What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-12 · 382 added, 580 removed, 96 unchanged (91% of the section changed)

16 unchanged sentences

trends in our financial condition and results of operations;

ability to distinguish ourselves from our current and future competitors.

ability to distinguis h 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

6 unchanged sentences

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.

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

in the United States.

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

We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties.

In 2021, we marketed and distributed approximately 480 million gallons combined of our own alcohols as well as fuel-grade ethanol produced

by third parties, and over 1.2 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

trading for Company-produced alcohols and essential ingredients on an aggregated basis and third party fuel-grade ethanol sales, (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 renewable fuel and essential ingredients produced

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

reportable segment.

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

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.

January 14, 2022, we acquired Eagle Alcohol Company LLC, or Eagle Alcohol, for $14.0 million in cash plus an estimated net working capital

adjustment of $1.3 million in cash.

The members of Eagle Alcohol are eligible to receive up to an additional $14.0 million of contingent

consideration, payable through a combination of cash and our common stock over the next five years, subject to the satisfaction of certain

conditions, including continued employment.

Alcohol specializes in break bulk distribution of specialty alcohols.

Eagle Alcohol purchases bulk alcohol from suppliers.

Eagle Alcohol

then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that garner

a premium to bulk alcohols.

Eagle Alcohol delivers products to customers in the beverage, food, pharma, and related-process industries

via its own dedicated trucking fleet and common carrier.

Eagle Alcohol generated over $35 million in revenues in 2021.

Eagle Alcohol

is now one of our wholly-owned subsidiaries, and its former president, Dan Croghan, who has many years of experience and expertise in

the chemical and alcohol distribution industry, continues on as our employee.

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

15 unchanged sentences

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 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

of our production facilities are currently operating and have been operating through all of the first 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.

Production Capacity

(estimated, in gallons)

Production Facility

Fuel-Grade Ethanol

Specialty Alcohol

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

We also market fuel-grade ethanol produced by third

and Distribution Segment

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

We also market and distribute alcohol

produced by third parties.

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

1 unchanged sentence

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.

renewable fuel 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

3 unchanged sentences

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.

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.

6 unchanged sentences

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.

Current Initiatives and Outlook

Our decision to diversify further into specialty

alcohols and essential ingredients provided a buffer against macroeconomic challenges and weak renewable fuel crush margins in the first

quarter of 2022.

As a result, we generated positive gross margins and, despite generating a net loss of $2.6 million, we generated positive

Adjusted EBITDA of $4.4 million for the quarter notwithstanding a challenging market environment.

We define Adjusted EBITDA as earnings

before interest, taxes, depreciation and amortization, or EBITDA, adjusted for asset impairments, loss on extinguishment of debt, acquisition-related

expense and fair value adjustments.

A table reconciling Adjusted EBITDA to unaudited net income or loss attributed to Alto Ingredients,

is included below.

During the quarter, we remained focused on managing

the areas of our business within our control by executing on our strategic goals, investing for future growth and further diversifying

and high-grading our product offerings.

As noted above, we acquired Eagle Alcohol, an established leader in premium alcohol distribution.

The acquisition expands our product offerings and broadens our target markets, including by accelerating our ability to capture additional

high-margin sales.

We expect Eagle Alcohol to contribute $4.0 million in EBITDA for 2022 and $9.0 million in EBITDA annually starting

in 2023, including synergies.

We plan to invest $5.0 million in 2022 to further enhance our specialty alcohol quality and distribution

before fourth quarter contract negotiations begin.

In February, we expanded our portfolio of certifications

by qualifying for two additional internationally-recognized certifications at our Pekin Campus.

We received a certification for active

pharmaceutical ingredients and a second certification for the use of excipients.

Together with the certifications we received in 2021,

these new certifications create redundancy across our entire Pekin Campus.

The certifications increase our appeal to customers who require

a consistent, documented supply of high-grade alcohols for use in pharmaceutical, health, home and beauty, and distilled spirits products.

As a result, we are expanding existing relationships and attracting new customers domestically and in growing international markets for

these higher-margin specialty alcohols.

As previously reported, 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

In the first quarter, we made progress installing the system and expect to see initial benefits from the corn oil extraction part

of the system in the second half of this year, generating $4.0 million of EBITDA on an annualized basis.

We expect to complete the protein

enhancement part of the system by early 2023, producing an additional $5.0 million of EBITDA annually based on current market prices.

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.

three other dry mills following its successful installation at our Magic Valley facility with the goal of having them fully operational

The total investment for all four facilities is $70.0 million.

Assuming similar economics across all four dry mills, we estimate

that the systems will contribute $34.0 million in EBITDA annually based on current market values.

We have begun expanding corn storage at our Pekin

Campus to increase our corn-buying flexibility and reduce our need to purchase product at premium prices when farmers and elevators have

stopped shipping corn, including during holidays or unfavorable weather conditions.

This capital improvement project represents an investment

of approximately $6.0 million, which we expect will yield over $2.0 million in EBITDA annually with a payback in less than three years

beginning in the first quarter of 2023.

We continue to reinvest in our facilities by upgrading

equipment and operating systems to increase efficiency and plant reliability.

For example, after only a nominal expense, we are now able

to load corn oil into railcars across all our facilities, expanding our access to higher value corn oil markets.

We are planning similar

capital expenditure projects that are ongoing in nature.

We will provide periodic updates on these projects as they develop throughout

We are also evaluating an investment to bypass

the local natural gas utility at our Pekin Campus, which we estimate would reduce natural gas prices by 11% based on 2021 values.

investment would also create an opportunity to sell renewable natural gas produced at our Pekin Campus directly into the pipeline.

investment would be approximately $9.0 million in 2023 and yield a return of approximately $5.0 million in EBITDA annually beginning in

In addition, we remain actively engaged with third

parties to evaluate a carbon capture and sequestration program at our Pekin Campus.

We will continue to pursue additional profitable opportunities

with a focus on 2024 and beyond.

Earlier this year, we created an environmental,

social and governance, or ESG, committee consisting of senior executives, subject matter experts and members of our board of directors.

Our ESG committee completed an extensive review with a third party and refined our ESG strategy.

As part of this process, we promoted

Stacy Swanson, who led our rigorous certification efforts, to head our day-to-day ESG programs in the newly created position of Vice President

of Quality and Sustainability.

As a producer and distributor of high-quality, bio-based alcohols, we are committed to creating a greener

We have launched initiatives, set baselines and begun tracking resources to improve employee health and safety and further

reduce environmental impacts.

As illustrated by our quality certifications, we are committed to producing ingredients for our customers

that embody the highest levels of integrity, purity and quality for products that touch multiple areas of people’s lives.

forward to providing periodic updates on our ESG strategy and greater transparency of our many accomplishments to date and of our activities

moving forward.

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

Management believes that certain financial measures

not in accordance with generally accepted accounting principles, or GAAP, are useful measures of operations.

We define Adjusted EBITDA

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

before interest expense, interest income, provision (benefit) for

income taxes, asset impairments, loss on extinguishment of debt, acquisition-related expense, fair value adjustments, 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

A table is provided below to reconcile Adjusted EBITDA to its most directly comparable GAAP measure, net income

(loss) attributed to Alto Ingredients, Inc.

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

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 our performance on a period-over-period basis.

Adjusted 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, Inc.

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.

Adjusted EBITDA has limitations as an analytical tool and you should not consider

this measure in isolation or as a substitute for analysis of the company's 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, Inc.

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:

not able to provide a quantitative reconciliation of forward-looking EBITDA to forward-looking net income (loss) attributed to Alto Ingredients,

because certain items required for reconciliation are uncertain, outside of our control and/or cannot be reasonably predicted, such

as net sales, cost of goods sold, provision (benefit) for income taxes, asset impairments and fair value adjustments, which we view as

the most material components of net income (loss) attributed to Alto Ingredients, Inc.

that are not presently estimable.

Reconciliation of Adjusted EBITDA to Net Income

Three Months Ended

(in thousands) (unaudited)

Net income (loss)

Interest expense

Interest income

Acquisition-related expense

Asset impairments

Depreciation and amortization expense

Total adjustments

Adjusted EBITDA

Accounting Policies and Estimates

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.

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.

We believe that of our significant accounting policies, the following critical accounting

policies and estimates are 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;

accounting for business

combinations;

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, 2020.

valuation allowance for deferred taxes and derivative

Except as noted below, these significant accounting principles are more fully described in “Management’s

Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in

our Annual Report on Form 10-K for the year ended December 31, 2021.

for Business Combinations

the fair value of assets acquired and liabilities assumed in a business combination is considered a critical accounting estimate because

the allocation of the purchase price to assets acquired and liabilities assumed based upon fair values requires significant management

judgment and the use of subjective measurements.

Variability in industry conditions and changes in assumptions or subjective measurements

used to allocate fair value are reasonably possible and may have a material impact on our financial position, liquidity or results of

of Operations

3 unchanged sentences

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)

Specialty alcohol production gallons sold (in millions)

Third party fuel-grade ethanol 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 essential ingredients tons sold (in thousands)

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

Average CBOT fuel-grade ethanol price per gallon

Average CBOT corn price per bushel

fuel production gallons sold (in millions)

alcohol production gallons sold (in millions)

party renewable fuel gallons sold (in millions)

gallons sold (in millions)

gallons produced (in millions)

capacity utilization

sales price per gallon

cost per bushel—CBOT equivalent

essential ingredients tons sold (in thousands)

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

CBOT ethanol price per gallon

CBOT corn price per bushel

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

3 unchanged sentences

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

September 30,

Sales, Cost of Goods Sold and Gross Profit

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):

Cost of goods sold

Gross profit (loss)

Percentage of net sales

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.

increase in our consolidated net sales for the three months ended March 31, 2022 as compared to the same period in 2021 was primarily

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

in third-party gallons sold.

We marketed fewer third-party gallons during the quarter as we ended our contractual relationship with one

of the ethanol plants for which we previously sold its production.

On a consolidated basis, our average sales price per gallon increased

26.8% to $2.46 for the three months ended March 31, 2022 as compared to $1.94 for the same period in 2021.

The increase in our average

sales price per gallon primarily reflects supply constraints that translated into higher ethanol prices.

The average Chicago Board of

Trade, or CBOT, fuel-grade ethanol price per gallon, increased 35.0% to $2.16 for the three months ended March 31, 2022 as compared to

$1.60 for the same period in 2021.

Campus Production Segment

sales of alcohol from our Pekin Campus production segment increased by $21.0 million, or 22%, to $116.1 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.

ended March 31, 2022 as compared to $95.1 million for the same period in 2021.

Our total volume of production gallons sold declined by

1.3 million gallons, or 3%, to 49.3 million gallons for the three months ended March 31, 2022 as compared to 50.6 million gallons for

the same period in 2021.

At our Pekin Campus production segment’s average sales price per gallon of $2.35 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 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.

ended March 31, 2022, we generated $3.0 million less in net sales from our Pekin Campus production segment from the 1.3 million fewer

gallons of alcohol sold in the three months ended March 31, 2022 as compared to the same period in 2021.

The increase of $0.47, or 25%,

in our Pekin Campus production segment’s average sales price per gallon in the three months ended March 31, 2022 as compared to

the same period in 2021 improved our net sales from our Pekin Campus production segment by $24.0 million.

sales of essential ingredients increased $10.2 million, or 23%, to $55.3 million for the three months ended March 31, 2022 as compared

to $45.1 million for the same period in 2021.

Our total volume of essential ingredients sold increased by 12,000 tons, or 5%, to 242,000

tons for the three months ended March 31, 2022 from 230,000 tons for the same period in 2021.

At our average sales price per ton of $228.31

for the three months ended March 31, 2022, we generated $2.8 million more in net sales from the 12,000 additional tons of essential ingredients

sold in the three months ended March 31, 2022 as compared to the same period in 2021.

The increase of $32.36, or 17%, in our average

sales price per ton for the three months ended March 31, 2022 as compared to the same period in 2021 increased our net sales from our

Pekin Campus production segment by $7.4 million.

and Distribution Segment

sales of alcohol from our marketing and distribution segment, excluding intersegment sales, decreased by $3.2 million, or 6%, to $54.2

million for the three months ended March 31, 2022 as compared to $57.4 million for the same period in 2021.

volume of third party alcohol sold reported gross by our marketing and distribution segment

decreased by 6.8 million gallons, or 25%, to 19.9 million gallons for the three months ended

March 31, 2022 as compared to 26.7 million gallons for the same period in 2021.

At our marketing

and distribution segment’s average sales price per gallon of $2.71 for the three months

ended March 31, 2022, we generated $18.4 million less in net sales from our marketing and

distribution segment from the 6.8 million fewer gallons of third-party alcohol sold gross

in the three months ended March 31, 2022 as compared to the same period in 2021.

volume of alcohol sold reported net by our marketing and distribution segment decreased by 16.5 million gallons, or 60%, to 10.8 million

gallons for the three months ended March 31, 2022 as compared to 27.3 million gallons for the same period in 2021.

The decrease in third-party

alcohol volume sold reported net reduced net sales by less than $0.1 million.

