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MarketScreener Homepage  >  Equities  >  Nasdaq  >  RiceBran Technologies    RIBT

RICEBRAN TECHNOLOGIES

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RICEBRAN TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

03/24/2020 | 03:27pm EST
See Note 3 of our Notes to Consolidated Financial Statements for a discussion of
2019 and 2018 acquisitions.

Results of Operations

                                                 Years Ended December 31         Change
                                                   2019              2018          %
                                                      (in thousands)
Revenues                                       $      23,713$ 14,762         60.6
Cost of goods sold                                    24,574         11,780       (108.6 )
Gross profit (loss)                                     (861 )        2,982
Gross profit %                                          -3.6 %         20.2 %

Selling, general and administrative expenses          13,696         11,194        (22.4 )
Loss from operations                                 (14,557 )       (8,212 )      (77.3 )
Other income (expense):
Interest expense                                         (96 )          (12 )
Interest income                                           50              -
Other, net                                               868            168
Total other (expense) income                             822            156
Loss before income taxes                       $     (13,735 )$ (8,056 )

Revenues increased $9.0 million, or 61%, in 2019 compared to the prior year, with overall growth supported by the acquisition of Golden Ridge in November 2018, and MGI Grain in April 2019. Food product revenues increased 97% year over year, primarily due to the addition of new products for human consumption from Golden Ridge and MGI Grain. Animal feed product revenues increased 10%. Animal feed product growth was primarily due to increased buying from our existing SRB customer base.

Gross profit percentage decreased 23.8 percentage points to negative 3.6% in 2019 from 20.2% in the prior year. The decrease in gross profit was primarily attributable to operating losses at Golden Ridge due to an unfavorable contract to sell medium grain rice entered into by the seller of the mill and low levels of plant utilization in the latter half of the year while the mill was going through a planned upgrade cycle. With this project completed in early January 2020, we expect to see improved productivity and a positive contribution margin from Golden Ridge in 2020.

Selling, general and administrative (SG&A) expenses were $13.7 million in 2019, compared to $11.2 million in 2018, an increase of $2.5 million, or 22.4%. Outside services increased $1.1 million in 2019, compared to the prior year, primarily as a result of higher outside accounting, legal and professional fees associated with the acquisition of Golden Ridge and MGI Grain. Salary, wages and benefit related expenses increased $1.1 million in 2019, compared to the prior year, driven substantially by equity grants and outside labor costs. Bad debt expense increased $0.2 million and rent expense increased $0.1 million in 2019, compared to the prior year.

Other, net was $0.9 million for 2019 compared to $0.2 million in 2018. This increase was primarily related to the settlement of a net working capital dispute and other issues with the seller of Golden Ridge.

Covid-19 Assessment

Subsequent to RiceBran Technologies' fiscal year ending December 31, 2019, the United States experienced an outbreak of a novel coronavirus (COVID-19), which has been declared a "pandemic" by the World Health Organization. This pandemic poses the risk that we or our customers, suppliers and other business partners may be disrupted or prevented from conducting business activities for certain periods of time, the durations of which are uncertain.

RiceBran Technologies has informed its customers that at this time we anticipate operating throughout the COVID-19 outbreak. Our locations have fewer than 15 people on site at once, and all employees have been trained on COVID-19 by our Occupational Health & Safety Manager, as well as being cross-trained to backfill in one another's absence in accordance with GFSI requirements. We are also limiting visitors to all facilities, have cancelled all non-essential travel, and shifted many employees to working remotely. Our employees have been reporting to work, either remotely or in-person, without any material changes in attendance or resulting changes in our productivity due to the COVID-19 outbreak. We currently do not expect any of our facilities to be subject to government-mandated closures. The COVID-19 outbreak has not yet caused any material disruption in the supply of raw materials used in our products or in the distribution of our products.

The COVID-19 pandemic has become a worldwide health crisis that is adversely affecting the economies and financial markets of many countries, which we expect will adversely affect the demand for our products. However, we are not able to estimate the exact magnitude of the impact of such developments on on our business. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which we operate, including the related impact on our customers' spending, all of which is highly uncertain.

