What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-15 compared with 2021-03-26 · 46 added, 966 removed, 5 unchanged (100% of the section changed)

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market For Registrant’s Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades on The Nasdaq Capital Market under

the symbol “ALTO”.

Prior to February 1, 2021, our common stock traded on The Nasdaq Capital Market under the symbol

“PEIX”.

We also have non-voting common stock outstanding which is not listed on an exchange.

Our common stock trades on The Nasdaq Capital Market under the symbol

We also have non-voting common stock outstanding, which is convertible into our voting common stock, and which is

not listed on an exchange.

Security Holders

As of March 25, 2021,

we had 73,167,785 shares of common stock outstanding held of record by approximately 290 stockholders and 896 shares of non-voting

common stock outstanding held of record by one stockholder.

These holders of record include depositories that hold shares of stock

for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners.

On March 25, 2021, the closing sales

price of our common stock on The Nasdaq Capital Market was $5.36 per share.

As of March 11, 2022, we had

73,726,517 shares of common stock outstanding held of record by approximately 310 stockholders and 896 shares of non-voting common stock

outstanding held of record by one stockholder.

These holders of record include depositories that hold shares of stock for brokerage firms

which, in turn, hold shares of stock for numerous beneficial owners.

On March 11, 2022, the closing sales price of our common stock on

The Nasdaq Capital Market was $6.13 per share.

Performance Graph

The graph below shows a comparison

of the cumulative total stockholder return on our common stock with the cumulative total return on The NASDAQ Composite Index and The

NASDAQ Clean Edge Green Energy Index, or Peer Group, in each case over the five-year period ended December 31, 2021.

The graph assumes $100 invested

at the indicated starting date in our common stock and in each of The NASDAQ Composite Index and the Peer Group, with the reinvestment

of all dividends.

We have not paid or declared any cash dividends on our common stock and do not anticipate paying any cash dividends

on our common stock in the foreseeable future.

Stockholder returns over the indicated periods should not be considered indicative of

future stock prices or stockholder returns.

This graph assumes that the value of the investment in our common stock and each of the comparison

groups was $100 on December 31, 2016.

Alto Ingredients, Inc.

NASDAQ Composite

NASDAQ Clean Edge Green Energy

Dividend Policy

We have never paid cash

dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.

We anticipate

that we will retain any earnings for use in the continued development of our business.

Our current and

future debt financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the

achievement of specified financial and other operating conditions and our ability to properly service our debt, thereby

limiting or preventing us from paying cash dividends.

Further, the holders of our outstanding Series B Preferred Stock are

entitled to dividends of 7% per annum, payable quarterly in arrears.

For the first nine months of 2019, we declared and paid

in cash dividends on our outstanding shares of Series B Preferred Stock as they became due;

however, for the fourth quarter

of 2019, and for all of 2020, we accrued but did not declare or pay cash dividends under an agreement with the holders of our

Series B Preferred Stock in an effort to preserve liquidity.

Accrued and unpaid dividends in respect of our Series B

Preferred Stock must be paid prior to the payment of any dividends in respect of shares of our common stock.

We have never paid cash dividends

on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.

We anticipate that we will

retain any earnings for use in the continued development of our business.

Our current and future debt

financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the achievement of

specified financial and other operating conditions and our ability to properly service our debt, thereby limiting or preventing us

from paying cash dividends.

Further, the holders of our outstanding Series B Preferred Stock are entitled to dividends of 7% per

annum, payable quarterly in arrears.

For the first nine months of 2019, we declared and paid in cash dividends on our outstanding

shares of Series B Preferred Stock as they became due;

however, for the fourth quarter of 2019, and for all of 2020, we accrued but

did not declare or pay cash dividends under an agreement with the holders of our Series B Preferred Stock in an effort to preserve

During 2021, we declared and paid cash dividends on our outstanding shares of Series B Preferred Stock as they became due

and paid in cash all accrued and unpaid dividends for 2019 and 2020 in respect of our Series B Preferred Stock.

Recent Sales of Unregistered Securities

Purchases of Equity

Securities by the Issuer and Affiliated Purchasers

Financial Data.

Not Applicable.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial

statements and notes to consolidated financial statements included elsewhere in this report.

This discussion contains forward-looking

statements, reflecting our plans and objectives that involve risks and uncertainties.

Actual results and the timing of events

may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed

in the section entitled “Risk Factors”

and elsewhere in this report.

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 seven alcohol production facilities.

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

Western states of California, Oregon and Idaho.

We have an annual alcohol production capacity of 450 million gallons.

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.

Our business consists of three reportable segments:

two production segments

and a marketing 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:

Health, Home & Beauty ;

Food & Beverage ;

Essential Ingredients ;

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

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

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.

We are currently operating at approximately

64% of our estimated maximum annual production capacity.

Our Magic Valley, Stockton and Madera 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.

Annual Production Capacity

(estimated, in gallons)

Production Facility

Fuel-Grade Ethanol

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 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 plants in California and other third-party suppliers in the Midwest where a majority of fuel-grade ethanol producers are

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

We do not market essential ingredients from other producers.

See “Note 4 –

Segments”

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

Current Initiatives and Outlook

Last year was a transformative year.

started 2020 with 605 million gallons of annual production capacity, of which approximately 85 million gallons, or 14%, was specialty

alcohols and the balance was fuel-grade ethanol.

