ff20200331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2022

☐	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 May 9, 2022: 43,763,243

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

FutureFuel Corp.

Consolidated Balance Sheets

(Dollars in thousands)

	March 31, 2022			December 31, 2021
Assets
Cash and cash equivalents	$	120,984		$	137,521
Accounts receivable, inclusive of the blenders' tax credit of $5,550 and $8,232, at March 31, 2022 and December 31, 2021, respectively, and net of allowances for bad debt of $55 and $67 at March 31, 2022 and December 31, 2021, respectively		18,048			29,316
Accounts receivable – related parties		-			58
Inventory		37,620			26,920
Income tax receivable		9,745			9,760
Prepaid expenses		2,957			3,588
Prepaid expenses – related parties		12			4
Marketable securities		42,751			47,190
Other current assets		5,712			1,476
Total current assets		237,829			255,833
Property, plant and equipment, net		81,056			82,901
Other assets		5,498			5,596
Total noncurrent assets		86,554			88,497
Total Assets	$	324,383		$	344,330
Liabilities and Stockholders’ Equity
Accounts payable, inclusive of the blenders' tax credit rebates due customers of $890 and $890, respectively	$	13,992		$	14,912
Accounts payable – related parties		7,968			7,911
Deferred revenue – current		6,376			6,151
Dividends payable		7,877			-
Accrued expenses and other current liabilities		5,164			6,081
Accrued expenses and other current liabilities – related parties		-			1
Total current liabilities		41,377			35,056
Deferred revenue – non-current		14,261			16,755
Noncurrent deferred income tax liability		1,138			1,870
Other noncurrent liabilities		1,629			1,721
Total noncurrent liabilities		17,028			20,346
Total liabilities		58,405			55,402
Commitments and contingencies:
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 March 31, 2022 and December 31, 2021		4			4
Accumulated other comprehensive income		129			178
Additional paid in capital		282,443			282,443
Retained earnings (accumulated deficit)		(16,598	)		6,303
Total stockholders’ equity		265,978			288,928
Total Liabilities and Stockholders’ Equity	$	324,383		$	344,330

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

FutureFuel Corp.

Consolidated Statements of Operations and Comprehensive Income

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Revenue	$	42,074		$	41,158
Revenue – related parties		187			358
Cost of goods sold		47,219			41,378
Cost of goods sold – related parties		1,260			9,210
Distribution		884			1,609
Distribution – related parties		53			55
Gross loss		(7,155	)		(10,736	)
Selling, general, and administrative expenses
Compensation expense		656			528
Other expense		963			853
Related party expense		154			167
Research and development expenses		679			774
Total operating expenses		2,452			2,322
Loss from operations		(9,607	)		(13,058	)
Interest and dividend income		664			1,005
Interest expense		(32	)		(32	)
Loss on marketable securities		(4,127	)		(1,075	)
Other expense		(3,495	)		(102	)
Loss before taxes		(13,102	)		(13,160	)
Income tax benefit		(704	)		(4,387	)
Net loss	$	(12,398	)	$	(8,773	)

Earnings (loss) per common share
Basic	$	(0.28	)	$	(0.20	)
Diluted	$	(0.28	)	$	(0.20	)
Weighted average shares outstanding
Basic		43,763,243			43,743,243
Diluted		43,763,243			43,743,243

Comprehensive earnings
Net loss	$	(12,398	)	$	(8,773	)
Other comprehensive loss from unrealized net loss on available-for-sale debt securities		(62	)		(60	)
Income tax effect		13			16
Total other comprehensive loss income, net of tax		(49	)		(44	)
Comprehensive loss	$	(12,447	)	$	(8,817	)

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

FutureFuel Corp.

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

	For the Three Months Ended March 31, 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 income		-		-		-			-		(12,398	)		(12,398	)
Balance - March 31, 2022		43,763,243	$	4	$	129		$	282,443	$	(16,598	)	$	265,978

	For the Three Months Ended March 31, 2021
					Accumulated
					Other			Additional					Total
	Common Stock				Comprehensive			paid-in		Retained			Stockholders’
	Shares		Amount		Income (Loss)			Capital		Earnings			Equity
Balance - December 31, 2020		43,743,243	$	4	$	208		$	282,215	$	89,456		$	371,883
Other comprehensive loss		-		-		(60	)		-		-			(60	)
Net loss		-		-		-			-		(8,773	)		(8,773	)
Balance - March 31, 2021		43,743,243	$	4	$	148		$	282,215	$	80,683		$	363,050

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

FutureFuel Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net loss	$	(12,398	)	$	(8,773	)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		2,570			2,608
Amortization of deferred financing costs		24			24
Benefit for deferred income taxes		(719	)		(4,402	)
Change in fair value of equity securities		4,100			1,765
Change in fair value of derivative instruments		(1,536	)		(695	)
(Gain) loss on the sale of investments		27			(690	)
Loss on disposal of property and equipment		6			-
Noncash interest expense		8			8
Changes in operating assets and liabilities:
Accounts receivable		11,268			(6,515	)
Accounts receivable – related parties		58			1,375
Inventory		(10,700	)		(11,389	)
Income tax receivable		15			774
Prepaid expenses		631			751
Prepaid expenses - related parties		(8	)		(12	)
Other assets		38			(43	)
Accounts payable		(730	)		4,270
Accounts payable – related parties		57			7,814
Accrued expenses and other current liabilities		(917	)		(509	)
Accrued expenses and other current liabilities – related parties		(1	)		-
Deferred revenue		(2,269	)		(569	)
Other noncurrent liabilities		(100	)		(139	)
Net cash used in operating activities		(10,576	)		(14,347	)
Cash flows from investing activities
Collateralization of derivative instruments		(2,664	)		(106	)
Purchase of marketable securities		-			(15,601	)
Proceeds from the sale of marketable securities		250			28,681
Proceeds from the sale of property and equipment		56			-
Capital expenditures		(977	)		(146	)
Net cash (used in) provided by investing activities		(3,335	)		12,828
Cash flows from financing activities
Payment of dividends		(2,626	)		(2,624	)
Net cash used in financing activities		(2,626	)		(2,624	)
Net change in cash and cash equivalents		(16,537	)		(4,143	)
Cash and cash equivalents at beginning of period		137,521			198,122
Cash and cash equivalents at end of period	$	120,984		$	193,979

Cash paid for interest	$	-		$	43
Cash paid for income taxes	$	-		$	52
Noncash investing and financing activities:
Cash dividends declared, not paid	$	7,877		$	-
Noncash capital expenditures	$	174		$	118

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

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

1)	NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization

FutureFuel Corp. (“FutureFuel” or “the Company”), through its wholly-owned subsidiary, FutureFuel Chemical Company (“FutureFuel Chemical”), owns and operates a chemical production facility located on approximately 2,200 acres of land six miles southeast of Batesville in north central Arkansas fronting the White River (the “Batesville Plant”). FutureFuel Chemical manufactures diversified chemical products, biobased products composed of biofuels, and biobased specialty chemical products. FutureFuel Chemical’s operations are reported in two segments: chemicals and biofuels.

The chemical segment manufactures a diversified portfolio of chemical products that are sold to third party customers. The majority of the revenues from the chemical segment are derived from the custom manufacturing of specialty chemicals for specific customers.

The biofuels segment primarily produces and sells biodiesel. FutureFuel Chemical also sells petrodiesel in blends with the Company’s biodiesel and, from time to time, with no biodiesel added.

Basis of Presentation

The unaudited consolidated financial statements have been prepared by FutureFuel in accordance and consistent with the accounting policies stated in FutureFuel’s 2021 audited consolidated financial statements and should be read in conjunction with these 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.

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, 2022 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. The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit. FutureFuel is in the process of applying for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

3)	REVENUE RECOGNITION

FutureFuel recognizes revenue when performance obligations of the customer contract are satisfied. FutureFuel sells to customers through master sales agreements or standalone purchase orders. The majority of FutureFuel's terms of sale have a single performance obligation to transfer products. Accordingly, FutureFuel recognizes revenue when control has been transferred to the customer, generally at the time of shipment or delivery of products. For certain contracts, this occurs upon delivery of the material to a FutureFuel storage location, ready for customer pickup and separated from other FutureFuel inventory. Revenue is measured as the amount of consideration FutureFuel expects to receive in exchange for transferring products and is generally based upon a negotiated price. FutureFuel sells its products directly to customers generally under agreements with payment terms of 30 to 75 days for chemical segment customers and 2 to 10 days for biofuels segment customers.

Certain of FutureFuel custom chemical contracts within the chemical segment contain a material right as defined by ASU 2014-09, Revenue from Contracts with Customers ("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. FutureFuel recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pickup. 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 Topic 606. FutureFuel 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, FutureFuel estimates the expected life of the product, 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 March 31, 2022 and December 31, 2021 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 $0 and $209 for the three months ended March 31, 2022 and 2021, 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 were $2,213 and $723 in the three months ended March 31, 2022 and 2021, 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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

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

Contract Assets and Liability Balances	March 31, 2022		December 31, 2021
Trade receivables, included in accounts receivable*	$	11,076	$	20,780
Contract assets, included in accounts receivable	$	1,422	$	362
Contract liabilities, included in deferred revenue - short-term	$	6,169	$	5,944
Contract liabilities, included in deferred revenue - long-term	$	10,621	$	13,059

*Exclusive of the BTC of $5,550 and $8,232, respectively, and net of allowances for bad debt of $55 and $67, respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At March 31, 2022, approximately $16,790 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 two to four years. Approximately 37% of this revenue is expected to be recognized over the next 12 months, and 63% is expected to be recognized over the subsequent 36 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.

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 March 31,
	2022		2021
Contract revenue from customers with > 1 year arrangements	$	10,142	$	5,106
Contract revenue from customers with < 1 year arrangements		32,064		36,355
Revenue from non-contractual arrangements		55		55
Total revenue	$	42,261	$	41,516

Timing of revenue:

	Three Months Ended March 31,
	2022		2021
Bill-and-hold revenue	$	9,276	$	7,549
Non-bill-and-hold revenue		32,985		33,967
Total revenue	$	42,261	$	41,516

As of March 31, 2022, $2,743 of the three months bill and hold revenue had not shipped. In comparison, $2,911 of bill and hold revenue recognized in the three months ended March 31, 2021 had not shipped. In addition, we continued to hold $572 of bill and hold inventory recognized as revenue in 2021.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

4)	INVENTORY

The carrying values of inventory were as follows as of:

	March 31, 2022			December 31, 2021
At average cost (approximates current cost)
Finished goods	$	35,741		$	12,132
Work in process		931			462
Raw materials and supplies		16,256			30,117
		52,928			42,711
LIFO reserve		(15,308	)		(15,791	)
Total inventory	$	37,620		$	26,920

For the three months ended March 31, 2022, a liquidation of $2,124 occurred as we exited the pipeline business. No liquidation occurred in the three months ended March 31, 2021.

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 2022 or 2021. 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 loss of $9,129 and $2,625 for the three months ended March 31, 2022 and 2021, respectively.

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

	Asset (Liability)
	March 31, 2022				December 31, 2021
	Contract Quantity		Fair Value		Contract Quantity		Fair Value
Regulated fixed price future commitments, included in other current assets (in thousand barrels)		250	$	1,051		142	$	(485	)

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $4,348 and $1,684 at March 31, 2022 and December 31, 2021, 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.

The estimated fair market value of the underlying physical commodity (feedstock and finished biodiesel inventory and undelivered feedstock commitments) was $9.0 million at March 31, 2022. This is an estimate only and not reflected in the consolidated financial statements for the three months ended March 31, 2022. See Note 16 regarding subsequent events.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

6)	MARKETABLE SECURITIES

At March 31, 2022 and December 31, 2021, FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $42,751 and $47,109, respectively. These investments are classified as current assets in the consolidated balance sheets.

The Company has designated the trust preferred securities as being available-for-sale. Accordingly, these securities were recorded at fair value of $3,839 and $3,902 at March 31, 2022 and December 31, 2021, respectively, with the unrealized gains of $163 and $226, net of taxes, as a component of stockholders' equity.

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 March 31, 2022 and 2021, was a loss reported as a component of net income in the amount of $4,100 and $1,765, respectively.

The aggregate fair value of debt securities with unrealized losses totaled $0 at March 31, 2022 and December 31, 2021.

The Company determined an allowance for credit losses for these debt securities was not necessary as of March 31, 2022. The large financial institutions have strong credit ratings with no recent history of defaulting on outstanding obligations, nor is the Company aware of any long-term credit risk related to delinquency under these obligations.

There were no sales of debt securities in the three months ended March 31, 2022 or 2021.

The debt securities held at March 31, 2022, had a contractual maturity of greater than ten years.

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 March 31, 2022 and December 31, 2021.

	Asset (Liability)
			Fair Value Measurements Using
	Fair Value at		Inputs Considered as:
Description	March 31, 2022		Level 1		Level 2		Level 3
Derivative instruments	$	1,051	$	1,051	$	-	$	-
Preferred stock and other equity instruments	$	38,912	$	38,912	$	-	$	-
Trust preferred stock	$	3,839	$	3,839	$	-	$	-

	Asset (Liability)
				Fair Value Measurements Using
	Fair Value at			Inputs Considered as:
Description	December 31, 2021			Level 1			Level 2		Level 3
Derivative instruments	$	(485	)	$	(485	)	$	-	$	-
Preferred stock and other equity instruments	$	43,288		$	43,288		$	-	$	-
Trust preferred stock	$	3,902		$	3,902		$	-	$	-

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

8)	ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	March 31, 2022		December 31, 2021
Accrued employee liabilities	$	2,983	$	3,347
Accrued property, franchise, motor fuel and other taxes		1,057		1,912
Lease liability, current		575		644
Other		549		178
Total	$	5,164	$	6,081

9)	BORROWINGS

On March 30, 2020, FutureFuel, with FutureFuel Chemical as the borrower and certain of FutureFuel’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. The primary amendments from the Prior Credit Agreement were a reduction in the facility by $65,000, a reduction in the facility’s applicable interest rate by 0.25%, a reduction in the commitment fee, and elimination of the minimum consolidated fixed charge coverage ratio.

The interest rate floats at the following margins over LIBOR or base rate based upon the leverage ratio from time to time:

Consolidated Leverage Ratio			Adjusted LIBOR 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 March 31, 2022 or December 31, 2021.

10)	INCOME TAX PROVISION

The following table summarizes the income tax provision.

	Three Months Ended March 31,
	2022			2021
Income tax (benefit) provision	$	(704	)	$	(4,387	)
Effective tax rate		5.4	%		33.3	%

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

The Company’s effective tax rate for the three months ended March 31, 2022 was unfavorably impacted by the assessment that the carryforwards of its 2022 net operating loss and tax credits would not more likely than not be realizable in full. Because the tax benefit of the year to date loss is greater than the anticipated realizable value of tax benefit of the full year loss, the year to date benefit has been limited to the anticipated full year benefit pursuant to ASC 740.

Additionally, the net income tax benefit for the three months ended March 31, 2022 was unfavorably impacted by the recognition of tax expense for valuation allowances against various tax attributes existing at January 1, 2022. The Company evaluates its deferred tax assets quarterly and records a valuation allowance to reduce these assets to the amount that is more likely than not to be realized. During the first quarter of 2022, based on all available evidence, the Company determined that portions of its deferred tax assets for carryforwards of capital losses, state tax credits, and state net operating losses expiring in the next ten years are not more likely than not to be realized.

In the three months ended March 31, 2021, because the Company was unable to reliably estimate its annual effective tax rate, the tax benefit was determined by applying an actual year-to-date effective rate to year-to-date pretax income. The effective tax rate for the three months ended March 31, 2021 reflected the positive effects of certain tax credits and incentives, the most significant of which are the BTC and Small Agri-biodiesel Producer Tax Credit. While the Company remains eligible for these credits in 2022, realizability concerns have limited their impacts on the effective rate.

11)	EARNINGS PER SHARE

In the three months ended March 31, 2022 and 2021, FutureFuel used the treasury method in computing earnings per share.

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

	Three Months Ended March 31,
	2022			2021
Numerator:
Net loss	$	(12,398	)	$	(8,773	)
Denominator:
Weighted average shares outstanding – basic		43,763,243			43,743,243
Effect of dilutive securities:
Stock options and other awards		-			-
Weighted average shares outstanding – diluted		43,763,243			43,743,243

Basic loss per share	$	(0.28	)	$	(0.20	)
Diluted loss per share	$	(0.28	)	$	(0.20	)

For the three months ended March 31, 2022 and 2021, 24,000 and 44,000 options to purchase FutureFuel’s common stock were excluded in the computation of diluted earnings per share as all were anti-dilutive.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

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 of biodiesel, petrodiesel, blends, and other petroleum products to these related parties along with the associated expense from the purchase of natural gas, storage and terminalling services by FutureFuel from 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 15, Legal Matters, is in reference to the natural gas supplier, not the related party.

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.

FutureFuel employs derivative instruments to manage biofuel commodity trading risk. See Note 5 for additional discussion regarding the fair market value of unsold inventory and undelivered feedstock commitments at March 31, 2022.

Summary of business by segment

	Three Months Ended March 31,
	2022			2021
Revenue
Custom chemicals	$	15,715		$	10,675
Performance chemicals		5,846			5,435
Chemicals revenue		21,561			16,110
Biofuels revenue		20,700			25,406
Total Revenue	$	42,261		$	41,516

Segment gross (loss) profit
Chemicals	$	5,418		$	(1,301	)
Biofuels		(12,573	)		(9,435	)
Total gross loss	$	(7,155	)	$	(10,736	)

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.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Unaudited)

14)	RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Issued Accounting Standards Adopted

Reference Rate Reform (ASU No. 2020-04)

In March 2020, the FASB issued an accounting standard update to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. The amendments in this update are effective for all entities from January 1, 2020 through December 31, 2022. The Company is in the process of evaluating the adoption of this optional accounting standards update as certain exceptions provided under this guidance may be applicable to future reference rate reform related transitions.

15)	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.

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. At this time, the company is disputing the February 2021 natural gas bill, and payment thereof is pending further investigation.

The natural gas expense was a component of Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the three months ended March 31, 2021. However, as discussed in Note 12, Related Party Transactions, the natural gas supplier is not a related party of FutureFuel.

16)	SUBSEQUENT EVENT

FutureFuel maintained a significant inventory position at March 31, 2022 for its biofuels segment consisting of finished biodiesel and feedstock purchase commitments. The Company uses derivative instruments to hedge commodity risk as described in Note 5. Due to unprecedented volatility in the New York Mercantile Exchange May heating oil contract, FutureFuel incurred approximately $12 million of realized derivative losses during April and it is uncertain what additional costs will be incurred subsequently. These costs likely will not be fully recovered when the physical inventory is sold.

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.

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. We do not purchase RINs. As of March 31, 2022, we held 3.6 million D4 RINs with a market value of $5,314.

COVID-19

During the COVID-19 pandemic, our objectives have been to protect the well-being of our employees, support our customers, obtain materials from our suppliers, and maintain our manufacturing operations. While the pandemic has reduced the overall level of activity across much of the economy, we have largely met these objectives.

As the pandemic has evolved, we have seen its effects disrupt supply chains and labor markets in often unpredictable ways. The three principles areas where COVID-19 may still negatively impact our financial performance are customer demand, raw material procurement, and our ability to operate our manufacturing facility.

Customer Demand – Several of our major chemical customers sell the products we produce for them into markets that have been impacted by COVID-19, particularly the energy and automotive markets. However, demand on the whole has recovered from the immediate disruption caused by COVID-19, although it has not yet returned to pre-pandemic volumes. COVID-19 is only one of many factors influencing the energy markets at the moment and we closely align our biodiesel production to match that demand when margins are positive.

Supply Chain Impact – Our initial concern was that supplier shutdowns might result in raw material or input shortages and negatively impact our ability to manufacture products and meet our customers’ demands. While we have managed supply such that our operations have not been significantly hindered by shortages, timing of deliveries and supply chain disruptions have on occasion tempered demand from our customers.

Operations Impact - Two years into the pandemic, we have shown that our mitigation measures have been pragmatic and effective, even at the height of the Omicron variant. However, each wave has presented different challenges and we will remain agile and flexible in our response to any future variant or surge. To date we have had no negative impact on our ability to operate the plant safely and in a way that meets our customers’ demands.

COVID-19 will be with us for some time, either as an on-going outbreak or as a future threat. As such, we may continue to experience materially adverse impacts on our financial condition and results of operations.

Summary of Financial Results

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

	Three Months Ended March 31,
							Dollar			%
	2022			2021			Change			Change
Revenue	$	42,261		$	41,516		$	745			2	%
Loss from operations	$	(9,607	)	$	(13,058	)	$	3,451			(26	%)
Net loss	$	(12,398	)	$	(8,773	)	$	(3,625	)		(41	%)
Earnings per common share:
Basic	$	(0.28	)	$	(0.20	)	$	(0.08	)		(40	%)
Diluted	$	(0.28	)	$	(0.20	)	$	(0.08	)		(40	%)
Adjusted EBITDA	$	2,098		$	(7,825	)	$	9,923			NA

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, 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 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).

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 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 invest in marketable securities of certain debt securities (trust preferred stock ) and in preferred stock and other equity instruments. The realized and unrealized gains and losses on these marketable securities can fluctuate significantly from period to period. We include this item as an adjustment as we believe it provides 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 March 31,
	2022			2021
Net loss	$	(12,398	)	$	(8,773	)
Depreciation		2,570			2,608
Interest and dividend income		(664)			(1,005	)
Non-cash interest expense and amortization of deferred financing costs		32			32
Loss on disposal of property and equipment		6			-
Loss on derivative instruments		9,129			2,625
Loss on marketable securities		4,127			1,075
Income tax benefit		(704	)		(4,387	)
Adjusted EBITDA	$	2,098		$	(7,825	)

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

	Three Months Ended March 31,
	2022			2021
Net cash used in operating activities	$	(10,576	)	$	(14,347	)
Benefit for deferred income taxes		719			4,402
Interest and dividend income		(664	)		(1,005	)
Income tax benefit		(704	)		(4,387	)
Loss on derivative instruments		9,129			2,625
Change in fair value of derivative instruments		1,536			695
Change in operating assets and liabilities, net		2,658			4,192
Adjusted EBITDA	$	2,098		$	(7,825	)

SEC Form 10-Q filed by FutureFuel Corp.