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

Revenues of $10.2 million in the second quarter of 2022 increased $2.6 million, or 34.5%, compared to the second quarter of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to continued production issues.

Gross loss was $0.5 million in the second quarter of 2022, a $0.6 million decrease in gross profit compared to the second quarter of 2021. The decline in gross profit was attributable to lower sales and significant cost overruns for our value-added SRB derivatives business versus a year ago, with profits from our core-SRB business flat with a year ago and lower losses from Golden Ridge offset by a decline in profitability at MGI due to efforts to work around capital improvements.

Selling, general and administrative (SG&A) expenses were $1.7 million in the second quarter of 2022, a 1.6% decline from the second quarter of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance expenses.

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

Due to the decline in gross profits, operating losses were $2.0 million in the second quarter of 2022, up from $1.8 million in the second quarter of 2021. In June of 2022, we recognized a $0.4 million charge for the change in the fair value of a warrant liability. As a result of higher operating losses and this charge, net loss in the second quarter of 2022 was $2.6 million, or $0.05 per share, compared to a net loss of $1.9 million, or $0.04 per share, in the second quarter of 2021.

Results of Operations - Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Revenues of $20.7 million in the first half of 2022 increased $4.6 million, or 28.2%, compared to the first half of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to production issues.

The $0.8 million decrease in gross profit in the first half of 2022 compared to the first half of 2021, was primarily attributable to lower gross profits from our value-added SRB derivative products and a modest decline in gross profits from our core-SRB business, offset by lower losses from Golden Ridge and a modest increase in gross profits at MGI.

SG&A expenses were $3.4 million in the first half of 2022, a 7.5% decline from the first half of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance expenses.

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

Operating losses were $3.2 million in the first half of 2022, up from $2.9 million in the first half of 2021, due to lower gross profits. In the first half of 2022, we recognized a $0.6 million charge for the change in the fair value of a warrant liability, and in January 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration (SBA) Paycheck Protection Program (PPP) loan (see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the loan). As a result of higher operating losses and these charges, and the nonrecurring gain on the extinguishment of debt in the first half of 2021, net loss in the first half of 2022 was $4.1 million, or $0.08 per share, compared to a net loss of $1.3 million, or $0.03 per share, in the first half of 2021.





COVID-19 Assessment

The COVID-19 pandemic is a worldwide health crisis that is adversely affecting the business and financial markets of many countries, disrupting global supply chains, and creating volatility in the financial markets. The pandemic could adversely affect the demand for our products, and it poses the risk that we, or our customers, suppliers, and other business partners may be disrupted or prevented from conducting business for an uncertain period of time. The extent to which this would impact our financial results is unknown as it is dependent on future developments, which are highly uncertain and cannot be predicted. As such, it is difficult to estimate the exact magnitude of the COVID-19 pandemic on our business.





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We have not had, and we do not expect, any of our facilities to be closed subject to government-mandated closures, and we have informed our customers that we anticipate operating throughout the COVID-19 outbreak. Disruption in the supply chain of raw materials used to produce our products, as a result of the COVID-19 outbreak, has not caused us to close any of our facilities, and to date, our employees have been reporting to work, either remotely or in-person without any material change in attendance or productivity. However, we cannot ensure that the COVID-19 outbreak will not cause disruptions to our business in the future.

Liquidity ,Going Concern and Capital Resources

We had $5.1 million in cash and equivalents as of June 30, 2022, a decrease of $0.7 million from $5.8 million on March 31, 2022. During the first half of 2022, we were able to offset higher operating losses and negative working capital management with increased borrowing.

Cash used in operating activities in the first six months of 2022 was $1.7 million, up from $1.4 million in the first six months of 2021, driven principally by higher net losses. Cash used in investing activities consisted of $0.4 million in capital expenditures, primarily for the purchase and installation of capital equipment at our MGI facility offset by $0.1 million in insurance proceeds. Cash from financing activities was $1.3 million, which included the $1.8 million borrowing on a line of credit, offset in part by $0.2 million in net payments on debt and financing agreements and a $0.2 million reduction in borrowing under our factoring facility.

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements included in this Quarterly Report are issued. Factors alleviating this concern include the reduction in historical operating losses beginning in 2021, $5.1 million in cash and cash equivalents as of June 30, 2022, and our ability to procure additional capital if needed through a variety of sources.

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

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements. On an ongoing basis, we evaluate the estimates, including, but not limited to, those related to revenue recognition, inventory valuation, and long-lived asset impairment. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates.

Recent Accounting Pronouncements

See Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion.

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