Liquidity, Going Concern and Capital Resources

See Note 1 of our Notes to Consolidated Financial Statements for a discussion of liquidity.

Cash used in operating activities of continuing operations is presented below (in thousands).


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Index

                                                  Year Ended December 31
                                                   2019             2018
Cash flow from operating activities of
continuing operations:
Loss from continuing operations                $     (13,735 )$  (8,101 )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization                          1,930            773
Stock and share-based compensation                     1,360            886
Settlement with Sellers of Golden Ridge                 (849 )            -
Provision for bad debts                                  472              -
Other                                                     13            (14 )
Changes in operating assets and liabilities:
Accounts receivable                                   (1,102 )          331
Inventories                                              332           (138 )
Accounts payable and accrued expenses                   (296 )          935
Commodities payable                                   (1,340 )          176
Other                                                   (235 )          (89 )
Net cash used in operating activities of
continuing operations                          $     (13,450 )$  (5,241 )

We used $13.5 million in operating cash during 2019, compared to $5.2 million of operating cash in 2018. We also funded $4.4 million of capital expenditures in 2019, compared to $3.3 million in the prior year. These capital expenditures relate primarily to our capacity expansion and debottlenecking at Golden Ridge, leasehold improvements at our Riverside facility, and our specialty ingredients' equipment in our Dillon plant. Offsetting these uses of cash was $19.4 million of proceeds from issuances of common stock and a prefunded warrant, as well as $2.2 million of proceeds from option and warrant exercises.

As of December 31, 2019, our cash and cash equivalents balance was $8.4 million (see Note 1), compared to $7.0 million and $0.2 million of restricted cash as of December 31, 2018. As of December 31, 2019, management believes the Company has sufficient capital reserves and borrowing capacity to fund the operations of the business; however, we may seek external sources of funding for investment initiatives and/or general operations if we determine that is the best course of action.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than operating leases with original terms of less than a year and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. The following is a description of what we consider to be our most significant critical accounting policies.

Inventories - Inventories are stated at the lower of cost or net realizable value, with cost determined by the first-in, first-out method. We employ a full absorption procedure using standard cost techniques for the majority of our operations. The standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs. Provisions for potentially obsolete or slow-moving inventory are made based upon our analysis of inventory levels, historical obsolescence and future sales forecasts, while inventory determined to be obsolete is written off immediately.

Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in net income (loss).


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Index

Impairment of long-lived assets - We review our long-lived assets, such as property and equipment, operating lease assets, and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. An impairment loss is recognized based on the difference between the carrying values and estimated fair value. The estimated fair value is determined based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value, less estimated costs to sell.

Goodwill - Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we conclude that is the case, or chose to not perform the qualitative assessment, we quantify the reporting unit's fair value. If the carrying amount of the reporting unit exceeds its fair value, we will record an impairment loss based on the difference. The impairment loss will be limited to the amount of goodwill allocated to that reporting unit. Multiple valuation techniques may be used to assess the fair value of the reporting unit. All of these techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both.

Intangible Assets, exclusive of goodwill - Recognized intangible assets, exclusive of goodwill, are amortized over the useful lives of the assets unless that life is determined to be indefinite. All of our intangible assets, exclusive of goodwill, are finite lived. We evaluate the remaining useful life of an intangible asset each reporting period to determine whether events or circumstances may indicate that a revision to the useful life is warranted to reflect the remaining expected use of the asset. If an intangible asset's useful life is determined to be finite, but the precise length of that life is not known, the intangible asset is amortized over our best estimate of the asset's useful life in a manner that reflects the pattern in which the asset's economic benefits are consumed or expected to be realized. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. Our primary intangible asset, exclusive of goodwill, is a customer relationship intangible which was recognized in the acquisition of MGI and derives its value from future cash flows expected from the customers acquired from MGI. Changes in the actual or estimated cash flows of these customers could result in a material adjustment to amortization expense, an impairment loss, or both. Estimates of future cash flows are based on many factors, including current cash flows, expected market trends and competitive influences.

Revenue Recognition - We account for a contract with a customer when the written contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing or amount of revenue recognized.

© Edgar Online, source Glimpses

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