$0.57 per gallon, or 27%, increase in our marketing and distribution segment’s average sales price per gallon for the three months

ended March 31, 2022 as compared to the same period in 2021 resulted in a $15.3 million increase in our net sales from third-party fuel-grade

ethanol sold by our marketing and distribution segment.

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

sales of alcohol from our other production segment increased by $43.8 million, or 274%, to $59.8 million for the three months ended March

31, 2022 as compared to $16.0 million for the same period in 2021.

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 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

Our total volume of alcohol sold increased by 15.8 million gallons,

or 214%, to 23.2 million gallons for the three months ended March 31, 2022 as compared to 7.4 million gallons for the same period in

At our other production segment’s average sales price per gallon of $2.58 for the three months ended March 31, 2022, we generated

$40.7 million of additional net sales from our other production segment from the 15.8 million additional gallons of alcohol sold in the

three months ended March 31, 2022 as compared to the same period in 2021.

The increase of $0.42, or 20%, in our other production segment’s

average sales price per gallon for the three months ended March 31, 2022 as compared to the same period in 2021 improved our net sales

from our other production segment by $3.1 million.

sales of essential ingredients increased by $13.8 million, or 271%, to $18.9 million for the three months ended March 31, 2022 as compared

to $5.1 million for the same period in 2021.

Our total volume of essential ingredients sold increased by 110,000 tons, or 234%, to 157,000

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

tons for the three months ended March 31, 2022 from 47,000 tons for the same period in 2021.

At our average sales price per ton of $120.87

$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 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 $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 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 $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 $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 $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 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

for the three months ended March 31, 2022, we generated $13.2 million of additional net sales from our other production segment from

the 110,000 additional tons of essential ingredients sold in the three months ended March 31, 2022 as compared to the same period in

The increase of $11.12, or 10%, in our average sales price per ton for the three months ended March 31, 2022 as compared to the

same period in 2021 increased our net sales of essential ingredients from our other production segment by $0.6 million.

sales of alcohol from corporate and other represented $3.8 million associated with our sales from Eagle Alcohol.

of Goods Sold and Gross Profit

Our consolidated gross profit declined to $4.8 million for the three

months ended March 31, 2022 from $13.8 million for the same period in 2021, representing a gross profit margin of 1.5% for the three months

ended March 31, 2022 compared to 6.3% for the same period in 2021.

Our consolidated gross profit declined due to extreme commodity price

volatility, drawn-out supply chains, rail and operational disruptions, rising transportation costs and weak renewable fuel crush margins.

In addition, our cost of goods sold includes $7.0 million in non-cash mark-to-market inventory adjustments and unrealized losses recorded

on our forward derivative positions.

Campus Production Segment

Pekin Campus production segment’s gross profit declined by $9.9 million to $3.3 million for the three months ended March 31, 2022

as compared to $13.2 million for the same period in 2021.

This decline in gross profit is largely attributable to lower margins from

sales of essential ingredients.

Our higher sales prices for essential ingredients did not outweigh higher corn prices.

In addition, we

had lower sales volumes from our Pekin Campus due to a lower capacity utilization rate for the three months ended March 31, 2022 as compared

to the same period in 2021 due to plant maintenance and related shutdowns.

and Distribution Segment

marketing and distribution segment’s gross profit (loss) declined by $4.0 million to a gross loss of $0.4 million for the three

months ended March 31, 2022 as compared to $3.6 million for the same period in 2021.

Of this decline, $3.9 million is attributable to

lower margins from sales of third-party fuel-grade ethanol due to increased volatility in ethanol pricing and $0.1 million is attributable

to lower sales volumes for the three months ended March 31, 2022 as compared to the same period in 2021 as we ended our contractual relationship

with one of the third-party ethanol plants for which we previously sold its production.

Production Segment

other production segment’s gross profit improved by $4.0 million to a gross profit of $1.0 million for the three months ended March

31, 2022 as compared to a gross loss of $3.0 million for the same period in 2021.

Of this improvement, $3.3 million is attributable to

improved margins on fuel-grade ethanol and $0.7 million is attributable to higher sales volumes as we restarted our Magic Valley facility

in November 2021.

profit from corporate and other of $0.9 million was associated with our sales from Eagle Alcohol.

General and Administrative Expenses

following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in

thousands, except percentages):

general and administrative expenses

Our SG&A expenses increased for the three months ended March 31,

2022 as compared to the same period in 2021.

