FutureFuel Corp. 10-K/A

Item 8. Financial Statements and Supplementary Data. Item Page Report of Independent Registered Public Accounting Firm (PCAOB ID 49 ) 22 Consolidated Balance Sheets 24 Consolidated Statements of Income and Comprehensive Income 25 Consolidated Statements of Cash Flows 26 Consolidated Statements of Changes in Stockholders' Equity 27 Notes to Consolidated Financial Statements of FutureFuel Corp. 28 Note 1. Description of business and operations 28 Note 2. Significant accounting policies and basis of presentation 28 Note 3. Government tax credits 34 Note 4. Revenue Recognition 35 Note 5. Inventory 37 Note 6. Derivative instruments 37 Note 7. Marketable securities 38 Note 8. Fair value measurements 38 Note 9. Property, plant, and equipment 39 Note 10. Other assets 39 Note 11. Accrued expenses and other current liabilities 39 Note 12. Borrowings 40 Note 13. Asset retirement obligations and environmental reserves 40 Note 14. Lease commitments and purchase obligations 41 Note 15. Income tax benefit 42 Note 16. Earnings per share 44 Note 17. Stock-based compensation 45 Note 18. Stockholders' equity 47 Note 19. Employee benefit plans 48 Note 20. Related party transactions 48 Note 21. Segment information 50 Note 22. Quarterly financial information (unaudited) 51 Note 23. Legal proceedings 51 Note 24. Subsequent events 51 Note 25. Restatement 52 21 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors FutureFuel Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of FutureFuel Corp. and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated March 14, 2024 (May 10, 2024, as to the effects of the material weakness described in Management’s Annual Report on Internal Control over Financial Reporting (as revised) related to the restatement as described in Note 25 to the consolidated financial statements) expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Restatement of Financial Statements As discussed in Note 25 to the financial statements, the 2023 financial statements have been restated to correct a misstatement. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. 22 Table of Contents Deferred income tax asset valuation allowance relating to the account balances Noncurrent deferred income tax liability and Income tax benefit – see also Note 1 and Note 15 to the consolidated financial statements. As described in Note 1 and Note 15 to the consolidated financial statements, the Company records deferred taxes which result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Additionally, valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Determining the required valuation allowance requires management’s judgment regarding projected future taxable income. We identified the income tax valuation allowance as a critical audit matter because auditing the valuation allowance involved significant auditor effort and judgement due to the subjective and complex nature of income tax projections and determining whether management can appropriately rely on such projections for purposes of calculating the valuation allowance. Our audit procedures related to the Company’s income tax valuation allowance included the following, among others: ● We obtained an understanding of the relevant controls over management’s accounting for the income tax valuation allowance, and their related financial reporting disclosures and tested such controls for design and operating effectiveness as of December 31, 2023. ● We obtained management’s calculation of the income tax valuation allowance, including the sources of projected taxable income. ● We tested the mathematical accuracy of management’s calculations. ● With the assistance of our income tax subject matter specialists, we performed the following procedures: - We evaluated the appropriateness of management’s decision to not rely on projections of future taxable income due to the three-year history of cumulative income tax losses and the Company’s related income tax policy. - We evaluated management’s considerations of both positive and negative evidence regarding other sources of taxable income, including any relevant tax planning strategies and reversal patterns of deferred tax liabilities into taxable income. - We considered relevant tax laws and regulations in evaluating the appropriateness of management’s estimates of future sources of taxable income. - We evaluated management’s conclusion that the valuation allowance sufficiently reduces the amount of the deferred tax assets to an amount that is more likely than not to be realized. /s/ RSM US LLP We have served as the Company's auditor since 2019. St Louis, Missouri March 14, 2024 (May 10, 2024, as to the effects of the restatement discussed in Note 25 of the consolidated financial statements) 23 Table of Contents FutureFuel Corp. Consolidated Balance Sheets As of December 31, 2023 and 2022 (Dollars in thousands) 2023 2022 Assets Cash and cash equivalents $ 219,444 $ 175,640 Accounts receivable, inclusive of the blenders’ tax credit of $ 11,381 and $ 8,970 , and net of allowances for credit losses of $ 55 and $ 48 , respectively 28,406 26,198 Accounts receivable – related parties 1 6 Inventory 32,978 26,761 Income tax receivable 1,940 1,959 Prepaid expenses 4,346 3,694 Prepaid expenses – related parties 12 12 Marketable securities - 37,126 Other current assets 3,419 2,380 Total current assets 290,546 273,776 Property, plant and equipment, net 72,711 76,941 Other assets 3,824 5,252 Total noncurrent assets 76,535 82,193 Total Assets $ 367,081 $ 355,969 Liabilities and Stockholders ’ Equity Accounts payable, inclusive of the blenders’ tax credit rebates due to customers of $ 890 and $ 890 , respectively $ 22,178 $ 28,546 Accounts payable – related parties 42 7,799 Deferred revenue – current 3,863 3,772 Dividends payable 10,503 10,503 Accrued expenses and other current liabilities 4,758 5,477 Accrued expenses and other current liabilities – related parties - 1 Total current liabilities 41,344 56,098 Deferred revenue – non-current 12,570 15,079 Other noncurrent liabilities 3,287 1,792 Total noncurrent liabilities 15,857 16,871 Total liabilities 57,201 72,969 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 December 31, 2023 and 2022 4 4 Accumulated other comprehensive income - ( 1 ) Additional paid in capital 282,489 282,489 Retained earnings 27,387 508 Total stockholders’ equity 309,880 283,000 Total Liabilities and Stockholders ’ Equity $ 367,081 $ 355,969 The accompanying notes are an integral part of these financial statements. 24 Table of Contents FutureFuel Corp. Consolidated Statements of Income and Comprehensive Income For the Years Ended December 31, 2023, 2022 and 2021 (Dollars in thousands, except per share amounts) 2023 2022 2021 Revenue $ 368,228 $ 395,555 $ 320,125 Revenue – related parties 22 459 1,261 Cost of goods sold 324,311 357,182 274,293 Cost of goods sold – related parties ( 315 ) 5,425 16,593 Distribution 3,099 4,240 6,787 Distribution – related parties 176 174 176 Gross profit 40,979 28,993 23,537 Selling, general, and administrative expenses Compensation expense 4,545 3,540 2,586 Other expense 4,052 3,881 3,920 Related party expense 616 611 649 Research and development expenses 4,398 3,415 3,484 Total operating expenses 13,611 11,447 10,639 Income from operations 27,368 17,546 12,898 Interest and dividend income 9,577 4,870 3,119 Interest expense ( 138 ) ( 128 ) ( 131 ) Gain (loss) on marketable securities 575 ( 8,546 ) ( 70 ) Other income (expense) 1 ( 4 ) 114 Other income (expense) 10,015 ( 3,808 ) 3,032 Income before income taxes 37,383 13,738 15,930 Income tax provision (benefit) 1 ( 1,473 ) ( 10,325 ) Net income $ 37,382 $ 15,211 $ 26,255 Earnings per common share Basic $ 0.85 $ 0.35 $ 0.60 Diluted $ 0.85 $ 0.35 $ 0.60 Weighted average shares outstanding Basic 43,763,243 43,763,243 43,756,065 Diluted 43,764,683 43,763,489 43,756,113 2023 2022 2021 Comprehensive income Net income $ 37,382 $ 15,211 $ 26,255 Other comprehensive income (loss) from unrealized net losses on available-for- sale debt securities 2 ( 227 ) ( 38 ) Income tax effect ( 1 ) 48 8 Total unrealized gain (loss), net of tax 1 ( 179 ) ( 30 ) Comprehensive income $ 37,383 $ 15,032 $ 26,225 The accompanying notes are an integral part of these financial statements. 25 Table of Contents FutureFuel Corp. Consolidated Statements of Cash Flows For the Years Ended December 31, 2023, 2022 and 2021 (Dollars in thousands) 2023 (Restated) 2022 2021 Cash flows from operating activities Net income $ 37,382 $ 15,211 $ 26,255 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,348 10,454 10,452 Amortization of deferred financing costs 101 95 95 Benefit for deferred income taxes - ( 1,822 ) ( 10,454 ) Change in fair value of equity securities ( 3,117 ) 8,297 904 Change in fair value of derivative instruments ( 1,878 ) ( 343 ) 609 Loss (gain) on the sale of investments 2,543 248 ( 834 ) Stock based compensation - 46 - Loss on disposal of property, plant, and equipment 29 64 11 Impairment of intangible asset - - 1,315 Noncash interest expense 34 33 32 Changes in operating assets and liabilities: Accounts receivable ( 2,208 ) 3,118 ( 7,929 ) Accounts receivable – related parties 5 52 1,368 Inventory (6,217 ) 162 6,969 Income tax receivable 19 7,801 7,908 Prepaid expenses ( 652 ) ( 106 ) 379 Prepaid expenses – related party - ( 8 ) ( 4 ) Other assets 837 799 732 Accounts payable ( 6,493 ) 13,790 2,095 Accounts payable – related parties ( 7,757 ) ( 112 ) 6,927 Accrued expenses and other current liabilities ( 719 ) ( 948 ) 870 Accrued expenses and other current liabilities – related parties ( 1 ) - 1 Deferred revenue ( 2,418 ) ( 4,055 ) ( 2,931 ) Other noncurrent liabilities 1,461 ( 325 ) ( 686 ) Net cash provided by operating activities 21,299 52,451 44,084 Cash flows from investing activities Collateralization of derivative instruments 1,343 ( 404 ) ( 750 ) Purchase of marketable securities - - ( 23,546 ) Proceeds from the sale of marketable securities 37,701 1,292 40,652 Proceeds from the sale of property, plant, and equipment - 61 - Proceeds from the sale of intangible assets - - 93 Capital expenditures ( 6,022 ) ( 4,778 ) ( 1,456 ) Net cash provided by (used in) investing activities 33,022 ( 3,829 ) 14,993 Cash flows from financing activities Minimum tax withholding on stock options exercised - - ( 3 ) Deferred financing costs ( 14 ) - - Proceeds from the issuance of stock - - 231 Payment of dividends ( 10,503 ) ( 10,503 ) ( 119,906 ) Net cash used in financing activities ( 10,517 ) ( 10,503 ) ( 119,678 ) Net change in cash and cash equivalents 43,804 38,119 ( 60,601 ) Cash and cash equivalents at beginning of period 175,640 137,521 198,122 Cash and cash equivalents at end of period $ 219,444 $ 175,640 $ 137,521 Cash paid for interest $ - $ 3 $ 47 Cash paid for income taxes $ 20 $ 69 $ 83 Noncash investing and financing activities: Noncash capital expenditures included in accounts payable $ 333 $ 208 $ 364 Noncash operating leases $ - $ 707 $ 269 Dividends payable $ 10,503 $ 10,503 $ - The accompanying notes are an integral part of these financial statements. 26 Table of Contents FutureFuel Corp. Consolidated Statements of Changes in Stockholders ’ Equity For the Years Ended December 31, 2023, 2022 and 2021 (Dollars in thousands) Accumulated Other Additional Total Common Stock Comprehensive paid-in Retained Stockholders’ Shares Amount Income Capital Earnings Equity Balance - December 31, 2020 43,743,243 $ 4 $ 208 $ 282,215 $ 89,456 $ 371,883 Cash dividends declared - - - - ( 109,408 ) ( 109,408 ) Proceeds from the issuance of stock 20,000 - - 231 - 231 Minimum tax withholding - - - ( 3 ) - ( 3 ) Other comprehensive loss - - ( 30 ) - - ( 30 ) Net Income - - - - 26,255 26,255 Balance - December 31, 2021 43,763,243 $ 4 $ 178 $ 282,443 $ 6,303 $ 288,928 Cash dividends declared - - - - ( 21,006 ) ( 21,006 ) Stock based compensation - - - 46 - 46 Other comprehensive loss - - ( 179 ) - - ( 179 ) Net Income - - - - 15,211 15,211 Balance - December 31, 2022 43,763,243 $ 4 $ ( 1 ) $ 282,489 $ 508 $ 283,000 Cash dividends declared - - - - ( 10,503 ) ( 10,503 ) Other comprehensive income - - 1 - - 1 Net Income - - - - 37,382 37,382 Balance - December 31, 2023 43,763,243 $ 4 $ - $ 282,489 $ 27,387 $ 309,880 The accompanying notes are an integral part of these financial statements 27 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 1. DESCRIPTION OF BUSINESS AND OPERATIONS FutureFuel Corp. (the “Company”) is a Delaware corporation with its wholly owned subsidiaries, FutureFuel Chemical Company; FFC Grain, L.L.C.; FutureFuel Warehouse Company, L.L.C.; and Legacy Regional Transport, L.L.C. The Company’s sole operating facility is FutureFuel Chemical Company located in Batesville, Arkansas, a manufacturer of specialty and performance chemicals and biofuels. 2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Financial Presentation The consolidated financial statements of FutureFuel Corp. and subsidiaries are prepared in conformity with accounting principles generally accepted (“GAAP”) in the United States and include amounts that are based upon management estimates and judgments which could differ from actual future results. Intercompany transactions and balances are eliminated in consolidation. Certain reclassifications were made to prior year amounts to conform to the 2023 presentation. Cash and cash equivalents Cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates market. The Company places its temporary cash investments with high credit quality financial institutions. At times, bank deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit, however, no loss has occurred. Accounts receivable and allowance for credit losses Accounts receivable are recorded at the invoiced amount and only bear interest if outstanding beyond the agreed upon payment terms. The Company has established procedures to monitor credit risk and has not experienced significant credit losses in prior years. Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based upon management’s evaluation of the collectability of individual invoices and is based upon management’s evaluation of the financial condition of its customers and historical bad debt experience. Write-offs are recorded at the time a customer receivable is deemed uncollectible. In accordance with Accounting Standards Update (“ASU”) 2016 - 13, Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments the Company recognizes expected credit losses based on a broader range of reasonable and supportable information to inform credit loss estimates. Customer concentrations For the year ended December 31, 2023, 2022 and 2021, significant portions of the Company’s sales were made to a relatively small number of customers. Sales to two biodiesel customers totaled $ 127,763 ( 35 % of revenue) in 2023. Sales to two biodiesel customers totaled $ 107,898 ( 27 % of total revenue) in 2022 and sales to three customers totaled $ 133,231 ( 41 % of revenue) in 2021. Receivables for the significant customers at December 31, 2023 and 2022, were 0.2 % and 2 % of total receivables, respectively. No chemical customer represented a greater than 10% of total sales revenue in 2023, 2022, or 2021. 28 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Inventory Inventories are valued at the lower of cost or market. The Company determines the cost of raw materials, work in process, and finished goods inventories by the last-in, first -out (“LIFO”) method. The cost of all other inventories is determined by the average cost method, which approximates the first -in, first -out (“FIFO”) method. The Company writes-down its inventories for estimated obsolescence or unmarketable inventory equal to the difference between the carrying value of inventory and the estimated market value based upon assumptions about future demand and market conditions. 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 Accounting Standards Codification (“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 and for certain biodiesel sales contracts. Marketable securities Investments consist of marketable equity and debt securities stated at fair value. The debt securities are designated as available-for-sale securities at the time of purchase based upon the intended holding period. Gains and losses from the sale of marketable securities and the changes in the fair value of equity securities are recognized as “gains (losses) on marketable securities” as a component of other income (expense) in the consolidated statements of income and comprehensive income. The cost basis used for all marketable securities is specific identification. Changes in the fair value of debt securities are recognized in “accumulated other comprehensive income” on the consolidated balance sheets, unless the Company determines that an unrealized loss will not be recovered before it is sold, in which case, the Company will recognize the loss as a component of other income (expense). See Notes 7 and 8 for further information on marketable securities and fair value measurements. 