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RICEBRAN TECHNOLOGIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/05/2020 | 04:26pm EDT

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.

Revenues increased $2.0 million, or 31%, in the first quarter of 2020 compared to the first quarter of 2019. The increase in revenue year-over-year was due to higher revenues from Golden Ridge Rice Mills (Golden Ridge) and MGI Grain Incorporated (MGI). MGI was acquired in April 2019 and, therefore, our revenues included no MGI revenue in the first quarter of 2019. By type, animal feed product revenues increased 32%, while food product revenues increased 30% year-over-year, primarily due to higher sales of finished rice from Golden Ridge and increased buying from our existing customer base.

We experienced a gross loss of $0.4 million in the first quarter of 2020, compared to a gross profit of $0.3 million in the first quarter of 2019. The decline in gross profit was primarily attributable to higher losses from Golden Ridge due to sub-par milling yields in the first part of the first quarter of 2020, and an unfavorable spread on certain contracts which were delayed in fulfillment due to holdups in completing our debottlenecking project in the prior quarter. This decline was offset in part by a higher gross profit from our core SRB operations due to favorable trends in product mix as well as deferred operating costs in inventory as we grow our inventory base for this business.

Selling, general and administrative (SG&A) expenses were $2.6 million in the first quarter of 2020, compared to $3.3 million in the first quarter of 2019, a decrease of $0.8 million. The decline in SG&A expense was primarily related to the absence of approximately $0.3 million in costs associated with our acquisition of Golden Ridge in the comparable period a year ago, lower legal and outside accounting fees, as well the initial benefits from initiatives to reduce overall SG&A costs.

Other expense increased $0.1 million in the first quarter of 2020 compared to the first quarter of 2019. This increase was primarily due to higher interest expense on the outstanding balance of our factoring facility, a new facility entered in to in the fourth quarter of 2019.

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 supply of the raw materials we use and the demand for the products we produce. 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, and that we could see volatility in the price of the raw materials we use, or the demand for the products we produce. 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, which is highly uncertain. As such, we are currently not able to estimate the exact magnitude of the impact of such developments on our business.

In April, we applied for, and received, a $1.8 million SBA Paycheck Protection Program loan as discussed further in Note 18 of the Notes to Unaudited Condensed Consolidated Financial Statements. The funds from this loan will enable us to maintain our current workforce during any economic disruptions to our business as a result of the COVID-19 outbreak. We currently do not expect any of our facilities to be subject to government-mandated closures as a result of the COVID-19 outbreak, and we have informed our customers that at this time we anticipate operating throughout the COVID-19 outbreak. To date, 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 our employees have been reporting to work, either remotely or in-person, without any material changes in attendance or productivity.




Liquidity and Capital Resources

We used $3.3 million in operating cash during the 2020 first quarter. We used $1.0 million of operating cash in the first quarter of 2020 to increase our inventories in anticipation of a seasonal shut down of our Louisiana facilities in the second quarter. We also had a $1.3 million increase in accounts receivable associated with growth in revenues at Golden Ridge. These two items were partially offset by a $1.1 million increase in commodities payable due to the timing of associated sourcing contracts for Golden Ridge. We funded $0.2 million of capital expenditures in the first quarter of 2020, and we expect this amount to increase in subsequent quarters as improved weather permits certain projects to be completed at Golden Ridge and MGI. We funded our working capital needs in the first quarter of 2020, primarily with (i) a reduction in our cash reserves, (ii) net borrowings on our factoring facility, and (iii) by entering into a finance agreement for our annual insurance premiums.

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. In April 2020, we were approved for a $1.8 million SBA Payroll Protection Program loan as discussed further in Note 18 of the Notes to Unaudited Condensed Consolidated Financial Statements. Management believes the COVID-19 outbreak had created general market uncertainty, which may currently limit the company's ability to seek external sources of funding for investment initiatives and/or general operations. However, with the $1.8 million in funds provided by the SBA Payment Protection Program loan, as of the date of this filing, management believes we have sufficient capital reserves and borrowing capacity to maintain our workforce and fund the operations of the business through the remainder of our current fiscal year.

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.

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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