Results of Operations
Unless otherwise noted, amounts and percentages for all periods discussed below
reflect the results of operations and financial condition from our continuing
operations.
Three Months Ended September 30, 2020 Compared to Three Months Ended September
30, 2019
Revenues decreased $0.1 million in the third quarter of 2020 to $5.2 million
compared to $5.3 million in the third quarter of 2019. The decrease in revenue
year-over-year was due to lower revenues at our Golden Ridge Rice Mill (Golden
Ridge) operations, which ran well below capacity for most of the third quarter
as we were not able to acquire sufficient rough rice to mill at an economical
price. Lower revenues from Golden Ridge was partially offset by increases in
revenue from both our MGI Grain (MGI) and our RiceBran (RBT) businesses.
We experienced a gross loss of $0.8 million in the third quarter of 2020
compared to a gross loss of $0.4 million in the third quarter of 2019. The
increase in gross loss was primarily attributable to Golden Ridge due to higher
input commodity prices, $0.5 million in expenses related to the resolution of
contract disputes, and the impact of higher downtime during the quarter compared
to the same period a year ago. Gross losses were also impacted by negative
operating leverage from a shift in product mix versus a year ago.
Selling, general and administrative (SG&A) expenses were $1.9 million in the
third quarter of 2020, compared to $3.9 million in the third quarter of 2019, a
decrease of $2.0 million. The decline in SG&A expense was primarily related to
initiatives to reduce overall SG&A costs, which we began enacting in the first
quarter of 2020. SG&A was impacted favorably by the reversal of approximately
$0.1 million in previously recognized stock compensation when unvested awards
were forfeited, offset by a $0.1 million loss due to hurricane damage to a
facility in Louisiana in 2020.
Other net was $0.1 million in the third quarter of 2020 compared to other
income, net, of $0.9 million in 2019. In the 2020 period, we incurred higher
fees and interest expense related to the increased average outstanding balance
of our factoring facility, a new facility entered into in the fourth quarter of
2019, and on our long-term debt borrowings under agreements entered into in
2020, described further in Note 9 of the Notes to Unaudited Condensed
Consolidated Financial Statements. The 2019 period included $0.8 million gain
from a settlement with the sellers of Golden Ridge which was of a nonrecurring
nature.
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Revenues increased $1.5 million, or 8.4%, in the first nine months of 2020
compared to the first nine months of 2019. The increase in revenue year over
year was due to higher revenues from MGI and Golden Ridge, offset by a decline
in revenue from our RBT operations. MGI was acquired in April 2019 and,
therefore, our revenues included no MGI revenue in the first quarter of 2019.
We experienced a gross loss of $2.4 million in the first nine months of 2020,
compared to a gross loss of $0.3 million in the first nine months of 2019. The
decline in gross profit was primarily attributable to higher losses from Golden
Ridge due to sub-par milling yields, higher input commodity prices, $0.7 million
in expenses related to the resolution of contract disputes, and negative
operating leverage from higher downtime in the second and third quarters. Gross
profits were also negatively impacted by negative operating leverage from our
RBT operations, offset in part by a higher gross profit contribution from MGI.
SG&A expenses were $7.0 million in the first nine months of 2020, compared to
$10.6 million in the first nine months of 2019, a decrease of $3.6 million. The
decline in SG&A expenses was primarily related to initiatives to reduce overall
SG&A costs, which we began enacting in the first quarter of 2020, as well as the
absence of approximately $0.3 million in costs associated with our acquisition
of Golden Ridge, and lower legal and outside accounting fees. These reductions
were offset by a $0.1 million loss due to hurricane damage to a facility in in
Louisiana and a $0.3 million loss on disposition of assets in 2020.
Other net was $0.3 million in the first nine months of 2020 compared to other
income, net, of $0.9 million in the first nine months of 2019. In the 2020
period, we incurred higher fees and interest expense related to the increased
average outstanding balance of our factoring facility, a new facility entered in
to in the fourth quarter of 2019, and on our long-term debt borrowings under
agreements entered into in 2020. The 2019 period included $0.8 million gain
from a settlement with the sellers of Golden Ridge which was of a nonrecurring
nature.
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Index
COVID-19 Assessment
The United States is experiencing an outbreak of a novel coronavirus (COVID-19),
which has been declared a "pandemic" by the World Health Organization.
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
may adversely affect the demand for our products. This pandemic also 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. However, we are not able to
estimate the exact magnitude of the impact of such developments 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.
In April 2020, we applied for, and received, a $1.8 million SBA Paycheck
Protection Program loan as discussed further in Note 9 of the Notes to Unaudited
Condensed Consolidated Financial Statements. We believe the funds from this
loan have enabled us to maintain our current workforce in light of potential
economic disruptions to our business resulting from the COVID-19 outbreak.
We currently do not expect any of our facilities to be subject to
government-mandated closures, and we have informed our customers that, at this
time, we anticipate operating throughout the COVID-19 outbreak. 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, and to
date, our employees have been reporting to work, either remotely or in-person
without any material changes in attendance or productivity due to the COVID-19
outbreak. However, we cannot ensure that the COVID-19 outbreak will not cause
disruptions to our business in the future.
Liquidity, Going Concern and Capital Resources
On March 30, 2020, we entered into an at market issuance sales agreement with
respect to an at-the-market offering program, under which we may offer and sell
shares of our common stock having an aggregate offering price of up to $6.0
million. As further discussed in Note 10 of the Notes to Unaudited Condensed
Consolidated Financial Statements, we received net proceeds of $0.7 million
under the agreement. As discussed further in Note 9 of the Notes to Unaudited
Condensed Consolidated Financial Statements, in April 2020, we were approved for
a $1.8 million SBA Payroll Protection Program loan (PPP Loan) and in July 2020,
we secured a mortgage of up to $2.0 million on our rice mill in Wynne,
Arkansas. We received $1.0 million of proceeds under the mortgage in September
2020 and an additional $1.0 million in October 2020.
We used $7.3 million in operating cash during the first nine months of 2020. We
used operating cash to increase our inventories by $0.8 million in anticipation
of early October product shipments. We experienced a $1.4 million reduction in
accounts receivable in the first nine months of 2020 associated with the
decrease in revenues at the end of the third quarter of 2020. We paid $1.1
million of capital expenditures in the first nine months of 2020. We expect to
fund the rebuilding of our building in Louisiana with proceeds from insurance.
We funded our working capital needs in the nine months ended September 30, 2020
primarily with funds received from the sale of receivables under our factoring
agreement, supplemented by proceeds from the PPP loan, mortgage note and stock
offering.
Management believes that despite the multi-year history of operating losses and
negative operating cash flows from our continuing operations, there is no
substantial doubt about our ability to continue as a going concern within one
year after the date that the financial statements are issued. The factors that
alleviated this doubt include cash and cash equivalents of $3.9 million as of
September 30, 2020, the resumption of operations and the end of payments to
settle prior contract disputes at our Golden Ridge facility, positive revenue
and margin trends for our RiceBran and MGI operations, a nearly 50%
year-over-year reduction in corporate expenses, and the ability to seek addition
capital through asset-backed borrowing arrangements and/or asset dispositions.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than 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.
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Index
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon unaudited condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses and disclosures on the date of the
financial statements. On an ongoing basis, we evaluate the estimates, including,
but not limited to, those related to revenue recognition. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making judgments. Actual results could differ from those estimates.
Recent Accounting Pronouncements
See Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements
for further discussion.
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