29 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Fair value measurements The Company records recurring and non-recurring financial assets and liabilities as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. These fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. An asset or liability's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Property, plant , and equipment Property, plant, and equipment is carried at cost. Maintenance and repairs are charged to earnings; replacements and betterments are capitalized. When the Company retires or otherwise disposes of an asset, it removes the cost of such asset and related accumulated depreciation from the accounts. The Company records any profit and loss on retirement or other disposition in earnings. Depreciation expense is calculated based on historical cost and the estimated useful lives of the assets, generally using the straight-line method with the following useful lives: Building & building equipment (years) 20 – 39 Machinery and equipment (years) 3 – 33 Transportation equipment (years) 5 – 33 Other (years) 5 – 33 Impairment of assets The Company evaluates the carrying value of long-lived tangible assets when events or changes in circumstances indicate that the carrying value may not be recoverable. Such events and circumstances include, but are not limited to, significant decreases in the market value of the asset, adverse changes in the extent or manner in which the asset is being used, significant changes in business climate, or current or projected cash flow losses associated with the use of the assets. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from such assets are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. For long-lived assets to be held for use in future operations and for tangible assets, fair value is determined primarily using either the projected cash flows discounted at a rate commensurate with the risk involved or an appraisal. For long-lived assets to be disposed of by sale or other than sale, fair value is determined in a similar manner, except those fair values are reduced for disposal costs. 30 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Asset retirement obligations and environmental costs The Company establishes reserves for closure/post-closure costs associated with the environmental and other assets it maintains, which include, but are not limited to, waste management units, such as a chemical waste destructor, storage tanks, and boilers. When these types of assets are constructed or installed, a liability is established with a corresponding asset for the future costs anticipated to be associated with the closure of the site based on an expected life of the environmental assets, the applicable regulatory closure requirements, and the Company’s environmental policies and practices. These expenses are charged into earnings over the estimated useful life of the assets. Currently, the Company estimates the useful life of each individual asset up to 27 years. Changes made in estimates of the asset retirement obligation costs or the estimate of the useful lives of these assets are reflected in earnings as an increase or decrease in the period such changes are made. Environmental costs are capitalized if they extend the life of the related property, increase its capacity, and/or mitigate or prevent future contamination. The cost of operating and maintaining environmental control facilities is charged to expense. Litigation The Company and its operations from time to time may be parties to or targets of lawsuits, claims, investigations, and proceedings including product liability, personal injury, patent and intellectual property, commercial, contract, environmental, health and safety, and environmental matters, which are handled and defended in the ordinary course of business. The Company accrues a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum amount. 31 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Revenue recognition In accordance with ASC Topic 606, Revenue from Contracts with Customers , the Company recognizes revenue when performance obligations of the customer contract are satisfied. The Company sells to customers through master sales agreements or standalone purchase orders. The majority of the Company’s 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 is satisfied. Accordingly, the Company recognizes revenue when control is transferred to the customer, which is when products are considered to meet customer specification per the customer contract and title and risk of loss are transferred. This typically occurs at the time of shipment or delivery; or for certain contracts, this occurs upon delivery of the material to a Company storage location, ready for customer pickup and separated from other Company inventory. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated price. The Company 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. The Company applies the practical expedient 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 the Company has the right to invoice for services performed. Revenue within the biofuel segment includes revenue from biodiesel RINs. RINs are renewable identification numbers under the Renewable Fuel Standard ( “RFS2” ) used to incent the use of renewable fuels domestically. RINs are generated at 1.5 RINs per gallon of biodiesel produced and sold. Revenue is recognized from RINs when transferred to the buyer in the government provided tracking system. No cost is incurred in the generation of a RIN. Taxes collected from customers remitted to governmental authorities are excluded from revenue. Shipping and handling fees related to sales transactions are billed to customers and recorded as sales revenue. Cost of goods sold and distribution Cost of goods sold consists of raw and packaging materials, direct manufacturing costs, depreciation, analytical lab costs, inbound freight, purchasing, and other indirect costs necessary to manufacture products. Biodiesel cost of goods sold also includes a credit for the one dollar per gallon Blenders’ Tax Credit (“BTC”) for blending biodiesel with petroleum diesel when in law. The BTC was in law during 2021, 2022, and 2023 and is in effect until December 31, 2024. See Note 3 for further discussion. Distribution expense includes outbound freight costs, depreciation of distribution equipment, and other indirect costs necessary to distribute product. Selling, general, and administrative expenses Selling, general, and administrative expenses include personnel costs associated with sales, marketing, and administration; legal and related costs; consulting and professional service fees; advertising expenses; and other similar costs. 