While our long-standing specialty alcohols business has been profitable, those

favorable results were obscured in recent years by a challenging renewable fuels business environment and related operating losses.

In 2020, we reduced fuel-grade ethanol production capacity by 55% through a combination of idling unprofitable facilities and

selling underperforming production assets.

We maximized production of specialty alcohols

at our Pekin Campus where spot demand for those products grew rapidly due to the coronavirus pandemic.

We first expanded specialty

alcohol production capacity to 110 million gallons annually in 2020 and then, by refurbishing our grain neutral spirits system,

further increased specialty alcohol production capacity to 140 million gallons annually in early 2021.

We are now the largest producer of specialty

alcohols in the United States based on annualized volumes.

We currently have 450 million gallons of annual production capacity,

of which approximately 140 million gallons, or 31%, is specialty alcohols and the balance is fuel-grade ethanol.

We are currently

operating production facilities with 290 million gallons of annual capacity, of which nearly 50% is specialty alcohols.

our operating facilities are running at break-even or better on an earnings before interest, taxes, depreciation and amortization

In 2020, we sold assets and generated substantial

cash flow from operations.

We also completed an equity capital raise in the fourth quarter.

These results provided funds for substantial

repayments of debt, reducing our interest expense, strengthening our balance sheet and positioning us for growth opportunities.

We also announced a corporate rebranding and changed our name to Alto Ingredients, Inc., which reflects our goal to deliver the

highest levels of integrity, purity, and quality to create greater value for our customers, partners and shareholders.

Strong demand for hand sanitizer contributed

to our results for 2020, but in the fourth quarter, and through the first quarter of 2021, abundant supplies tempered prices.

In response, we focused our efforts on strengthening our sales in product lines other than sanitizers by working with dominant,

name brand consumer product leaders.

Our product mix is well-diversified with over 90% of our contracted volumes sold to major

producers of food and beverage and home and beauty products, while only 10% of our contracted volumes are for sanitizers.

demand for sanitizer has returned to pre-pandemic levels, we expect demand resurgence and firmer pricing as restaurants, arenas,

theaters, offices, stadiums and other public places reopen.

In addition, we expect that higher quality sanitizers utilizing USP-grade

alcohol will replace low-quality sanitizer inventories.

We believe we are well positioned to support customer needs for USP, API

and beverage-grade specialty alcohols for 2021 and beyond and to provide quality products for consumer goods and sanitizers as

We have contracted approximately 65% of

the 110 million gallons of specialty alcohol production capacity available during last fall’s contracting cycle, or 50%

of our now expanded annual production capacity of 140 million gallons of specialty alcohols.

This represents a significant increase

in both total gallons contracted and our average price as compared to our 2020 contracts negotiated in the fall 2019 contracting

This also reflects reductions we made to address the current dynamics in the market for sanitizers.

We are working with

our customers to facilitate the blending and extending of contracted volumes for sanitizer products into 2022 and 2023 if consumer

demand is less than anticipated.

Aside from the many other variables in

our business, including the sale of fuel-grade ethanol and our uncontracted specialty alcohols, we expect our existing contracted

specialty alcohol sales to contribute at least $60.0 million dollars in gross profit for 2021.

Many variables could materially

impact our 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 and Madera, California production facilities,

and fuel-grade ethanol crush margins, which year-to-date are running at negative 25 cents per gallon, compared to negative 11

cents per gallon in the first quarter of 2020.

We expect that as businesses reopen and travel resumes, fuel-grade ethanol margins

will improve, with each 5 cent increase in crush margins improving earnings before interest, taxes, depreciation and amortization

by $5.0 million.

We are producing a wide selection of essential

ingredients products such as corn meal and feed, corn germ, and yeast for use in human and pet foods.

We produce most of these

higher value and higher margin ingredients at our Pekin Campus wet mill, generating co-product returns in excess of 54% and lifting

our average co-product return across all operating facilities to around 44%.

Some of our highest quality essential ingredients

products are sold under fixed-price, one-year or longer contracts to name brand companies.

We will continue to produce fuel-grade

ethanol to support our specialty alcohol production and to capitalize on ethanol’s beneficial low-carbon characteristics

integral to the ultimate decarbonization of the environment.

We remain optimistic over industry discussions around carbon reduction.

That said, fuel-grade ethanol margins remain depressed, especially for our Western operations.

In light of these conditions, we

have decided to sell our Stockton and Madera, California fuel-grade ethanol production facilities, both of which are currently

We came to this decision after considering all reasonable alternatives and how and where to best deploy our resources.

Sales of these production assets, if they occur, will further strengthen our balance sheet and improve profitability by eliminating

the fixed carrying costs from idled assets.

We are focused on a number of longer term

opportunities.

As previously reported, we have worked diligently and collaboratively with key customers to obtain three critical

certifications for specialty alcohol production at our ICP production facility at our Pekin Campus, specifically, ISO 9001, the

world’s most widely recognized quality management system certification;

ICH Q7, which sets forth good manufacturing practices

for active pharmaceutical ingredients;

and EXCiPACT, which sets standards for excipient safety and quality.

