What changed in this filing

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Item 1. Financial Statements

2021-08-10 compared with 2021-05-17 · 546 added, 951 removed, 162 unchanged (90% of the section changed)

3 unchanged sentences

(in thousands)

Current Assets:

and cash equivalents

receivable (net of allowance for doubtful accounts of $351 and $260, respectively)

held-for-sale

Accounts receivable, net (net of allowance for doubtful accounts of $ 363 and $ 260 , respectively)

Assets held-for-sale

current assets

Property and equipment, net

Other Assets:

of use operating lease assets, net

derived from the audited financial statements for the year ended December 31, 2020.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

and equipment, net

use operating lease assets, net

Notes receivable

derived from the audited consolidated financial statements for the year ended December 31,

See accompanying notes

to consolidated financial statements.

ALTO INGREDIENTS,

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

AND STOCKHOLDERS’

payable –

portion –

operating leases

portion –

long-term debt

LIABILITIES AND STOCKHOLDERS’ EQUITY

payable – trade

portion – operating leases

portion – long-term debt

held-for-sale

current liabilities

Total current

debt, net of current portion

1 unchanged sentence

and Contingencies (Note 7)

Stockholders’

Ingredients, Inc.

Stockholders’

stock, $0.001 par value;

10,000 shares authorized;

Stockholders’

Alto Ingredients,

Stockholders’ Equity:

Preferred stock, $ 0.001 par value;

10,000 shares authorized;

no shares issued and outstanding as of

March 31, 2021 and December 31, 2020;

1,684 shares authorized;

927 shares issued and outstanding as of March 31,

2021 and December 31, 2020;

liquidation preference of $19,975 as of March 31, 2021

stock, $0.001 par value;

no shares issued and outstanding as of June 30, 2021 and December 31, 2020;

1,581 shares authorized;

73,161 and 72,487 shares issued and outstanding as of March 31, 2021 and December 31,

2020, respectively

927 shares issued and outstanding as of June 30, 2021 and December 31, 2020;

liquidation preference of $ 20,290 as of June 30, 2021

Common stock, $ 0.001 par value;

300,000 shares authorized;

1 share issued and outstanding as of March 31, 2021 and December 31,

72,811 and 72,487 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Non-voting common stock, $ 0.001 par value;

3,553 shares authorized;

1 share issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

paid-in capital

other comprehensive loss

Stockholders’

Liabilities and Stockholders’

derived from the audited financial statements for the year ended December 31, 2020.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

Stockholders’ Equity

Liabilities and Stockholders’ Equity

* Amounts derived from the audited consolidated financial statements for the year ended December 31, 2020.

See accompanying notes

to consolidated financial statements.

ALTO INGREDIENTS,

CONSOLIDATED STATEMENTS OF OPERATIONS

in thousands, except per share data)

Cost of goods sold

Gross profit (loss)

Selling, general and administrative

Asset impairment

Income (loss) from operations

Fair value adjustments

Interest expense, net

Other income, net

Income (loss) before benefit

for income taxes

(unaudited, in

thousands, except per share data)

of goods sold

general and administrative expenses

Income (loss)

from operations

loan forgiveness

income (expense), net

Income (loss) before

benefit for income taxes

Consolidated net income (loss)

Net loss attributed to noncontrolling

Net income (loss) attributed

to Alto Ingredients, Inc.

Preferred stock dividends

Net income (loss) available

to common stockholders

Net income (loss) per share,

Weighted-average shares outstanding,

for income taxes

Consolidated net

income (loss)

loss attributed to noncontrolling interests

income (loss) attributed to Alto Ingredients, Inc.

stock dividends

income (loss) available to common stockholders

income (loss) per share, basic

income (loss) per share, diluted

Weighted-average

shares outstanding, basic

Weighted-average

shares outstanding, diluted

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Six Months Ended

Operating Activities:

net income (loss)

to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:

(losses) on derivative instruments

of deferred financing fees

Consolidated net income (loss)

Adjustments to reconcile consolidated net income (loss)

to net cash provided by operating activities:

Asset impairments

Income from loan forgiveness

Non-cash compensation

Amortization of deferred financing fees

Fair value adjustments

added to debt

Changes in operating assets

and liabilities:

expenses and other assets

held-for-sale

payable and accrued liabilities

cash provided by (used in) operating activities

to property and equipment

cash used in investing activities

proceeds (payments) from Kinergy’s line of credit

from stock option exercises

from issuance of common stock

payments on borrowings

cash provided by (used in) financing activities

Net increase (decrease) in

cash and cash equivalents

Cash and cash equivalents

at beginning of period

Cash and cash equivalents

at end of period

preferred stock dividends

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

Interest added to debt

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Prepaid inventory

Operating leases

Assets held-for-sale

Liabilities held-for-sale

Accounts payable and accrued expenses

Net cash provided by operating activities

Investing Activities:

Proceeds from Madera Sale

Proceeds from PAL Sale

Additions to property and equipment

Net cash provided by investing activities

Financing Activities:

Net proceeds from (payments on) Kinergy’s line of

Proceeds from stock option exercises

Principal payments on borrowings

Proceeds from issuance of common stock

Proceeds from borrowings

Net cash used in financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning

Cash and cash equivalents at end

Supplemental Information:

Interest paid

Accrued preferred stock dividends

See accompanying notes to consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

Preferred Stock

Comprehensive

Non-Controlling

January 1, 2021

compensation expense –

Income (Loss)

Balances, January 1, 2021

$ ( 736,598 )

Restricted stock issued to employees and directors, net of cancellations and tax

option exercises

stock dividends

March 31, 2021

January 1, 2020

compensation expense –

Stock-based compensation

Stock option exercises

Preferred stock dividends

Balances, March 31, 2021

$ ( 732,232 )

Restricted stock issued to employees and directors, net of cancellations and tax

of common stock

stock dividends

March 31, 2020

Stock-based compensation

Preferred stock dividends

Balances, June 30, 2021

$ ( 724,157 )

Preferred Stock

Comprehensive

Non-Controlling

Income (Loss)

Balances, January 1, 2020

$ ( 720,214 )

Restricted stock issued to employees and directors, net of cancellations and tax

Stock-based compensation

Issuances of common stock

Preferred stock dividends

Balances, March 31, 2020

$ ( 745,629 )

Restricted stock issued to employees and directors, net of cancellations and tax

Stock-based compensation

Preferred stock dividends

Sale of interests in PAL

Net income (loss)

Balances, June 30, 2020

$ ( 730,980 )

See accompanying notes to

consolidated financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

ORGANIZATION AND BASIS OF PRESENTATION.

and Business –

The consolidated financial statements include, for all periods presented, the accounts of Alto Ingredients,

Inc., a Delaware corporation (“Alto Ingredients”), and its direct and indirect subsidiaries (collectively, the “Company”),

including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Alto Nutrients

LLC, a California limited liability company (“Alto Nutrients”), Alto Op Co., a Delaware corporation (“Alto Op Co.”)

and all seven of the Company’s production facilities as of March 31, 2021.

Organization and Business

– The consolidated financial statements include, for all periods presented,

the accounts of Alto Ingredients, Inc., a Delaware corporation (“Alto Ingredients”), and its direct and indirect subsidiaries

(collectively, the “Company”), including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability

company (“Kinergy”), Alto Nutrients LLC, a California limited liability company, Alto Op Co., a Delaware corporation, and

all seven of the Company’s production facilities through May 14, 2021.

As discussed in Note 2, on May 14, 2021, the Company completed

the sale of its production facility located in Madera, California.

The Company is a leading producer

1 unchanged sentence

The Company also produces and markets fuel-grade ethanol.

The Company’s

production facilities in Pekin, Illinois are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and allow

for access to many additional domestic markets.

In addition, the Company’s ability to load unit trains and barges from these facilities

allows for greater access to international markets.

The Company’s four production facilities in California, Oregon and Idaho, located

The Company’s three production facilities in California, Oregon and Idaho, located

in close proximity to both feed and fuel-grade ethanol customers, enjoy unique advantages in efficiency, logistics and product pricing.

The Company had a combined production

capacity of 450 million gallons per year, as of March 31, 2021, markets, on an annualized basis, over 500 million gallons of alcohols,

and produces, on an annualized basis, nearly 1.5 million tons of essential ingredients on a dry matter basis, such as dried yeast, corn

gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods.

Company focuses on four key markets:

The Company has a combined production

capacity of 410 million gallons per year, markets, on an annualized basis, over 500 million gallons of alcohols, and produces, on an annualized

basis, nearly 1.5 million tons of essential ingredients on a dry matter basis, such as dried yeast, corn gluten meal, corn gluten feed,

and distillers grains and liquid feed used in commercial animal feed and pet foods.

The Company focuses on four

Health, Home & Beauty ;

1 unchanged sentence

Essential Ingredients ;

Renewable Fuels .

Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals,

hand sanitizers, disinfectants and cleaners.

Products for the Food & Beverage markets include grain neutral spirits used in alcoholic

beverages and vinegar as well as corn germ used for corn oils.

Products for Essential Ingredients markets include yeast, corn gluten

and distillers grains used in commercial animal feed and pet foods.

Renewable Fuels includes fuel-grade ethanol and distillers corn oil

used as a feedstock for renewable diesel fuel.

of March 31, 2021, the Company was operating at approximately 64% of its then-450 million gallon annual production capacity.

market conditions change, the Company may increase, decrease or idle production at one or more operating facilities or resume

operations at any idled facility.

of Presentation –

Interim Financial Statements –

The accompanying unaudited consolidated financial statements

and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial

information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Results for interim periods should not be considered

indicative of results for a full year.

These interim consolidated financial statements should be read in conjunction with the consolidated

financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31,

The accounting policies used in preparing these consolidated financial statements are the same as those described in Note 1 to

the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the

results for interim periods have been included.

and Renewable Fuels .

for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants

and cleaners.

Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well

as corn germ used for corn oils.

Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial

animal feed and pet foods.

Renewable Fuels includes fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel

As of June 30, 2021, the Company

was operating at approximately 71% of its 410 million gallon annual production capacity.

As market conditions change, the Company may

increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Basis of Presentation – Interim

Financial Statements – The accompanying unaudited consolidated financial statements and related notes have been prepared

in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions

to Form 10-Q and Rule 10-01 of Regulation S-X.

Results for interim periods should not be considered indicative of results for

These interim consolidated financial statements should be read in conjunction with the consolidated financial statements

and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The accounting

policies used in preparing these consolidated financial statements are the same as those described in Note 1 to the consolidated financial

statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, all adjustments

(consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Receivable and Allowance for Doubtful Accounts –

Trade accounts receivable are presented at face value, net of the allowance

for doubtful accounts.

The Company sells specialty alcohols to large consumer products companies, sells fuel-grade ethanol to gasoline

refining and distribution companies, sells essential ingredients to animal feed customers, including distillers grains and other feed

co-products to dairy operators and animal feedlots and corn oil to poultry and biodiesel customers generally without requiring collateral.

Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues.

The collection process

is based on the age of the invoice and requires attempted contacts with the customer at specified intervals.

If, after a specified number

of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question.

accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined.

The factors considered

in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and

negotiating with the customer.

If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment

of ability to make payments, additional allowances may be required.

the accounts receivable balance, approximately $51,301,000 and $35,839,000 at March 31, 2021 and December 31, 2020, respectively, were

used as collateral under Kinergy’s operating line of credit.

The allowance for doubtful accounts was $351,000 and $260,000 as of

March 31, 2021 and December 31, 2020, respectively.

The Company recorded a bad debt expense of $91,000 and $19,000 for the three months

ended March 31, 2021 and 2020, respectively.

Accounts Receivable and Allowance for Doubtful

Accounts – Trade accounts receivable are presented at face value, net of the allowance for doubtful accounts.

sells specialty alcohols to large consumer products companies, sells fuel-grade ethanol to gasoline refining and distribution companies,

sells essential ingredients to animal feed customers, including distillers grains and other feed co-products to dairy operators and animal

feedlots and corn oil to poultry and biodiesel customers generally without requiring collateral.

The Company maintains an allowance for doubtful

accounts for balances that appear to have specific collection issues.

The collection process is based on the age of the invoice and requires

attempted contacts with the customer at specified intervals.

If, after a specified number of days, the Company has been unsuccessful in

its collection efforts, a bad debt allowance is recorded for the balance in question.

Delinquent accounts receivable are charged against

the allowance for doubtful accounts once uncollectibility has been determined.

The factors considered in reaching this determination are

the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer.

financial condition of the Company’s customers were to deteriorate, resulting in an impairment of ability to make payments, additional

allowances may be required.

Of the accounts receivable balance, approximately

$ 61,501,000 and $ 35,839,000 at June 30, 2021 and December 31, 2020, respectively, were used as collateral under Kinergy’s operating

line of credit.

The allowance for doubtful accounts was $ 363,000 and $ 260,000 as of June 30, 2021 and December 31, 2020, respectively.

The Company recorded a bad debt expense of $ 52,000 and a bad debt recovery of $ 18,000 for the three months ended June 30, 2021 and 2020,

respectively.

The Company recorded a bad debt expense of $ 143,000 and $ 1,000 for the six months ended June 30, 2021 and 2020, respectively.

The Company does not have any off-balance sheet credit exposure related to its customers.

Instruments –

The carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts payable,

accrued liabilities and derivative liabilities are reasonable estimates of their fair values because of the short maturity of these items.

The carrying value of the Company’s senior secured notes are recorded at fair value and are considered Level 2 fair value measurements.

The Company believes the carrying value of its notes receivable are not considered materially different than fair value due to their

recent issuances, and other long-term debt instruments’

carrying values are not considered materially different than fair value

because the interest rates on these instruments are variable, and are considered Level 2 fair value measurements.

and Assumptions –

The preparation of the consolidated financial statements in conformity with GAAP requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

estimates are required as part of determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives

of property and equipment, long-lived asset impairments, fair value of warrants, valuation allowances on deferred income taxes and the

potential outcome of future tax consequences of events recognized in the Company’s financial statements or tax returns, and the

valuation of assets acquired and liabilities assumed as a result of business combinations.

Actual results and outcomes may materially

differ from management’s estimates and assumptions.

Financial Instruments – The

carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts payable, accrued liabilities and derivative

liabilities are reasonable estimates of their fair values because of the short maturity of these items.

The carrying value of the Company’s

senior secured notes are recorded at fair value and are considered Level 2 fair value measurements.

The Company believes the carrying

value of its notes receivable are not considered materially different than fair value due to their recent issuances, and other long-term

debt instruments’ carrying values are not considered materially different than fair value because the interest rates on these instruments

are variable, and are considered Level 2 fair value measurements.

Estimates and Assumptions –

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates are required as part of

determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of property and equipment, long-lived

asset impairments, fair value of warrants, valuation allowances on deferred income taxes and the potential outcome of future tax consequences

of events recognized in the Company’s financial statements or tax returns, and the valuation of assets acquired and liabilities

assumed as a result of business combinations.

Actual results and outcomes may materially differ from management’s estimates and

ASSETS AND LIABILITIES HELD-FOR-SALE.

In October 2020, the Company’s Board of

Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California.

In October 2020, the Company’s Board of

Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California.

As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020.

the three months ended March 31, 2021, the Company provided for an additional impairment charge of $1.2 million based on revised fair

value estimates.

On April 23, 2021, the Company entered into an asset purchase agreement to sell its Madera facility for total consideration

of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities.

On May 14, 2021, the Company closed

Company classified the following assets and liabilities as held-for-sale as of March 31, 2021 (in thousands):

Property and equipment,

Right of use operating lease

the six months ended June 30, 2021, the Company provided for an additional impairment charge of $ 1.2 million based on revised fair value

On May 14, 2021, the Company closed the sale of

its Madera facility for total consideration of $ 28.3 million, comprised of $ 19.5 million in cash and $ 8.8 million in assumption of liabilities,

resulting in a net loss on sale of less than $ 0.1 million, recorded as other income (expense), net in the Company’s consolidated

statements of operations.

All of the cash proceeds were used to repay a significant portion of the Company’s term debt and accrued

The Company continues to market its Stockton

facility for sale.

In June 2021, the Company agreed to a plan to

sell certain assets of the Company’s idled facility in Canton, Illinois.

As a result, the Company determined the related long-lived

asset groups should be classified as held-for-sale at June 30, 2021.

During the three months ended June 30, 2021, the Company recorded

an estimated impairment charge of $ 1.9 million based on fair value estimates.

The Company classified the following assets and

liabilities as held-for-sale as of June 30, 2021 (in thousands):

Property and equipment, net

Right of use operating lease assets, net

Assets held-for-sale

Operating lease

Assessment financing

Liabilities held-for-sale

Company classified the following assets and liabilities as held-for-sale as of December 31, 2020 (in thousands):

Property and equipment,

Right of use operating lease

Liabilities held-for-sale – operating leases

The Company classified the following assets and

liabilities as held-for-sale as of December 31, 2020 (in thousands):

Property and equipment, net

Right of use operating lease assets, net

Assets held-for-sale

Operating lease

Operating lease obligations

Assessment financing

Liabilities held-for-sale

For the three months ended March 31, 2021, net

For the three months ended June 30, 2021, net

sales attributed to the results of operations for Stockton and Madera were $ 0.4 million and less than $ 0.1 million, respectively.

the three months ended March 31, 2020, net sales attributed to the results of operations for Stockton and Madera were $21.9 million and

the three months ended June 30, 2020, net sales attributed to the results of operations for Stockton and Madera were $ 0.5 million and

$ 1.0 million, respectively.

For the three months ended March 31, 2021, pre-tax loss attributed to the results of operations for Stockton

For the three months ended June 30, 2021, pre-tax loss attributed to the results of operations for Stockton

and Madera was $ 1.4 million and $ 0.2 million, respectively.

For the three months ended March 31, 2020, pre-tax loss attributed to the

results of operations for Stockton and Madera was $2.3 million and $1.8 million, respectively.

For the three months ended June 30, 2020, pre-tax loss attributed to the results

of operations for Stockton and Madera was $ 1.2 million and $ 1.8 million, respectively.

For the six months ended June 30, 2021, net sales

attributed to the results of operations for Stockton and Madera were $ 0.6 million and less than $ 0.1 million, respectively.

months ended June 30, 2020, net sales attributed to the results of operations for Stockton and Madera were $ 22.4 million and $ 22.5 million,

respectively.

For the six months ended June 30, 2021, pre-tax loss attributed to the results of operations for Stockton and Madera was

$ 2.2 million and $ 1.8 million, respectively.

For the six months ended June 30, 2020, pre-tax loss attributed to the results of operations

for Stockton and Madera was $ 3.5 million and $ 3.6 million, respectively.

The Company reports its financial and operating

2 unchanged sentences

and essential ingredients on an aggregated basis, and third-party fuel-grade ethanol (2) Pekin production, which includes the production

and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus (“Pekin Campus”), and

(3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of the Company’s

other production facilities on an aggregated basis (“Other production”), none of which are individually so significant as

and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus (“Pekin Campus”), and

(3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of the Company’s

other production facilities on an aggregated basis (“Other production”), none of which are individually so significant as

to be considered a reportable segment.

following tables set forth certain financial data for the Company’s operating segments (in thousands):

The following tables set forth certain financial

data for the Company’s operating segments (in thousands):

Three Months Ended

Six Months Ended

Marketing and distribution:

marketing and distribution sales

Pekin Campus production, recorded

ingredient sales

Pekin Campus sales

Other production, recorded

ingredient sales

Other production sales

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Pekin Campus production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Pekin Campus sales

Other production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Other production sales

Intersegment eliminations

Net sales as reported

of goods sold:

and distribution

Campus production

of goods sold as reported

(loss) before benefit for income taxes:

and distribution

Campus production

Cost of goods sold:

Marketing and distribution

Pekin Campus production

Other production

Intersegment eliminations

Cost of goods sold as reported

Income (loss) before benefit for income taxes:

Marketing and distribution

Pekin Campus production

Other production

Corporate activities

Depreciation:

Campus production

and distribution

Campus production

following table sets forth the Company’s total assets by operating segment (in thousands):

Marketing and

Pekin Campus production

Other production

consisted primarily of bulk ethanol, specialty alcohols, corn, essential ingredients and unleaded fuel, and are valued at the lower of

cost or net realizable value, with cost determined on a first-in, first-out basis.

Inventory is net of a $1,033,000 valuation adjustment

as of December 31, 2020.

Corporate activities

Interest expense:

Marketing and distribution

Pekin Campus production

Other production

Corporate activities

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

Marketing and distribution

Pekin Campus production

Other production

Corporate assets

Inventories consisted primarily of bulk ethanol,

specialty alcohols, corn, essential ingredients and unleaded fuel, and are valued at the lower of cost or net realizable value, with cost

determined on a first-in, first-out basis.

Inventory is net of valuation adjustments of $ 1,800,000 and $ 1,033,000 as of June 30, 2021

and December 31, 2020, respectively.

Inventory balances consisted of the following (in thousands):

Finished goods

Work in progress

Raw materials

business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices.

The Company monitors and manages these financial exposures as an integral part of its risk management program.

This program recognizes

the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating

Cash Flow Hedges –

The Company uses derivative instruments to protect cash flows from fluctuations

caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially

adverse effects of market and price volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or

if the contracts specify a floating or index-based price.

In addition, the Company hedges anticipated sales of alcohol to minimize its

exposure to the potentially adverse effects of price volatility.

These derivatives may be designated and documented as cash flow hedges

and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing commodity futures prices against

the Company’s purchase and sales prices.

Ineffectiveness, which is defined as the degree to which the derivative does not offset

the underlying exposure, is recognized immediately in cost of goods sold.

For the three months ended March 31, 2021 and 2020, the Company

did not designate any of its derivatives as cash flow hedges.

Non-Designated Hedges –

The Company uses derivative instruments to lock in prices for certain amounts of corn

and alcohols by entering into exchange-traded forward contracts or options for those commodities.

These derivatives are not designated

for hedge accounting treatment.

The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately

in cost of goods sold.

The Company recognized net gains of $10,543,000 and $0 as the change in the fair value of these contracts for

the three months ended March 31, 2021 and 2020, respectively.

Designated Derivative Instruments –

The classification and amounts of the Company’s derivatives not designated as

hedging instruments, and related cash collateral balances, are as follows (in thousands):

of March 31, 2021

of Instrument

Sheet Location

The business and activities of the Company expose

it to a variety of market risks, including risks related to changes in commodity prices.

The Company monitors and manages these financial

exposures as an integral part of its risk management program.

This program recognizes the unpredictability of financial markets and seeks

to reduce the potentially adverse effects that market volatility could have on operating results.

Commodity Risk – Cash

Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in commodity

prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price

volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating

or index-based price.

In addition, the Company hedges anticipated sales of alcohol to minimize its exposure to the potentially adverse

effects of price volatility.

These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by

assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase

and sales prices.

Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is

recognized immediately in cost of goods sold.

For the three and six months ended June 30, 2021 and 2020, the Company did not designate

any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges

– The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering into exchange-traded

forward contracts or options for those commodities.

These derivatives are not designated for hedge accounting treatment.

The changes in

fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold.

The Company recognized

net gains of $ 8,868,000 and $ 0 as the change in the fair value of these contracts for the three months ended June 30, 2021 and 2020, respectively.

The Company recognized net gains of $ 19,411,000 and $ 0 as the change in the fair value of these contracts for the six months ended June

30, 2021 and 2020, respectively.

Non Designated Derivative Instruments

– The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral

balances, are as follows (in thousands):

As of June 30, 2021

Type of Instrument

Balance Sheet Location

Cash collateral balance

Other current assets

Commodity contracts

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Derivative liabilities

of December 31, 2020

Sheet Location

Cash collateral

Other current

As of December 31, 2020

Type of Instrument

Balance Sheet Location

Cash collateral balance

Other current assets

Commodity contracts

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Derivative liabilities

classification and amounts of the Company’s recognized gains for its derivatives not designated as hedging instruments are as follows

(in thousands):

For the three

The classification and amounts of the Company’s

recognized gains for its derivatives not designated as hedging instruments are as follows (in thousands):

Realized Gains

For the Three Months Ended

Type of Instrument

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Commodity contracts

Cost of goods

For the three

of Operations Location

of goods sold

Cost of goods sold

Realized Gains

For the Six Months Ended

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Losses

For the Three Months Ended

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Losses

For the Six Months Ended

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

borrowings are summarized as follows (in thousands):

Kinergy line of

Kinergy line of credit

Pekin revolving loan

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Parent notes payable

CARES Act loans

Less unamortized debt premium

Less unamortized debt financing

short-term portion

Parent Notes Payable –

May 14, 2021, with proceeds from the Company’s sale of its Madera, California facility, it repaid $19.3 million of principal on

its notes payable, with $0.7 million remaining.

of Long-term Debt –

The Company’s long-term debt matures as follows (in thousands):

At March 31, 2021, there were approximately $231.9 million of net assets at the Company’s subsidiaries that were

not available to be transferred to Alto Ingredients, Inc.

in the form of dividends, loans or advances due to restrictions contained in

the credit facilities of the Company’s subsidiaries.

COMMITMENTS AND CONTINGENCIES.

Commitments –

At March 31, 2021, the Company had entered into sales contracts with its major customers to sell certain

quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 102,526,000 gallons as of March

31, 2021 and open fixed-price alcohol sales contracts totaling $207,687,000 as of March 31, 2021.

The Company had open fixed-price sales

contracts for essential ingredients totaling $18,170,000 and open indexed-price sales contracts of essential ingredients for 146,000

tons as of March 31, 2021.

These sales contracts are scheduled to be completed throughout 2021.

Commitments –

At March 31, 2021, the Company had indexed-price purchase contracts to purchase 15,626,000 gallons of alcohol

Less unamortized debt financing costs

Less short-term portion

Long-term debt

Notes Payable – On May 14, 2021, with proceeds from the Company’s sale of its

Madera, California facility, the Company repaid $ 19.3 million of principal on its notes payable, resulting in an aggregate balance of

$ 0.7 million.

Act Loans – On May 4, 2020, Alto Ingredients, Inc.

and Alto Pekin, LLC, or Alto

Pekin, received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),

through the Paycheck Protection Program administered by the U.S.

Small Business Administration (“SBA”).

Alto Ingredients,

received $ 6.0 million and Alto Pekin received $ 3.9 million in loan proceeds.

Under the terms of the loans, certain amounts may be

forgiven if they are used for qualifying expenses as described in the CARES Act.

In June 2021, the SBA approved Alto Pekin’s forgiveness

application for the full amount of $ 3.9 million, and accordingly, the Company recognized income from loan forgiveness for the three months

ended June 30, 2021.

The Company has applied to the SBA for forgiveness of the Company’s

remaining loan.

The SBA may audit the loan forgiveness applications and further examine eligibility for forgiveness, including the facts

and circumstances existing at the time the loans were made.

The Company can provide no assurances that any loan forgiven will not require

repayment following an audit by the SBA.

of Long-term Debt – The Company’s long-term debt matures as follows (in thousands):

– At June 30, 2021, there were approximately $ 245.7 million of net assets

at the Company’s subsidiaries that were not available for transfer to Alto Ingredients, Inc.

in the form of dividends, loans or

advances due to restrictions contained in the credit facilities of the Company’s subsidiaries.

AND CONTINGENCIES.

Commitments – At June 30, 2021, the Company had entered into sales contracts with

its major customers to sell certain quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts

for 96,399,000 gallons as of June 30, 2021 and open fixed-price alcohol sales contracts totaling $ 223,575,000 as of June 30, 2021.

Company had open fixed-price sales contracts for essential ingredients totaling $ 11,061,000 and open indexed-price sales contracts of

essential ingredients for 117,000 tons as of June 30, 2021.

These sales contracts are scheduled for completion over the next twelve months.

Commitments – At June 30, 2021, the Company had indexed-price purchase contracts to purchase 17,706,000 gallons of alcohol

and fixed-price purchase contracts to purchase $ 39,086,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts

to purchase $33,883,000 of corn from its suppliers as of March 31, 2021.

to purchase $ 77,375,000 of corn from its suppliers as of June 30, 2021.

These purchase commitments are scheduled to be satisfied throughout

General –

The Company is subject to various claims and contingencies in the ordinary course of its business, including

– General – The Company is subject to various claims and contingencies in the ordinary course of its business, including

those related to litigation, business transactions, employee-related matters, environmental regulations, and others.

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While there can be no assurances, the Company does not expect that any of its pending

legal proceedings will have a material impact on the Company’s financial condition or results of operations.

PENSION PLANS.

Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a health care and life insurance plan (the “Postretirement

Plan”).

The Company assumed the Retirement Plan and the Postretirement Plan as part of its acquisition of PE Central on July 1,

Retirement Plan is noncontributory, and covers only “grandfathered”

unionized employees at the Company’s Pekin, Illinois

legal proceedings will have a material impact on the Company’s financial condition or results of operations.

AND RETIREMENT BENEFIT PLANS.

The Company sponsors a defined benefit pension plan (the “Retirement

Plan”) and a health care and life insurance plan (the “Postretirement Plan”).

The Company assumed the Retirement Plan

and the Postretirement Plan as part of its acquisition of Aventine Renewable Energy Holdings, Inc.

on July 1, 2015.

Retirement Plan is noncontributory, and covers only “grandfathered” unionized employees at the Company’s Pekin, Illinois

facility who fulfill minimum age and service requirements.

Benefits are based on a prescribed formula based upon the employee’s

years of service.

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Company uses a December 31 measurement date for its Retirement Plan.

The Company’s funding policy is to make the minimum annual

contribution required by applicable regulations.

As of December 31, 2020, the Retirement Plan’s accumulated projected benefit obligation

was $ 24.6 million, with a fair value of plan assets of $ 17.6 million.

The underfunded amount of $7.0 million is recorded on the Company’s

The underfunded amount of $ 7.0 million is recorded on the Company’s

consolidated balance sheet in other liabilities.

For the three months ended March 31, 2021, the Retirement Plan’s net periodic

expense was $22,000, comprised of $151,000 in interest cost and $109,000 in service cost, partially offset by $238,000 of expected return

on plan assets.

For the three months ended March 31, 2020, the Retirement Plan’s net periodic expense was $48,000, comprised of

$173,000 in interest cost and $101,000 in service cost, partially offset by $226,000 of expected return on plan assets.

Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered”

unionized employees.

the three months ended June 30, 2021, the Retirement Plan’s net periodic expense was $ 22,000 , comprised of $ 151,000 in interest

cost and $ 109,000 in service cost, partially offset by $ 238,000 of expected return on plan assets.

For the three months ended June 30,

2020, the Retirement Plan’s net periodic expense was $ 48,000 , comprised of $ 173,000 in interest cost and $ 101,000 in service cost,

partially offset by $ 226,000 of expected return on plan assets.

For the six months ended June 30, 2021, the Retirement Plan’s net

periodic expense was $ 44,000 , comprised of $ 302,000 in interest cost and $ 218,000 in service cost, partially offset by $ 476,000 of expected

return on plan assets.

For the six months ended June 30, 2020, the Retirement Plan’s net periodic expense was $ 96,000 , comprised

of $ 346,000 in interest cost and $ 202,000 in service cost, partially offset by $ 452,000 of expected return on plan assets.

Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered” unionized employees.

Employees hired after December 31, 2000 are not eligible to participate in the Postretirement Plan.

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with contributions required at the same rate as active employees.

Benefit eligibility under the plan reduces at age 65 from a defined

Benefit eligibility under the plan declines at age 65 from a defined

benefit to a defined dollar cap based upon years of service.

As of December 31, 2020, the Postretirement Plan’s accumulated projected

benefit obligation was $5.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities.

The Company’s

As of December 31, 2020, the Postretirement Plan’s accumulated projected

benefit obligation was $ 5.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities.

The Company’s

funding policy is to make the minimum annual contribution required by applicable regulations.

For the three months ended March 31, 2021,

the Postretirement Plan’s net periodic expense was $42,000, comprised of $10,000 of interest cost, $26,000 of service cost and

$6,000 of amortization expense.

For the three months ended March 31, 2020, the Postretirement Plan’s net periodic expense was $59,000,

comprised of $38,000 of interest cost, $14,000 of service cost and $7,000 of amortization expense.

FAIR VALUE MEASUREMENTS.

the three months ended June 30, 2021, the Postretirement Plan’s net periodic expense was $ 42,000 , comprised of $ 10,000 of interest

cost, $ 26,000 of service cost and $ 6,000 of amortization expense.

For the three months ended June 30, 2020, the Postretirement Plan’s

net periodic expense was $ 59,000 , comprised of $ 38,000 of interest cost, $ 14,000 of service cost and $ 7,000 of amortization expense.

the six months ended June 30, 2021, the Postretirement Plan’s net periodic expense was $ 84,000 , comprised of $ 20,000 of interest

cost, $ 52,000 of service cost and $ 12,000 of amortization expense.

For the six months ended June 30, 2020, the Postretirement Plan’s

net periodic expense was $ 118,000 , comprised of $ 76,000 of interest cost, $ 28,000 of service cost and $ 14,000 of amortization expense.

VALUE MEASUREMENTS.

fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:

Observable inputs –

unadjusted quoted prices in active markets for identical

1 – Observable inputs – unadjusted quoted prices in active markets for identical

assets and liabilities;

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for the asset or liability through corroboration with market data;

Unobservable inputs –

includes amounts derived from valuation models where

3 – Unobservable inputs – includes amounts derived from valuation models where

one or more significant inputs are unobservable.

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inputs is required along with a reconciliation of Level 3 values from the prior reporting

separate accounts –

Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or

separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or

single mutual funds.

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therefore these funds are classified within Level 2 of the valuation hierarchy.

Assets Held-for-Sale –

The Company recorded its long-lived assets associated with its property and equipment held-for-sale

at fair value at March 31, 2021 and December 31, 2020 of $47,348,000 and $48,548,000, respectively.

Assets Held-for-Sale – The Company recorded its long-lived assets associated with its property and equipment held-for-sale

at fair value at June 30, 2021 and December 31, 2020 of $ 20,535,000 and $ 48,548,000 , respectively.

The fair values of these assets are

based on observable values for the assets through corroboration with market data and are designated as Level 3 inputs.

Derivative Instruments –

The Company’s other derivative instruments consist of commodity positions.

Derivative Instruments – The Company’s other derivative instruments consist of commodity positions.

The fair values

of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs.

following table summarizes recurring and nonrecurring fair value measurements by level at March 31, 2021 (in thousands):

financial instruments

assets held-for-sale

financial instruments

following table summarizes recurring and nonrecurring fair value measurements by level at June 30, 2021 (in thousands):

Derivative financial instruments

Long-lived assets held-for-sale

Derivative financial instruments

following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2020 (in thousands):

financial instruments

assets held-for-sale

benefit plan assets(1)

separate accounts):

International

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1) (pooled separate accounts):

Small/Mid U.S.

International Equity(4)

Fixed Income(5)

in other assets in the consolidated balance sheets.

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for the underlying investments is used to value the fund.

EARNINGS PER SHARE.

following tables compute basic and diluted earnings per share (in thousands, except per share data):

March 31, 2021

Net income attributed

to Alto Ingredients, Inc.

Three Months Ended June 30, 2021

Net income attributed to Alto Ingredients, Inc.

Preferred stock dividends

income per share:

available to common stockholders

Dilutive securities

income per share:

available to common stockholders

March 31, 2020

Net loss attributed

to Alto Ingredients, Inc.

Basic income per share: