Results of Operations - Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

Revenues of $10.3 million in the third quarter of 2022 increased $3.3 million, or 48.3%, compared to the third quarter of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations.

Gross loss was $0.7 million in the third quarter of 2022, a $0.4 million increase in gross loss compared to the third quarter of 2021. The increase in gross loss was attributable to lower sales and cost overruns for our value-added SRB derivatives business and higher gross losses at our Golden Ridge milling operation versus a year ago, offset in part by improved profitability from our core-SRB business and MGI milling operation.

Selling, general and administrative (SG&A) expenses were $1.8 million in the third quarter of 2022 and the third quarter of 2021 as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and higher contract employee expense, as well as a double-digit increase in insurance premiums.

Due to the increase in gross losses, operating losses were $2.5 million in the third quarter of 2022, up from $2.1 million in the third quarter of 2021. In the third quarter of 2022, we recognized a $0.6 million gain for the change in the fair value of a warrant liability. As a result of higher operating losses being offset by this gain, net loss in the third quarter of 2022 was $2.0 million, or $0.38 per share, compared to a net loss of $2.2 million, or $0.47 per share, in the third quarter of 2021.

Results of Operations - Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

Revenues of $31.0 million in the first nine months of 2022 increased $8.0 million, or 34.7%, compared to the nine months of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to production issues in the second quarter of 2022.

The $1.2 million decrease in gross profit in the first nine months of 2022, compared to the first nine months of 2021, was primarily attributable to lower gross profits from our value-added SRB derivative products and a modest increase in gross losses from Golden Ridge, offset in part by a modest increase in gross profits for our core-SRB business and MGI.

SG&A expenses of $5.2 million in the first nine months of 2022 decreased $0.3 million, or 5.7%, compared to the first nine months of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance premiums.

We recognized a gain on the involuntary conversion of assets of $0.1 million in the first nine months of 2022, when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.

Operating losses were $5.7 million in the first nine months of 2022, up from $5.0 million in the first nine months of 2021, due to lower gross profits. In January 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration (SBA) Paycheck Protection Program (PPP) loan (see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the loan). As a result of higher operating losses, lower SG&A, the impact of the gain on involuntary conversion of assets and the nonrecurring gain on the extinguishment of debt in the first nine months of 2021, net loss in the first nine months of 2022 was $6.2 million, or $1.17 per share, compared to a net loss of $3.5 million, or $0.38 per share, in the first nine months of 2021.





                                       17

--------------------------------------------------------------------------------

Table of Contents

Liquidity, Going Concern and Capital Resources

We had $4.4 million in cash and equivalents as of September 30, 2022, a decrease of $1.5 million from $5.8 million on December 31, 2021. During the first nine months of 2022, we were able to offset higher operating losses with increased borrowing.

Cash used in operating activities in the first nine months of 2022 was $3.9 million, up from $2.0 million in the first nine months of 2021, driven principally by higher net losses. Cash used in investing activities in the 2022 period consisted of $0.4 million in capital expenditures, primarily for the purchase and installation of capital equipment at our MGI facility offset by $0.1 million in insurance proceeds. Cash from financing activities in the 2022 period was $2.7 million, which included the $1.8 million net borrowings on a line of credit and a $0.9 million over-advance on our factoring facility (see Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the over-advance).

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements included in this Quarterly Report are issued. Factors alleviating this concern include $4.4 million in cash and cash equivalents as of September 30, 2022, and our ability to procure additional capital if needed through a variety of sources. Most notably, subsequent to the end of the third quarter of 2022, we were able to raise approximately $1.2 million, net of costs, through a direct placement of our common stock, and common stock equivalents, and in late September 2022, we received a $0.9 million over-advance on our factoring facility, pending a restructuring of our mortgage promissory note secured by our real property in Wynne, Arkansas.

On March 30, 2020, we entered into a sales agreement with respect to an at-the-market (ATM) 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, which we currently have $2.8 million remaining. Under the terms of the securities purchase agreement related to the September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023.

Critical Accounting Estimates

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, inventory valuation, and long-lived asset impairment. 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.

© Edgar Online, source Glimpses