What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 625 added, 407 removed, 71 unchanged (94% of the section changed)

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

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

financial statements included elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated

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

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

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

The forward-looking statements and

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

The following discussion and

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

elsewhere in this report.

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

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

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

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

The forward-looking statements and associated risks may

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

● fluctuations

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trends in our financial condition and results of operations;

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

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

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

statements, except as required by law.

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

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

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

to fluctuate substantially.

are a leading producer and 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 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.

ability to distinguish ourselves from our current and future competitors.

You are cautioned not to place

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

by reference, as of the date of that document.

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

as required by law.

Any of the factors described

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

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

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

We are a leading producer and

distributor of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States.

We operate five alcohol production

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 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.

We report our financial and

operating performance in three segments:

(1) marketing and distribution, which includes marketing and merchant trading for Company-produced

alcohols and essential ingredients on an aggregated basis and third party fuel-grade ethanol 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.

Our mission is to expand

our business as a leading producer and distributor 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.

On 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.

Eagle 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 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, and related-process industries via its own dedicated trucking fleet

and common carrier.

Eagle Alcohol generated over $35.0 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:

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.

Production Segments

We produce specialty alcohols,

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

Health, Home & Beauty ;

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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

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

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

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

Our production facilities located in the

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

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

Our production facilities located on the

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

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)

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.

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.

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

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

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

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

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

These customers

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

We sell our corn oil to poultry

and biodiesel customers.

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 dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid feed used in

commercial animal feed and pet foods.

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

for renewable diesel and biodiesel fuels.

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.

All of our production facilities are currently

operating and have been operating through all of 2022.

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)

Marketing and Distribution Segment

We 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.

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 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 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 producers.

for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service

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

We market our essential ingredient

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

These customers use our feed products for

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

We sell our corn oil to poultry and biodiesel customers.

We do not market essential ingredients from other producers.

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

information about our business segments.

See “Note 3 –

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

business segments.

Current Initiatives and Outlook

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,

alcohols and essential ingredients continues to serve us well.

As a result, we generated positive net income and $29.9 million in Adjusted

EBITDA for the second quarter, which included $22.7 million in cash from the USDA’s Biofuel Producer Program under the Cares Act

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, Inc.

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.

During the quarter, and despite macro-economic

challenges, we remained focused on our plans and managing the areas of our business within our control, including upgrades to equipment

and operating systems to increase plant efficiency and reliability;

corn storage capacity expansion;

enhancement and broader distribution

of our specialty alcohol production;

and investment in our essential ingredients business.

These capital improvement projects will strengthen

and improve our asset base and generate greater profitability over time.

In the second quarter, with our improved liquidity,

we accelerated many repair and maintenance projects as well as several equipment upgrades throughout our asset portfolio.

end of the second quarter, we invested over $15.0 million in capital improvements and repair and maintenance projects.

For example, we

purchased two new state-of-the-art boilers for our Pekin Campus to enhance our steam capabilities and increase interconnectivity between

our Pekin and ICP facilities.

This increased capacity will allow us to replace three older boiler units.

Our new boiler system will be

more reliable and efficient resulting in lower energy use and costs.

Additional redundancy from the new boilers will also increase our

control of energy access across our Pekin Campus.

We prioritized upgrades to specialty alcohol equipment

at our Pekin wet mill to align with higher quality standards for our beverage customers.

With these upgrades, our equipment will be best-in-class

and enable us to meet the highest quality requirements for specialty alcohols and service additional beverage customers, further increasing

the strategic synergies of our Eagle Alcohol acquisition.

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 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.

The project consists of two phases, the first for further extracting corn oil and the second for separating and producing enhanced

The corn oil extraction phase is complete.

Based on better than expected preliminary results, we intend to accelerate installation

of corn oil extraction technologies at our three other dry mills.

We remain on track to begin producing high-protein co-products at our

Magic Valley facility in early 2023 which will assist in our decision on how to roll out the technology to our other facilities.

Magic Valley facility alone, on an annual basis and at current market values, we expect the system will enable us to produce over 33,000

tons of greater than 50% protein content feed, increase corn oil yields to approximately 50%, or 9 million pounds, and contribute over

$9.0 million in EBITDA.

Assuming similar economics across all four dry mills, we estimate that the systems, when installed and fully operational,

will contribute in total $34.0 million in EBITDA annually based on current market values.

We are expanding our corn storage capacity at our

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

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

We expect to complete this project by mid-November.

The project will approximately double our days of storage capacity at the site and meet our goal of additional capacity prior to the 2022

holidays and winter weather.

We expect this project to yield over $2.0 million in EBITDA annually beginning in the fourth quarter of 2022.

Other upgrades include enhancements and expansion

of our corn oil production at our ICP facility;

increased corn oil storage and railcar loadout capabilities across all locations;

improvements for our ICP facility, which include truck access to the plant and scale upgrades;

control systems upgrades at our wet mill’s

and a rebuild of one of two turbines at our wet mill.

These projects are examples of our commitment to upgrade our facilities

to improve efficiency and reliability.

We are also working on longer-term projects.

are in the engineering and design phase of a project to bypass the local natural gas utility at our Pekin Campus with the goal of yielding

an impact by the end of 2023.

This investment would also create an opportunity to sell renewable natural gas produced at our Pekin Campus

directly into the pipeline.

We expect this investment to yield a return of approximately $5.0 million in EBITDA annually beginning in

We also remain active in evaluating a carbon capture

and sequestration program at our Pekin Campus.

Senate’s recent approval of the Inflation Reduction Act, if ultimately signed

into law, would significantly improve project economics, raising the carbon capture tax credit from $50 per metric ton to $85 per metric

We produce over 700,000 metric tons of CO 2 per year at our Pekin Campus.

This site sits atop the Mt.

Simon formation,

identified as one of the best and largest aquafers in the country for sequestration.

To maximize the value of our CO 2 , we have

actively pursued numerous options ranging from development of a stand-alone project to the sale of CO 2 to one of the various

pipelines currently under development in the area.

Approval of this legislation, if it occurs, will help us clarify our strategy and alternatives,

and accelerate our decisions around, and implementation of, this important project.

As previously disclosed, in the first quarter we

acquired Eagle Alcohol, an established leader in premium alcohol distribution.

Thus far, Eagle Alcohol’s break bulk, tote and drum

sales are in-line with our expectations, although higher freight costs have resulted in some profit compression.

We have completed Eagle

Alcohol’s physical integration into our broader business.

We have also made progress against our plan to leverage Eagle Alcohol’s

distribution base to offer our products in totes and drums.

In addition, we have expanded our customer base through Eagle Alcohol’s

relationships, which we believe will yield significant benefits in the coming years.

We expect Eagle Alcohol to contribute $4.0 million

in EBITDA for 2022 and between $8.0 million and $9.0 million in EBITDA annually starting in 2023, including synergies.

Looking ahead to the third quarter, although forward

crush margins remain positive, we are coming into a late harvest with high corn basis and low corn inventories.

We anticipate a moderation

in corn basis and corn prices once we progress into the harvesting period.

In anticipation of these factors, we have scheduled much of

our fall maintenance and repairs in August to reduce our relative use of corn and minimize the impact of short-term higher commodity prices.

This maintenance and these repairs will entail brief multi-day shutdowns of our dry mills.

Our wet mill, the shut-down of which would

have the most significant adverse financial impact, is not scheduled for shut down during this period.

Use of Non-GAAP Measures

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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.

as net sales, cost of goods sold, provision (benefit) for income taxes and asset impairments, which we view as the most material components

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

that are not presently estimable.

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Three Months Ended

Six Months Ended

(in thousands) (unaudited)

Net income (loss)

Interest expense

Interest income

Acquisition-related expense

Asset impairments

Acquisition-related expense

Depreciation and amortization expense

1 unchanged sentence

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:

Critical Accounting Policies and Estimates

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.

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;

accounting for business combinations;

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

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

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

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

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

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

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

future price of corn for Chicago delivery.

(2) Essential

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

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

Sales, Cost of Goods Sold and Gross Profit

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):

allowance for deferred taxes and derivative instruments.

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.

Accounting for Business

Determining 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 operations.

Results of Operations

The following selected financial

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

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

and Results of Operations” contained in this report.

Certain performance metrics

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

Renewable fuel production gallons sold (in

Specialty alcohol production gallons sold (in millions)

Third party renewable fuel 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

Delivered cost of corn

Total essential ingredients tons sold (in thousands)

Essential ingredients revenues as

% of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

(1) Corn basis represents the

difference between the immediate cash price of delivered corn and the future price of corn

for Chicago delivery.

(2) Essential ingredients revenues

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

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

Net Sales, Cost of

Goods Sold and Gross Profit

The following table presents

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

Cost of goods sold

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 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 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.

Percentage of net sales

The increase in our consolidated

net sales for the three and six months ended June 30, 2022 as compared to the same period in 2021 was primarily due to an increase in

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

Our production gallons

sold and our volume of essential ingredients sold increased for both the three and six months ended June 30, 2022 as compared to the

same periods in 2021 primarily due to production from our Magic Valley facility operating in the first half of 2022, whereas the

facility was idled during the first half of 2021, and from increased export and industrial demand.

Specialty alcohols contributed

25.8 million gallons for the three months ended June 30, 2022, in line with our 2022 contracted volume of 90 million gallons.

third-party gallons sold declined as compared to the same periods in 2021, reflecting our strategy to focus our marketing and sales

efforts around our own core production assets.

Three Months Ended

June 30, 2022 and 2021

On a consolidated basis,

our average sales price per gallon increased by 18% to $2.84 for the three months ended June 30, 2022 as compared to $2.41 for the same

period in 2021.

The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, however, decreased 6% to $2.16 for

the three months ended June 30, 2022 as compared to $2.30 for the same period in 2021.

Pekin Campus Production

Net sales of alcohol from

our Pekin Campus production segment increased by $11.5 million, or 9%, to $143.8 million for the three months ended June 30, 2022 as

compared to $132.3 million for the same period in 2021.

Our total volume of production gallons sold decreased by 3.0 million

gallons, or 5%, to 54.5 million gallons for the three months ended June 30, 2022 as compared to 57.5 million gallons for the same

period in 2021.

At our Pekin Campus production segment’s average sales price per gallon of $2.64 for the three months ended

June 30, 2022, we generated $7.9 million less in net sales from our Pekin Campus production segment from the 3.0 million fewer

gallons of alcohol sold in the three months ended June 30, 2022 as compared to the same period in 2021.

The increase of $0.34, or

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

15%, in our Pekin Campus production segment’s average sales price per gallon in the three months ended June 30, 2022 as

compared to the same period in 2021 improved our net sales from our Pekin Campus production segment by $19.4 million.

Net sales of essential

ingredients increased by $10.3 million, or 21%, to $59.9 million for the three months ended June 30, 2022 as compared to $49.6

million for the same period in 2021.

Our total volume of essential ingredients sold decreased by 4,300 tons, or 2%, to 217,900 tons

for the three months ended June 30, 2022 from 222,200 tons for the same period in 2021.

The increase of $51.56, or 23%, in our

average sales price per ton for the three months ended June 30, 2022 as compared to the same period in 2021 increased our net sales

from our Pekin Campus production segment by $11.5 million.

At our average sales price per ton of $274.68 for the three months ended

June 30, 2022, we generated $1.2 million less in net sales from the 4,300 fewer tons of essential ingredients sold in the three

months ended June 30, 2022 as compared to the same period in 2021.

Marketing and Distribution

Net sales of fuel-grade ethanol from our marketing

and distribution segment reported gross, excluding intersegment sales, decreased by $23.0 million, or 26%, to $63.8 million for the three

months ended June 30, 2022 as compared to $86.8 million for the same period in 2021.

Our volume of third party fuel-grade ethanol gallons

sold reported gross by our marketing and distribution segment declined by 12.6 million gallons, or 38%, to 20.8 million gallons for the

three months ended June 30, 2022 as compared to 33.4 million gallons for the same period in 2021.

At our marketing and distribution segment’s

average sales price per gallon of $3.06 for the three months ended June 30, 2022, we generated $38.5 million less in net sales from our

marketing and distribution segment from the 12.6 million fewer gallons of third-party fuel-grade ethanol sold gross in the three months

ended June 30, 2022 as compared to the same period in 2021.

The $0.47 per gallon, or 18%, increase in our

marketing and distribution segment’s average sales price per gallon for the three months ended June 30, 2022 as compared to the

same period in 2021 resulted in a $15.8 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by

our marketing segment.

Our volume of third party fuel-grade ethanol gallons

sold reported net by our marketing and distribution segment decreased by 16.7 million gallons, or 64%, to 9.2 million gallons for the

three months ended June 30, 2022 as compared to 25.9 million gallons for the same period in 2021.

The decrease in third-party fuel-grade

ethanol gallons sold reported net reduced net sales by $0.3 million.

Other Production Segment

Net sales of alcohol from

our other production segment increased by $45.0 million, or 203%, to $67.2 million for the three months ended June 30, 2022 as compared

to $22.2 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 $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 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

Our total volume of gallons sold increased by 14.4 million gallons, or 176%, to 22.6 million

gallons for the three months ended June 30, 2022 as compared to 8.2 million gallons for the same period in 2021.

At our other production

segment’s average sales price per gallon of $2.97 for the three months ended June 30, 2022, we generated an additional $42.8 million

in net sales from our other production segment from the 14.4 million additional gallons of alcohol sold in the three months ended June

30, 2022 as compared to the same period in 2021.

The increase of $0.27, or 10%, in our other production segment’s average sales

price per gallon for the three months ended June 30, 2022 as compared to the same period in 2021 improved our net sales from our other

production segment by $2.2 million.

Net sales of essential ingredients

increased by $16.1 million, or 221%, to $23.4 million for the three months ended June 30, 2022 as compared to $7.3 million for the same

period in 2021.

Our total volume of essential ingredients sold increased by 114,400 tons, or 140%, to 196,200 tons for the three months

ended June 30, 2022 from 81,800 tons for the same period in 2021.

At our average sales price per ton of $119.12 for the three months

ended June 30, 2022, we generated an additional $13.6 million in net sales from the 114,400 additional tons of essential ingredients

sold in the three months ended June 30, 2022 as compared to the same period in 2021.

The increase of $30.47, or 34%, in our average sales

price per ton for the three months ended June 30, 2022 as compared to the same period in 2021 increased our net sales from our other

production segment by $2.5 million.

Corporate and other

Net sales of alcohol from

corporate and other represented $4.1 million associated with our sales from Eagle Alcohol for the three months ended June 30, 2022.

Six Months Ended June

30, 2022 and 2021

On a consolidated basis,

our average sales price per gallon increased by 22% to $2.65 for the six months ended June 30, 2022 as compared to $2.17 for the same

period in 2021.

The average CBOT fuel-grade ethanol price per gallon, increased by 8% to $2.16 for the six months ended June 30, 2022

as compared to $2.00 for the same period in 2021.

Pekin Campus Production

Net sales of alcohol from

our Pekin Campus production segment increased by $32.4 million, or 14%, to $259.8 million for the six months ended June 30, 2022 as compared

to $227.4 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 March 31, 2022 from 47,000 tons for the same period in 2021.

At our average sales price per ton of $120.87

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,

Our total volume of production gallons sold declined by 4.4 million gallons, or 4%, to

103.8 million gallons for the six months ended June 30, 2022 as compared to 108.2 million gallons for the same period in 2021.

of $0.40, or 19%, in our Pekin Campus production segment’s average sales price per gallon in the six months ended June 30, 2022

as compared to the same period in 2021 improved our net sales from our Pekin Campus production segment by $43.4 million.

Campus production segment’s average sales price per gallon of $2.50 for the six months ended June 30, 2022, we generated $11.0

million less in net sales from our Pekin Campus production segment from the 4.4 million fewer gallons of alcohol sold in the six months

ended June 30, 2022 as compared to the same period in 2021.

Net sales of essential ingredients

increased by $20.5 million, or 22%, to $115.1 million for the six months ended June 30, 2022 as compared to $94.6 million for the same

period in 2021.

Our total volume of essential ingredients sold declined by 6,900 tons, or 2%, to 426,800 tons for the six months ended

June 30, 2022 from 433,700 tons for the same period in 2021.

At our average sales price per ton of $269.76 for the six months ended June

30, 2022, we generated $1.8 million less in net sales from the 6,900 fewer tons of essential ingredients sold in the six months ended

June 30, 2022 as compared to the same period in 2021.

The increase of $51.51, or 24%, in our average sales price per ton for the six

months ended June 30, 2022 as compared to the same period in 2021 increased our net sales from our Pekin Campus production segment by

$22.3 million.

Marketing and Distribution

Net sales of fuel-grade ethanol from our marketing

and distribution segment reported gross, excluding intersegment sales, decreased by $26.1 million, or 18%, to $118.2 million for the

six months ended June 30, 2022 as compared to $144.3 million for the same period in 2021.

Our volume of third party fuel-grade ethanol gallons

sold reported gross by our marketing and distribution segment declined by 19.5 million gallons, or 32%, to 40.7 million gallons for the

six months ended June 30, 2022 as compared to 60.2 million gallons for the same period in 2021.

At our marketing segment’s average

sales price per gallon of $2.89 for the six months ended June 30, 2022, we generated $56.2 million less in net sales from our marketing

and distribution segment from the 19.5 million fewer gallons of third-party fuel-grade ethanol sold gross in the six months ended June

30, 2022 as compared to the same period in 2021.

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

The $0.51 per gallon, or 21%, increase in our

marketing segment’s average sales price per gallon for the six months ended June 30, 2022 as compared to the same period in 2021

resulted in a $30.4 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing and distribution

Our volume of third party fuel-grade ethanol gallons

sold reported net by our marketing and distribution segment decreased by 33.0 million gallons, or 62%, to 20.1 million gallons for the

six months ended June 30, 2022 as compared to 53.1 million gallons for the same period in 2021.

The decrease in third-party fuel-grade

ethanol gallons sold reported net reduced net sales by $0.3 million.

Other Production Segment

Net sales of alcohol from

our other production segment increased $88.9 million, or 233%, to $127.0 million for the six months ended June 30, 2022 as compared to

$38.1 million for the same period in 2021.

Our total volume of gallons sold increased by 30.2 million gallons, or 195%, to 45.7 million

gallons for the six months ended June 30, 2022 as compared to 15.5 million gallons for the same period in 2021.

At our other production

segment’s average sales price per gallon of $2.78 for the six months ended June 30, 2022, we generated $83.9 million in additional

net sales from the 30.2 million additional gallons of alcohol sold in the six months ended June 30, 2022 as compared to the same period

The increase of $0.32, or 13%, in our other production segment’s average sales price per gallon for the six months ended

June 30, 2022 as compared to the same period in 2021 improved our net sales from our other production segment by $5.0 million.

Net sales of essential ingredients increased by

$29.9 million, or 241%, to $42.3 million for the six months ended June 30, 2022 as compared to $12.4 million for the same period in 2021.

Our total volume of essential ingredients sold increased by 238,900 tons, or 162%, to 386,100 tons for the six months ended June 30,

2022 from 147,200 tons for the same period in 2021.

At our average sales price per ton of $109.58 for the six months ended June 30, 2022,

we generated an additional $26.2 million in net sales from the 238,900 additional tons of essential ingredients sold in the six months

ended June 30, 2022 as compared to the same period in 2021.

The increase of $25.38, or 30%, in our average sales price per ton for the

six months ended June 30, 2022 as compared to the same period in 2021 increased our net sales from our other production segment by $3.7

Corporate and other

Net sales of alcohol from

corporate and other represented $7.9 million associated with our sales from Eagle Alcohol for the six months ended June 30, 2022.

Cost of Goods Sold and Gross Profit

Our consolidated gross

profit declined to $8.8 million, representing a gross profit margin of 2.4%, for the three months ended June 30, 2022 compared to

$15.2 million, representing a gross profit margin of 5.1%, for the same period in 2021.

Our consolidated gross profit declined to

$13.6 million, representing a gross profit margin of 2.0%, for the six months ended June 30, 2022 compared to $29.1 million,

representing a gross profit margin of 5.6%, for the same period in 2021.

Our consolidated gross profit for both the three and six

month periods declined due to higher overall commodity prices and extreme commodity price volatility due to inflationary pressures,

including drawn-out supply chains and greater delivery costs, and logistical and service disruptions.

In the second quarter of 2022,

our freight costs significantly increased year-over-year and doubled sequentially from the first quarter.

We also recorded $10.0 million in non-cash, unrealized

gains on our forward derivative positions, which was, however, largely offset by $10.0 million in non-cash, lower-of-cost-or-market adjustments

on ending inventories largely related to an unplanned power outage at our Pekin Campus resulting from a lightning struck at the utility

servicing our Pekin Campus.

Three Months Ended

June 30, 2022 and 2021

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross

profit declined by $3.0 million to a gross profit of $8.6 million for the three months ended June 30, 2022 as compared to $11.6 million

for the same period in 2021.

Of this decline, $2.5 million is attributable to lower margins from our specialty alcohols and

$0.5 million is attributable to decreased sales volumes in the three months ended June 30, 2022 as compared to the same period in 2021.

Marketing and Distribution Segment

Our marketing and distribution segment’s

gross profit declined by $1.3 million to $0.1 million for the three months ended June 30, 2022 as compared to $1.4 million for the same

period in 2021.

Of this reduction, less than $0.1 million is attributable to lower marketing volumes of third-party fuel-grade ethanol

and nearly $1.2 million is attributable to lower margins from sales of third-party fuel-grade ethanol for the three months ended June

30, 2022 as compared to the same period in 2021.

Other Production Segment

Our other production segment’s gross

profit declined by $2.8 million to a gross loss of $0.8 million for the three months ended June 30, 2022 as compared to a gross

profit of $2.0 million for the same period in 2021.

Of this decline, $2.5 million is attributable to lower margins for fuel-grade

ethanol and $0.3 million is attributable to increased volumes at lower margins of fuel-grade ethanol for the three months ended June

30, 2022 as compared to the same period in 2021.

Corporate and other

Gross profit from corporate

and other represented $0.9 million associated with our sales from Eagle Alcohol for the three months ended June 30, 2022.

Six Months Ended June

30, 2022 and 2021

Pekin Campus Production Segment

Our Pekin Campus production segment’s

gross profit declined by $12.2 million to a gross profit of $12.1 million for the six months ended June 30, 2022 as compared to

$24.3 million for the same period in 2021.

Of this decline, $0.7 million is attributable to lower sales volumes and $11.6 million is

attributable to lower margins from our specialty alcohols in the six months ended June 30, 2022 as compared to the same period in

Marketing and Distribution Segment

Our marketing segment’s gross profit declined

by $5.7 million to a gross loss of $0.3 million for the six months ended June 30, 2022 as compared to a gross profit of $5.4 million

for the same period in 2021.

Of this decline, $5.8 million is attributable to lower margins from sales of third-party fuel-grade ethanol,

partially offset by $0.1 million in gross profit attributable to lower marketing volumes of third-party fuel-grade ethanol for the six

months ended June 30, 2022 as compared to the same period in 2021.

Other Production Segment

Our other production segment’s gross profit

improved by $0.7 million to a gross loss of less than $0.1 million for the six months ended June 30, 2022 as compared to a gross loss

of $0.8 million for the same period in 2021.

Of this improvement, $0.7 million is attributable to higher margins and less than $0.1 million

is attributable to lower sales volumes at negative margins for the six months ended June 30, 2022 as compared to the same period in 2021.

Corporate and other

Gross profit from corporate

and other represented $1.8 million associated with our sales from Eagle Alcohol for the six months ended June 30, 2022.

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):

Selling, general and

administrative expenses

Percentage of net sales

Our SG&A expenses

increased for the three and six months ended June 30, 2022 as compared to the same period in 2021.

The period over period increases

in SG&A expenses are primarily due to increased stock compensation expenses and an acquisition-related accrual for future cash

payments attributable to our acquisition of Eagle Alcohol of $0.8 million and $1.6 million for the three and six months ended June

30, 2022, respectively.

Interest Expense,

The following table presents

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

Interest Expense, net

Percentage of net sales

Our interest expense declined

for the three and six months ended June 30, 2022 as compared to the same period in 2021.

The declines are primarily due to lower debt

balances for 2022 as compared to 2021 as we paid down all of our high interest rate term debt in the second half of 2021.

Income from Cash Grant

We applied for and received

$22.7 million in cash from the USDA’s Biofuel Producer Program.

The program was created as part of the CARES Act in 2020, which

allocated $700 million to support biofuel producers who experienced market losses due to the pandemic.

The cash grant is not required

to be repaid nor will it recur in the future.

Net Income Available

to Common Stockholders

The following table presents

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

Net income available

to common stockholders

Percentage of net sales

improvement in our net income available to common stockholders for the three and six months ended June 30, 2022 as compared to the same

periods in 2021 is primarily due to income from a CARES Act cash grant in the amount of $22.7 million.

Liquidity and Capital Resources

During the six months ended

June 30, 2022, we funded our operations primarily from cash generated by our operations, income from a cash grant under the CARES

Act, collection of notes receivable, proceeds from lines of credit and cash on hand.

These funds were also used to acquire Eagle

Alcohol and for capital expenditures.

As of June 30, 2022, we had $74.7 million in cash, cash equivalents and restricted cash and

$28.6 million available for borrowing under Kinergy’s operating line of credit.

Other than amounts outstanding under

Kinergy’s credit facility, we have no debt and we expect to further strengthen our liquidity as we complete the renewal of our

revolving line of credit in the third quarter.

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 filing 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.

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).

Cash, cash equivalents and restricted cash

Current assets

4 unchanged sentences

Working capital ratio

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.

Changes in Working Capital and Cash Flows

Working capital improved

to $178.4 million at June 30, 2022 from $159.9 million at December 31, 2021 as a result of an increase of $44.0 million in current assets,

partially offset by an increase of $25.5 million in current liabilities.

Current assets increased primarily due to an increase

in accounts receivable, inventories and derivative assets due to higher average commodity prices for the six months ended June 30, 2022.

Our current liabilities increased primarily due

to an increase in derivative instruments due to the end of period change in commodity prices for open contracts.

Our cash, cash equivalents and restricted cash

increased by $12.6 million primarily due to $20.7 million in cash provided by our operating activities and $16.3 million in cash provided

by our financing activities, partially offset by $24.4 million in cash used in our investing activities.

Cash provided by our Operating Activities

We generated $20.7 million in cash from our operating

activities during the six months ended June 30, 2022, as compared to $4.0 million for the same period in 2021.

Specific factors that contributed

to the change in cash from our operating activities include:

an increase of $6.4 million in our consolidated net income due

to a cash grant under the CARES Act and positive margins from specialty alcohol sales;

● an increase of $23.3 million related to higher accounts receivable balances due to the timing of payments and higher commodity prices;

● an increase of $3.8 million related to higher inventories due to increased commodity prices;

● a reduction of asset impairments of $3.1 million due to plants recorded as held-for-sale in the prior period.

These amounts were partially offset by:

● a decrease of $13.2 million related to accounts payable due to the timing of payments;

● an increase in other assets of $9.0 million due to changes in derivative assets related to commodity price changes;

● a decrease in income from loan forgiveness of $3.9 million due to a CARES Act loan forgiven in the prior period.

Cash used in our Investing Activities

We used $14.7 million of cash to acquire Eagle

Alcohol, net of cash acquired, and $9.8 million of cash for additions to property and equipment in our investing activities for the six

months ended June 30, 2022.

Our additions to property and equipment increased by $5.6 million for the six months ended June 30, 2022 as

compared to the same period in 2021 due to higher capital expenditures associated with our plant improvement initiatives in 2022.

Cash provided by our Financing Activities

Cash provided by our financing

activities was $16.3 million for the six months ended June 30, 2022, which reflects collections of $14.8 million from notes receivable

held in connection with the sale in 2020 of our ethanol production facilities in Aurora, Nebraska, and net proceeds of $2.2 million from

Kinergy’s operating line of credit, partially offset by $0.6 million paid in cash dividends on our preferred stock.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for

an aggregate amount of up to $100.0 million.

The credit facility matures on August 8, 2023.

Interest accrues under the credit facility at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified

applicable margin ranging from 1.75% to 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.

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

Interest accrues under the credit facility

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

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

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

Payments that may be made by Kinergy to Alto Ingredients,

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 indirect wholly-owned

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

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

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 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 June 30, 2022, Kinergy had an outstanding balance of $52.5

million and $28.6 million of unused borrowing availability under the credit facility.

Effects of Inflation

The impact of inflation was

not significant to our financial condition or results of operations for the three and six months ended June 30, 2022 and 2021.

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