32 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Research and development expenses Research and development expenses include direct salaries, depreciation of equipment, material expenditures, contractor fees, and other indirect costs. All costs identified as research and development costs are charged to expense when incurred. Comprehensive income Comprehensive income is comprised of net income and other comprehensive income (loss) (“OCI”). Comprehensive income comprises all changes in stockholders’ equity from transactions and other events and circumstances from non-owner sources. The Company’s OCI comprises unrealized gains and losses resulting from its investments in marketable debt securities classified as available-for-sale (see Note 7 ). Unrealized gains and losses were determined using the specific identification method and are classified in OCI. Income taxes The income tax (benefit) provision is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for (benefit from) income taxes represent income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. A tax valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the recoverability of its deferred tax assets, the Company evaluates available positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of the existing deferred tax assets in each taxpaying jurisdiction. In making this determination, the Company considers positive evidence in the form of projections of future taxable income, reversing temporary differences, and tax planning strategies. In years in which the Company has experienced objective negative evidence in the form of three cumulative years of tax losses, the Company no longer uses taxable income projections to overcome the presumption of losses and deferred tax asset valuations are computed using only the reversing net deferred tax liability from temporary differences as a source of income. Issued accounting standards not yet adopted In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) No. 2023 - 09 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 ASU address the investor requests for more transparency of income tax information and apply to all entities that are subject to income taxes. The ASU is effective for years beginning after December 15, 2024, but early adoption is permitted. This ASU should be applied on a prospective basis, although retrospective application is permitted. Management is currently evaluating the impact of the changes required by the new standard on the Company's financial statements and related disclosures. In November 2023, the FASB issued Accounting Standard Update (ASU) No. 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures, which aims to improve disclosures about a public entity’s reportable segments. This update addresses requests from investors for more detailed information about a reportable segment’s expenses in order to improve understanding of a public entity’s business activities, overall performance, and potential future cash flows. The amendments in this ASU include a requirement for public business entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and are included within each reported measure of segment profit or loss. This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years starting after December 15, 2024. This ASU must be applied retrospectively to all prior periods presented. Management is currently evaluating the impact of the changes required by the new standard on the Company's financial statements and related disclosures. 33 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Proposed accounting standards In July 2023, the FASB issued Proposed Accounting Standards Update (ASU) No. 2023 - ED500 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses, which aims to provide investors with more useful information about an entity’s expenses by improving disclosures on income statement expenses. The amendments in this Proposed ASU would require public business entities to disclose disaggregated information about specific categories underlying certain income statement expense line items. The Company is evaluating this proposed accounting standard. Recently adopted accounting standards None. 3. GOVERNMENT TAX CREDITS BTC and Small Agri-Biodiesel Producer Tax Credit and Clean Fuel Production Tax Credit The 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 Company recorded this credit as a reduction to cost of goods sold as applicable sales were made. The Further Consolidated Appropriations Act of 2020 was passed by Congress and signed into law on December 20, 2019, retroactively reinstating the BTC for 2018 and 2019 and extending it through December 31, 2022. With the passage of the Inflation Reduction Act (“IRA”) in August 2022, the BTC was extended through December 31, 2024. As part of each law from which the BTC mentioned above was reinstated, small agri-biodiesel producers with production capacity not in excess of 60 million gallons were eligible for an additional income 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 and recognized $ 1,500 for 2023, 2022, and 2021 in the same accounting period as the benefit from the BTC as described above. The benefit of this credit is recognized as a component of income tax (benefit) provision. The Inflation Reduction Act (IRA), created the clean fuel production credit (“CFPC”) for qualifying transportation fuel produced after 2024 and sold on or before December 31, 2027. The CFPC consolidates and replaces several fuel related credits set to expire December 31, 2024 including the BTC and the Small Agri-biodiesel Producer Tax Credit. The CFPC is an income tax credit structured on a sliding scale so that producers become eligible for larger credits as the GHG emissions of the fuels they produce approach zero. For producers meeting the prevailing wage and registered apprenticeship requirements, the maximum credit is $1.00 per gallon of nonaviation fuel. For producers not meeting the prevailing wage and registered apprenticeship requirements, the maximum credit is 20 cents per nonaviation fuel gallon. 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. The Company 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. 34 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 4. 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 resulting from revenue recognized through bill-and-hold arrangements. The contract assets for 2023 and 2022 consist of unbilled revenue from only 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 $ 538 and $ 1,983 in 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 were $ 2,734 and $ 5,816 in 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 balances Contract Assets and Liabilities December 31, 2023 2022 Trade receivables, included in accounts receivable* $ 15,897 $ 16,459 Contract assets, included in accounts receivable 1,128 775 Contract liabilities, included in Deferred revenue - short-term 3,656 3,565 Contract liabilities, included in Deferred revenue - long-term 9,318 11,605 * Exclusive of the BTC of $ 11,381 and $ 8,970 , respectively, and net of allowances for bad debt of $ 55 and $ 48 , respectively, as of the dates noted. 35 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Transaction price allocated to the remaining performance obligations As of December 31, 2023, approximately $ 12,974 of revenue is expected to be recognized in the future from remaining performance obligations. The Company expects to recognize this revenue ratably based upon the expected sales over the expected term of its long-term contracts which range from one to four years. Approximately 28 % of this revenue is expected to be recognized over the next 12 months, and 72 % is expected to be recognized between one and three years. These amounts are subject to change based upon changes in the estimated contract life, estimated quantities, and most-likely expected sales price over the contract life. See Note 2 for further information. Disaggregation of revenue - contractual and non-contractual Year ended December 31, 2023 2022 2021 Contract revenue from customers with > 1-year arrangement $ 37,055 $ 33,686 $ 25,918 Contract revenue from customer with < 1-year arrangement 330,973 362,106 295,246 Revenue from non-contractual arrangements 222 222 222 Total revenue $ 368,250 $ 396,014 $ 321,386 Timing of revenue Year ended December 31, 2023 2022 2021 Bill-and-hold revenue $ 43,766 $ 36,805 $ 34,695 Non-bill-and-hold revenue 324,484 359,209 286,691 Total revenue $ 368,250 $ 396,014 $ 321,386 Bill-and-hold transactions consisted of five specialty chemical customers in 2023, and four in each of 2022 and 2021, whereby revenue was recognized in accordance with contractual agreements based on product produced, readied for use and loaded into customer provided containers. These sales were subject to written monthly purchase orders with revenue recognized upon production and loading into customer provided containers. The inventory was segregated from other Company inventory as it 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 transactions are similar to other specialty chemical customers. Sales revenue under bill-and-hold arrangements totaled $ 43,766 , $ 36,805 , and $ 34,695 , for the years ended December 31, 2023, 2022, and 2021, respectively. Of the bill-and-hold sales revenue recognized, $ 4,317 , $ 4,473 , and $ 3,154 had not been shipped for the years ended December 31, 2023, 2022, and 2021, respectively. These balances do not include contract assets that have not been billed or shipped as described above. The Company’s revenues for the years ended December 31, 2023, 2022 and 2021 attributable to the United States and foreign countries (based upon the billing addresses of its customers) were as follows. Year ended December 31, 2023 2022 2021 United States $ 367,368 $ 394,671 $ 320,148 All Foreign Countries 882 1,343 1,238 Total $ 368,250 $ 396,014 $ 321,386 For the years ended December 31, 2023, 2022 and 2021, no revenues from a single foreign country were greater than 1% of total revenues. 36 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 5. INVENTORY The carrying values of inventory were as follows as of December 31: 2023 2022 At average cost (approximates current cost) Finished goods $ 16,235 $ 11,719 Work in process 611 879 Raw and indirect materials 25,532 33,897 42,378 46,495 LIFO reserve ( 9,400 ) ( 19,734 ) Total inventory $ 32,978 $ 26,761 In 2022, a LIFO liquidation resulted in a decrease of $ 2,124 to “Cost of goods sold”. There was no LIFO liquidation in 2023. 6. DERIVATIVE INSTRUMENTS Realized and unrealized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of income as a component of cost of goods sold and amounted to a net gain of $ 2,571 for the year ended December 31,2023 and a net loss of $ 24,360 and $ 10,377 for the years ended December 31, 2022 and 2021, respectively. The volumes and carrying values of the Company’s derivative instruments were as follows at December 31: Asset/ (Liability) 2023 2022 Contract Fair Contract Fair Quantity Value Quantity Value Regulated fixed price future commitments, included in other current assets (in thousand barrels) 354 $ 1,736 305 $ ( 142 ) The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 745 and $ 2,088 at December 31, 2023 and 2022, respectively, and is classified as other current assets in the consolidated balance sheet. 37 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 7. MARKETABLE SECURITIES At December 31, 2023, the Company held no marketable equity or trust preferred (debt) securities. The previous sale of these securities was recorded as a component of net income with a gain of $ 575 in the year ended December 31, 2023. At December 31, 2022, the Company had investments in certain marketable equity and debt securities which had a fair market value of $ 37,126 . These investments were classified as current assets in the consolidated balance sheets. The Company had designated the trust preferred securities as being available-for-sale. Accordingly, these securities were recorded at fair value of $ 3,675 at December 31, 2022, with the unrealized loss of $ 1 and an unrealized gain of $ 226 , net of taxes, as a component of stockholders' equity. For the years ended December 31, 2022 and 2021, in accordance with ASC 321, the change in the fair value of equity securities (preferred and other equity instruments) was reported as a loss on marketable securities as a component of net income in the amount of $ 8,297 and $ 904 , respectively. In 2023, 2022, and 2021, the Company had no recategorized net gain or loss to report from accumulated other comprehensive income. 8. 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 the Company. Unobservable inputs are inputs that reflect the Company’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. Marketable securities and derivative instruments were fair value measurements using inputs considered as Level 1 holdings in the year ended December 31, 2023. The Company had no Level 2 or Level 3 securities. 38 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 9. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consisted of the following at December 31: 2023 2022 Land and land improvements $ 6,044 $ 5,923 Buildings and building equipment 27,182 27,226 Machinery and equipment 188,794 183,999 Construction in progress 1,809 771 Accumulated depreciation ( 151,118 ) ( 140,978 ) Total $ 72,711 $ 76,941 Depreciation expense totaled $ 10,348 , $ 10,454 , and $ 10,452 for the years ended December 31, 2023, 2022 and 2021, respectively. 10. OTHER ASSETS Other assets primarily comprise supplies and parts which are not expected to be used in the twelve -month period subsequent to the consolidated balance sheet date. The balance related to these items totaled $ 3,409 and $ 4,114 at December 31, 2023 and 2022, respectively. 11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following at December 31: 2023 2022 Accrued employee liabilities $ 2,179 $ 3,287 Accrued property, franchise, motor fuel and other taxes 1,346 1,165 Lease liability, current 389 630 Other current liabilities 844 395 Total $ 4,758 $ 5,477 39 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 12. 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. Adjusted SOFR Rate Loans Consolidated Leverage Ratio 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 minimum consolidated interest coverage ratio. There were no borrowings under the Credit Agreement at December 31, 2023 or 2022. At December 31, 2023 and 2022, the Company had $ 7 and $ 46 outstanding with a domestic financing company for computer technology under a three -year financing agreement. 13. ASSET RETIREMENT OBLIGATIONS AND ENVIRONMENTAL RESERVES The Batesville plant generates hazardous and non-hazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies. In addition, the Batesville plant may be required to incur costs for environmental and closure and post-closure costs under the Resource Conservation and Recovery Act. The Company’s liability for asset retirement obligations and environmental contingencies was $ 1,431 and $ 1,396 as of December 31, 2023 and 2022, respectively. These amounts are recorded in other noncurrent liabilities in the accompanying consolidated balance sheet. The accretion expense for 2023, 2022, and 2021 was $ 35 , $ 32 , and $ 32 , respectively. The periodic review of the asset retirement obligation calculations resulted in an addition to the reserve of $ 0 in 2023, 2022, and 2021. 40 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 14. LEASE COMMITMENTS AND PURCHASE OBLIGATIONS The Company leases railcars under multi-year arrangements primarily for delivery of feedstock and biodiesel within its biofuels segment. The lease fees are fixed with no option to purchase and no upfront fees or residual value guarantees. All railcar leases are direct, and no subleases exist. The Company determines lease existence and classification at inception when an agreement conveys the right to control the identified property for a period of time in exchange for consideration. These leases expire by the end of December 31, 2024. As operating leases do not provide a readily determinable implicit interest rate, the Company uses an incremental borrowing rate based on information available at the commencement date in determining present value of the lease payments. Following are supplemental income statement and cash flow information related to leases. Year ended December 31, 2023 2022 2021 Operating lease expense $ 881 $ 862 $ 887 Short-term lease expense $ 8 $ 31 $ 23 Cash paid for operating leases $ 881 $ 862 $ 887 Right of use assets obtained in exchange for lease obligations $ - $ 707 $ 269 Weighted average discount rate, per annum 5.5 % 5.2 % 3.6 % On December 31, 2023 and 2022, a right of use asset was reported as other noncurrent assets of $ 389 and $ 1,019 , other current liabilities of $ 389 and $ 630 , and other noncurrent liabilities of $ 0 and $ 389 , respectively. The imputed interest of the other noncurrent asset at December 31,2023 was $ 9 . Purchase obligations The Company has entered into contracts for the purchase of goods and services including contracts for feedstocks for biodiesel, expansion of the Company’s specialty chemicals segment, and related infrastructure with less than one -year terms. The Company holds one non-cancelable obligation for software maintenance with payment obligations presented as follows. 2024 $ 37 2025 - 2026 43 Total $ 80 41 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 15. INCOME TAX BENEFIT The following table summarizes the income tax provision (benefit) for the years ended: 2023 2022 2021 Income before taxes - U.S. $ 37,383 $ 13,738 $ 15,930 Income tax provision (benefit): Federal Current - 290 142 Deferred - ( 1,998 ) ( 10,417 ) State and other Current 1 60 ( 13 ) Deferred - 175 (37 ) Total $ 1 $ ( 1,473 ) $ ( 10,325 ) Differences between the income tax provision (benefit) computed using the U.S. federal statutory income tax rate were as follows: 2023 2022 2021 Amount computed using the statutory rate of 21% for 2023, 2022, and 2021 21.0 % 21.0 % 21.0 % Agri-biodiesel production credit ( 3.2 ) ( 8.6 ) ( 7.4 ) Federal BTC benefit ( 32.3 ) ( 76.2 ) ( 75.2 ) State BTC benefit ( 4.4 ) ( 7.0 ) ( 8.9 ) Credit for increasing research activities ( 0.5 ) ( 1.0 ) ( 0.7 ) Dividends received deduction ( 0.1 ) ( 1.6 ) ( 1.6 ) State income taxes, net 2.3 5.1 3.5 State rate change and other deferred adjustments ( 1.0 ) 3.6 5.0 Valuation allowance for deferred tax assets 18.2 53.8 - CARES Act - - - Other - 0.2 ( 0.5 ) Income tax benefit 0.0 % ( 10.7 )% ( 64.8 )% The income tax provision in 2023 was $ 1 or an effective tax rate of 0.0 % as compared to an income tax benefit of $ 1,473 or an effective tax rate of 10.7 % in 2022 and an income tax benefit of $ 10,325 or an effective tax rate of 64.8 % in 2021. The Company’s effective tax rates for the years 2023, 2022, and 2021 reflect the positive effect of the BTC and Small Agri-biodiesel Producer Tax Credit. Based on technical guidance from the Internal Revenue Service, the Company excludes the portion of the BTC not used to satisfy excise tax liabilities from income. Both incentives are currently due to expire in December 2024. The Company’s 2022 and 2021 effective tax rate provisions reflect the negative impact to the Company’s overall state income tax position of its 2021 decision to phase out its shipments on the petroleum products common carrier pipelines and the termination of these operations in 2022. This operational change shifts the Company’s business among various states such that its net deferred tax liabilities will be realized at higher rates. Additionally, the Company’s 2023 and 2021 state deferred tax provision reflects a one -time benefit from state legislation enacted during the year which applies a lower tax rate to future reversals of deferred tax liabilities. In 2023 and 2022, the Company determined that its deferred tax assets are realizable only to the extent of its deferred tax liabilities and recorded a valuation allowance that reduces its net deferred tax asset to $0. 42 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) The significant components of deferred tax assets and liabilities were as follows as of December 31: 2023 2022 Deferred tax assets Compensation $ 43 $ 391 Inventory reserves 618 601 Self-insurance 65 70 Asset retirement obligation 316 323 Deferred revenue 3,693 4,081 Federal net operating loss carryforwards 15,240 9,360 State net operating loss carryforwards 2,765 1,884 Accrued expenses 742 2,648 Stock based compensation 24 24 Federal credit carryforwards 6,915 5,216 State credit carryforwards 676 687 Research & development costs 1,451 749 Derivative instruments - 29 Capital loss carryforwards 1,898 1,241 Trading securities - 656 Other 89 96 Subtotal deferred tax assets 34,535 28,056 Valuation Allowance ( 14,216 ) ( 7,392 ) Total deferred tax assets 20,319 20,664 Deferred tax liabilities Derivative instruments ( 403 ) - LIFO inventory ( 3,957 ) ( 2,740 ) Depreciation ( 14,978 ) ( 17,046 ) Prepaid expenses ( 981 ) ( 878 ) Total deferred tax liabilities ( 20,319 ) ( 20,664 ) Net deferred tax liabilities $ - $ - The Company’s federal net operating loss carryforwards at December 31, 2023 do not expire and can be carried forward indefinitely. Utilization of these carryforwards is limited to 80 % of taxable income in any given year. State net operating loss carryforwards at December 31, 2023 reflect losses generated in 2019 through 2023 and, if unused, will expire in years 2024 through 2033. Federal and state tax losses are primarily a function of the nontaxable nature of the BTC. Federal tax credit carryforwards at December 31, 2023 include the Small Agri-biodiesel Producer Credit and Credit for Increasing Research generated in years 2019 through 2023 and expiring in 2039 through 2043. State credit carryforwards comprise Arkansas In-house Research Credits generated in 2019 through 2020 and expiring in 2028 through 2029. Capital loss carryforwards were generated in 2019 through 2023 and will expire in 2024 through 2028. A tax valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In assessing the recoverability of its deferred tax assets, the Company evaluates available positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of the existing deferred tax assets in each taxing jurisdiction. In making this determination, the Company considers positive evidence in the form of projections of future taxable income, reversing temporary differences, and tax planning strategies. In years in which the Company has experienced objective negative evidence in the form of three cumulative years of tax losses, the Company no longer uses taxable income projections to overcome the presumption of losses and deferred tax asset valuations are computed taking into account tax planning strategies and the reversing net deferred tax liability from temporary differences as sources of income. As of December 31, 2023 and 2022, the Company recorded valuation allowances of $ 14,216 and $ 7,392 , respectively, after determining that its total deferred tax assets are more likely than not realizable only to the extent of its deferred tax liabilities. 43 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) There are no unrecognized tax positions as of December 31, 2023, 2022, or 2021, and the Company does not anticipate any change over the next twelve months. The Company records interest expense (income) and penalties, net, as a component of income tax (benefit) provision and had accrued interest and penalties of $ 0 , ($ 95 ), and ($ 60 ) for December 31, 2023, 2022 and 2021, respectively. Liabilities for accrued interest and tax penalties on unrecognized tax benefits were $ 0 at both December 31, 2023 and 2022, respectively. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and with various state jurisdictions. In general, the Company is subject to U.S., state, and local examinations by tax authorities from 2020 forward. 16. EARNINGS PER SHARE In the year ended December 31, 2023, 2022 and 2021, the Company used the treasury method in computing earnings per share as all shares with participating security holders had vested. There were no outstanding restricted stock units for the year ended December 31, 2023, 2022 and 2021. Basic and diluted earnings per common share were computed as follows: Years ended December 31: 2023 2022 2021 Numerator: Net income $ 37,382 $ 15,211 $ 26,255 Denominator: Weighted average shares outstanding – basic 43,763,243 43,763,243 43,756,065 Effect of dilutive securities: Stock options 1,440 246 48 Weighted average shares outstanding – diluted 43,764,683 43,763,489 43,756,113 Basic earnings per share $ 0.85 $ 0.35 $ 0.60 Diluted earnings per share $ 0.85 $ 0.35 $ 0.60 Certain options to purchase the Company’s common stock were not included in the computation of diluted earnings per share for the years ended December 31, 2023, 2022, and 2021 because they were anti-dilutive in the period. The weighted number of options excluded on this basis was 40,060 , 33,754 , and 28,953 , respectively. 