), which you've probably seen in the margarine shelf next to products like Shedd's Spread and I Can't Believe It's Not Butter, both made by Anglo-Dutch consumer products giant Unilever (UN). With 13.5% market share, Smart Balance sits behind those two Unilever brands as the No. 3 player in margarine, a $1.2 billion retail category.

While it's not the biggest brand in margarine, Smart Balance has an edge on its rivals in that it's made with a patented blend of vegetable and fruit oils that has been shown to raise levels of HDL, or "good" cholesterol, which can help improve consumers' cholesterol levels. The blending process was discovered by food scientists at Brandeis University over a decade ago, and is licensed exclusively to Smart Balance.

According to the American Heart Association, roughly 100 million Americans have elevated levels of cholesterol. And it's likely that many of them have chosen to stock Smart Balance in their refrigerators, as its sales have skyrocketed since its launch in 1997 while sales for the margarine category overall have stagnated.

Last year margarine accounted for roughly 70% of the company's $175 million in sales, with the remainder coming largely from peanut butter and cooking oils, which are natural brand extensions for an oil-based product. (Smart Balance also makes a line of popcorn.)

But Hughes - who took control of Smart Balance when Boulder Specialty Brands, his special purpose acquisition vehicle, acquired GFA Holdings last May - believes that Smart Balance can expand to categories such as milk, cream cheese, yogurt, sour cream and even oatmeal. He also wants to push the brand into restaurants, college cafeterias and other food service accounts.

"In a world where everyone is looking at functional products," he says, "we are positioning this as a brand that could grow to a billion dollars, a true mega-brand."

As Hughes well knows, that's easier said than done. "The success of these [new] products is not a foregone conclusion," says Citigroup analyst Gregory Badishkanian, one of the few analysts who cover Smart Balance. Analysts so far have been pleased with Hughes' basic strategy of increasing the number of Smart Balance products carried by outlets like Wal-Mart, Kroger and Safeway from 12 to 18.

But many of those new items are simply brand extensions, like Omega-3 enhanced versions of its tub margarine. Breaking into entirely new categories, like milk, is a different proposition altogether. At $11 billion, milk is by far the largest category that Smart Balance is trying to enter and a good example of the challenges it faces. Hughes says that he's figured out a way to make a fat-free milk that has the taste and texture of 2% milk. A test of the product in Florida supermarkets has gone well so far, he claims.

Yet surging commodity prices have delayed plans for a national milk launch, which was supposed to happen this year. According to the latest USDA product pricing report, dairy prices continue to rise, which has cramped profits at companies like Dean and Kraft. Hughes says soybean oil prices have more than doubled, from 30 cents a pound this time last year to 62 cents today.

Unlike margarine or peanut butter, which is dominated by nationally advertised brands, two-thirds of milk sales come from private label products, whose presence makes it tough to convince penny-pinching consumers to pay more for a premium product. That said, success as a branded player in milk is possible - just look at Horizon Organic from Dean Foods.

Another pitfall Hughes must navigate is the risk of diluting the brand by entering too many new categories too quickly, says Martin Bishop, director of brand strategy at consultancy Landor Associates in San Francisco. "They don't want to spread their promise too thin," he quips. Hughes says he's trying to avoid that: "We're taking this step by step, building the foundation."

Still, it remains to be seen whether Smart Balance's heart-healthy message (and higher prices) will resonate with mainstream consumers. "For the portion of the population that cares, it's solid," says Nick Hahn, managing director at Vivaldi Partners, a marketing and brand consultancy in New York. "I don't think you will convince Joe Six-Pack though."

Thus far at least, Wall Street doesn't seem convinced either. The stock sits at $8.08, well off its 52-week high of $14.10, and the solid first-quarter earnings the company announced in early May have done little to sway investors.

Hughes, who has brought together a well-seasoned management team with veterans of Unilever, Tropicana, and ConAgra, remains undaunted. "We're approaching the end of the beginning now," he says. "We're in second gear now, and shifting to third."

Even if it finds that higher gear, the odds are against Smart Balance becoming the food industry's next billion-dollar brand. But Hughes' track record alone means it's worth keeping an eye on. Says Bishop: "If anyone can do it, they can."

us.rd.yahoo.com*http://money.cnn.com/2008/06/03/news/companies/smart_balance.fortune/index.htm?source=yahoo_quote

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