Pekin Campus Production Segment

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 $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

Marketing Segment

Our marketing segment’s gross profit improved

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 $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 $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

Administrative Expenses

The following table presents

our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages):

Three 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

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

our interest expense, net in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Interest Expense, net

Percentage of net sales

Our interest expense declined for the three and

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

The declines are primarily due to lower debt balances for

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

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 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

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).

September 30,

Cash and cash equivalents

The $0.6 million period over period increase in SG&A expenses is primarily due to a $0.9

million acquisition-related accrual for future cash payments attributable to our acquisition of Eagle Alcohol, partially offset by lower

professional fees.

Income (Loss) Available to Common Stockholders

following table presents our net income (loss) available to common stockholders in dollars and as a percentage of net sales (in thousands,

except percentages):

(loss) available to Common Stockholders

decrease in net income available to common stockholders is primarily due to our lower gross

profit and higher SG&A expenses, partially offset by lower interest expense, for the

three months ended March 31, 2022 as compared to the same period in 2021.

and Capital Resources

During the three months ended March 31, 2022,

we funded our operations primarily from cash generated by our operations, proceeds from lines of credit and cash on hand.

funds were also used to acquire Eagle Alcohol and for capital expenditures.

As of March 31, 2022, we had $60.0 million in cash, cash

equivalents and restricted cash and $15.2 million available for borrowing under Kinergy’s operating line of credit.

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.

We may, however, in the future, seek and obtain additional capital in the form of secured debt

to provide additional funds for accretive projects.

Year-End Liquidity Status

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, cash equivalents

and restricted cash

Current assets

1 unchanged sentence

Current liabilities

Long-term debt, noncurrent portion

Long-term debt

Working capital

Working capital ratio

Restricted Net Assets

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,

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

Changes in Working Capital and Cash Flows

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

in accounts receivable and higher inventory values due to increased commodity prices for both alcohol and corn from the prior period,

partially offset by a reduction in assets held-for-sale 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 $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 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 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.

in Working Capital and Cash Flows

capital improved to $161.0 million at March 31, 2022 from $159.9 million at December 31, 2021 as a result of an increase of $11.7 million

in current assets, partially offset by an increase of $10.6 million in current liabilities.

assets increased primarily due to an increase in notes receivable as they became current due to their revised maturity date to June 30,

current liabilities increased primarily due to an increase in derivative instruments due to the end of period change in commodity prices

for open contracts.

cash, cash equivalents and restricted cash declined by $2.1 million primarily due to $17.0 million used in our investing activities,

partially offset by $11.1 million in cash provided by our operating activities and $3.8 million in cash provided by our financing activities.

provided by our Operating Activities

generated $11.1 million in cash from our operating activities during the three months ended March 31, 2022, as compared to $4.5 million

in cash used in our operations for the same period in 2021.

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

activities include:

increase of $24.8 million related to higher accounts receivable balances due to the timing

increase of $14.5 million related to higher inventories due to increased commodity prices;

increase of $10.8 million related to other assets primarily related to derivative activity;

increase of $5.2 million from gains on derivative instruments due to the recent rise in corn

amounts were partially offset by:

decrease of $7.3 million in our consolidated net income due to lower margins from alcohol

decrease of $30.1 million related to accounts payable due to the timing of payments.

used in our Investing Activities

used $14.7 million of cash to acquire Eagle Alcohol, net of cash acquired, and $2.3 million of cash for additions to property and equipment

in our investing activities for the three months ended March 31, 2022.

provided by our Financing Activities

provided by our financing activities was $3.8 million for the three months ended March 31, 2022, which reflects net

proceeds of $3.3 million from Kinergy’s operating line of credit and $0.8 million in principal payments received on our notes

receivable, partially offset by $0.3 million paid in preferred dividends.

Operating Line of Credit

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 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.

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.

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.

that may be made by Kinergy to Alto Ingredients, Inc.

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

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 indirect wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral.

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

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

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

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).

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:

Three Months Ended

Fixed-Charge Coverage Ratio Requirement

Alto Ingredients, Inc.

guaranteed all of Kinergy’s obligations 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, 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 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

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.

On 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.

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,

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.

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 nine months ended September 30, 2021 and 2020.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

Alto Nutrients markets

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

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.

believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio covenant as of the filing of this report.

following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented:

Coverage Ratio Requirement

Ingredients, Inc.

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

As of March 31, 2022, Kinergy had an outstanding

balance of $53.7 million and $15.2 million of unused borrowing availability under the credit facility.

impact of inflation was not significant to our financial condition or results of operations for the three months ended March 31, 2022

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-Q

Item 2. Management’s Discussion and Analysis