44 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 17. STOCK-BASED COMPENSATION The Board of Directors of the Company adopted an omnibus incentive plan which was approved by the shareholders of the Company at its 2017 annual shareholder meeting (the “Incentive Plan”). The purpose of the plan is to: ● Encourage ownership in the Company by key personnel whose long-term employment with or engagement by the Company or its subsidiaries is considered essential to its continued progress and, thereby, encourage recipients to act in the Company’s shareholders’ interests and share in its success; ● Encourage such persons to remain in the Company’s employ or in the employ of its subsidiaries; and ● Provide incentives to persons who are not the Company employees to promote the Company’s success. The Incentive Plan authorizes the Company to issue stock options (including incentive stock options and nonqualified stock options), common stock awards, and stock appreciation rights. Eligible participants in the plan include: (i) members of the Company’s board of directors and its executive officers; (ii) regular, active employees of the Company and any of its subsidiaries; and (iii) persons engaged by the Company or any of its subsidiaries to render services to the Company or its subsidiaries as an advisor or consultant. Awards under the Incentive Plan are limited to shares of the Company’s common stock, which may be shares acquired by the Company, including shares purchased in the open market, or authorized but un-issued shares. Awards are limited to 10 % of the issued and outstanding shares of the Company’s common stock in the aggregate. The Incentive Plan became effective upon its approval by the Company’s shareholders on September 7, 2017 and continues in effect for a term of ten years thereafter unless amended and extended by the Company or unless otherwise terminated. The Company recognizes compensation expense in its financial statements for common stock-based options based upon the grant-date fair value over the requisite service period. No common stock awards were issued in 2023, 2022, or 2021. No stock options were granted under the Incentive Plan in 2023 or 2021. In August 2022, the Company granted a total of 20,000 stock options, respectively, to two new members of the Board of Directors and to the Chief Operating Officer. The options awarded have an exercise price equal to the mean between the highest and lowest quoted sales prices for the Company’s common stock as of the grant date as reported by the New York Stock Exchange. All options awarded in 2022 vested immediately and expire in August 2027. The Company has used the Black Scholes Merton option pricing model, which relies on certain assumptions, to estimate the fair value of the options it granted. The weighted average fair value of options granted was $ 2.30 per option in 2022. 45 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) There were no stock options exercised in 2023 or 2022. All of the options exercised in 2021 were exercised on a cash basis. The assumptions used in the determination of the fair value of the options granted are provided in the following table: 2023 2022 2021 Assumptions Options Options Options Expected volatility rate n/a 56.61 % n/a Expected dividend yield n/a 3.34 % n/a Risk-free interest rate n/a 3.20 % n/a Expected forfeiture rate n/a 0.00 % n/a Expected term in years n/a 2.3 n/a The volatility rate for the options granted in 2022 were derived from the historical stock price volatility of the Company’s common stock over the same time period as the expected term of each stock option award. The volatility rate is derived by a mathematical formula using the daily closing stock price data over the expected term. The expected dividend yield is calculated using the Company’s expected dividend amount at the date of the option grant over the expected term divided by the fair market value of the Company’s common stock. For the years ended December 31, 2023, 2022 and 2021, total share-based compensation expense (before tax) totaled $0, $ 46 , and $0, respectively. In the year ended December 31, 2022, this balance was recorded as an element of selling, general, and administrative expenses. As of December 31, 2023 and 2022, there was no unrecognized compensation expense related to stock options. A summary of the activity of the Company’s stock options and awards for the period beginning January 1, 2021 and ending December 31, 2023 is presented below. Weighted Average Options Exercise Price Outstanding at January 1, 2021 44,000 $ 12.73 Granted - - Exercised ( 20,000 ) 11.56 Canceled, forfeited, or expired - - Outstanding at December 31, 2021 24,000 13.71 Granted 20,000 7.18 Exercised - - Canceled, forfeited, or expired - - Outstanding at December 31, 2022 44,000 10.74 Granted - - Exercised - - Canceled, forfeited, or expired ( 10,000 ) 16.21 Outstanding at December 31, 2023 34,000 9.13 46 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) There were 4,310,167 options available for grant under the Incentive Plan. The following table provides the remaining contractual term and weighted average exercise prices of stock options outstanding and exercisable from the Incentive Plan at December 31, 2023. Options Outstanding Options Exercisable Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average Exercise December 31, Contractual Exercise December 31, Exercise Price 2023 Life Price 2022 Price $ 12.07 10,000 0.71 $ 12.07 10,000 $ 12.07 11.56 4,000 1.06 11.56 4,000 11.56 7.18 20,000 3.61 7.18 20,000 7.18 34,000 2.46 9.13 34,000 9.13 The aggregate intrinsic values of total options outstanding and exercisable at December 31, 2023 and 2022 were $ 0 and $ 19 , respectively. Intrinsic value is the amount by which the last trade price of the common stock closest to December 31, 2023 and 2022, respectively, exceeded the exercise price of the options granted. 18. STOCKHOLDERS ’ EQUITY St. Albans Global Management, LLC (“St. Albans”), an entity affiliated with Mr. P. A. Novelly II, a member of the board, is entitled to demand that the Company register under the Securities Act of 1933, as amended (the “Securities Act”), the resale of all shares of the Company’s common stock beneficially owned by it. If St. Albans exercises its registration rights with respect to all 17,085,100 shares of the Company’s common stock currently owned by it, there will be an additional 6,637,600 registered shares of common stock available for trading in the public market. 47 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 19. EMPLOYEE BENEFIT PLANS Defined contribution savings plan The Company currently offers its employees a company 401 (k) matching savings plan, which covers substantially all employees. Under this plan, the Company matches the amount of eligible employees’ contributions, subject to specified limits, up to 6 % of earnings. Company contributions totaled $ 1,923 , $ 1,719 , and $ 1,770 for the years ended December 31, 2023, 2022 and 2021, respectively. 20. RELATED PARTY TRANSACTIONS The Company enters into transactions with companies affiliated with or controlled by a director or significant stockholder. Revenues, expenses, accounts receivable, prepaid amounts, and unpaid amounts related to these transactions are captured on the consolidated financial statements as related party line items. These related party transactions are summarized in the following table and further described below. Related party balance sheet accounts 2023 2022 Accounts receivable Biodiesel, petrodiesel, blends and other petroleum products $ 1 $ 6 Total accounts receivable $ 1 $ 6 Prepaid expenses Administrative services and other $ 12 $ 12 Total prepaid expenses $ 12 $ 12 Accounts payable Natural gas and fuel purchases $ - $ 7,788 Travel and administrative services 42 11 Total accounts payable $ 42 $ 7,799 Accrued liabilities Travel and administrative services $ - $ 1 Total accrued liabilities $ - $ 1 Related party income statement accounts Years ended December 31: 2023 2022 2021 Revenues Biodiesel, petrodiesel, blends and other petroleum products $ 22 $ 459 $ 1,261 Total revenues $ 22 $ 459 $ 1,261 Cost of goods sold Biodiesel, petrodiesel, blends, and other petroleum products $ - $ 5,425 $ 5,233 Natural gas purchases ( 315 ) - 11,360 Total cost of goods sold $ ( 315 ) $ 5,425 $ 16,593 Distribution Distribution and related services $ 176 $ 174 $ 176 Total distribution $ 176 $ 174 $ 176 Selling, general and administrative expenses Commodity trading advisory fees $ 308 $ 307 $ 308 Travel and administrative services 188 184 221 Income tax, consulting services and other 120 120 120 Total selling, general, and administrative expenses $ 616 $ 611 $ 649 48 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) Biodiesel, petrodiesel, blends, and other petroleum products The Company enters into agreements to buy and sell biofuels (biodiesel, petrodiesel, biodiesel/petrodiesel blends, RINs, and biodiesel production byproducts) and other petroleum products, such as gasoline, with an affiliate from time to time. Such agreements are priced at the then-current market price of the product as determined from bids from other customers and/or market pricing services. Cost of goods sold related to these sales includes variable costs and allocated fixed costs. The revenue amounts presented in the table above result when the Company sells biodiesel, petrodiesel, blends, and other petroleum products to a related party regardless of who the material was purchased from. Likewise, cost of goods sold amounts result when biodiesel, petrodiesel, blends, and other petroleum products are purchased from a related party regardless of who the material was sold to. Natural gas purchases The Company uses natural gas to generate steam for its manufacturing process and to support certain of its air and waste treatment utilities. During 2021, natural gas was purchased through an affiliate provider of natural gas marketing services. Expenses related to these purchases include the cost of the natural gas only; transportation charges were paid to an independent third party. The natural gas matter as discussed in Note 23, Legal proceedings, is in reference to the natural gas supplier, not the related party. The amount shown in 2023 reflects the settlement on the legal matter. Distribution and related services The Company leases oil storage capacity from an affiliate under a storage and throughput agreement. This agreement provides for the storage of biodiesel, diesel or biodiesel/petrodiesel blends, methanol, and biodiesel feedstocks in above-ground storage tankage at designated facilities of the affiliate. Expenses related to this agreement include monthly lease charges, generally on a per-barrel basis, and associated heating, throughput, and other customary terminalling charges. Commodity trading advisory fees The Company entered into a commodity trading advisory agreement with an affiliate. Pursuant to the terms of this agreement, the affiliate provides advice to the Company concerning the purchase, sale, exchange, conversion, and/or hedging of commodities as requested from time to time. Travel and administrative services The Company reimburses an affiliate for legal, trading, travel and other administrative services incurred on its behalf. Such reimbursement is performed at cost with the affiliate realizing no profit on the transaction. Income tax and consulting services An affiliate provides professional services to the Company, primarily in the area of income tax preparation and consulting. The Company also receives certain finance and accounting expertise from this affiliate as requested. Expenses related to these services comprise an agreed quarterly fee plus reimbursement of expense, at cost and are reported as selling, general, and administrative expenses. 49 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 21. SEGMENT INFORMATION The Company has two reportable segments organized along similar product lines – chemicals and biofuels. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2. Chemicals The Company’s chemicals segment manufactures diversified chemical products that are sold to third party customers. This segment comprises two product groups: “custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals). Biofuels The Company’s biofuels segment manufactures and markets biodiesel. Biodiesel revenues are generated through the sale of biodiesel to customers through the Company’s distribution network at the Batesville plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks. Results of the biofuels business segment also reflect the sale of biodiesel blends with petrodiesel, petrodiesel with no biodiesel added, RINs, and biodiesel production byproducts. Summary of business by segment Years ended December 31, 2023 2022 2021 Revenue Custom chemicals $ 64,286 $ 58,737 $ 50,675 Performance chemicals 15,047 22,156 16,867 Chemicals revenue 79,333 80,893 67,542 Biofuels revenue 288,917 315,121 253,844 Total Revenue $ 368,250 $ 396,014 $ 321,386 Segment gross profit Chemicals $ 29,936 $ 25,645 $ 13,970 Biofuels 11,043 3,348 9,567 Total gross profit $ 40,979 $ 28,993 $ 23,537 Depreciation is allocated to segment cost of goods sold based on plant usage. The total assets and capital expenditures of the Company 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. 50 Table of Contents Notes to Consolidated Financial Statements of FutureFuel Corp. (Dollars in thousands, except per share amounts) 22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarter 1st 2nd 3rd 4th 2023 Revenues $ 74,181 $ 85,308 $ 116,752 $ 92,009 Gross profit (loss) $ 21,623 $ ( 8,592 ) $ 3,870 $ 24,078 Net income (loss) $ 21,081 $ ( 9,859 ) $ 2,776 $ 23,384 Net income (loss) per common share: Basic $ 0.48 $ ( 0.23 ) $ 0.06 $ 0.53 Diluted $ 0.48 $ ( 0.23 ) $ 0.06 $ 0.53 2022 Revenues $ 42,261 $ 117,796 $ 118,141 $ 117,816 Gross (loss) profit $ ( 7,155 ) $ 977 $ 19,985 $ 15,186 Net (loss) income $ ( 12,398 ) $ ( 3,104 ) $ 15,780 $ 14,933 Net (loss) income per common share: Basic $ ( 0.28 ) $ ( 0.07 ) $ 0.36 $ 0.34 Diluted $ ( 0.28 ) $ ( 0.07 ) $ 0.36 $ 0.34 Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts will not necessarily equal the total for the year. 23. LEGAL PROCEEDINGS The Company is not a party to, nor is any of its property subject to, any material pending legal proceedings, other than ordinary routine litigation incidental to its business. However, from time to time, the Company may be a party to, or a target of, lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which the Company expects to be handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of any matters currently pending, the Company does not believe 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. However, adverse developments could negatively impact earnings or cash flows in future periods. The Company entered into a settlement agreement to resolve the previously reported dispute regarding its February 2021 natural gas bill. The natural gas settlement was a reduction to Cost of goods sold-related parties in the Consolidated Statements of Operations and Comprehensive Income in the period ended December 31, 2023 in the amount of $ 882 . This settlement reduced Cost of goods sold for each segment equally. As discussed in Note 21, Related Party Transactions, the “ultimate” natural gas supplier was not a related party of the Company. 24. SUBSEQUENT EVENT On March 12, 2024 , the Company’s board of directors authorized the repurchase of up to $ 25.0 million of Company common stock through a stock repurchase program expiring March 12, 2026. The program could be suspended or discontinued at any time, based on market, economic, or business conditions. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, and other factors. The Company's board of directors also authorized on March 12, 2024 a special cash dividend of $ 2.50 per share on our common stock payable on April 9, 2024 , to the holders of record of all the issued and outstanding shares of common stock as of the close of business on March 26, 2024. 51 Table of Contents 25. Restatement The Company identified a correction required to be made to its consolidated statements of cash flows for the year ended December 31, 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 year ended December 31, 2023. The correction does not impact the Company’s overall cash position, its consolidated balance sheets, its consolidated statements of income and comprehensive income, or its consolidated statements of changes in stockholders’ equity as of or for the year ended December 31, 2023. A summary of the impact on the consolidated statement of cash flows is as follows: For the Year Ended December 31, 2023 As Originally Reported Adjustment As Restated Cash flows from operating activities: Other assets $ 3,523 $ ( 2,686 ) $ 837 Net cash provided by operating activities $ 23,985 $ ( 2,686 ) $ 21,299 Cash flows from investing activities: Collateralization of derivative instruments $ ( 1,343 ) $ 2,686 $ 1,343 Net cash provided by (used in) investing activities $ 30,336 $ 2,686 $ 33,022 52 Table of Contents