These certifications

support further market penetration of our specialty alcohols, both domestically and internationally, for applications that require

the highest quality products.

Most of our specialty alcohol products for these applications are contracted under fixed terms each

fall for the following year.

We plan to continue to expand our market share within the health, home and beauty and food and beverage

markets to sell our increased specialty alcohol production at favorable prices.

In addition, we are in the process of increasing

our yeast facility’s annual production capacity by approximately 15%.

We remain on schedule and within budget to complete

this expansion by the third quarter of 2021.

This project entails a relatively low capital investment of $5.5 million and we expect

payback in less than two years, or over $3.0 million annually in earnings before interest, taxes, depreciation and amortization.

We will also have the ability to further expand production of even higher value yeast derivatives with similar payback profiles.

We have earmarked an additional $14.0 million

for various other projects we expect will expand revenue, increase efficiencies or improve plant reliability.

For example, an

upgrade of our feed dryers at our Pekin Campus, a $3.5 million dollar enhancement, will produce even higher value feed, improve

overall plant efficiency and reliability and increase annual earnings before interest, taxes, depreciation and amortization by

an estimated $1.4 million dollars beginning in the fourth quarter of 2021.

Finally, as recently mentioned in congressional

subcommittee hearings on climate change, 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 and expect to be an active player

in the carbon capture space.

We also have additional projects under development with attractive return profiles.

We have transformed our company to build

a foundation based on consumer demand.

We have suspended and sought to minimize the impact of unprofitable operations and reduced

operating and overhead expenses.

That said, our transformation is not yet complete.

Given our significantly improved balance sheet

we are actively exploring and developing new build or buy opportunities to grow and expand our business to further increase revenues

and profitability while controlling expenses.

2020 Financial Performance

Our consolidated net

sales declined to $0.9 billion for 2020 compared to $1.4 billion for 2019.

Our net loss available to common stockholders decreased

by $73.8 million from $90.2 million for 2019 to $16.4 million for 2020.

Factors that contributed

to our results of operations for 2020 include:

Our net sales

for 2020 declined by $0.5 billion, or 37%, to $0.9 billion for 2020 from $1.4 billion

for 2019 as a result of a decrease in total alcohol gallons sold, partially offset by

an increase in our average sales price per gallon.

Our total gallons sold declined by

283 million gallons, or 35%, to 536 million gallons for 2020 from 819 million gallons

Our production sales volume declined by 219 million gallons, or 45%, to 272

million gallons for 2020 from 491 million gallons for 2019.

These declines are due primarily

to the negative effects of the coronavirus pandemic on the demand for transportation

fuels and fuel-grade ethanol.

In response, we reduced production and idled fuel-grade

ethanol production facilities.

Moreover, we completed the sale of our two fuel-grade

ethanol production facilities in Nebraska in April 2020, resulting in no further sales

volumes from those facilities.

Our third-party sales volume declined by 64 million gallons,

or 20%, to 264 million gallons for 2020 from 328 million gallons for 2019.

We intentionally

reduced sales of third-party fuel-grade ethanol to focus on sales of inventory from our

own production.

The above declines and challenges were partially offset by robust

demand for our specialty alcohols used in sanitizers and disinfectants as a result of

the coronavirus pandemic.

● Gross Profit (loss) .

gross profit (loss) improved by $62.8 million to a gross profit of $52.9 million

for 2020 from a gross loss of $9.9 million for 2019 as a result of substantially higher margins

due to strong demand for our specialty alcohols used in sanitizers and disinfectants

as a result of the coronavirus pandemic.

We also idled or sold unprofitable fuel-grade

ethanol production facilities, substantially reducing costs in a challenging market environment.

● Asset impairments.

have evaluated for impairment our production facilities located in the Western United

States, including our plan to sell our Madera and Stockton facilities, and as such we

recognized an aggregate impairment charge of $24.4 million.

Sales and Margins

We generate sales by

marketing all of the alcohols produced by our production facilities, all of the fuel-grade ethanol produced by two other production

facilities in the Western United States and fuel-grade ethanol purchased from other third-party suppliers throughout the United

We also market essential ingredients produced by our production facilities, including dried yeast, corn gluten meal, corn

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

Our profitability is

highly dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol.

Our consolidated average

alcohol sales price increased by 1.2% to $1.63 per gallon for 2020 compared to $1.61 per gallon for 2019.

The average price of

fuel-grade ethanol as reported by the Chicago Board of Options Trade, or CBOT, decreased 10.1% to $1.25 per gallon for 2020 compared

to $1.39 per gallon for 2019.

Our average cost of corn decreased 9.9% to $3.84 per bushel for 2020 from $4.26 per bushel for 2019.

The average price of corn as reported by the CBOT decreased 5.2% to $3.63 per bushel for 2020 from $3.83 per bushel for 2019.

We believe that our gross

profit margins depend primarily on six key factors:

● the prices of our specialty alcohols

and the market price of fuel-grade ethanol, the latter of which is impacted by the price

of gasoline and related petroleum products, and government regulation, including government

ethanol mandates;

● the market price of key production

input commodities, including corn and natural gas;

● the prices of our essential ingredients;

● our ability to anticipate trends

in the prices of our alcohols, essential ingredients, and key input commodities, and

our ability to implement appropriate risk management and opportunistic pricing strategies;

● the proportion of our sales of

specialty alcohols to our sales of fuel-grade ethanol produced at our facilities;

● the proportion of our sales of

fuel-grade ethanol produced at our facilities to our sales of fuel-grade ethanol produced

by unrelated third-parties.

We seek to optimize our

gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and

taking other actions designed to limit risk and address these factors.

For example, we may seek to reduce inventory levels in

anticipation of declining alcohol or essential ingredient prices and increase production and inventory levels in anticipation

of rising alcohol or essential ingredient prices.

We may also seek to alter our proportion or timing, or both, of purchase and

sales commitments.

Our limited resources

to act upon the anticipated factors described above and/or our inability to anticipate these factors or their relative importance,

and adverse movements in the factors themselves, could result in declining or even negative gross profit margins over certain

periods of time.

Our ability to anticipate these factors or favorable movements in these factors may enable us to generate above-average

gross profit margins.

However, given the difficulty associated with successfully forecasting any of these factors, we are unable

to estimate our future gross profit margins.

Results of Operations

Selected Financial

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:

Years Ended December 31,

Production gallons sold (in millions)

Third-party gallons sold (in millions)

Total gallons sold (in millions)

Total gallons produced (in millions)

Production capacity utilization

Average sales price per gallon

Corn cost per bushel—CBOT equivalent

Average basis (1)

Delivered cost of corn

Total co-product tons sold (in thousands)

Co-product revenues as % of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

Corn basis represents the difference

between the immediate cash price of delivered corn and the future price of corn for Chicago delivery.

Co-product revenues as a percentage of delivered

cost of corn shows our yield based on sales of co-products, including WDG and corn oil, generated from ethanol we produced.

Year Ended December 31, 2020 Compared to the Year

Ended December 31, 2019

Results as a Percentage

of Net Sales for the

(Unfavorable)

(dollars in thousands)

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Gain on litigation settlement

Gain on sale of assets

Asset impairments

Income (loss) from operations

Fair value adjustments

Loss on debt extinguishment

Interest expense, net

Other income, net

Loss before benefit for income taxes

Benefit for income taxes

Consolidated net loss

Net loss attributed to noncontrolling interests

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

Loss available to common stockholders

The decrease in our consolidated

net sales for 2020 as compared to 2019 was primarily due to a decrease in our total gallons sold, partially offset by an increase

in our average sales price per gallon.

Our production

gallons sold and our volume of essential ingredients sold declined for 2020 as compared to 2019 in addition to declines in

our third-party gallons sold.

Our production gallons and essential ingredients sold declined primarily due to an intentional

reduction in our production of fuel-grade ethanol at our facilities due to adverse market conditions as well as the sale of

our Nebraska facilities.

Marketing Segment

Net sales of fuel-grade ethanol from our

marketing segment, excluding intersegment sales, decreased by $99.2 million, or 28%, to $257.7 million for 2020 as compared to

$356.9 million for 2019.

Our volume of third party fuel-grade

ethanol gallons sold reported gross by our marketing segment decreased by 48.9 million gallons, or 23%, to 163.9 million

gallons for 2020 as compared to 212.8 million gallons for 2019.

At our marketing segment’s average sales price per

gallon of $1.55 for 2020, we generated $75.8 million less in net sales from our marketing segment from the 48.9

million fewer gallons of third-party fuel-grade ethanol sold gross in 2020 as compared to 2019.

Our volume of third party fuel-grade ethanol

gallons sold reported net by our marketing segment decreased by 15.1 million gallons, or 13%, to 100.5 million gallons for 2020

as compared to 115.6 million gallons for 2019.

The decrease in third-party fuel-grade ethanol gallons sold reported net had an

approximately $0.3 million impact reducing net sales.

The decrease of $0.11 per gallon, or 7%,

in our marketing segment’s average sales price per gallon in 2020 as compared to 2019 decreased our net sales from third-party

fuel-grade ethanol sold by our marketing segment by $23.1 million.

Pekin Campus Production

Net sales of alcohol

from our Pekin Campus production segment decreased by $13.2 million, or 4%, to $330.4 million for 2020 as compared to $343.6 million

Our total volume of production gallons sold decreased by 24.6 million gallons, or 11%, to 193.9 million gallons for

2020 as compared to 218.5 million gallons for 2019.

At our Pekin Campus production segment’s average sales price per gallon

of $1.70 for 2020, we generated $41.9 million less in net sales from our Pekin Campus production segment from the 24.6 million

reduction in gallons of alcohol sold in 2020 as compared to 2019.

The increase of $0.13, or 8%, in our Pekin Campus production

segment’s average sales price per gallon in 2020 as compared to 2019 improved our net sales from our Pekin Campus production

segment by $28.7 million.

Net sales of essential

ingredients decreased $8.7 million, or 6%, to $130.3 million for 2020 as compared to $139.0 million for 2019.

Our total volume

of essential ingredients sold decreased by 84,000 tons, or 9%, to 829,000 tons for 2020 from 913,000 tons for 2019.

At our average

sales price per ton of $157.19 for 2020, we generated $13.3 million less in net sales from the 84,000 fewer tons of essential

ingredients sold in 2020 as compared to 2019.

The increase of $5.01, or 3.3%, in our average sales price per ton in 2020 as compared

to 2019 increased our net sales from our Pekin Campus production segment by $4.6 million.

Other Production Segment

Net sales of alcohol

from our other production segment decreased by $317.6 million, or 70%, to $137.7 million for 2020 as compared to $455.3 million

Our total volume of gallons sold decreased by 194.5 million gallons, or 71%, to 78.0 million gallons for 2020 as compared

to 272.5 million gallons for 2019.

At our other production segment’s average sales price per gallon of $1.77 for 2020, we

generated $343.3 million less in net sales from our other production segment from the 194.5 million fewer gallons of alcohol sold

in 2020 as compared to 2019.

The increase of $0.09, or 5%, in our other production segment’s average sales price per gallon

in 2020 as compared to 2019 improved our net sales from our other production segment by $25.7 million.

Net sales of essential ingredients decreased

$89.1 million, or 69%, to $40.9 million for 2020 as compared to $130.0 million for 2019.

Our total volume of essential ingredients

sold decreased by 1,289,000 tons, or 68%, to 619,000 tons for 2020 from 1,908,000 tons for 2019.

At our average sales price per

ton of $66.07 for 2020, we generated $85.2 million less in net sales from the 1,289,000 fewer tons of essential ingredients sold

in 2020 as compared to 2019.

The decrease of $2.06, or 3.0%, in our average sales price per ton in 2020 as compared to 2019 decreased

our net sales from our other production segment by $3.9 million.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit (loss) improved

to a gross profit of $52.9 million for 2020 from a gross loss of $9.9 million for 2019, representing a gross profit margin of

5.9% for 2020 compared to negative 0.7% for 2019.

Our consolidated gross profit (loss) improved due to significantly higher margin

sales of our specialty alcohols due to high demand for alcohols used in sanitizers and disinfectants and a substantial reduction

in negative margin sales of fuel-grade ethanol as we idled a significant amount of our fuel-grade ethanol production capacity

and sold unprofitable assets.

Marketing Segment

Our marketing segment’s gross profit

declined by $5.0 million to $5.9 million for 2020 as compared to $10.9 million for 2019.

Of this decline, $3.2 million is attributable

to lower margins from sales of third-party fuel-grade ethanol and $1.8 million is attributable to lower marketing volumes of third-party

fuel-grade ethanol in 2020 as compared to 2019.

Pekin Campus Production Segment

Our Pekin Campus production segment’s

gross profit improved by $70.2 million to a gross profit of $74.2 million for 2020 as compared to $4.0 million for 2019.

improvement, $80.0 million is attributable to increased margins from our specialty alcohols, partially offset by $9.8 million

less in gross profit attributable to decreased sales volumes in 2020 as compared to 2019.

Other Production Segment

Our other production segment’s

gross profit declined by $2.4 million to a gross loss of $27.2 million for 2020 as compared to a gross loss of $24.8 million

Of this decline, $70.3 million is attributable to a negative margin environment for fuel-grade ethanol, offset by a

$67.9 million improvement in gross profit attributable to lower sales volumes at negative margins in 2020 as compared to

Selling, General and Administrative

Our selling, general and administrative,

or SG&A, expenses decreased $3.5 million to $32.0 million for 2020 as compared to $35.5 million for the same period in 2019.

SG&A expenses declined primarily due to reduced legal and consulting expenses.

We expect to reduce SG&A expenses by $7.0

million to $12.0 million year over year in 2021.

Asset Impairments

We assess the impairment of long-lived

assets, including property and equipment, when events or changes in circumstances indicate that the fair value of an asset could

be less than the net book value of the asset.

In addition, with the anticipated sale of our Madera and Stockton, California production

facilities, we also reviewed their fair values compared to their estimated sales prices, less estimated selling costs.

we recorded an aggregate impairment charge of $24.4 million for 2020.

Further, in connection with the anticipated sales, we classified

those facilities as held-for-sale on the accompanying consolidated balance sheets.

As of December 31, 2019, in connection with

the sale of our ownership interest in two fuel-grade ethanol production facilities in Nebraska, we recorded the related long-lived

assets to fair value, less estimated selling costs, and classified them as held-for-sale on the accompanying consolidated balance

As a result, we recorded an aggregate impairment charge of $29.3 million for 2019.

Interest Expense,

Interest expense decreased

$2.3 million to $17.9 million for 2020 from $20.2 million for 2019.

The decrease in interest expense is primarily due to principal

payments on our outstanding indebtedness during the year, resulting in lower average debt balances.

We expect to reduce interest

expense by as much as $14.0 million year over year in 2021.

Liquidity and Capital Resources

During the year ended December 31, 2020,

we funded our operations primarily from cash generated by our operations, sales of common stock and warrants, and cash on hand.

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

make lease payments.

During 2020, we experienced

significant adverse conditions in the fuel-grade ethanol market as demand and pricing reached record lows due to reduced

domestic transportation and resulting lower gasoline demand resulting from stay-at-home orders issued in response to the

coronavirus pandemic.

In response, we reduced fuel-grade ethanol production by more than 50% in an effort to conserve

We continued producing and selling our specialty alcohols, and also converted a portion of our fuel-grade ethanol

production to specialty alcohol production to respond to substantial increased demand from the sanitizer and disinfectant

Sales of specialty alcohols were at a mix of fixed and spot prices, both of which resulted in significant cash flow

from operations during the year.

We expect continued demand for our specialty alcohols for at least the next twelve months

and, as appropriate, will endeavor to sign fixed-price contracts and hedge corn input costs to lock in profit margins.

As of December 31, 2020, we had $47.7 million

in cash and $16.0 million available for borrowing under Kinergy’s operating line of credit.

During 2020, we generated $71.8

million in cash from our operations.

We also realized $19.9 million in net cash proceeds from the sale of our interest in two

production facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley

production facility.

In addition, we received net proceeds of approximately $75.8 million from issuances of common stock and warrants

and $5.5 million from warrant exercises.

These sources of cash enabled us to make principal payments totaling $157.6 million on

our debt during 2020, resulting in our return to compliance with our lenders.

As a result, 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

Quantitative Year-End

Liquidity Status

We believe that the following

amounts provide insight into our liquidity and capital resources.

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).

Cash and cash equivalents

Current assets

Property and equipment, net

Current liabilities

Long-term debt, noncurrent portion

Working capital

Working capital ratio

Restricted Net Assets

At December 31, 2020, we had approximately

$262.1 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc.

of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of the subsidiaries.

Changes in Working Capital and Cash

Working capital improved to $127.1 million

at December 31, 2020 from $71.7 million at December 31, 2019 as a result of a decrease of $73.4 million in current liabilities,

partially offset by a decrease in current assets of $18.0 million.

Current assets decreased primarily due

to a decrease in assets held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production

facilities in Nebraska, and decreases in accounts receivable and inventories due to lower sales volumes and the timing of collections,

partially offset by an increase in cash and cash equivalents.

Our current liabilities declined primarily

due to a decrease in liabilities held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production

facilities in Nebraska and reductions in our current portion of long-term debt as we paid down indebtedness during the year.

Our cash and cash equivalents increased

by $28.7 million primarily due to $71.8 million in cash provided by our operating activities and $23.3 million in cash provided

by our investing activities, partially offset by $66.4 million in cash used in our financing activities.

Cash provided by our Operating Activities

Cash provided by our operating activities

increased by $95.1 million for the year ended December 31, 2020, as compared to the same period in 2019.

We generated $71.8 million

in cash from our operating activities during the year.

Specific factors that contributed to the increase in cash provided by our

operating activities include:

● a decrease of $84.0 million in our consolidated net loss

due to higher margins from our sales of specialty alcohols;

● a decrease of $37.3 million related to accounts receivable

primarily due to lower sales volumes and the timing of collections;

● a decrease of $21.9 million related to lower inventory

levels as we reduced fuel-grade ethanol production during the period;

● an increase of $10.0 million related to noncash fair value adjustments associated

with outstanding warrants to purchase common stock;

● an increase of $9.1 million related to liabilities held-for-sale

in connection with the sale of our interests in two fuel-grade ethanol production facilities

These amounts were partially offset by:

● a decrease of $17.6 million in noncash depreciation expense

resulting from the sale of two fuel-grade ethanol production facilities in Nebraska;

● a decrease of $17.2 million in accounts payable and accrued

expenses, primarily due to increased payments of past due amounts;

● an increase of $14.2 million in derivative instruments

due to the recent rise in corn prices;

● a decrease of $9.2 million related to prepaid expenses and other assets due to the timing of payments.

Cash provided by our Investing Activities

Cash provided by our investing activities

was $23.3 million for the year, which included $19.9 million in net proceeds from the sale of two fuel-grade ethanol production

facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley production

facility, partially offset by $6.6 million of additions to property and equipment resulting from our capital expenditure projects,

such as the expansion of our grain neutral spirits system capacity completed at the end of 2020 and the expansion of our yeast

production capacity still in process.

Cash used in our Financing Activities

Cash used in our financing activities was

$66.4 million for the year.

The increase in cash used in our financing activities was primarily due to $45.8 million in net payments

on Kinergy’s operating line of credit and $111.8 million in principal payments on our other indebtedness, partially offset

by $75.8 million in proceeds from the sale of common stock and warrants, $9.9 million in proceeds under our CARES Act loans and

$5.5 million in proceeds from warrant exercises.

Kinergy’s Operating Line of

Kinergy maintains an operating line of

credit for an aggregate amount of up to $100.0 million.

The credit facility matures on August 2, 2022.

Interest accrues under

the credit facility at a rate equal to (i) the three-month London Interbank Offered Rate (“LIBOR”), plus (ii)

a specified applicable margin ranging from 1.50% to 2.00%.

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.

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.

For all monthly periods in which excess

borrowing availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage

ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by

the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes

paid during such twelve-month rolling period) of at least 2.0 and are prohibited from incurring certain additional indebtedness

(other than specific intercompany indebtedness).

The obligations of Kinergy and Alto Nutrients under the credit facility are secured

by a first-priority security interest in all of their respective assets in favor of the lender.

We believe Kinergy and Alto Nutrients are

in compliance with the fixed-charge coverage ratio covenant as of the filing of this report.

The following table sets forth the

fixed-charge coverage ratio financial covenant and the actual results for the periods presented:

Fixed Charge Coverage Ratio Requirement

Alto Ingredients,

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

As of December 31, 2020, Kinergy had an outstanding

balance of $32.5 million and $16.0 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, 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 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.

The Pekin 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 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

● 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 $30.0 million at December 31, 2020;

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.

Alto Pekin and ICP collectively

agreed to pay Alto Pekin’s and ICP’s lenders an aggregate of $40.0 million on or before September 30, 2020, or the

September Paydown Amount, to reduce the outstanding balances of Alto Pekin’s and ICP’s respective term loans, to be

allocated between them.

Alto Pekin, ICP and their lenders contemplated funding the September Paydown Amount through asset sales,

proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed by us to Alto Pekin or

In March 2020, we granted

to Alto Pekin’s lender a security interest in all of our equity interests in Alto Op Co., the entity which indirectly owns

our western production facilities.

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

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

proceeds from asset sales.

On December 18, 2020,

Alto Pekin and its lender further amended the Pekin Credit Facility to waive certain covenant defaults, including the covenant

requiring Alto Pekin and ICP to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

The effect of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed

to amend the Pekin Credit Facility to provide for a payment to Alto Pekin’s and ICP’s lenders of an aggregate of $24.9

million, or the December Paydown Amount, on or prior to December 21, 2020, with $19.9 million allocated to Alto Pekin’s

lenders and $5.0 million allocated to ICP’s lenders.

On December 18, 2020, Alto Pekin and ICP paid the December Paydown

Amount in full.

Following receipt of

the December Paydown Amount, any additional 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;

and any additional 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.

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 assets.

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 $30.0 million at December 31, 2020;

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.

ICP and Alto Pekin collectively

agreed to pay ICP’s and Alto Pekin’s lenders an aggregate of $40.0 million on or before September 30, 2020, the same

amount referred to above as the September Paydown Amount, to reduce the outstanding balances of ICP’s and Alto Pekin’s

respective term loans, to be allocated between them.

ICP, Alto Pekin, and their lenders contemplated funding the September Paydown

Amount through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed

by us to ICP or Alto Pekin.

In March 2020, we granted to Alto Pekin’s

lender a security interest in all of our equity interests in Alto Op Co.

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 December 18, 2020,

ICP and its lender further amended the ICP Credit Facility to waive certain covenant defaults, including the covenant requiring

ICP and Alto Pekin to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed to amend

the ICP Credit Facility to provide for a payment to ICP’s and Alto Pekin’s lenders of an aggregate of $24.9 million,

the same amount referred to above as the December Paydown Amount, on or prior to December 21, 2020, with $5.0 million allocated

to ICP’s lenders and $19.9 million allocated to Alto Pekin’s lenders.

On December 18, 2020, ICP and Alto Pekin paid

the December Paydown Amount in full.

Following receipt of

the December Paydown Amount, any additional 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;

and any additional 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.

Senior Secured Notes

On December 12, 2016, we entered into a

Note Purchase Agreement with five accredited investors and sold $55.0 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.

June 26, 2017, we entered into 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.

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 senior secured note holders 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 Notes.

In March 2020, ICP granted to the senior

secured noteholders a security interest in certain of its personal property.

In addition, Alto Central 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 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.

In November 2020, we repaid $35.3 million

in principal under the Notes using a portion of the net proceeds of our then-recent offerings of common stock and warrants and

the sale of certain real property assets at our Magic Valley production facility.

As of the filing of this

report, we believe we are in compliance with the terms and conditions of the Notes.

CARES Act Loans

On May 4, 2020, Alto Ingredients, Inc.

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

Act”), through the Paycheck Protection Program administered by the U.S.

Small Business Administration.

Alto Ingredients,

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

The loans 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, but we can provide no assurance that we will be able to obtain forgiveness of all or any portion

of the loans.

We are in the process of applying for loan forgiveness.

Effects of Inflation

The impact of inflation was not significant

to our financial condition or results of operations for 2020 or 2019.

Critical Accounting Policies

Our discussion and analysis

of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared

in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial

statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses

for each period.

The following represents a summary of our critical accounting policies, defined as those policies that we believe

are the most important to the portrayal of our financial condition and results of operations and that require management’s

most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters

that are inherently uncertain.

Revenue Recognition

We recognize revenue

primarily from sales of alcohols and essential ingredients.

We have seven alcohol production facilities

from which we produce and sell alcohols to our customers through our subsidiary Kinergy.

Kinergy enters into sales contracts with

customers under exclusive intercompany sales agreements with each of our seven production facilities.

Kinergy also acts as a principal

when it purchases third party fuel-grade ethanol which it resells to its customers.

Finally, Kinergy has exclusive sales agreements

with other third-party owned fuel-grade ethanol plants under which it sells their fuel-grade ethanol production for a fee plus

the costs to deliver the ethanol to Kinergy’s customers.

These sales are referred to as third-party agent sales.

from these third-party agent sales is recorded on a net basis, with Kinergy recognizing its predetermined fees and any associated

delivery costs.

We have seven production

facilities from which we produce and sell essential ingredients to our customers through our subsidiary Alto Nutrients.

Alto Nutrients

enters into sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each of our

seven production facilities.

We recognize revenue from sales of alcohols

and essential ingredients at the point in time when the customer obtains control of the products, which typically occurs upon

delivery depending on the terms of the underlying contracts.

