Results of Operations

Revenues were $41.6 million in 2022, an increase of $10.5 million, or 33.7%, compared to $31.1 million in 2021. The increase was due to strong growth from our MGI and Golden Ridge milling operations, as well as growth in core SRB sales, offset in part by lower sales of value-add SRB derivative products. The primary driver of growth for all three of the expanding businesses was higher volumes resulting from improved sales and operations. The decrease in value-add SRB derivative sales stemmed from multiple factors, including increased competition from new market entrants and production issues with our organic products due to poor quality feedstock and the necessity for enzyme changes.

Gross loss was $0.8 million in 2022, compared to gross profit of $0.4 million in 2021. The $1.2 million decrease in gross profit in the was attributable primarily to lower gross profits from our value-added SRB derivative products and, to a lesser extent, lower margins from core SRB sales, offset in part by a significant reduction in gross loss from our specialty milling facilities. Most notably, Golden Ridge generated its first positive operating cash flows from milling operations in the fourth quarter of 2022 following the implementation of our new operating agreement with Gander Foods, LLC, which commenced October 1, 2022.

Selling general and administrative (SG&A) expenses were $6.6 million in 2022, a decline of $0.5 million, or 6.5%, compared to $7.1 million in 2021. The reduction was achieved despite higher wage rates and insurance premiums, due to reductions in director compensation and efforts to drive other efficiencies. We further reduced SG&A by $0.1 million with a sublet of our corporate headquarters. The sublet began in the third quarter of 2022 and ends in the fourth quarter of 2023.





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We recognized a gain of $0.1 million in 2022 on the involuntary conversion of assets when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property. In 2021, we recorded a $3.9 million non-cash, non-tax-deductible impairment charge equal to the entire amount of our goodwill (as discussed further in Note 7 to the accompanying consolidated financial statements).

Operating loss was $7.2 million in 2022, compared to an operating loss of $10.6 million in 2021, as the decline in gross profits were offset by the improvement in SG&A, the gain on involuntary conversion and the impact of the 2021 goodwill impairment.

In 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration Paycheck Protection Program loan (see Note 14 to the accompanying consolidated financial statements for further discussion of the loan).

Net loss in 2022 was $7.8 million, or $1.41 per share, compared to a net loss of $8.9 million, or $1.87 per share, in 2021. The $3.3 million decline in operating loss was offset by the $0.2 million change in fair value of derivative liability, the $0.2 million increase in interest and other expense due to higher average outstanding debt, and the impact of the 2021 $1.8 million gain on the PPP loan extinguishment.

Liquidity, Going Concern and Capital Resources

We had $3.9 million in cash and equivalents as of December 31, 2022, a decline of $1.9 million from $5.8 million on December 31, 2021. Cash used in operating activities in 2022 was $3.9 million compared to $4.2 million in 2021, driven principally by an increase in net losses. Cash used in investing activities in 2022 was $0.5 million, which consisted of $0.6 million in capital expenditures offset by $0.1 million in insurance proceeds. Cash from financing activities in the 2022 was $2.5 million, which included $1.3 million from the sale of common stock and warrants, net of cash offering costs, and a $0.9 million over-advance on our factoring facility (see Note 9 to the accompanying consolidated financial statements for further discussion of the over-advance).

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements included in this Annual Report are issued. Factors alleviating this concern include $3.9 million in cash and cash equivalents as of December 31, 2022, the recent improvement in profitability of our milling business, and our ability to procure additional capital if needed through a variety of sources, most notably through the disposition, or borrowing against, of one of our owned facilities.

On March 30, 2020, we entered into a sales agreement with respect to an at-the-market (ATM) offering program, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $6.0 million, which we currently have $2.8 million remaining. Under the terms of the securities purchase agreement related to a September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023. Under the terms of the securities purchase agreement related to the October offerings, we are generally prohibited from entering into an agreement to effect an offering of our common stock or common stock equivalents until May 20, 2023, or a variable rate transaction, as defined in the agreement, until October 20, 2023.

Critical Accounting Policies

The accompanying consolidated financial statements have been prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in Note 2 to the accompanying consolidated financial statements. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. The following is a description of what we consider to be our most significant critical accounting policies.

Inventories - We state inventories at the lower of cost or net realizable value. We employ a full absorption procedure using standard cost techniques for most of our operations. The standards are customarily reviewed and adjusted so that they are materially consistent with actual purchase and production costs. We make provisions for potentially obsolete or slow-moving inventory based upon our analysis of inventory levels, historical obsolescence and future sales forecasts. We write-off inventory determined to be obsolete immediately.

Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. We compute depreciation on the straight-line basis and recognize it over the estimated useful lives of the assets. We expense maintenance and repairs as incurred and capitalize renewals and betterments. We include gains or losses on the sale of property and equipment in net income (loss).





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Impairment of Long-lived Assets - We review our long-lived assets, such as property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We recognize an impairment loss when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. The impairment loss is the difference between the carrying value and the estimated fair value. We determine the estimated fair value based on either the discounted future cash flows or other appropriate fair value methods with the amount of any such deficiency charged to operations in the current year. Estimates of future cash flows are based on many factors, including current operating results, expected market trends and competitive influences. We report assets to be disposed of by sale at the lower of the carrying amount or fair value, less estimated costs to sell.

Intangible Assets - We amortize recognized intangible assets over the useful lives of the assets unless that life is determined to be indefinite. All of our intangible assets are finite lived. We evaluate the remaining useful life of an intangible asset each reporting period to determine whether events or circumstances may indicate that a revision to the useful life is warranted to reflect the remaining expected use of the asset. If an intangible asset's useful life is determined to be finite, but the precise length of that life is not known, the intangible asset is amortized over our best estimate of the asset's useful life in a manner that reflects the pattern in which the asset's economic benefits are consumed or expected to be realized. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We recognized an impairment loss when the undiscounted future cash flows estimated to be generated by the asset to be held and used are not sufficient to recover the unamortized balance of the asset. Our primary intangible asset is a customer relationship intangible which derives its value from future cash flows expected from the acquired customers. Changes in the actual or estimated future cash flows of these customers could result in a material adjustment to amortization expense, an impairment loss, or both. Estimates of future cash flows are based on many factors, including current cash flows, expected market trends and competitive influences.

Revenue Recognition - We account for a contract with a customer when the written contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Substantially all of our revenue is derived by fulfilling customer orders for the purchase of our products under contracts which contain a single performance obligation, to supply continually defined quantities of product at fixed prices. We account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost rather than as an additional promised service. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is upon delivery to the customer, or its designee at our location, a customer location or other customer-designated delivery point. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Amounts invoiced to customers for shipping and handling are reported as revenues and the related costs incurred to deliver product to the customer are reported as cost of goods sold.

We measure revenue as the amount of consideration we expect to receive in exchange for fulfilling product orders. Incidental items that are immaterial in the context of the contract are recognized as expense. Our contracts do not include a significant financing component. Our contracts may include terms that could cause variability in the transaction price, including, for example, rebates and volume discounts, or other forms of contingent revenue. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for rebates and discounts. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Changes in judgments and estimates regarding probability of collection and variable consideration might result in a change in the timing or amount of revenue recognized.

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