UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to ___________
	Commission file number: 0-52577

(Exact Name of Registrant as Specified in Its Charter)

Delaware		20-3340900
(State or Other Jurisdiction of		(IRS Employer Identification No.)
Incorporation or Organization)
8235 Forsyth Blvd., Suite 400, St Louis, Missouri		63105
(Address of Principal Executive Offices)		(Zip Code)
	(314) 854-8352
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FF	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 9, 2023: 43,763,243 

Explanatory Note

FutureFuel Corp. (sometimes referred to as the “Company,” “we,” “us,” or “our,” and includes our wholly-owned subsidiaries) is filing this Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) to amend and restate certain items presented in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 9, 2023 (the “Original Form 10-Q”). This Amendment No. 1 contains our unaudited restated interim financial statements as of, and for the three months and six months ended, June 30, 2023, which have been restated to correct certain errors with respect to the statement of cash flows included in the Original Form 10-Q, as described in further detail below. In addition, we intend to file an amendment (collectively with this Amendment No. 1, the “Amendments”) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (the “Q3.2023 Form 10-Q”), respectively, to correct similar errors contained in the statements of cash flows included in each such original filing. All material restatement information that relates to these errors will be included in the Amendments.

This Amendment No. 1 also includes amendments to and restates and revises the following items of the Original Form 10-Q:

• Part I — Item 1. Financial Statements

• Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

• Part I — Item 4. Controls and Procedures

• Part II — Item 6. Exhibits

In accordance with applicable SEC rules, this Amendment No. 1 includes new certifications specified in Rule 13a-14 under the

Securities Exchange Act of 1934, as amended (the “Exchange Act”), from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.

Other than as described above, this Amendment No. 1 does not reflect adjustments for events occurring after the filing of the Original Form 10-Q except to the extent that they are otherwise required to be included and discussed herein. See below for a detailed discussion of the effect of the restatement on the financial statements included in this Amendment No. 1.

Pursuant to Rule 12b-15 under the Exchange Act, this Amendment No. 1 contains only the items and exhibits to the Original Form 10-K that are being amended and restated, and unaffected items and exhibits are not included herein. Except as noted herein, the information included in the Original Form 10-Q remains unchanged. This Amendment No. 1 continues to describe the conditions as of the date of the Original Form 10-Q, and except as contained herein, we have not updated or modified the disclosures contained in the Original Form 10-Q to reflect any events that have occurred after the Original Form 10-Q. Accordingly, forward-looking statements included in this Amendment No. 1 may represent management’s views as of the Original Form 10-Q and should not be assumed to be accurate as of any date thereafter. This Amendment No. 1 should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Form 10-Q, including any amendment to those filings.

Background of the Restatement

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 9, 2024, management and the audit committee (the “Audit Committee”) of the Board of Directors of the Company, after consultation with the Company’s independent registered public accounting firm, RSM US LLP (“RSM”), determined on May 8, 2024, that certain of its previously issued financial statements, specifically its previously-issued statements of cash flows: (i) for the year ended December 31, 2023, included in the 2023 Form 10-K; (ii) for the nine months ended September 30, 2023, included in the Q3.2023 Form 10-Q; and (iii) for the six months ended June 30, 2023, included in the Original Form 10-Q, contained errors, should no longer be relied on and should be corrected by restating the affected statements of cash flows by filing the Amendments. The consolidated balance sheets, consolidated statements of operations and other comprehensive income and consolidated statements of stockholders’ equity included in the consolidated financial statements in this Amendment No. 1, and, other than the addition of Note 15 related to the restatement, the accompanying notes to such financial statements, were not affected by this error.

The restated financial statements contained in this Amendment No. 1 correct the following errors:

The correction relates solely to the reported amount of “Other assets” and the resulting total amount of “Net Cash Flows From Operating Activities” and the reported amount of “Collateralization of derivative instruments” and the resulting total amount of “Net Cash Flows from Investing Activities” in the consolidated statement of cash flows for the six months ended June 30, 2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheets, its consolidated statements of operations and comprehensive income, or its consolidated statements of stockholders’ equity as of and for the periods ended June 30, 2023. Further, in this Amendment No. 1, the Company has included supplemental information regarding the restatement in Note 15, Restatement, to the consolidated financial statements.

Internal Control Considerations

Management has reassessed its evaluation of the effectiveness of its internal control over financial reporting as of June 30, 2023 as further described in Part I, Item 4 of this Amendment No. 1, and concluded that a material weakness existed and that internal control over financial reporting was not effective as of June 30, 2023.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

FutureFuel Corp.

Consolidated Balance Sheets

(Dollars in thousands)

	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	166,690	$	175,640
Accounts receivable, inclusive of the blenders’ tax credit of $9,807 and $8,970, and net of allowances for bad debt of $80 and $48, respectively		28,567		26,198
Accounts receivable – related parties		7		6
Inventory		67,362		26,761
Income tax receivable		1,940		1,959
Prepaid expenses		1,988		3,694
Prepaid expenses – related parties		12		12
Marketable securities		-		37,126
Other current assets		7,707		2,380
Total current assets		274,273		273,776
Property, plant and equipment, net		75,689		76,941
Other assets		4,497		5,252
Total noncurrent assets		80,186		82,193
Total Assets	$	354,459	$	355,969
Liabilities and Stockholders’ Equity
Accounts payable, inclusive of the blenders’ tax credit rebates due customers of $890 and $890, respectively	$	22,313	$	28,546
Accounts payable – related parties		7,823		7,799
Deferred revenue – current		3,602		3,772
Dividends payable		5,252		10,503
Accrued expenses and other current liabilities		5,798		5,477
Accrued expenses and other current liabilities – related parties		-		1
Total current liabilities		44,788		56,098
Deferred revenue – non-current		13,212		15,079
Other noncurrent liabilities		2,236		1,792
Total noncurrent liabilities		15,448		16,871
Total liabilities		60,236		72,969
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding		-		-
Common stock, $0.0001 par value, 75,000,000 shares authorized, 43,763,243 and 43,763,243 issued and outstanding as of June 30, 2023 and December 31, 2022		4		4
Accumulated other comprehensive loss		-		(1	)
Additional paid in capital		282,489		282,489
Retained earnings		11,730		508
Total stockholders’ equity		294,223		283,000
Total Liabilities and Stockholders’ Equity	$	354,459	$	355,969

The accompanying notes are an integral part of these consolidated financial statements.

1

FutureFuel Corp.

Consolidated Statements of Operations and Comprehensive Income

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue	$	85,308		$	117,640		$	159,469		$	159,714
Revenue – related parties		-			156			20			343
Cost of goods sold		92,626			113,798			144,562			161,017
Cost of goods sold – related parties		18			1,956			28			3,216
Distribution		1,216			1,024			1,774			1,908
Distribution – related parties		40			41			94			94
Gross (loss) profit		(8,592	)		977			13,031			(6,178	)
Selling, general, and administrative expenses
Compensation expense		954			701			2,092			1,357
Other expense		874			886			1,883			1,849
Related party expense		156			150			309			304
Research and development expenses		1,007			755			2,079			1,434
Total operating expenses		2,991			2,492			6,363			4,944
(Loss) income from operations		(11,583	)		(1,515	)		6,668			(11,122	)
Interest and dividend income		1,732			747			4,068			1,411
Interest expense		(34	)		(33	)		(67	)		(65	)
Gain (loss) on marketable securities		42			(3,239	)		575			(7,366	)
Other expense		(1	)		(2	)		-			(2	)
Other income (expense)		1,739			(2,527	)		4,576			(6,022	)
(Loss) income before taxes		(9,844	)		(4,042	)		11,244			(17,144	)
Income tax provision (benefit)		15			(938	)		22			(1,642	)
Net (loss) income	$	(9,859	)	$	(3,104	)	$	11,222		$	(15,502	)
(Loss) earnings per common share
Basic	$	(0.23	)	$	(0.07	)	$	0.26		$	(0.35	)
Diluted	$	(0.23	)	$	(0.07	)	$	0.26		$	(0.35	)
Weighted average shares outstanding
Basic		43,763,243			43,763,243			43,763,243			43,763,243
Diluted		43,763,243			43,763,243			43,764,890			43,763,243
Comprehensive (loss) income
Net (loss) income	$	(9,859	)	$	(3,104	)	$	11,222		$	(15,502	)
Other comprehensive (loss) income from unrealized net (losses) gains on available-for-sale debt securities		(20	)		(86	)		2			(148	)
Income tax effect		4			18			(1	)		31
Total other comprehensive (loss) income, net of tax		(16	)		(68	)		1			(117	)
Comprehensive (loss) income	$	(9,875	)	$	(3,172	)	$	11,223		$	(15,619	)

The accompanying notes are an integral part of these consolidated financial statements.

2

FutureFuel Corp.

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

	For the Six Months Ended June 30, 2023
					Accumulated
					Other			Additional					Total
	Common Stock				Comprehensive			paid-in		Retained			Stockholders’
	Shares		Amount		(Loss) Income			Capital		Earnings			Equity
Balance - December 31, 2022		43,763,243	$	4	$	(1	)	$	282,489	$	508		$	283,000
Other comprehensive gain		-		-		17			-		-			17
Net income		-		-		-			-		21,081			21,081
Balance - March 31, 2023		43,763,243	$	4	$	16		$	282,489	$	21,589		$	304,098
Other comprehensive loss		-		-		(16	)		-		-			(16	)
Net loss		-		-		-			-		(9,859	)		(9,859	)
Balance - June 30, 2023		43,763,243	$	4	$	-		$	282,489	$	11,730		$	294,223

	For the Six Months Ended June 30, 2022
					Accumulated
					Other			Additional					Total
	Common Stock				Comprehensive			paid-in		Retained			Stockholders’
	Shares		Amount		Income (Loss)			Capital		Earnings			Equity
Balance - December 31, 2021		43,763,243	$	4	$	178		$	282,443	$	6,303		$	288,928
Cash dividends declared, $0.24 per common share		-		-		-			-		(10,503	)		(10,503	)
Other comprehensive loss		-		-		(49	)		-		-			(49	)
Net loss		-		-		-			-		(12,398	)		(12,398	)
Balance - March 31, 2022		43,763,243	$	4	$	129		$	282,443	$	(16,598	)	$	265,978
Other comprehensive loss		-		-		(68	)		-		-			(68	)
Net loss		-		-		-			-		(3,104	)		(3,104	)
Balance - June 30, 2022		43,763,243	$	4	$	61		$	282,443	$	(19,702	)	$	262,806

The accompanying notes are an integral part of these consolidated financial statements.

3

FutureFuel Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited) 

	Six Months Ended June 30,
	2023 (Restated)			2022
Cash flows from operating activities
Net income (loss)	$	11,222		$	(15,502	)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		5,155			5,276
Amortization of deferred financing costs		49			48
Benefit for deferred income taxes		-			(1,672	)
Change in fair value of equity securities		(3,117	)		7,339
Change in fair value of derivative instruments		(3,259	)		(2,388	)
Loss on the sale of investments		2,543			27
Loss on disposal of property and equipment		8			50
Noncash interest expense		17			17
Changes in operating assets and liabilities:
Accounts receivable		(2,369	)		(8,172	)
Accounts receivable – related parties		(1	)		(20	)
Inventory		(40,601	)		(4,664	)
Income tax receivable		19			(20	)
Prepaid expenses		1,706			1,773
Prepaid expenses - related parties		-			(8	)
Other assets		(4,502	)		125
Accounts payable		(6,269	)		19,171
Accounts payable – related parties		24			326
Accrued expenses and other current liabilities		321			(659	)
Accrued expenses and other current liabilities – related parties		(1	)		(1	)
Deferred revenue		(2,037	)		(2,769	)
Other noncurrent liabilities		427			(187	)
Net cash used in operating activities		(40,665	)		(1,910	)
Cash flows from investing activities
Collateralization of derivative instruments		3,154			383
Proceeds from the sale of marketable securities		37,701			250
Proceeds from the sale of property and equipment		-			56
Capital expenditures		(3,875	)		(1,895	)
Net cash provided by (used in) investing activities		36,980			(1,206	)
Cash flows from financing activities
Payment of dividends		(5,251	)		(5,251	)
Deferred financing costs		(14	)		-
Net cash used in financing activities		(5,265	)		(5,251	)
Net change in cash and cash equivalents		(8,950	)		(8,367	)
Cash and cash equivalents at beginning of period		175,640			137,521
Cash and cash equivalents at end of period	$	166,690		$	129,154
Cash paid for income taxes	$	20		$	276
Noncash investing and financing activities:
Noncash capital expenditures	$	244		$	95

The accompanying notes are an integral part of these consolidated financial statements.

4

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

1) SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by FutureFuel Corp. ("FutureFuel" or "the Company") in accordance and consistent with the accounting policies stated in the Company's 2022 Annual Report on Form 10-K, inclusive of the audited consolidated financial statements and should be read in conjunction with these consolidated financial statements.

In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments. Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries; namely, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. Intercompany transactions and balances have been eliminated in consolidation.

Recent Accounting Standards

No new accounting standards have been adopted recently.

Proposed Accounting Standards  

In  March 2023, the Financial Accounting Standards Board (the "FASB") issued Proposed Accounting Standards Update (ASU) No. 2023-ED100 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions. The amendments in this Proposed ASU, if adopted, would address the investor requests for more transparency of income tax information and would apply to all entities that are subject to income taxes. The Company is in the process of evaluating this proposed accounting standard.

2) GOVERNMENT TAX CREDITS

BIODIESEL BLENDERS’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.  The BTC will expire December 31, 2024 based on current law.  The Company records this credit as a reduction to cost of goods sold.

Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”). The Company was eligible for this credit as part of the tax provision.

CARES ACT – EMPLOYEE RETENTION TAX CREDIT

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll through, among other things, an available employee retention tax credit.  The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit.  FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit. 

5

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

3) REVENUE RECOGNITION

The majority of revenue is from short term contracts with revenue recognized when a single performance obligation to transfer product under the terms of a contract with a customer are satisfied.

Certain of the Company's custom chemical contracts within the chemical segment contain a material right as defined by ASC Topic 606, from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers. Each contract also has a performance obligation to transfer products with 30-day payment terms. The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with ASC Topic 606. The Company applies the renewal option approach in allocating the transaction price to these material rights and transfer of product. As a basis for allocating the transaction price to the material right and transfer of product, the Company estimates the expected life of the contract, the expected contractual volumes to be sold over that life, and the most likely expected sales price. Each estimate is updated quarterly on a prospective basis.

Contract Assets and Liabilities:

Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements. The contract assets at June 30, 2023 and December 31, 2022 consist of unbilled revenue from one customer and are recorded as accounts receivable in the consolidated balance sheets. Contract liabilities consist of advance payments related to material rights recorded as deferred revenue in the consolidated balance sheets. Increases to contract liabilities from cash received for a performance obligation of chemical segment plant expansions were $32 and $0 for the three months and $32 and $0 for the six months ended June 30, 2023 and 2022, respectively. Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach. Revenue recognized in the chemical segment from the contract liability reductions was $739 and $961 for the three months and $1,958 and $3,173 for the six months ended June 30, 2023 and 2022, respectively. These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

The following table provides the balances of receivables, contract assets, and contract liabilities from contracts with customers.

Contract Assets and Liability Balances	June 30, 2023		December 31, 2022
Trade receivables, included in accounts receivable*	$	17,670	$	16,459
Contract assets, included in accounts receivable	$	1,097	$	775
Contract liabilities, included in deferred revenue - short-term	$	3,395	$	3,565
Contract liabilities, included in deferred revenue - long-term	$	9,849	$	11,605

*Exclusive of the BTC of $9,807 and $8,970, respectively, and net of allowances for bad debt of $80 and $48, respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At June 30, 2023, approximately $13,244 of revenue is expected to be recognized from remaining performance obligations. FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three to five years. Approximately 26% of this revenue is expected to be recognized over the next 12 months, and 74% is expected to be recognized over the subsequent 48 months. These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.

The Company applies the practical expedient in ASC 606-10-50-14 and excludes the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

6

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.

Disaggregation of revenue - contractual and non-contractual:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Contract revenue from customers with > 1-year arrangements	$	9,562	$	6,148	$	20,027	$	16,290
Contract revenue from customers with < 1-year arrangements		75,690		111,592		139,351		143,656
Revenue from non-contractual arrangements		56		56		111		111
Total revenue	$	85,308	$	117,796	$	159,489	$	160,057

Timing of revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Bill-and-hold revenue	$	10,765	$	7,971	$	21,355	$	17,247
Non-bill-and-hold revenue		74,543		109,825		138,134		142,810
Total revenue	$	85,308	$	117,796	$	159,489	$	160,057

As of June 30, 2023 and December 31, 2022, $4,302 and $4,473 of bill-and-hold revenue had not shipped, respectively. 

4) INVENTORY

The carrying values of inventory were as follows as of:

	June 30, 2023			December 31, 2022
At average cost (approximates current cost)
Finished goods	$	30,632		$	11,719
Work in process		1,574			879
Raw materials and supplies		51,395			33,897
		83,600			46,495
LIFO reserve		(16,238	)		(19,734	)
Total inventory	$	67,362		$	26,761

No liquidation of last in first out ("LIFO") layers occurred in the six months ended June 30, 2023 and 2022.

7

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

5) DERIVATIVE INSTRUMENTS

The Company records all derivative instruments at fair value. Fair value is determined by using the closing prices of the derivative instruments on the New York Mercantile Exchange at the end of an accounting period. Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.

In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts. The Company accounts for these derivative instruments in accordance with ASC 815-20-25, Derivatives and Hedging. Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship. To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained. The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2023 or 2022. The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a gain of $4,389 and $12,695 (realized gains of $6,032 and $9,437) for the three and six months ended June 30, 2023, respectively, and a loss of $17,476 and $26,605 (realized losses of $18,327 and $28,992) for the three and six months ended June 30, 2022, respectively.

The volumes and carrying values of FutureFuel’s derivative instruments were as follows at: 

	Asset (Liability)
	June 30, 2023				December 31, 2022
	Contract Quantity		Fair Value		Contract Quantity		Fair Value
Regulated fixed price future commitments, included in other current assets (in thousand barrels)		476	$	3,117		305	$	(142	)

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of ($1,066) and $2,088 at June 30, 2023 and December 31, 2022, respectively, and was classified as other current assets in the consolidated balance sheets. The carrying values of the margin account and of the derivative instruments are included net, in other current assets.

6) MARKETABLE SECURITIES

During the three months ended  June 30, 2023, FutureFuel exited its position in marketable equity and trust preferred (debt) securities. The sale of these securities was recorded as a component of net income with gains of $42 and $575 in the three and six months ended June 30, 2023, respectively. 

At December 31, 2022, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $37,126.  These investments were classified as current assets in the consolidated balance sheet.  The trust preferred securities held at December 31, 2022 were designated as being available-for-sale.  Accordingly, these securities were recorded at fair value of $3,675.

In accordance with ASC 321, the change in the fair value of marketable equity securities (preferred and other equity instruments) for the three months ended June 30, 2022 was reported as a component of net income as a loss of $3,239. The change in the fair value of marketable equity securities (preferred and other equity instruments) for the six months ended June 30, 2022 was a loss of $7,339.

The aggregate fair value of debt securities with unrealized losses totaled $2,627 at  December 31, 2022. Sales of debt securities were $0 in the six months ended June 30, 2022.

8

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

7) FAIR VALUE MEASUREMENTS

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel. Unobservable inputs are inputs that reflect FutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at June 30, 2023 and December 31, 2022. 

	Asset (Liability)
			Fair Value Measurements Using
	Fair Value at		Inputs Considered as:
Description	June 30, 2023		Level 1		Level 2		Level 3
Derivative instruments	$	3,117	$	3,117	$	-	$	-

	Asset (Liability)
				Fair Value Measurements Using
	Fair Value at			Inputs Considered as:
Description	December 31, 2022			Level 1			Level 2		Level 3
Derivative instruments	$	(142	)	$	(142	)	$	-	$	-
Preferred stock and other equity instruments	$	33,450		$	33,450		$	-	$	-
Trust preferred stock	$	3,676		$	3,676		$	-	$	-

8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:

	June 30, 2023		December 31, 2022
Accrued employee liabilities	$	3,871	$	3,287
Accrued property, franchise, motor fuel and other taxes		1,281		1,165
Lease liability, current		498		630
Other		148		395
Total	$	5,798	$	5,477

9

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

9) BORROWINGS

On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 (as amended, the “Prior Credit Agreement”) with the lenders party, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent. The Credit Agreement consists of a five-year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $30,000 for letters of credit and $15,000 for swingline loans (collectively, the “Credit Facility”). The Credit Facility expires on March 30, 2025.

On  March 1, 2023, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment primarily amends the Credit Agreement to transition the Credit Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other conforming changes, in each case as more specifically set forth in the First Amendment. The First Amendment does not modify the aggregate amount, or expiration date, of the Credit Facility. We do not expect the transition from LIBOR to have a material impact on the Credit Facility. Pursuant to the First Amendment, the interest rate floats at the following margins over SOFR or base rate based upon our leverage ratio.

Consolidated Leverage Ratio			Adjusted SOFR Rate Loans and Letter of Credit Fee		Base Rate Loans		Commitment Fee
< 1.00:1.0				1.00%		0.00%		0.15%
≥ 1.00:1.0	And	< 1.50:1.0		1.25%		0.25%		0.15%
≥ 1.50:1.0	And	< 2.00:1.0		1.50%		0.50%		0.20%
≥ 2.00:1.0	And	< 2.50:1.0		1.75%		0.75%		0.20%
≥ 2.50:1.0				2.00%		1.00%		0.25%

The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.

There were no borrowings under the Credit Agreement at June 30, 2023 or December 31, 2022.

10) INCOME TAX PROVISION

The following table summarizes the income tax provision.  

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Income tax provision (benefit)	$	15		$	(938	)	$	22		$	(1,642	)
Effective tax rate		(0.2	%)		23.2	%		0.2	%		9.6	%

The Company’s effective tax rates for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022 primarily due to changes in the assessment of realizability of deferred tax assets.  In the three and six month periods in 2023, the income tax provision reflects only small amounts of current state taxes.  No deferred tax benefits have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized.  In the three and six month periods in 2022, tax benefits on tax losses generated were recognized, but limited by the assessment that the net deferred tax assets generated would more likely than not be only partially realized.

10

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

11) EARNINGS PER SHARE

In the three and six months ended June 30, 2023 and 2022, FutureFuel used the treasury method in computing earnings per share.

Basic and diluted (losses) earnings per common share were computed as follows:  

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023		2022
Numerator:
Net (loss) income	$	(9,859	)	$	(3,104	)	$	11,222	$	(15,502	)
Denominator:
Weighted average shares outstanding – basic		43,763,243			43,763,243			43,763,243		43,763,243
Effect of dilutive securities:
Stock options and other awards		-			-			1,647		-
Weighted average shares outstanding – diluted		43,763,243			43,763,243			43,764,890		43,763,243
Basic (loss) earnings per share	$	(0.23	)	$	(0.07	)	$	0.26	$	(0.35	)
Diluted (loss) earnings per share	$	(0.23	)	$	(0.07	)	$	0.26	$	(0.35	)

For the three and six months ended June 30, 2023, 22,000 and 42,354 options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive. In the three and six months ended June 30, 2022, 12,000 and 24,000 options were excluded, respectively.

12) RELATED PARTY TRANSACTIONS

FutureFuel enters into transactions with companies affiliated with or controlled by a director and significant shareholder. Revenues, expenses, prepaid amounts, and unpaid amounts related to these transactions are captured in the accompanying consolidated financial statements as related party line items.

Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.  

Related party cost of goods sold and distribution are the result of sales and purchases of biodiesel, petrodiesel, blends, and other petroleum products with these related parties along with the associated expense from storage and terminalling services provided by these related parties.

During 2021, a related party managed natural gas purchases for FutureFuel, initially paid for the natural gas, and subsequently invoiced FutureFuel for the same plus a nominal fee for such services.  The natural gas matter as discussed in Note 14, Legal Matters, is in reference to the natural gas supplier, not the related party. As of November 1, 2021, FutureFuel began managing all of its natural gas purchases.

11

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

13) SEGMENT INFORMATION

FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.

Chemicals

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers. This segment is composed of two components: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).

Biofuels

FutureFuel’s biofuels segment primarily manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Biofuels revenues also include the sale of biodiesel blends with petrodiesel; petrodiesel with no biodiesel added; internally generated, separated Renewable Identification Numbers (“RINs”); biodiesel production byproducts; and the purchase and sale of other petroleum products on common carrier pipelines.  Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs. FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale. The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.

As of June 30, 2023, FutureFuel held 11.8 million of RINs in inventory with a fair market value of $19,461 and no cost, which were traded in July. Comparatively, at June 30, 2022, FutureFuel held 2.8 million of RINs in inventory with a fair market value of $4,943 and no cost.

Summary of business by segment

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Custom chemicals	$	15,576		$	12,266		$	32,196		$	27,981
Performance chemicals		3,180			5,928			8,441			11,774
Chemical revenue		18,756			18,194			40,637			39,755
Biofuel revenue		66,552			99,602			118,852			120,302
Total Revenue	$	85,308		$	117,796		$	159,489		$	160,057
Segment gross profit (loss)
Chemical	$	6,416		$	4,196		$	15,039		$	9,614
Biofuel		(15,008	)		(3,219	)		(2,008	)		(15,792	)
Total gross profit (loss)	$	(8,592	)	$	977		$	13,031		$	(6,178	)

Depreciation is allocated to segment cost of goods sold based on plant usage. The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.

14) LEGAL MATTERS

From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business. While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

12

 

As a result of the extraordinary increase in natural gas prices, the Attorney General of Arkansas launched a civil investigative demand against several natural gas suppliers in 2021.  The Company continues to dispute the February 2021 natural gas bill, and payment thereof is pending further investigation.

15 RESTATEMENT

The Company identified a correction required to be made to its consolidated statement of cash flows for the six months ended June 30, 2023.  The correction relates solely to the reported amount of “Other assets” and the resulting total amount of “Net Cash Flows From Operating Activities” and the reported amount of “Collateralization of derivative instruments” and the resulting total amount of “Net Cash Flows from Investing Activities” in the consolidated statement of cash flows for the six months ended June 30, 2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheets, its consolidated statements of operations and comprehensive income, or its consolidated statements of stockholders’ equity as of and for the period ended June 30, 2023.

A summary of the impact on the consolidated statement of cash flows is as follows:

	Six Months Ended June 30, 2023
	As Originally Reported			Adjustment			As Restated
Cash flows from operating activities:
Other assets	$	1,806		$	(6,308	)	$	(4,502	)
Net cash used in operating activities	$	(34,357	)	$	(6,308	)	$	(40,665	)
Cash flows from investing activities:
Collateralization of derivative instruments	$	(3,154	)	$	6,308		$	3,154
Net cash provided by (used in) investing activities	$	30,672		$	6,308		$	36,980

13

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp. (“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements. See “Forward-Looking Information” below for additional discussion regarding risks associated with forward-looking statements. 

Effect of Restatement

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects correction of the errors described in the Explanatory Note with respect to the statement of cash flows included in the Original Form 10-Q. For additional information and a detailed discussion of the corrected errors, refer to the Explanatory Note and the Background of the Restatement.

Unless otherwise stated, all dollar amounts are in thousands.
 

Overview

Our company is managed and reported in two reporting segments: chemicals and biofuels. Within the chemical segment are two product groupings: custom chemicals and performance chemicals. The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance product group is composed of chemicals manufactured for multiple customers. The biofuels segment is composed of one product group. Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.

Within the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States with a classification of a D4 RIN. RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS).  We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost. As of June 30, 2023, we held 11.8 million D4 RINs with a  fair market value of $19,461, all of which were sold in July. Comparatively, as of June 30, 2022, we held 2.8 million RINs with a fair market value of $4,943.   

14

Summary of Financial Results

Set forth below is a summary of certain consolidated financial information for the periods indicated.

	Three Months Ended June 30,
							Dollar			%
	2023			2022*			Change			Change
Revenue	$	85,308		$	117,796		$	(32,488	)		(28	%)
Loss from operations	$	(11,583	)	$	(1,515	)	$	(10,068	)		(665	%)
Net loss	$	(9,859	)	$	(3,104	)	$	(6,755	)		(218	%)
Loss per common share:
Basic	$	(0.23	)	$	(0.07	)	$	(0.16	)		(229	%)
Diluted	$	(0.23	)	$	(0.07	)	$	(0.16	)		(229	%)
Adjusted EBITDA*	$	(7,329	)	$	382		$	(7,711	)		n/a

	Six Months Ended June 30,
						Dollar			%
	2023		2022*			Change			Change
Revenue	$	159,489	$	160,057		$	(568	)		0	%
Income (loss) from operations	$	6,668	$	(11,122	)	$	17,790			n/a
Net income (loss)	$	11,222	$	(15,502	)	$	26,724			n/a
Earnings (loss) per common share:
Basic	$	0.26	$	(0.35	)	$	0.61			n/a
Diluted	$	0.26	$	(0.35	)	$	0.61			n/a
Adjusted EBITDA*	$	8,571	$	(8,186	)	$	16,757			n/a

* Adjusted EBITDA restated for the three and six months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.

We use adjusted EBITDA as a key operating metric to measure both performance and liquidity. Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, non-cash gains or losses on derivative instruments, and other non-operating income or expenses. Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business. Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of our calculation are not necessarily comparable to the results of other companies.

Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results. This measure isolates the effects of certain items, including depreciation and amortization (which may vary among our operating segments without any correlation to their underlying operating performance), non-cash stock-based compensation expense (which is a non-cash expense that varies widely among similar companies), and non-cash gains and losses on derivative instruments (which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product).

15

We utilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities. We enter into hedges, and we utilize mark-to-market accounting to account for these instruments. Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel. We include the mark-to-market or non-cash portion of this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.

Additionally, we held marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments during the six months ended June 30, 2023, but sold all investments during the three months ended June 30, 2023. The realized and unrealized gains and losses on these marketable securities fluctuated from period to period. We included this item as an adjustment as we believed it provided a relevant indicator of the underlying performance of our business in a given period.

The following table reconciles net income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA. 

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022*			2023			2022*
Net (loss) income	$	(9,859	)	$	(3,104	)	$	11,222		$	(15,502	)
Depreciation		2,604			2,706			5,155			5,276
Interest and dividend income		(1,732	)		(747	)		(4,068	)		(1,411	)
Non-cash interest expense and amortization of deferred financing costs		34			33			66			65
Loss on disposal of property and equipment		8			44			8			50
Unrealized loss (gain) on derivative instruments		1,643			(851	)		(3,259	)		(2,388	)
(Gain) loss on marketable securities		(42	)		3,239			(575	)		7,366
Income tax provision (benefit)		15			(938	)		22			(1,642	)
Adjusted EBITDA*	$	(7,329	)	$	382		$	8,571		$	(8,186	)

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.

	Six Months Ended June 30,
	(Restated)
	2023			2022*
Net cash used in operating activities	$	(40,665	)	$	(1,910	)
Benefit for deferred income taxes		-			1,672
Interest and dividend income		(4,068	)		(1,411	)
Income tax provision (benefit)		22			(1,642	)
Change in operating assets and liabilities, net		53,282			(4,895	)
Adjusted EBITDA*	$	8,571		$	(8,186	)

* Adjusted EBITDA restated for the three and six months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.

16

Results of Operations

Consolidated

	Three Months Ended June 30,												Six Months Ended June 30,
							Change												Change
	2023			2022			Amount			%			2023			2022			Amount			%
Revenues	$	85,308		$	117,796		$	(32,488	)		(27.6	%)	$	159,489		$	160,057		$	(568	)		(0.4	%)
Volume/product mix effect							$	(10,574	)		(9.0	%)							$	7,370			4.6	%
Price effect							$	(21,914	)		(18.6	%)							$	(7,938	)		(5.0	%)
Gross (loss) profit	$	(8,592	)	$	977		$	(9,569	)		n/a		$	13,031		$	(6,178	)	$	19,209			n/a
Operating expenses		(2,991	)		(2,492	)		(499	)		(20.0	%)		(6,363	)		(4,944	)		(1,419	)		(28.7	%)
Other income (expense)		1,739			(2,527	)		4,266			n/a			4,576			(6,022	)		10,598			n/a
Income tax provision (benefit)		15			(938	)		953			n/a			22			(1,642	)		1,664			n/a
Net (loss) income	$	(9,859	)	$	(3,104	)	$	(6,755	)		(217.6	%)	$	11,222		$	(15,502	)	$	26,724			n/a

Consolidated revenue in the three and six months ended June 30, 2023 decreased $32,488 and $568 compared to the three and six months ended June 30, 2022. These decreases resulted, in part, from the timing of separated RINs in our biofuel segment held in inventory at June 30, 2023 with a fair market value of $19,461 which were sold in July. (See Critical Accounting Estimates.) In addition, in the three months ended June 30, 2023, biofuel segment sales volume decreased 11% or $11,057 (and inventory increased) on forward sales to the second half of 2023 on stronger margins. In the six months ended June 30, 2023, biofuel segment sales volumes increased 4.9% or $5,901.

As a result of the separated RINs mentioned above, and held in inventory at no cost, a gross loss of $8,592 resulted in the three months ended June 30, 2023 (a reduction of $9,569 from the comparative prior year period). Partially offsetting this decrease was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment decreased gross profit $288 and $5,307 in the three months ended June 30, 2023 and 2022, respectively. In addition, in the prior three-month comparison period, derivative losses resulted from unprecedented volatility in the heating oil futures market for which we modified our derivative strategy to help mitigate reoccurrence. Margins also improved in our chemical segment to 34% from 23% in the prior year period on new product trials and product mix.

Gross profit for the six months ended June 30, 2023 was $13,031 as compared to a gross loss of $6,178 in the six months ended June 30, 2022.  This increase resulted from (i) the change in our realized derivative gains of $9,437 in the current six-month period as compared to realized losses of $28,992 in the prior six-month period given unprecedented market volatility as described above, and (ii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting.  This adjustment increased gross profit $3,495 in the current six-month period as compared to a decrease of gross profit of $4,825 in the prior six-month period.  Gross profit did not include $19,461 from separated RINs generated in the six months ended June 30, 2023 and sold in July 2023.  Lastly, for the six-month comparative period, chemical margins improved to 37% from 24% in the prior six-month period on new products and product mix.

Operating expenses

Operating expenses increased $499 and $1,419 in the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022. This increase was primarily from increased compensation and legal expense.

Other income (expense)

Other income (expense) increased income $4,266 and $10,598 in the three and six months ended June 30, 2023, as compared to the same periods of 2022. In the current three- and six-month period, marketable securities were sold with realized gains of $42 and $575 as compared to the comparative prior periods with unrealized losses on marketable securities of $3,239 and $7,366, respectively.  In addition, interest and dividend income increased $985 and $2,657 in the current three- and six-month periods.

Income tax provision (benefit)

The Company’s effective tax rates for the three and six months ended June 30, 2023 decreased compared to the three and six months ended June 30, 2022 primarily due to changes in the assessment of realizability of deferred tax assets.  In the three- and six-month periods in 2023, the income tax provision reflects only small amounts of current state taxes.  No deferred tax benefits have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized.  In the three- and six-month periods in 2022, tax benefits on tax losses generated were recognized, but limited by the assessment that the net deferred tax assets generated would more likely than not be only partially realized.

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Chemical Segment

	Three Months Ended June 30,									Six Months Ended June 30,
					Change									Change
	2023		2022		Amount		%			2023		2022		Amount			%
Revenues	$	18,756	$	18,194	$	562		3.1	%	$	40,637	$	39,755	$	882			2.2	%
Volume/product mix effect					$	483		2.7	%					$	1,469			3.7	%
Price effect					$	79		0.4	%					$	(587	)		(1.5	%)
Gross profit	$	6,416	$	4,196	$	2,220		52.9	%	$	15,039	$	9,614	$	5,425			56.4	%

Chemical revenue in the three and six months ended June 30, 2023 increased 3.1% or $562 and 2.2% or $882 compared to the three and six months ended June 30, 2022. Revenue for our custom chemicals (unique chemicals produced under contract for specific customers) for the three and six months ended June 30, 2023 totaled $15,576 and $32,196, an increase of $3,310 and $4,215 from the same periods in 2022. Custom chemicals used in the gas and oil and antioxidant industries experienced stronger volumes and higher selling prices. In addition, new business from other custom products increased $1,622 and $2,155, in the three and six months, respectively, from the comparative prior year periods. Performance chemicals (composed of multi-customer products which are sold to the open market based on specification) revenue was $3,180 and $8,441, a decrease of $2,748 and $3,333 from the three and six months ended June 30, 2022, respectively. This decrease was mostly from lower sales of glycerin as markets softened.  

Gross profit for the chemical segment for the three and six months ended June 30, 2023, increased $2,220 and $5,425 when compared to the same period of 2022 primarily from improved margins in the three and six months of the current year (34% and 37%) as compared to the prior year (23% and 24%) on stronger volumes as noted above and on favorable product mix from new products.   

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Biofuel Segment

	Three Months Ended June 30,												Six Months Ended June 30,
							Change												Change
	2023			2022			Amount			%			2023			2022			Amount			%
Revenues	$	66,552		$	99,602		$	(33,050	)		(33.2	%)	$	118,852		$	120,302		$	(1,450	)		(1.2	%)
Volume/product mix effect							$	(11,057	)		(11.1	%)							$	5,901			4.9	%
Price effect							$	(21,993	)		(22.0	%)							$	(7,351	)		(6.1	%)
Gross (loss) profit	$	(15,008	)	$	(3,219	)	$	(11,789	)		(366.2	%)	$	(2,008	)	$	(15,792	)	$	13,784			87.3

Biofuels revenue in the three and six months ended June 30, 2023 decreased $33,050 and $1,450 as compared to the same periods of 2022. These decreases resulted, in part, from the timing of separated RINs held in inventory at June 30, 2023, with a fair market value of $19,461 which were sold in July. (See Critical Accounting Estimates.) In addition, in the three months ended June 30, 2023, biofuel segment sales volume decreased 11% or $11,057 (and inventory increased) on forward sales to the second half of 2023 on stronger margins. In the six months ended June 30, 2023, biofuel segment sales volumes increased 4.9% or $5,901.   

A significant portion of our biodiesel sold was to two major refiners/blenders in the three and six months ended June 30, 2023 and 2022. No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize. We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because: (i) we believe that we could readily sell our biodiesel to other customers as potential demand from other customers for biodiesel exceeds our production capacity; (ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders; and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.

As a result of the separated RINs mentioned above, and held in inventory at no cost, biofuels gross loss was $15,008 and $2,008, in the three and six months ended June 30, 2023; an increased loss of $11,789 in the three-month comparative period, and a decreased loss of $13,784 in the six-month comparative period of 2022.

Partially offsetting this increased loss in the three-month comparative period was the change in the activity in derivative instruments with a realized gain of $6,032 in the current three-month period, as compared to a realized loss of $18,327 in the prior year comparative period and the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment decreased gross profit $251 in the current three-month period as compared to a decrease of $4,640 in the three-month period of 2022. 

Gross losses in the six months ended June 30, 2023 were lower as compared to the same period of the prior year from: (i) the change in the activity in derivative instruments with a realized gain of $9,437 in the six months ended June 30, 2023, as compared to a realized loss of $28,992 in the six months ended June 30, 2022, (ii) the change in the activity in derivative instruments with unrealized gains of $3,259 in the six months ended June 30, 2023 as compared to an unrealized gain of $2,388 in the prior year six month period, and (iii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $2,624 in the six months ended June 30, 2023 as compared to a decrease in gross profit of $3,652 in the same prior year period.

In regards to our derivative activity, we recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets. The realized and unrealized derivative gains and losses are recorded as cost of goods sold. Our derivative instruments do not qualify for hedge accounting under the specific guidelines of Topic 815, Derivatives and Hedging. None of the derivative instruments are designated and accounted for as hedges primarily due to the extensive record keeping requirements.  

The volumes and carrying values of our derivative instruments were as follows:

	Asset (Liability)
	June 30, 2023				December 31, 2022
	Contract Quantity		Fair Value		Contract Quantity		Fair Value
Regulated fixed price future commitments (in thousand barrels)		476	$	3,117		305	$	(142	)

*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.

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Critical Accounting Estimates

Revenue Recognition

The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers. Certain long-term contracts had upfront non-cancellable payments considered material rights. The Company applied the renewal option approach in allocating the transaction price to the material rights. For each of these contracts, the Company estimated the expected contractual volumes to be sold at the most likely expected sales price as a basis for allocating the transaction price to the material right. Estimates are updated quarterly on a prospective basis. These custom chemical contracts have payment terms of 30 days. See Note 3 to our consolidated financial statements.

For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms. Nearly all custom manufactured products are manufactured under written master service agreements. Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders. In general, customers do not have any rights of return, except for quality disputes. All of our products are tested for quality before shipment, and historically returns have been inconsequential. We do not offer rebates, except those related to the BTC.

Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs. From time to time, sales of biodiesel are on a “RINs-free” basis. Such method of selling results in applicable RINs being held. The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.

Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred. Bill-and-hold transactions for the three and six months ended June 30, 2023 and 2022 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer. These sales were subject to written monthly purchase orders with agreement that production was reasonable. The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer. Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers. Revenues under bill-and-hold arrangements were $10,765 and $21,355 for the three and six months ended June 30, 2023, respectively.

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Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the six months ended June 30, 2023 and 2022 are set forth in the following table.

	Six Months Ended June 30,
	2023			2022
Net cash used in operating activities	$	(40,665	)	$	(1,910	)
Net cash provided by (used in) investing activities	$	36,980		$	(1,206	)
Net cash used in financing activities	$	(5,265	)	$	(5,251	)

We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future.

Operating Activities

Cash used in operating activities was $40,665 in the six months ended June 30, 2023 as compared to $1,910 in the same period of 2022. This decrease in cash was primarily attributable to the change in inventory demonstrating a cash outflow of $35,937, the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $25,742, primarily from the timing of vendor payments, and the change in fair value of equity securities of $10,456.  Partially offsetting these cash outflows was the change in net income of $26,724.

Investing Activities

Cash provided by investing activities was $36,980 in the six months ended June 30, 2023 as compared to cash used in investing activities of $1,206 in the six months ended June 30, 2022. This $38,186 change was the result of increased proceeds from the sale of marketable securities of $37,451 and a decrease in the collateralization of derivative instruments of $2,771. Partially offsetting this increase in cash was an increase of capital expenditures of $1,980. 

Financing Activities

Cash used in financing activities was $5,265 and $5,251 in the six months ended June 30, 2023 and 2022, respectively, primarily for payments of dividends on our common stock. 

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Credit Facility

We have a credit agreement, as amended on March 30, 2020, with a syndicated group of commercial banks for $100,000. The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes. The facility terminates on March 30, 2025. See Note 9 to our consolidated financial statements for additional information regarding our credit agreement.

We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility. We do not believe there will be a need to issue any securities to fund such capital requirements.

Dividends

In the first two quarters of 2023 and 2022, we paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock. The regular cash dividend amounted to $2,626 in each of the quarters of 2023 and $2,625 in each of the quarters of 2022. The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2022 and March 31, 2022, respectively.

Capital Management

As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital. Some of this excess working capital has been paid out as special and regular cash dividends. Additionally, regular dividends will be paid in 2023, as previously reported. Third parties have not placed significant restrictions on our working capital management decisions.

A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions. In the period ended December 31, 2022, we also had investments in certain preferred stock, debt securities, and other equity instruments. We classified these investments as current assets in the accompanying consolidated balance sheets and designated the debt securities as being “available-for-sale.” Accordingly, the debt securities were recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. We also held equity securities with readily available market values. These equity instruments were recorded at fair value, with the unrealized gains and losses reported as a component of net income. We sold all marketable securities in the three months ended June 30, 2023. The fair value of the debt securities and equity instruments totaled $0 and $37,126 at June 30, 2023 and December 31, 2022, respectively.

Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.

Off- Balance Sheet Arrangements

We engage in two types of hedging transactions. First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities. This activity was captured in our consolidated balance sheets at June 30, 2023 and December 31, 2022. Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors or they meet the normal purchase and normal sales exception of ASC 815 Derivatives and Hedging. These hedging transactions are recognized in earnings and were not recorded in our consolidated balance sheets at June 30, 2023 or December 31, 2022 because they do not meet the definition of a hedge instrument as defined under GAAP. The purchase of biofuels feedstock generally involves two risk components: basis and price. Basis covers any refining or processing required as well as transportation. Price covers the purchases of the actual agricultural commodity. Both basis and price fluctuate over time. A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.

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Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

Under the supervision and with the participation of our chief executive officer and our principal financial officer and other senior management personnel, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and our principal financial officer concluded at the time the Original Form 10-Q was filed that these disclosure controls and procedures at June 30, 2023 were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. 

Subsequent to that evaluation, our chief executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2023, because of a material weakness in our internal control over financial reporting discussed below.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statement will not be prevented or detected on a timely basis. Management identified a material weakness in our internal control over financial reporting at each of June 30, 2023, September 30, 2023, and December 31, 2023, due to a deficiency in our review control in accordance with applicable accounting guidance over cash flows from investments within the statements of cash flows for the six months ended June 30, 2023, for the nine months ended September 30, 2023 and for the year ended December 31, 2023.  Therefore, the Company has an ineffective financial reporting control over the review of the statement of cash flow.  The control did not operate at a level precise enough to detect material errors in calculations and formulas and as a result did not detect material differences between the operating and investing sections of the statement of cash flow.

Remediation Plan

The Company’s management, under the oversight of the Audit Committee, is implementing additional review procedures to enhance our internal control over financial reporting with respect to the statement of cash flows. These review procedures include the development of a review checklist to ensure that the Company will apply the applicable accounting guidance under ASC 230, Statement of Cash Flows.

Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 6. Exhibits.

Exhibit	Description
31(a).	Rule 13a-15(e)/15d-15(e) Certification of chief executive officer
31(b).	Rule 13a-15(e)/15d-15(e) Certification of chief principal officer
32.	Section 1350 Certification of chief executive officer and principal financial officer
101	Interactive Data Files**
101.INS	Inline XBRL Instance
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation
101.DEF	Inline XBRL Taxonomy Extension Definition
101.LAB	Inline XBRL Taxonomy Extension Labels
101.PRE	Inline XBRL Taxonomy Extension Presentation
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
**	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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Special Note Regarding Forward-Looking Information

This report, and the documents incorporated by reference into this report contain forward-looking statements. Forward-looking statements deal with our current plans, intentions, beliefs, and expectations, and statements of future economic performance. Statements containing such terms as “believe,” “do not believe,” “plan,” “expect,” “intend,” “estimate,” “anticipate,” and other phrases of similar meaning are considered to contain uncertainty and are forward-looking statements. In addition, from time to time we or our representatives have made or will make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC, or in press releases, or in oral statements made by or with the approval of one of our authorized executive officers.

These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in FutureFuel’s Form 10-K Annual Report for the year ended December 31, 2023 and in our future filings made with the SEC. You should not place undue reliance on any forward-looking statements contained in this report which reflect our management’s opinions only as of their respective dates. Except as required by law, we undertake no obligation to revise or publicly release the results of any revisions to forward-looking statements. The risks and uncertainties described in this report and in subsequent filings with the SEC are not the only ones we face. New factors emerge from time to time, and it is not possible for us to predict which will arise. There may be additional risks not presently known to us or that we currently believe are immaterial to our business. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, our business, operating results, liquidity, and financial condition could be materially affected in an adverse manner. You should consult any additional disclosures we have made or will make in our reports to the SEC on Forms 10-K, 10-Q, and 8-K, and any amendments thereto. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.

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S I G N A T U R E S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FUTUREFUEL CORP.
By:	/s/ Tom McKinlay
Tom McKinlay, Chief Executive Officer
Date: May 10, 2024
By:	/s/ Rose M. Sparks
Rose M. Sparks, Chief Financial Officer
and Principal Financial Officer
Date: May 10, 2024

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