In some instances, we enter into contracts with customers that contain

multiple performance obligations to deliver volumes of alcohols or essential ingredients over a contractual period of less than

We allocate the transaction price to each performance obligation identified in the contract based on relative standalone

selling prices and recognize the related revenue as control of each individual product is transferred to the customer in satisfaction

of the corresponding performance obligations.

When we are the agent, the supplier controls

the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise

to provide the product, has inventory risk before the product has been transferred to a customer and has discretion in establishing

the price for the product.

When we are the principal, we control the products before they are transferred to the customer because

we are primarily responsible for fulfilling the promise to provide the products, we have inventory risk before the product has

been transferred to a customer and we have discretion in establishing the price for the product.

See “Note 4

Segments”

of the Notes to Consolidated Financial Statements commencing on page F-21 of this report for our

revenue-breakdown by type of contract.

Impairment of

Long-Lived Assets and Held-for-Sale Classification

Our long-lived assets

have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and any

subsequent impairment.

We assess the impairment

of long-lived assets, including property and equipment, when events or changes in circumstances indicate that the fair value of

an asset could be less than the net book value of the asset.

Generally, we assess long-lived assets for impairment by first determining

the forecasted, undiscounted cash flows each asset is expected to generate plus the net proceeds expected from the sale of the

If the total amount of the undiscounted cash flows is less than the carrying value of the asset, we then determine the

fair value of the asset.

An impairment loss would be recognized when the fair value is less than the related net book value, and

an impairment expense would be recorded in the amount of the difference.

Forecasts of future cash flows are judgments based on

our experience and knowledge of our operations and the industry in which we operate.

These forecasts could be significantly affected

by future changes in market conditions, the economic environment, including inflation, and the purchasing decisions of our customers.

We review our intangible

assets with indefinite lives at least annually or more frequently if impairment indicators arise.

In our review, we determine

the fair value of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of

the acquired assets.

Assets held-for-sale

are assessed for impairment by comparing the carrying value to their expected net sales proceeds.

We entered into a term sheet

dated December 19, 2019 with Aurora Cooperative Elevator Company for the sale of our interest in two fuel-grade ethanol production

facilities in Nebraska.

We reviewed the criteria for held-for-sale classification of the long-lived assets associated with the

pending transaction.

Our analysis concluded that these long-lived assets should be classified as held-for-sale with a related

impairment of $29.3 million to fair value.

We did not recognize any other asset impairment charges in 2019.

In October 2020, our

Board of Directors approved a plan to sell our fuel-grade ethanol production facilities in Madera and Stockton, California.

Consequently,

we determined the long-lived asset groups should be classified as held-for-sale at December 31, 2020.

The analysis of these potential

sales resulted in an aggregate asset impairment of $22.3 million.

We further reviewed indicators of impairment for our other production

facilities, resulting in an additional asset impairment of $2.1 million in 2020.

Valuation Allowance

for Deferred Taxes

We account for income taxes under the asset

and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting

and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when

the differences reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected

to be realized.

We evaluate our deferred tax asset balance

for realizability.

To the extent we believe it is more likely than not that some portion or all of our deferred tax assets will

not be realized, we will establish a valuation allowance against the deferred tax assets.

Realization of our deferred tax assets

is dependent upon future taxable income during the periods in which the associated temporary differences become deductible.

consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making

this assessment.

These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a

reduction in net income or an increase in net loss in the period when such determinations are made.

Our pre-tax consolidated losses were $17.3

million and $101.3 million for the years ended December 31, 2020 and 2019, respectively.

Based on our current and prior results,

we do not have significant evidence to support a conclusion that we will more likely than not be able to benefit from our remaining

deferred tax assets.

As such, we have recorded a valuation allowance against our net deferred tax assets.

Derivative Instruments

We evaluate our contracts

to determine whether the contracts are derivative instruments.

Management may elect to exempt certain forward contracts that meet

the definition of a derivative from derivative accounting as normal purchases or normal sales.

Normal purchases and normal sales

are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that

will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.

that meet the requirements of normal purchases or sales are documented as normal and exempted from the fair value accounting and

reporting requirements of derivative accounting.

We enter into short-term

cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of fuel-grade ethanol and managing

exposure to changes in commodity prices.

All of our exchange-traded derivatives are designated as non-hedge derivatives for accounting

purposes, with changes in fair value recognized in net income.

Although the contracts are economic hedges of specified risks,

they are not designated or accounted for as hedging instruments.

Realized and unrealized

gains and losses related to exchange-traded derivative contracts are included as a component of cost of goods sold in the accompanying

financial statements.

The fair values of contracts entered through commodity exchanges are presented on the accompanying balance

sheet as derivative assets or liabilities.

The selection of normal purchase or sales contracts, and use of hedge accounting, are

accounting policies that can change the timing of recognition of gains and losses in the statement of operations.

Impact of New Accounting

Pronouncements

Not applicable.

Quantitative and Qualitative Disclosures About Market Risk.

Purchases of Equity Securities

by the Issuer and Affiliated Purchasers

Not Applicable.

Statements and Supplementary Data.

Reference is made to

the financial statements, which begin at page F-1 of this report.

in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity