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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-10 · 554 added, 565 removed, 122 unchanged (90% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and

analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included

elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated financial statements contain

forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and

objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might

earn if we are successful in implementing our business and growth strategies.

The forward-looking statements and associated risks may

include, relate to or be qualified by other important factors, including:

● fluctuations in the market prices of alcohols and essential ingredients;

● fluctuations in the costs of key production input commodities such as corn and natural gas;

● the projected growth or contraction in the alcohol and essential ingredients markets in which we operate;

● our strategies for expanding, maintaining or contracting our presence in these markets;

● anticipated trends in our financial condition and results of operations;

● our ability to distinguish ourselves from our current and future competitors.

You are cautioned not to place

undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a document incorporated

by reference, as of the date of that document.

We do not undertake to update, revise or correct any forward-looking statements, except

as required by law.

Any of the factors described

immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk Factors”

section below could cause our financial results, including our net income or loss or growth in net income or loss to differ materially

from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

We are a leading producer and marketer of specialty

alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States based on annualized volumes.

We operate six alcohol production

Three of our production facilities are located in the Midwestern state of Illinois and three of our facilities are located

in the Western states of California, Oregon and Idaho.

We are in the process of marketing our Stockton, California facility for sale.

following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated

financial statements included elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated

financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations,

including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate

and profits we might earn if we are successful in implementing our business and growth strategies.

The forward-looking statements and

associated risks may include, relate to or be qualified by other important factors, including:

● fluctuations

in the market prices of alcohols and essential ingredients;

● fluctuations

in the costs of key production input commodities such as corn and natural gas;

projected growth or contraction in the alcohol and essential ingredients markets in which

strategies for expanding, maintaining or contracting our presence in these markets;

● anticipated

trends in our financial condition and results of operations;

ability to distinguish ourselves from our current and future competitors.

are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the

case of a document incorporated by reference, as of the date of that document.

We do not undertake to update, revise or correct any forward-looking

statements, except as required by law.

of the factors described immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission

or in the “Risk Factors” section below could cause our financial results, including our net income or loss or growth in net

income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock

to fluctuate substantially.

are a leading producer and marketer of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in

the United States based on annualized volumes.

We operate five alcohol production facilities.

Three of our production facilities are located in the Midwestern state of Illinois and two of our facilities are located in the Western

states of Oregon and Idaho.

We have an annual alcohol production capacity of 350 million gallons.

We market all of the alcohols produced at our facilities as well

as fuel-grade ethanol produced by third parties.

In 2020, we marketed over 500 million gallons combined of our own alcohols as well as

fuel-grade ethanol produced by third parties, and nearly 1.5 million tons of essential ingredients on a dry matter basis.

We report our financial and operating performance

in three segments:

(1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols 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 our Pekin, Illinois campus, or Pekin Campus, and (3) Other production, which includes the

production and sale of fuel-grade ethanol and essential ingredients produced at all of our other production facilities on an aggregate

basis, none of which are individually so significant as to be considered a reportable segment.

Our mission is to expand our business as a leading

producer and marketer of specialty alcohols and essential ingredients.

We intend to accomplish this goal in part by investing in our specialized

and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients,

expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale

and by capturing a greater portion of the value stream.

Production Segments

We produce specialty alcohols, fuel-grade ethanol

and essential ingredients, focusing on four key markets:

We market all of the alcohols produced

at our facilities as well as fuel-grade ethanol produced by third parties.

In 2020, we marketed over 500 million gallons combined of

our own alcohols as well as fuel-grade ethanol produced by third parties, and nearly 1.5 million tons of essential ingredients on a dry

matter basis.

report our financial and operating performance in three segments:

(1) marketing and distribution, which includes marketing and merchant

trading for Company-produced alcohols 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 our Pekin, Illinois campus, or Pekin

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

all of our other production facilities on an aggregate basis, none of which are individually so significant as to be considered a reportable

mission is to expand our business as a leading producer and marketer of specialty alcohols and essential ingredients.

We intend to accomplish

this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding

production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international

markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on four key markets:

Health, Home & Beauty ;

2 unchanged sentences

and 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.

Our Renewable Fuels products include fuel-grade ethanol

and distillers corn oil used as a feedstock for renewable diesel fuel.

We produce our alcohols and essential ingredients

at our production facilities described below.

Our production facilities located in the Midwest are in the heart of the Corn Belt, benefit

from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international

markets via truck, rail or barge.

Our production facilities located on the West Coast are near their respective fuel and feed customers,

offering significant timing, transportation cost and logistical advantages.

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

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

Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

produce our alcohols and essential ingredients at our production facilities described below.

Our production facilities located in the

Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us

to provide our products to both domestic and international markets via truck, rail or barge.

Our production facilities located on the

West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.

We are currently operating at approximately

83% of our estimated maximum annual production capacity.

Our Magic Valley and Stockton facilities are currently idled.

As market conditions

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

Our Magic Valley facility is currently idled, however, we are preparing to

restart the facility during the fourth quarter.

As market conditions change, we may increase, decrease or idle production at one or

more operating facilities or resume operations at any idled facility.

Annual Production Capacity

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Specialty Alcohol

Marketing Segment

We market all of the alcohols and essential ingredients

we produce at our facilities.

We also market fuel-grade ethanol produced by third parties.

We have extensive and long-standing customer relationships,

both domestic and international, for our specialty alcohols and essential ingredients.

These customers include producers and distributors

of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of

personal health/consumer health and personal care hygiene products, and global trading firms.

Our fuel-grade ethanol customers are located throughout

the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into

Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the logistics and timing of delivery

with very little effort on their part.

Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce

at our facilities.

We secure additional fuel-grade ethanol supplies from third-party fuel-grade ethanol plants in California and other

third-party suppliers in the Midwest where a majority of fuel-grade ethanol producers are located.

We arrange for transportation, storage

and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service providers in the Western

United States as well as in the Midwest from a variety of sources.

We market our essential ingredient feed products

to dairies and feedlots, in many cases located near our production facilities.

These customers use our feed products for livestock as

a substitute for corn and other sources of starch and protein.

We sell our corn oil to poultry and biodiesel customers.

We do not market

essential ingredients from other producers.

See “Note 3 – Segments” to our

Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

Current Initiatives and Outlook

We achieved our fifth consecutive quarter of gross

profit and continue to reap the benefits of our new business focus on specialty alcohols and essential ingredients.

As part of our business

transformation, we continue to improve our balance sheet, invest in our production infrastructure, expand our product offerings and pursue

new long-term accretive growth opportunities.

We are expanding, deepening and strengthening our

relationships with key customers as a leading certified producer of a growing variety of specialty alcohols used in common everyday consumer

goods such as vinegars, spirits, mouthwash, cosmetics and cleaning products.

Through our integrated production and operations at our Pekin,

Illinois campus along with our enhanced certifications, we can provide surety of quality, supply and redundancy, all of which are material

differentiators among our growing base of product offerings.

We are well positioned through these and other distinctions as we begin the

contracting process for specialty alcohol volumes for 2022 and beyond.

We believe that we will improve utilization over time of our expanded

specialty alcohol production capacity.

We remain on track to

generate a minimum of $60 million in gross profit in 2021 from the sale of specialty alcohols under fixed-price contracts.

variables could materially impact this projected amount and our overall results, including export conditions, the ability of our customers to take all of their

contracted volumes for 2021, market demand for sanitizers and disinfectants, our ability to timely sell our Stockton, California

production facility, and fuel-grade ethanol crush margins.

In the second quarter, we closed the sale of our

fuel-grade ethanol facility in Madera, California.

As we continue our business transformation to further focus on specialty alcohols and

essential ingredients, our asset sale initiatives are now targeting our fuel-grade ethanol facility in Stockton, California and the remaining

assets of our non-operating facility in Canton, Illinois.

Our capital improvement projects are on-track and

directed at expanding revenue and increasing efficiencies and plant reliability.

Our yeast facility expansion and Pekin campus upgrade

projects are scheduled for completion and full operation by the third quarter with an expected payback in less than two years, or approximately

$5.0 million in additional annual earnings before interest, taxes, depreciation and amortization, or EBITDA.

We are also expanding our

annual corn oil production capacity at our Pekin campus by approximately 4,000 tons, which we estimate will contribute an additional $4.5

million in EBITDA annually.

This project is on-track for completion before year-end.

We have scheduled a mid-August repair and maintenance

shutdown of our Pekin campus wet mill.

This project is scheduled to occur during a period of choppy market conditions resulting from low

pre-harvest corn inventories and tight fuel-grade ethanol margins.

Lower revenues and higher repair and maintenance expenses resulting

from this project are expected to impact only the third quarter.

We do not anticipate any impact on our ability to meet our contractual

supply obligations for specialty alcohols or essential ingredients.

The net effect of this project will be improved efficiency and reliability

of our Pekin campus wet mill and better alignment of our production with market demand.

Looking ahead, among many other projects under

development is our plan to expand protein production at our dry-mill facilities, which collectively represent 250 million gallons of annual

production capacity.

We believe the economics of expanded protein production are compelling and would expect to achieve growth and greater

diversity in revenue as well as growth and higher quality of earnings.

Our Pekin Campus sits on the Mt.

Simon sandstone

formation, considered one of the most significant potential carbon storage resources in the United States.

As a member of the Carbon Capture

Coalition, we are actively engaged in discussions to develop a carbon capture and sequestration program at our Pekin site, which generates

over 600,000 tons of CO 2 annually, and expect to be an active player in the carbon capture space.

Over the past year, we have improved operations

and our production footprint to focus on our most profitable and strategic operations.

We have also repaired our balance sheet.

now pursuing opportunities to expand our business through enhanced service and product offerings and accretive vertical integration.

Critical Accounting Policies

The preparation of our financial

statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, requires

us to make judgments and estimates that may have a significant impact upon the portrayal of our financial condition and results of operations.

We believe that of our significant accounting policies, the following require estimates and assumptions that require complex, subjective

judgments by management that can materially impact the portrayal of our financial condition and results of operations:

market all of the alcohols and essential ingredients we produce at our facilities.

We also market fuel-grade ethanol produced by third

have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients.

These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers,

food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

fuel-grade ethanol customers are located throughout the Western and Midwestern United States and consist of integrated oil companies

and gasoline marketers who blend fuel-grade ethanol into gasoline.

Our customers depend on us to provide a reliable supply of fuel-grade

ethanol and manage the logistics and timing of delivery with very little effort on their part.

Our customers collectively require fuel-grade

ethanol volumes in excess of the supplies we produce at our facilities.

We secure additional fuel-grade ethanol supplies from third-party

fuel-grade ethanol producers.

We arrange for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through

our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of sources.

market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities.

These customers

use our feed products for livestock as a substitute for corn and other sources of starch and protein.

We sell our corn oil to poultry

and biodiesel customers.

We do not market essential ingredients from other producers.

“Note 3 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial

information about our business segments.

Initiatives and Outlook

We made significant progress advancing our strategic

initiatives in the third quarter by expanding our essential ingredients business and investing in infrastructure improvements.

to quarter-end, we also completed the realignment of our business.

In September, we launched our first project to

produce enhanced protein at our dry mill in Magic Valley, Idaho by installing Harvesting Technology’s patented CoPromax TM

We chose this facility because of its location near cattle, poultry, pork and acquaculture markets to serve the growing demand

for high protein feed.

We plan to restart production at this facility by year-end and commission the new system in the first half of 2022.

Once completed, we expect the CoPromax system to produce over 33,000 tons of feed annually with a protein content greater than 50%.

system will also increase corn oil yields by 50% to nearly 9.0 million pounds annually.

We expect the combination of additional sales

of corn oil and premium prices from high protein feed to contribute earnings before interest, taxes, depreciation and amortization, or

EBITDA, of over $9.0 million annually based on current market prices, of which we expect a contribution of $5.0 million of EBITDA in 2022.

We plan to roll out the CoPromax system at our

three other dry mills following its successful installation at our Magic Valley facility.

Assuming similar economics across all four dry

mills, we conservatively estimate that the systems will contribute EBITDA of $40.0 million annually, including additional EBITDA of $34.0

million in 2023 or 2024, or both.

This initiative is one example of our efforts to grow and diversify our revenues and bolster the quantity

and quality of our earnings.

In the third quarter, we completed our yeast facility

expansion project.

Our additional yeast production is fully contracted for sale through 2022.

We expect to complete our feed dryer upgrades

and achieve their full operation by year-end.

Beginning in 2022, we anticipate that our yeast facility expansion and feed dryer upgrade

projects will contribute EBITDA of approximately $5.0 million annually.

We also completed the expansion of our annual corn oil production

capacity by 4,000 tons at our Pekin campus, which we expect will contribute EBITDA of approximately $4.5 million annually starting in

In addition to our yeast facility expansion, we are pursuing opportunities to expand our yeast product offerings to include higher

quality, more versatile products marketable to the food industry.

We have completed the repair and maintenance shutdown,

and infrastructure upgrade, of our Pekin campus wet mill.

We upgraded the facility’s electrical infrastructure, improved redundancy

in the facility’s cooling supply, and replaced condensers and pumps.

This project has significantly improved the efficiency and

reliability of the facility’s production capabilities to further support customer demand long-term.

The project has also extended

our planned outage schedule to 24-month intervals.

The facility shutdown occurred during a period of volatile market conditions and reduced

revenues and increased operating costs, resulting in a net loss for the third quarter.

Following its restart, our Pekin campus wet mill

returned to profitable operations in September.

We continue to work with new and existing customers

to act as their certified producer of a growing variety of specialty alcohols used in common, everyday consumer goods, such as vinegars,

spirits, mouthwash, cosmetics and cleaning supplies.

To proactively address our customers’ growing needs, we are extending to our

Pekin wet mill the certifications we obtained in 2020 for our ICP facility.

We expect to complete these certifications by year-end, which

will provide redundancy across our entire Pekin campus as well as further quality assurances to our customers.

Due to volatile commodity prices, customers are

taking a more measured approach to contracting annual specialty alcohol volumes for 2022 as compared to prior years.

As a result, we expect

contract negotiations to extend through the rest of 2021.

Nevertheless, we expect to contract for more specialty alcohol gallons in 2022

than in 2021.

In November, we completed the sale of our idled

fuel-grade ethanol facility in Stockton, California for $24 million in cash.

We retained the right to service our regional customer needs

by using the facility’s terminal capabilities.

We will also act as the facility’s exclusive marketer of fuel-grade ethanol

when production resumes.

The sale of our Stockton facility and the earlier sale of our Madera, California facility collectively remove

approximately $4.0 million in annual negative EBITDA carrying costs for the idled facilities.

The sale of our Stockton facility completes

the realignment, which began over 21 months ago, of our business.

This realignment has contributed significantly to the repayment of approximately

$150.0 million in debt, achieving our goal of repayment by the end of 2021.

Retiring this debt has also eliminated over $16.0 million

in annual interest expense and has removed the structural and financial impediments that contributed to our prior financial challenges.

In total, we expect our capital improvement projects

and cost savings from the realignment of our business to contribute $18.5 million of EBITDA in 2022 compared to 2021.

We anticipate full-year 2021 gross profit, on a

consolidated basis, of at least $40.0 million, excluding any fourth quarter impact from derivatives.

Many variables could materially impact

this projected amount and our overall results, including highly volatile commodity prices, export conditions, and abnormally high logistical

costs, including corn basis.

Given unusually high positive short-term spreads in fuel-grade ethanol and corn, we have begun locking in

margins for our fuel-grade ethanol production through year-end.

Moreover, given the volatility we experienced in 2021 in the commodity

markets, we have elected to lock in our utility costs for the next twelve months and lock in other variable input costs, including corn,

through the first quarter of 2022 to mitigate risk.

We plan to reinvest in sustainable and profitable

business segments, strengthening our core operations and further diversifying our product offerings in specialty alcohols and essential

In addition, we remain actively engaged with third parties to develop a carbon capture and sequestration program at our Pekin

campus, which remains an important opportunity, especially given the tax credit enhancements for carbon capture and sequestration included

in the Infrastructure Investment and Jobs Act.

Finally, we are actively pursuing opportunities to extend our specialty alcohol business

through accretive vertical integration.

Use of Non-GAAP Measures

Management believes that certain financial measures not in accordance

with generally accepted accounting principles (“GAAP”) are useful measures of operations.

The company defines EBITDA as unaudited

net income (loss) attributed to Alto Ingredients, Inc.

before interest expense, provision (benefit) for income taxes, and depreciation

and amortization expense.

Management provides this non-GAAP measure so that investors will have the same financial information that management

uses, which may assist investors in properly assessing the company’s performance on a period-over-period basis.

EBITDA is not a

measure of financial performance under GAAP and should not be considered as an alternative to net income (loss) attributed to Alto Ingredients,

or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator

of cash flows or as a measure of liquidity.

EBITDA has limitations as an analytical tool and you should not consider this measure in isolation

or as a substitute for analysis of our results as reported under GAAP.

Information reconciling forward-looking EBITDA to forward-looking net income

(loss) attributed to Alto Ingredients, Inc.

would require a forward-looking statement of net income (loss) attributed to Alto Ingredients,

prepared in accordance with GAAP, which is unavailable to us without unreasonable effort.

We are not able to provide a quantitative

reconciliation of forward-looking EBITDA to forward-looking net income (loss) attributed to Alto Ingredients, Inc.

because items required

for reconciliation are uncertain, outside of our control and/or cannot be reasonably predicted, such as provision (benefit) for income

taxes and net income (loss), that are not presently estimable.

Accounting Policies

preparation of our financial statements, which have been prepared in accordance with accounting principles generally accepted in the

United States of America, requires us to make judgments and estimates that may have a significant impact upon the portrayal of our financial

condition and results of operations.

We believe that of our significant accounting policies, the following require estimates and assumptions

that require complex, subjective judgments by management that can materially impact the portrayal of our financial condition and results

of operations:

revenue recognition;

impairment of long-lived assets and held-for-sale classification;

valuation of allowance for deferred taxes and derivative instruments.

These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition

and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31,

Results of Operations

The following selected financial

information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements

included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” contained in this report.

Certain performance metrics

that we believe are important indicators of our results of operations include:

valuation of allowance for deferred

taxes and derivative instruments.

These significant accounting principles are more fully described in “Management’s Discussion

and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form

10-K for the year ended December 31, 2020.

of Operations

following selected financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated

financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” contained in this report.

performance metrics that we believe are important indicators of our results of operations include:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Fuel-grade ethanol production gallons sold (in millions)

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Essential ingredients revenues as % of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT fuel-grade ethanol price per gallon

Average CBOT corn price per bushel

(1) Corn basis represents the difference between the immediate cash price of delivered corn and the future price

of corn for Chicago delivery.

(2) Essential ingredients revenues as a percentage of delivered cost of corn shows our yield based on sales of

essential ingredients, including wet distillers grains and corn oil, generated from alcohol we produced.

Net Sales, Cost of

Goods Sold and Gross Profit

The following table presents

our net sales, cost of goods sold and gross profit in dollars and gross profit as a percentage of net sales (in thousands, except percentages):

basis represents the difference between the immediate cash price of delivered corn and the

future price of corn for Chicago delivery.

(2) Essential

ingredients revenues as a percentage of delivered cost of corn shows our yield based on sales

of essential ingredients, including wet distillers grains and corn oil, generated from alcohol

Sales, Cost of Goods Sold and Gross Profit (Loss)

following table presents our net sales, cost of goods sold and gross profit (loss) in dollars and gross profit as a percentage of

net sales (in thousands, except percentages):

Three Months Ended

Six Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Percentage of net sales

The increase in our consolidated

net sales for the three months ended June 30, 2021 as compared to the same period in 2020 was primarily due to an increase in our average

sales price per gallon, partially offset by a decrease in our total gallons sold.

Our production gallons

sold and our volume of essential ingredients sold increased for the three months ended June 30, 2021 as compared to the same period

in 2020 primarily due to the operation of our Pekin dry mill in the second quarter of 2021 which was idled during the second quarter

of 2020 because of the Illinois River closure.

Our third-party gallons sold declined as compared to the same period in 2020 because

we focused our efforts on selling our own fuel-grade ethanol production.

The decline in our consolidated

net sales for the six months ended June 30, 2021 as compared to the same period in 2020 was primarily due to a reduction in our total

gallons sold and lower sales of essential ingredients, partially offset by an increase in our average sales price per gallon.

Our production gallons, our

third-party gallons and our volume of essential ingredients sold declined for the six months ended June 30, 2021 as compared to the same

period in 2020 due to an intentional reduction in our production of fuel-grade ethanol in the first quarter of 2020 because of adverse

market conditions.

In addition, the prior year period includes gallons associated with our production facilities that have since been

idled and/or sold.

Three Months Ended June

30, 2021 and 2020

On a consolidated basis,

our average sales price per gallon increased by 52% to $2.41 for the three months ended June 30, 2021 as compared to $1.59 for the

same period in 2020.

The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, increased 113% to $2.30 for

the three months ended June 30, 2021 as compared to $1.08 for the same period in 2020.

Marketing Segment

Net sales of fuel-grade ethanol from our marketing

segment reported gross, excluding intersegment sales, increased by $15.4 million, or 22%, to $86.8 million for the three months ended

June 30, 2021 as compared to $71.4 million for the same period in 2020.

Our volume of third party fuel-grade ethanol gallons

sold reported gross by our marketing segment declined by 20.1 million gallons, or 38%, to 33.4 million gallons for the three months ended

June 30, 2021 as compared to 53.5 million gallons for the same period in 2020.

At our marketing segment’s average sales price per

gallon of $2.58 for the three months ended June 30, 2021, we generated $51.9 million less in net sales from our marketing segment from

the 20.1 million fewer gallons of third-party fuel-grade ethanol sold gross in the three months ended June 30, 2021 as compared to the

same period in 2020.

The $1.25 per gallon, or 94%, increase in our marketing

segment’s average sales price per gallon for the three months ended June 30, 2021 as compared to the same period in 2020 resulted

in a $67.1 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing segment.

Our volume of third

party fuel-grade ethanol gallons sold reported net by our marketing segment increased by 5.5 million gallons, or 27%, to 25.9

million gallons for the three months ended June 30, 2021 as compared to 20.4 million gallons for the same period in 2020.

increase in third-party fuel-grade ethanol gallons sold reported net increased net sales by $0.2 million.

Pekin Campus Production Segment

Net sales of alcohol from our

Pekin Campus production segment increased by $37.8 million, or 40%, to $132.3 million for the three months ended June 30, 2021 as compared

to $94.5 million for the same period in 2020.

Our total volume of production gallons sold increased by 7.2 million gallons, or 14%, to

57.5 million gallons for the three months ended June 30, 2021 as compared to 50.3 million gallons for the same period in 2020.

Pekin Campus production segment’s average sales price per gallon of $2.30 for the three months ended June 30, 2021, we generated

$16.6 million in additional net sales from our Pekin Campus production segment from the 7.2 million additional gallons of alcohol sold

in the three months ended June 30, 2021 as compared to the same period in 2020.

The increase of $0.42, or 22%, in our Pekin Campus production

segment’s average sales price per gallon in the three months ended June 30, 2021 as compared to the same period in 2020 improved

our net sales from our Pekin Campus production segment by $21.2 million.

Net sales of essential

ingredients increased by $16.0 million, or 48%, to $49.6 million for the three months ended June 30, 2021 as compared to $33.6

million for the same period in 2020.

Our total volume of essential ingredients sold increased by 17,800 tons, or 9%, to 222,200 tons

for the three months ended June 30, 2021 from 204,400 tons for the same period in 2020.

At our average sales price per ton of

$223.12 for the three months ended June 30, 2021, we generated an additional $4.0 million in net sales from the 17,800

additional tons of essential ingredients sold in the three months ended June 30, 2021 as compared to the same period in 2020.

increase of $58.58, or 36%, in our average sales price per ton for the three months ended June 30, 2021 as compared to the same

period in 2020 increased our net sales from our Pekin Campus production segment by $12.0 million.

Other Production Segment

Net sales of alcohol

from our other production segment increased by $12.4 million, or 127%, to $22.2 million for the three months ended June 30, 2021 as

increase in our consolidated net sales for the three months ended September 30, 2021 as compared to the same periods in 2020 was primarily

due to an increase in our average sales price per gallon and in our production gallons sold.

production gallons and our volume of essential ingredients sold increased for the three months ended September 30, 2021 as compared to

the same period in 2020 primarily due to the operation of our Pekin dry mill in the third quarter of 2021, which was idled during the

same period in 2020 due to significant logistical constraints arising from closure of the Illinois River for lock repairs, and continued

contract sales of our specialty alcohols.

Our third-party gallons sold declined as compared to the same period in 2020 because we focused

our efforts on selling our own fuel-grade ethanol production.

increase in our consolidated net sales for the nine months ended September 30, 2021 as compared to the same period in 2020 was primarily

due to an increase in our average sales price per gallon, partially offset by a decrease in our total gallons sold.

production gallons, our third-party gallons and our volume of essential ingredients sold declined for the nine months ended September

30, 2021 as compared to the same period in 2020 due to an intentional reduction in our production and sale of fuel-grade ethanol as we

continued our focus on more profitable operations.

In addition, the prior year period includes gallons associated with our production

facilities that have since been idled and/or sold.

Moreover, we produced and sold fewer gallons of specialty alcohols due to lower spot

sales in 2021 compared to 2020 as demand has abated in 2021 for sanitizers and disinfectants.

Months Ended September 30, 2021 and 2020

a consolidated basis, our average sales price per gallon increased by 44% to $2.47 for the three months ended September 30, 2021 as compared

to $1.71 for the same period in 2020.

The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, increased 77%

to $2.25 for the three months ended September 30, 2021 as compared to $1.27 for the same period in 2020.

sales of fuel-grade ethanol from our marketing segment reported gross, excluding intersegment sales, increased by $28.4 million, or 34%,

to $112.4 million for the three months ended September 30, 2021 as compared to $84.0 million for the same period in 2020.

volume of third party fuel-grade ethanol gallons sold reported gross by our marketing segment declined by 8.5 million gallons, or 17%,

to 43.0 million gallons for the three months ended September 30, 2021 as compared to 51.5 million gallons for the same period in 2020.

At our marketing segment’s average sales price per gallon of $2.61 for the three months ended September 30, 2021, we generated

$22.2 million less in net sales from our marketing segment from the 8.5 million fewer gallons of third-party fuel-grade ethanol sold

gross in the three months ended September 30, 2021 as compared to the same period in 2020.

$0.98 per gallon, or 60%, increase in our marketing segment’s average sales price per gallon for the three months ended September

30, 2021 as compared to the same period in 2020 resulted in a $51.0 million increase in our net sales from third-party fuel-grade ethanol

sold reported gross by our marketing segment.

volume of third party fuel-grade ethanol gallons sold reported net by our marketing segment decreased by 1.0 million gallons, or 4%,

to 24.2 million gallons for the three months ended September 30, 2021 as compared to 25.2 million gallons for the same period in 2020.

The decrease in third-party fuel-grade ethanol gallons sold reported net decreased net sales by $0.4 million.

Campus Production Segment

sales of alcohol from our Pekin Campus production segment increased by $37.5 million, or 49%, to $114.6 million for the three months

ended September 30, 2021 as compared to $77.1 million for the same period in 2020.

Our total volume of production gallons sold increased

by 12.7 million gallons, or 35%, to 49.2 million gallons for the three months ended September 30, 2021 as compared to 36.5 million gallons

for the same period in 2020.

At our Pekin Campus production segment’s average sales price per gallon of $2.33 for the three months

ended September 30, 2021, we generated $29.6 million in additional net sales from our Pekin Campus production segment from the 12.7 million

additional gallons of alcohol sold in the three months ended September 30, 2021 as compared to the same period in 2020.

of $0.22, or 10%, in our Pekin Campus production segment’s average sales price per gallon in the three months ended September 30,

2021 as compared to the same period in 2020 improved our net sales from our Pekin Campus production segment by $7.9 million.

sales of essential ingredients increased by $18.4 million, or 67%, to $46.0 million for the three months ended September 30, 2021 as

compared to $27.6 million for the same period in 2020.

Our total volume of gallons sold increased by 1.6 million gallons, or 24%, to

8.2 million gallons for the three months ended June 30, 2021 as compared to 6.6 million gallons for the same period in 2020.

other production segment’s average sales price per gallon of $2.70 for the three months ended June 30, 2021, we generated an

additional $4.4 million in net sales from our other production segment from the 1.6 million additional gallons of alcohol

sold in the three months ended June 30, 2021 as compared to the same period in 2020.

Our total volume of essential ingredients sold increased by 44,100 tons, or 24%,

to 227,300 tons for the three months ended September 30, 2021 from 183,200 tons for the same period in 2020.

At our average sales price

per ton of $202.45 for the three months ended September 30, 2021, we generated an additional $8.9 million in net sales from the 44,100

additional tons of essential ingredients sold in the three months ended September 30, 2021 as compared to the same period in 2020.

increase of $51.69, or 34%, in our average sales price per ton for the three months ended September 30, 2021 as compared to the same

period in 2020 increased our net sales from our Pekin Campus production segment by $9.5 million.

Production Segment

sales of alcohol from our other production segment increased by $13.4 million, or 114%, to $25.2 million for the three months ended September

30, 2021 as compared to $11.8 million for the same period in 2020.

Our total volume of gallons sold increased by 1.8 million gallons,

or 26%, to 8.8 million gallons for the three months ended September 30, 2021 as compared to 7.0 million gallons for the same period in

At our other production segment’s average sales price per gallon of $2.86 for the three months ended September 30, 2021,

we generated an additional $5.1 million in net sales from our other production segment from the 1.8 million additional gallons of alcohol

sold in the three months ended September 30, 2021 as compared to the same period in 2020.

The increase of $1.18, or 70%, in our other

production segment’s average sales price per gallon for the three months ended June 30, 2021 as compared to the same period in

2020 improved our net sales from our other production segment by $8.0 million.

Net sales of essential

ingredients increased by $4.6 million, or 170%, to $7.3 million for the three months ended June 30, 2021 as compared to $2.7 million

for the same period in 2020.

Our total volume of essential ingredients sold increased by 36,100 tons, or 79%, to 81,800 tons for the

three months ended June 30, 2021 from 45,700 tons for the same period in 2020.

At our average sales price per ton of $88.66 for the

three months ended June 30, 2021, we generated an additional $3.2 million in net sales from the 36,100 additional tons of essential

ingredients sold in the three months ended June 30, 2021 as compared to the same period in 2020.

The increase of $29.95, or 51%, in

our average sales price per ton for the three months ended June 30, 2021 as compared to the same period in 2020 increased our net

sales from our other production segment by $1.4 million.

Six Months Ended June

production segment’s average sales price per gallon for the three months ended September 30, 2021 as compared to the same period

in 2020 improved our net sales from our other production segment by $8.3 million.

sales of essential ingredients increased by $3.0 million, or 77%, to $6.9 million for the three months ended September 30, 2021 as compared

to $3.9 million for the same period in 2020.

Our total volume of essential ingredients sold increased by 6,000 tons, or 8%, to 78,300

tons for the three months ended September 30, 2021 from 72,300 tons for the same period in 2020.

At our average sales price per ton of

$87.70 for the three months ended September 30, 2021, we generated an additional $0.5 million in net sales from the 6,000 additional

tons of essential ingredients sold in the three months ended September 30, 2021 as compared to the same period in 2020.

of $33.97, or 63%, in our average sales price per ton for the three months ended September 30, 2021 as compared to the same period in

2020 increased our net sales from our other production segment by $2.5 million.

Nine Months Ended September

30, 2021 and 2020

On a consolidated basis,

our average sales price per gallon increased by 40% to $2.17 for the six months ended June 30, 2021 as compared to $1.55 for the

same period in 2020.

The average CBOT fuel-grade ethanol price per gallon, increased by 72% to $2.00 for the six months ended June

On a consolidated basis, our

average sales price per gallon increased by 42% to $2.27 for the nine months ended September 30, 2021 as compared to $1.60 for the same

period in 2020.

The average CBOT fuel-grade ethanol price per gallon, increased by 73% to $2.08 for the nine months ended September 30,

2021 as compared to $1.20 for the same period in 2020.

Marketing Segment

Net sales of fuel-grade

ethanol from our marketing segment reported gross, excluding intersegment sales, increased by $14.9 million, or 12%, to $144.3

million for the six months ended June 30, 2021 as compared to $129.4 million for the same period in 2020.

Net sales of fuel-grade ethanol from our marketing

segment reported gross, excluding intersegment sales, increased by $43.1 million, or 20%, to $255.7 million for the nine months ended

September 30, 2021 as compared to $212.6 million for the same period in 2020.

Our volume of third party

fuel-grade ethanol gallons sold reported gross by our marketing segment declined by 35.7 million gallons, or 26%, to 103.2 million

gallons for the nine months ended September 30, 2021 as compared to 138.9 million gallons for the same period in 2020.

marketing segment’s average sales price per gallon of $2.48 for the nine months ended September 30, 2021, we generated $88.5

million less in net sales from our marketing segment from the 35.7 million fewer gallons of third-party fuel-grade ethanol sold

reported gross in the nine months ended September 30, 2021 as compared to the same period in 2020.

The $0.95 per gallon, or 62%, increase in our

marketing segment’s average sales price per gallon for the nine months ended September 30, 2021 as compared to the same period

in 2020 resulted in a $131.6 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing

Our volume of third party fuel-grade ethanol gallons

sold reported gross by our marketing segment declined by 27.3 million gallons, or 31%, to 60.1 million gallons for the six months ended

June 30, 2021 as compared to 87.4 million gallons for the same period in 2020.

At our marketing segment’s average sales price per

gallon of $2.38 for the six months ended June 30, 2021, we generated $65.1 million less in net sales from our marketing segment from the

27.3 million fewer gallons of third-party fuel-grade ethanol sold gross in the six months ended June 30, 2021 as compared to the same

period in 2020.

The $0.91 per gallon, or 62%, increase in our marketing

segment’s average sales price per gallon for the six months ended June 30, 2021 as compared to the same period in 2020 resulted

in a $79.8 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing segment.

Our volume of third

party fuel-grade ethanol gallons sold reported net by our marketing segment increased by 4.3 million gallons, or 9%, to 53.2 million

gallons for the six months ended June 30, 2021 as compared to 48.9 million gallons for the same period in 2020.

The increase in

third-party fuel-grade ethanol gallons sold reported net increased net sales by $0.2 million.

Pekin Campus Production Segment

sold reported net by our marketing segment increased by 3.2 million gallons, or 4%, to 77.3 million gallons for the nine months ended

September 30, 2021 as compared to 74.1 million gallons for the same period in 2020.

The increase in third-party fuel-grade ethanol gallons

sold reported net increased net sales by $0.4 million.

Pekin Campus Production

Net sales of alcohol from our

Pekin Campus production segment increased by $48.7 million, or 27%, to $227.4 million for the six months ended June 30, 2021 as compared

to $178.7 million for the same period in 2020.

Our total volume of production gallons sold declined by 23.7 million gallons, or 18%, to

108.1 million gallons for the six months ended June 30, 2021 as compared to 131.8 million gallons for the same period in 2020.

Pekin Campus production segment’s average sales price per gallon of $2.10 for the six months ended June 30, 2021, we generated $49.9

million less in net sales from our Pekin Campus production segment from the 23.7 million fewer gallons of alcohol sold in the six months

ended June 30, 2021 as compared to the same period in 2020.

The increase of $0.75, or 55%, in our Pekin Campus production segment’s

average sales price per gallon in the six months ended June 30, 2021 as compared to the same period in 2020 improved our net sales from

our Pekin Campus production segment by $98.6 million.

Pekin Campus production segment increased by $86.3 million, or 34%, to $342.0 million for the nine months ended September 30, 2021 as

compared to $255.7 million for the same period in 2020.

Our total volume of production gallons sold increased by 12.7 million gallons,

or 9%, to 157.4 million gallons for the nine months ended September 30, 2021 as compared to 144.7 million gallons for the same period

At our Pekin Campus production segment’s average sales price per gallon of $2.17 for the nine months ended September 30,

2021, we generated $27.6 million additional net sales from our Pekin Campus production segment from the 12.7 million additional gallons

of alcohol sold in the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase of $0.41, or 23%, in

our Pekin Campus production segment’s average sales price per gallon in the nine months ended September 30, 2021 as compared to

the same period in 2020 improved our net sales from our Pekin Campus production segment by $58.7 million.

Net sales of essential ingredients

increased by $21.2 million, or 29%, to $94.7 million for the six months ended June 30, 2021 as compared to $73.5 million for the same

period in 2020.

Our total volume of essential ingredients sold declined by 21,900 tons, or 5%, to 433,700 tons for the six months ended

June 30, 2021 from 455,600 tons for the same period in 2020.

At our average sales price per ton of $218.25 for the six months ended June

30, 2021, we generated $4.8 million less in net sales from the 21,900 fewer tons of essential ingredients sold in the six months ended

June 30, 2021 as compared to the same period in 2020.

The increase of $56.92, or 35%, in our average sales price per ton for the six months

ended June 30, 2021 as compared to the same period in 2020 increased our net sales from our Pekin Campus production segment by $26.0 million.

increased by $39.6 million, or 39%, to $140.7 million for the nine months ended September 30, 2021 as compared to $101.1 million for

the same period in 2020.

Our total volume of essential ingredients sold increased by 22,100 tons, or 4%, to 660,900 tons for the nine

months ended September 30, 2021 from 638,800 tons for the same period in 2020.

At our average sales price per ton of $212.85 for the

nine months ended September 30, 2021, we generated $4.7 million in additional net sales from the 22,100 additional tons of essential

ingredients sold in the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase of $54.54, or 35%,

in our average sales price per ton for the nine months ended September 30, 2021 as compared to the same period in 2020 increased our

net sales from our Pekin Campus production segment by $34.9 million.

Other Production Segment

Net sales of alcohol from our

other production segment declined by $70.9 million, or 65%, to $38.1 million for the six months ended June 30, 2021 as compared to $109.0

million for the same period in 2020.

Our total volume of gallons sold declined by 32.0 million gallons, or 67%, to 15.6 million gallons

for the six months ended June 30, 2021 as compared to 47.6 million gallons for the same period in 2020.

At our other production segment’s

average sales price per gallon of $2.44 for the six months ended June 30, 2021, we generated $78.2 million less in net sales from the

32.0 million fewer gallons of alcohol sold in the six months ended June 30, 2021 as compared to the same period in 2020.

of $0.15, or 7%, in our other production segment’s average sales price per gallon for the six months ended June 30, 2021 as compared

to the same period in 2020 improved our net sales from our other production segment by $7.3 million.

Net sales of essential

ingredients declined by $20.5 million, or 62%, to $12.4 million for the six months ended June 30, 2021 as compared to $32.9 million

for the same period in 2020.

Our total volume of essential ingredients sold declined by 319,200 tons, or 68%, to 147,200 tons

for the six months ended June 30, 2021 from 466,400 tons for the same period in 2020.

At our average sales price per ton of $84.21

for the six months ended June 30, 2021, we generated $26.9 million less in net sales from the 319,200 fewer tons of

essential ingredients sold in the six months ended June 30, 2021 as compared to the same period in 2020.

The increase of $13.62, or

19%, in our average sales price per ton for the six months ended June 30, 2021 as compared to the same period in 2020 increased our

net sales from our other production segment by $6.4 million.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit declined to $15.2

million, representing a gross profit margin of 5.1%, for the three months ended June 30, 2021 compared to $31.2 million, representing

a gross profit margin of 14.7%, for the same period in 2020.

Our gross profit and gross profit margin declined primarily due to significantly

higher margins during the three months ended June 30, 2020 from spot sales of our high quality alcohol used in sanitizers and disinfectants

which experienced unprecedented demand in the quarter.

Our consolidated gross

profit improved to $29.1 million, representing a gross profit margin of 5.6%, for the six months ended June 30, 2021 compared to

$18.3 million, representing a gross profit margin of 3.5%, for the same period in 2020.

Our gross profit and gross profit margin

improved primarily due to a greater proportion of higher margin fixed-price contract sales of our high quality alcohol for the six

months ended June 30, 2021 as compared to the first six months of 2020 during which we experienced an extreme negative margin

environment for fuel-grade ethanol.

Three Months Ended June

other production segment declined by $57.5 million, or 48%, to $63.3 million for the nine months ended September 30, 2021 as compared

to $120.8 million for the same period in 2020.

Our total volume of gallons sold declined by 53.9 million gallons, or 69%, to 24.3 million

gallons for the nine months ended September 30, 2021 as compared to 78.2 million gallons for the same period in 2020.

At our other production

segment’s average sales price per gallon of $2.61 for the nine months ended September 30, 2021, we generated $140.4 million less

in net sales from the 53.9 million fewer gallons of alcohol sold in the nine months ended September 30, 2021 as compared to the same

period in 2020.

The increase of $1.06, or 68%, in our other production segment’s average sales price per gallon for the nine months

ended September 30, 2021 as compared to the same period in 2020 improved our net sales from our other production segment by $82.9 million.

Net sales of essential ingredients declined by

$17.5 million, or 48%, to $19.3 million for the nine months ended September 30, 2021 as compared to $36.8 million for the same period

Our total volume of essential ingredients sold declined by 313,100 tons, or 58%, to 225,600 tons for the nine months ended September

30, 2021 from 538,700 tons for the same period in 2020.

At our average sales price per ton of $85.38 for the nine months ended September

30, 2021, we generated $26.7 million less in net sales from the 313,100 fewer tons of essential ingredients sold in the nine months ended

September 30, 2021 as compared to the same period in 2020.

The increase of $17.05, or 25%, in our average sales price per ton for the

nine months ended September 30, 2021 as compared to the same period in 2020 increased our net sales from our other production segment

by $9.2 million.

Cost of Goods Sold

and Gross Profit (Loss)

Our consolidated gross profit (loss) declined

to a loss of $3.4 million, representing a negative gross margin of 1.1%, for the three months ended September 30, 2021

compared to gross profit of $20.9 million, representing a gross profit margin of 10.2%, for the same period in 2020.

consolidated gross profit declined to $25.7 million, representing a gross profit margin of 3.1%, for the nine months ended September

30, 2021 compared to $39.2 million, representing a gross profit margin of 5.4%, for the same period in 2020.

Our gross profit and gross profit margin declined

for the three and nine months ended September 30, 2021 primarily due to an increase in corn and basis costs as well as costs associated

with the shutdown of our Pekin wet mill for planned maintenance and upgrades as well as significantly higher margins during the three

and nine months ended September 30, 2020 from spot sales of our specialty alcohol used in sanitizers and disinfectants which experienced

unprecedented demand in 2020.

In addition, while demand and prices for certain essential ingredients increased, industry-wide coproduct

prices have, on average, lagged the rise in corn prices, resulting in declining coproduct returns for 2021 as compared to 2020.

Three Months Ended September

30, 2021 and 2020

Marketing Segment

Our marketing segment’s gross profit declined

by $1.4 million to $1.4 million for the three months ended June 30, 2021 as compared to $2.8 million for the same period in 2020.

reduction, $0.9 million is attributable to lower marketing volumes of third-party fuel-grade ethanol and $0.5 million is attributable

to lower margins from sales of third-party fuel-grade ethanol for the three months ended June 30, 2021 as compared to the same period

Our marketing segment’s gross profit increased

by $7.0 million to $7.3 million for the three months ended September 30, 2021 as compared to $0.3 million for the same period in 2020.

Of this improvement, $8.5 million is attributable to higher margins from sales of third-party fuel-grade ethanol partially offset by

$1.5 million attributable to lower marketing volumes of third-party fuel-grade ethanol for the three months ended September 30, 2021

as compared to the same period in 2020.

Pekin Campus Production Segment

Our Pekin Campus

production segment’s gross profit declined by $22.6 million to a gross profit of $11.6 million for the three months ended June

30, 2021 as compared to $34.2 million for the same period in 2020.

Of this decline, $24.0 million is attributable to lower margins

from our specialty alcohols, partially offset by $1.4 million in additional gross profit attributable to increased sales volumes in

the three months ended June 30, 2021 as compared to the same period in 2020.

Our Pekin Campus production segment’s gross

profit declined by $32.9 million to a gross loss of $7.2 million for the three months ended September 30, 2021 as compared to gross profit

of $25.7 million for the same period in 2020.

Of this decline, $31.0 million is attributable to higher costs and resulting lower margins

and $1.9 million is attributable to decreased sales volumes in the three months ended September 30, 2021 as compared to the same period

Costs were higher primarily due to the shutdown of our Pekin wet mill

for maintenance and upgrades as well as higher corn costs.

Other Production Segment

Our other production

segment’s gross profit improved by $8.0 million to a gross profit of $2.2 million for the three months ended June 30, 2021 as

compared to a gross loss of $5.8 million for the same period in 2020.

Of this improvement, $7.6 million is attributable to higher

margins for fuel-grade ethanol and $0.4 million is attributable to increased volumes of fuel-grade ethanol for the three months

ended June 30, 2021 as compared to the same period in 2020.

Six Months Ended June

Our other production segment’s gross profit

improved by $1.5 million to a gross loss of $3.5 million for the three months ended September 30, 2021 as compared to a gross loss of

$5.0 million for the same period in 2020.

Of this improvement, $2.2 million is attributable to higher margins for fuel-grade ethanol,

partially offset by $0.7 million attributable to decreased operating costs of plants idled and/or sold during the three months ended

September 30, 2021 as compared to the same period in 2020.

Nine Months Ended September

30, 2021 and 2020

1 unchanged sentence

Our marketing segment’s gross profit improved

by $1.4 million to $5.3 million for the six months ended June 30, 2021 as compared to $3.9 million for the same period in 2020.

improvement, $3.8 million is attributable to higher margins from sales of third-party fuel-grade ethanol, partially offset by $2.4 million

less in gross profit attributable to lower marketing volumes of third-party fuel-grade ethanol for the six months ended June 30, 2021

as compared to the same period in 2020.

by $8.4 million to $12.4 million for the nine months ended September 30, 2021 as compared to $4.0 million for the same period in 2020.

Of this improvement, $12.8 million is attributable to higher margins from sales of third-party fuel-grade ethanol, partially offset by

$4.4 million less in gross profit attributable to lower marketing volumes of third-party fuel-grade ethanol for the nine months ended

September 30, 2021 as compared to the same period in 2020.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross profit declined by

$8.1 million to a gross profit of $24.6 million for the six months ended June 30, 2021 as compared to $32.7 million for the same period

Of this decline, $5.4 million is attributable to lower sales volumes and $2.7 million is attributed to lower margins from our

specialty alcohols in the six months ended June 30, 2021 as compared to the same period in 2020.

Our Pekin Campus production segment’s gross

profit declined by $41.0 million to a gross profit of $17.5 million for the nine months ended September 30, 2021 as compared to $58.5

million for the same period in 2020.

Of this decline, $42.6 million is attributable to lower margins resulting from higher production

input costs, partially offset by $1.6 million attributed to higher volumes sold in the nine months ended September 30, 2021 as compared

to the same period in 2020.

In addition, higher costs resulted from the shutdown of our Pekin wet mill for maintence and upgrades.

Other Production Segment

Our other production segment’s gross profit improved by $17.5

million to a gross loss of $0.8 million for the six months ended June 30, 2021 as compared to a gross loss of $18.3 million for the same

period in 2020.

Of this improvement, $15.9 million is attributable to higher margins and $1.6 million is attributable to lower sales volumes

at negative margins for the six months ended June 30, 2021 as compared to the same period in 2020.

Our other production segment’s gross profit

improved by $19.0 million to a gross loss of $4.2 million for the nine months ended September 30, 2021 as compared to a gross loss of

$23.2 million for the same period in 2020.

Of this improvement, $9.6 million is attributable to lower operating costs from idled and/or

sold plants and $9.4 million is attributable to lower sales volumes at negative margins for the nine months ended September 30, 2021 as

compared to the same period in 2020.

Selling, General and

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Selling, general and administrative expenses

Percentage of net sales

Our SG&A expenses

declined for the three and six months ended June 30, 2021 as compared to the same period in 2020.

The period over period declines in

SG&A expenses are primarily due to lower professional fees incurred in 2021, as compared to 2020 during which we were working

extensively on our debt restructuring and asset sales efforts.

We anticipate SG&A expenses of $27.0 million to $30.0 million for

Interest Expense, net

Our SG&A expenses declined for the three and

nine months ended September 30, 2021 as compared to the same periods in 2020.

The period over period declines in SG&A expenses are

primarily due to lower professional fees incurred in 2021, as compared to 2020 during which we were working extensively on our debt restructuring

and asset sales efforts.

We anticipate SG&A expenses of $27.0 million to $30.0 million for all of 2021.

Interest Expense,

The following table presents

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Interest Expense, net

1 unchanged sentence

Our interest expense declined for the three and

six months ended June 30, 2021 as compared to the same period in 2020.

nine months ended September 30, 2021 as compared to the same periods in 2020.

The declines are primarily due to lower debt balances for

as compared to 2020 as we paid down high interest rate debt in the second half of 2020

and continuing into 2021.

Net Income (Loss) Available

to Common Stockholders

The following table presents

our net income (loss) available to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended

Six Months Ended

2021 as compared to 2020 as we paid down high interest rate debt in the second half of 2020 and continuing into 2021.

Net Income (loss)

Available to Common Stockholders

The following table presents our net income

(loss) available to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss) available to common stockholders

Percentage of net sales

The decline in

net income available to common stockholders for the three months ended June 30, 2021 as compared to the same period in 2020 is primarily

due to significantly higher spot margins from sales of our high quality alcohol in the prior year period compared to predominately fixed-price

sales in the current year period.

The increase in net income available to common stockholders for the six months ended June 30, 2021 as

compared to the same period in 2020 is primarily due to significantly higher margins from sales of our high quality alcohol in the first

quarter of 2021 as compared to the same period in 2020.

The first quarter of 2020 also included substantial sales of low- or negative-margin

fuel-grade ethanol.

in net income (loss) available to common stockholders for the three months ended September 30, 2021 as compared to the same period

in 2020 is primarily due to the Pekin campus shut down costs for planned maintenance upgrades, and higher production input costs in

2021 as well as higher spot margins from sales of our specialty alcohols in the prior year period compared to predominately

fixed-price sales in the current year period, partially offset by income from loan forgiveness, lower interest expense and the

absence of any fair value adjustments.

The increase in net income (loss) available to common stockholders for the nine months ended

September 30, 2021 as compared to the same period in 2020 is primarily due to significantly higher margins from sales of our

specialty alcohols in the first quarter of 2021 as compared to the same period in 2020 and income from loan forgiveness.

quarter of 2020 also included substantial sales of low- or negative-margin fuel-grade ethanol.

Liquidity and Capital Resources

During the six months ended June 30, 2021, we funded

our operations primarily from cash generated by our operations, proceeds from the sale of our Madera facility, proceeds from lines of

credit and cash on hand.

These funds were also used to make payments on our term debt and our other credit facilities and for capital

expenditures.

As of June 30, 2021, we had $50.8 million in cash and cash equivalents and $15.0 million available for borrowing under Kinergy’s

operating line of credit.

We believe we have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity

needs for the next twelve months from the date of this report.

Quantitative Period-End Liquidity

During the nine months ended September 30,

2021, we funded our operations primarily from proceeds from the sale of our Madera facility, proceeds from lines of credit and cash

These funds were also used to make payments on our term debt and our other credit facilities and for capital expenditures.

As of September 30, 2021, we had $36.0 million in cash and cash equivalents and $5.9 million available for borrowing under

Kinergy’s operating line of credit.

We anticipate capital expenditures to range between $7.0 million and $10.0 million in the

fourth quarter of 2021.

We believe we have sufficient liquidity to meet our anticipated working capital, debt service and other

liquidity needs for at least the next twelve months from the date of this report.

Quantitative Period-End

Liquidity Status

We believe that the following

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The following selected financial information should be read in conjunction

with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, and the other

sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this

report (dollars in thousands).

with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, and the

other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained

in this report (dollars in thousands).

September 30,

Cash and cash equivalents

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Restricted Net Assets

At June 30, 2021, we had approximately $245.7 million

of net assets at our subsidiaries that were not available for transfer to Alto Ingredients, Inc.

At September 30, 2021, we had approximately $250.3

million of net assets at our subsidiaries that were not available for transfer to Alto Ingredients, Inc.

in the form of dividends, distributions,

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Changes in Working Capital and Cash Flows

Working capital improved to $133.5 million at June

30, 2021 from $127.1 million at December 31, 2020 as a result of an increase of $30.2 million in current assets, partially offset by an

increase of $23.8 million in current liabilities.

Working capital improved to $142.2 million at September

30, 2021 from $127.1 million at December 31, 2020 as a result of an increase of $12.6 million in current assets and a decrease of $2.5

million in current liabilities.

Current assets increased primarily due to an increase

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partially offset by a reduction in assets held-for-sale as we completed the sale of our Madera facility.

Our current liabilities increased primarily due

to an increase in accounts payable due to the timing of payments and an increase in derivative instruments, partially offset by a reduction

in liabilities held-for-sale as we completed the sale of our Madera facility.

Our cash and cash equivalents increased by $3.1

million primarily due to $0.8 million in cash provided by our operating activities and $15.3 million in cash provided by our investing

activities, partially offset by $13.0 million in cash used in our financing activities.

Cash provided by our Operating Activities

We generated $0.8 million in cash from our operating

activities during the six months ended June 30, 2021, as compared to $45.7 million for the same period in 2020.

Specific factors that

contributed to the change in cash from our operating activities include:

● a decrease of $49.1 million related to higher accounts receivable balances due to the timing of payments and higher commodity sales

● a decrease of $32.8 million related to higher inventories due to increased commodity prices;

● a net decrease of $11.8 million of held-for-sale assets and liabilities as we completed the sale of our Madera facility.

Our current liabilities decreased primarily due

to a reduction in liabilities held-for-sale as we completed the sale of our Madera facility and a reduction in the current portion of

our long-term debt, partially offset by an increase in accounts payable and accrued liabilities due to the timing of payments and an

increase in derivative instruments.

Our cash and cash equivalents declined by

$11.6 million due to $19.7 million in cash used in our operating activities partially offset by $0.9 million in cash provided by our

financing activities and $7.3 million in cash provided by our investing activities.

Cash used in Operating Activities

We used $19.7 million in cash in our

operating activities during the nine months ended September 30, 2021, as compared to $75.7 million of cash provided by our operating

activities for the same period in 2020.

Specific factors that contributed to the change in cash from our operating activities

● a decrease of $64.9

million related to higher accounts receivable balances primarily due to the timing of payments

and higher commodity sales prices;

● a decrease of $43.1

million related to higher inventories primarily due to increased commodity prices;

● a net decrease of

$11.8 million of held-for-sale assets and liabilities as we completed the sale of our Madera

These amounts were partially offset by:

● an increase of $25.4 million in our consolidated net income due to higher margins from our sales of specialty alcohols;

● an increase of $20.3 million related to accounts payable due to the timing of payments;

● an increase in prepaid expenses of $9.0 million related to operating activities.

● an increase of $7.0

million in our consolidated net income primarily due to lower SG&A expenses, lower interest

expense, and income from forgiveness of our CARES Act loans;

● an increase of $33.6

million related to accounts payable due to the timing of payments;

● an increase in other assets of $12.6 million related to net changes in our derivative positions.

Cash provided by our Investing Activities

We generated $7.3 million of cash from our investing

activities for the six months ended June 30, 2021, of which $19.5 million in cash was generated from the sale of our Madera facility,

activities for the nine months ended September 30, 2021, of which $19.5 million in cash was generated from the sale of our Madera facility,

partially offset by $12.2 million for additions to property and equipment resulting from our capital expenditure projects.

Cash used in our Financing Activities

Cash used in our financing activities was $13.0

million for the six months ended June 30, 2021, which reflected net payments on term debt of $37.8 million, partially offset by proceeds

of $24.4 million from Kinergy’s operating line of credit and $0.5 million in stock option exercises.

Cash provided by our Financing

Cash provided by our financing activities was

$0.9 million for the nine months ended September 30, 2021, which reflected proceeds of $38.2 million from Kinergy’s operating line

of credit and $0.5 million in stock option exercises, partially offset by net payments on term debt of $37.8 million.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for

an aggregate amount of up to $100.0 million.

Kinergy maintains an operating line of credit

for an aggregate amount of up to $100.0 million.

The credit facility matures on August 8, 2023.

Interest accrues under the credit facility

at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.75% to

The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility

exceeds the average daily principal balance during the immediately preceding month.

Payments that may be made by Kinergy to Alto Ingredients,

Interest accrues under the credit

facility at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging

from 1.75% to 2.25%.

The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum

credit under the facility exceeds the average daily principal balance during the immediately preceding month.

Payments that may be

made by Kinergy to Alto Ingredients, Inc.

as reimbursement for management and other services provided by Alto Ingredients, Inc.

to Kinergy are limited under the terms of the

credit facility to $1.5 million per fiscal quarter.

The credit facility also includes the accounts receivable of our wholly-owned subsidiary,

Alto Nutrients, LLC, or Alto Nutrients, as additional collateral.

Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter.

The credit facility also includes the

accounts receivable of our indirect wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral.

Payments that may be made by Alto Nutrients to Alto Ingredients, Inc.

as reimbursement for management and other services provided by Alto Ingredients, Inc.

to Alto Nutrients are limited under the terms of

the credit facility to $0.5 million per fiscal quarter.

Alto Nutrients, one of our indirect wholly-owned subsidiaries, markets our essential

ingredients and also provides raw material procurement services to our subsidiaries.

as reimbursement for management and other services provided by

Alto Ingredients, Inc.

to Alto Nutrients are limited under the terms of the credit facility to $0.5 million per fiscal quarter.

Nutrients, markets our essential ingredients and also provides raw material procurement services to our subsidiaries.

For all monthly periods in which excess borrowing

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guaranteed all of Kinergy’s obligations under the credit facility.

As of June 30, 2021, Kinergy had an outstanding balance of $56.9

million and $15.0 million of unused borrowing availability under the credit facility.

As of September 30, 2021, Kinergy had an outstanding balance

of $70.7 million and $5.9 million of unused borrowing availability under the credit facility.

Alto Pekin Credit Facilities

On December 15, 2016, Alto Pekin,

LLC, or Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin,

Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1 st Farm Credit Services, PCA and CoBank, ACB,

Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1 st Farm Credit Services $64.0 million under

a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a revolving term loan facility

that matures on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit Facility.

Credit Facility is secured by a first-priority security interest in all of Alto Pekin’s assets.

The Pekin Credit Facility and

related agreements contain a variety of representations, warranties, covenants and events of default.

Following a series of amendments

and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as follows:

● Interest accrues under the Pekin Credit Facility at an annual rate equal to the 30-day London Interbank Offered

Rate, or LIBOR, plus 5.00%.

● Alto Pekin is required to pay a monthly fee on any unused portion of the Pekin Revolving Loan at a rate of

0.75% per annum.

● Alto Pekin and Alto ICP, LLC, or ICP, one of our indirect wholly-owned subsidiaries and the entity that holds

one of our production facilities in Pekin, Illinois, are collectively required to maintain working capital of not less than 50% of the

combined outstanding revolving lines of credit, which was $17.0 million at June 30, 2021;

and an annual debt service coverage ratio of

not less than 1.25 to 1.00, in addition to various other affirmative and negative covenants.

Net proceeds arising from a

sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders,

collectively, our senior secured noteholders, and us, respectively.

Net proceeds arising from the sale of any of our western production

facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto

Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

As of the filing of this report,

we believe we are in compliance with the terms and conditions of our Pekin Credit Facility.

On December 15, 2016, Alto Pekin, LLC, or

Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin,

Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1 st Farm Credit Services, PCA and CoBank,

ACB, or CoBank.

Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1 st Farm Credit Services $64.0

million under a term loan facility that matured on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a

revolving term loan facility that was to mature on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term

Loan, the Pekin Credit Facility.

On November 5, 2021, we

closed the sale of our Stockton, California facility and, using net proceeds from the sale, repaid the Pekin Credit Facility in

ICP Credit Facilities

On September 15, 2017, ICP, Compeer Financial,

PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement.

Under the terms of the ICP Credit

Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the ICP Term Loan,

and up to $18.0 million under a revolving term loan facility that matures on September 1, 2022, or the ICP Revolving Loan, and together

with the ICP Term Loan, the ICP Credit Facility.

The ICP Credit Facility is secured by a first-priority security interest in all of ICP’s

The ICP Credit Facility and

related agreements contain a variety of representations, warranties, covenants and events of default.

Following a series of amendments

and waivers among ICP, its lenders and their agent, certain terms of the agreements are as follows:

● Interest accrues under the ICP Credit Facility at an annual rate equal to the 30-day LIBOR plus 3.75%.

● ICP is required to pay an annual nonrefundable commitment fee, calculated as 0.75% multiplied by the average

daily positive difference between (i) the ICP Revolving Loan commitment (which may be reduced by ICP from time to time in increments of

$0.5 million), minus (ii) the aggregate principal amounts outstanding under the ICP Revolving Loan.

● ICP and Alto Pekin are collectively required to maintain working capital of not less than 50% of the combined

outstanding revolving lines of credit, which was $17.0 million at June 30, 2021;

and an annual debt service coverage ratio of not less

than 1.50 to 1.00, in addition to various other affirmative and negative covenants.

Net proceeds arising from the

sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders,

collectively, our senior secured noteholders, and us, respectively.

Net proceeds arising from the sale of any of our western production

facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto

Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

As of the filing of this report,

we believe we are in compliance with the terms and conditions of our ICP Credit Facility.

On September 15, 2017, ICP, Compeer

Financial, PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement.

Under the terms of

the ICP Credit Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matured on September 20, 2021, or

the ICP Term Loan, and up to $18.0 million under a revolving term loan facility that was to mature on September 1, 2022, or the ICP

Revolving Loan, and together with the ICP Term Loan, the ICP Credit Facility.

On November 5, 2021, we closed the sale of

our Stockton, California facility and, using net proceeds from the sale, repaid the ICP Credit Facility in full.

Senior Secured Notes

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a second Note Purchase Agreement with five accredited investors and sold an additional $13.9 million in aggregate principal amount of

senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold,

and collectively with the notes previously sold, the Notes.

The Notes are secured by a first-priority security interest in all of our

equity interests in Alto Op Co., our subsidiary that indirectly holds our West Coast production assets.

The Notes and related agreements

contain a variety of representations, warranties, covenants and events of default.

Following a series of amendments and waivers with the

holders of our Notes, or the senior secured noteholders, and their agent, certain terms of the agreements are as follows:

● The Notes mature on December 15, 2021.

● Payments due under the Notes rank senior to all other indebtedness of Alto Ingredients, Inc.

other than permitted senior indebtedness.

● Interest on the Notes accrues at a rate of 15% per annum.

● Any voluntary prepayments must be made at 102% of the principal amount prepaid.

The Notes also contain a variety of limitations,

including a prohibition on parent company indebtedness;

restrictions on redemption, repurchase or payment of any dividend or distribution

in respect of our or our subsidiaries’ equity interests;

restrictions on asset sales and other dispositions;

and restrictions on

our or our subsidiaries’ ability to issue equity for purposes other than to pay down a portion of the outstanding balance of the

In March 2020, ICP granted to the senior secured

noteholders a security interest in certain of its personal property.

In addition, Alto Central, LLC, or Alto Central, our subsidiary that

indirectly holds our Pekin Campus assets, granted to the senior secured noteholders a security interest in certain of its personal property.

Alto Central also pledged its equity interests in Alto Pekin and ICP in favor of the senior secured noteholders as additional collateral

securing our obligations to the senior secured noteholders.

Co also granted to the senior secured noteholders a security interest

in certain of its personal property.

We and certain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto

Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds

from asset sales.

On May 14, 2021, in connection with the sale of our Madera, California

fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes.

As of the filing of this report, a balance

of approximately $0.7 million remains on the Notes and we believe we are in compliance with the terms and conditions of the Notes.

senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes

sold, and collectively with the notes previously sold, the Notes.

On May 14, 2021, in connection

with the sale of our Madera, California fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes.

On November 5, 2021, we closed the sale of

our Stockton, California facility and, using net proceeds from the sale, repaid the Notes in full.

CARES Act Loans

On May 4, 2020, Alto Ingredients, Inc.

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

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

On May 4, 2020, Alto Ingredients,

and Alto Pekin, received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act through

the Paycheck Protection Program administered by the U.S.

Small Business Administration, or SBA.

Alto Ingredients, Inc.

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

The loans were to mature in two years and bear interest at a rate

of 1.00% per annum.

Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described

in the CARES Act.

We have applied for loan forgiveness for both loans.

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

for the full amount of $3.9 million.

We can provide no assurance that we will be able to obtain forgiveness of all or any portion of the

remaining loan.

received $6.0 million

and Alto Pekin received $3.9 million in loan proceeds.

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

full amount of $3.9 million, and accordingly, we recognized income from loan forgiveness for the three months ended June 30, 2021.

September 2021, the SBA approved Alto Ingredients, Inc.’s forgiveness application for the full amount of $6.0 million, and accordingly,

we recognized income from loan forgiveness for the three months ended September 30, 2021.

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.

provide no assurances that any loan forgiven will not require repayment following an audit by the SBA.

Effects of Inflation

The impact of inflation was

not significant to our financial condition or results of operations for the three and six months ended June 30, 2021 and 2020.

not significant to our financial condition or results of operations for the three and nine months ended September 30, 2021 and 2020.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis