What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 355 added, 329 removed, 381 unchanged (64% of the section changed)

3 unchanged sentences

(in thousands)

September 30,

Current Assets:

12 unchanged sentences

Total other assets

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

* Amounts derived from the

audited consolidated financial statements for the year ended December 31, 2021.

See accompanying notes to consolidated financial

2 unchanged sentences

(in thousands, except par value)

AND STOCKHOLDERS’ EQUITY

September 30,

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

16 unchanged sentences

1,684 shares authorized;

no shares issued and outstanding as of June 30, 2022 and December 31, 2021;

no shares issued and outstanding as of September 30, 2022 and December 31, 2021;

1,581 shares authorized;

927 shares issued and outstanding as of June 30, 2022 and December 31, 2021;

liquidation preference of $ 18,075 as of June 30, 2022

927 shares issued and outstanding as of September 30, 2022 and December 31, 2021;

liquidation preference of $ 18,075 as of September 30, 2022

Common stock, $ 0.001 par value;

300,000 shares authorized;

74,188 and 72,778 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

73,956 and 72,778 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Non-voting common stock, $ 0.001 par value;

3,553 shares authorized;

1 share issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

1 share issued and outstanding as of September 30, 2022 and December 31, 2021

Additional paid-in capital

2 unchanged sentences

Total Stockholders’ Equity

Total Liabilities

and Stockholders’ Equity

* Amounts derived from the audited consolidated financial statements for the year ended December 31, 2021.

accompanying notes to consolidated financial statements.

Total Liabilities and Stockholders’ Equity

* Amounts derived from the

audited consolidated financial statements for the year ended December 31, 2021.

See accompanying notes to consolidated financial

ALTO INGREDIENTS, INC.

2 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

5 unchanged sentences

Other income (expense), net

Income before provision for income taxes

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Preferred stock dividends

Income allocated to participating securities

Net income available to common stockholders

Net income per share, basic

Net income per share, diluted

Net income (loss) available to common stockholders

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted-average shares outstanding, basic

4 unchanged sentences

(unaudited, in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

Adjustments to reconcile net income to net cash provided

by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash

provided by (used in) operating activities:

Depreciation and amortization of intangibles

4 unchanged sentences

Amortization of deferred financing fees

Bad debt expense

Changes in operating assets and liabilities, net of business

Bad debt expense (benefit)

Changes in operating assets and liabilities, net of business acquisition:

Accounts receivable

3 unchanged sentences

Accounts payable and accrued expenses

Net cash provided by operating activities

Net cash provided by (used in) operating activities

Investing Activities:

Proceeds from Madera Sale

Proceeds from principal payments on notes receivable

Proceeds from asset sales

Additions to property and equipment

Purchase of Eagle Alcohol, net of

cash acquired

Net cash (used in) provided by investing

Purchase of Eagle Alcohol, net of cash acquired

Net cash provided by (used in) investing activities

Financing Activities:

Net proceeds from Kinergy’s line of credit

Proceeds from principal payments on notes receivable

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

Stock repurchases

Proceeds from stock option exercises

1 unchanged sentence

Preferred stock dividends paid

Net cash provided by (used in) financing

Net cash provided by (used in) financing activities

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted

cash at beginning of period

Cash, cash equivalents and restricted

cash at end of period

Reconciliation of total cash, cash

equivalents and restricted cash:

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and

restricted cash

Total cash, cash equivalents and restricted cash

Supplemental Information:

5 unchanged sentences

(unaudited, in thousands)

Preferred Stock

Comprehensive

Balances, January

January 1, 2022

$ ( 691,781 )

Restricted stock issued to employees and directors, net

of cancellations and tax

Stock-based compensation

Shares issued for Eagle Alcohol acquisition

Preferred stock dividends

Balances, March 31, 2022

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

issued for Eagle Alcohol acquisition

stock dividends

March 31, 2022

$ ( 694,695 )

Restricted stock issued to employees and directors, net

of cancellations and tax

Stock-based compensation

Preferred stock dividends

Balances, June 30, 2022

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

stock dividends

June 30, 2022

$ ( 672,895 )

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

stock dividends

September 30, 2022

$ ( 701,252 )

January 1, 2021

$ ( 736,598 )

Restricted stock issued to employees and directors, net

of cancellations and tax

Stock-based compensation

Issuances of common stock

Preferred stock dividends

Balances, March 31, 2021

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

of common stock

stock dividends

March 31, 2021

$ ( 732,232 )

Restricted stock issued to employees and directors, net

of cancellations and tax

Stock-based compensation

Preferred stock dividends

Balances, June 30, 2021

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

stock dividends

June 30, 2021

$ ( 724,157 )

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

stock dividends

September 30, 2021

$ ( 727,608 )

See accompanying notes to consolidated financial

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND BASIS OF

PRESENTATION.

ORGANIZATION AND BASIS OF PRESENTATION.

Organization and Business

– The consolidated financial statements include, for all periods presented, the accounts of Alto Ingredients, Inc., a Delaware

corporation (“Alto Ingredients”), and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”),

including Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Alto Nutrients, LLC, a California limited

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

Delaware limited liability company (“Alto Pekin”) and Alto ICP, LLC, a Delaware limited liability company (“ICP”),

and the Company’s production facilities in Oregon and Idaho.

– The consolidated financial statements include, for all periods presented, the accounts of Alto Ingredients, Inc., a Delaware corporation

(“Alto Ingredients”), and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including

Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Alto Nutrients, LLC, a California limited liability

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

liability company (“Alto Pekin”) and Alto ICP, LLC, a Delaware limited liability company (“ICP”), and the Company’s

production facilities in Oregon and Idaho.

On May 14, 2021 and November

4, 2021, the Company completed the sale of its production facilities located in Madera and Stockton, California, respectively.

of these facilities are included in the Company’s results reported for the three and six months ended June 30, 2021.

of these facilities are included in the Company’s results reported for the three and nine months ended September 30, 2021.

in Note 2, on January 14, 2022, the Company acquired 100 % ownership of Eagle Alcohol Company LLC, a Missouri limited liability company

1 unchanged sentence

The results of Eagle Alcohol since the

date of the acquisition are included in the Company’s results reported for the three and six months ended June 30, 2022.

The Company is a leading

producer and distributor of specialty alcohols and essential ingredients.

The Company also produces, markets and distributes renewable

The Company’s production facilities in Pekin, Illinois are located in the heart of the Corn Belt, benefit from low-cost and

abundant feedstock and allow for access to many additional domestic markets.

In addition, the Company’s ability to load barges,

rail and trucks from these facilities allows for greater access to international markets.

The Company’s two production facilities

in Oregon and Idaho are located in close proximity to both feed and renewable fuel customers and thus enjoy unique advantages in efficiency,

logistics and product pricing.

The Company has a combined

alcohol production capacity of 350 million gallons per year and produces, on an annualized basis, nearly 1.2 million tons of essential

ingredients, such as dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid

feed used in commercial animal feed and pet foods.

In addition, the Company sells alcohols acquired from other producers, and markets

and distributes fuel-grade ethanol produced by third parties.

date of the acquisition are included in the Company’s results reported for the three and nine months ended September 30, 2022.

The Company is a leading producer

and distributor of specialty alcohols and essential ingredients.

The Company also produces, markets and distributes renewable fuel.

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

feedstock and allow for access to many additional domestic markets.

In addition, the Company’s ability to load barges, rail and

trucks from these facilities allows for greater access to international markets.

The Company’s two production facilities in Oregon

and Idaho are located in close proximity to both feed and renewable fuel customers and thus enjoy unique advantages in efficiency, logistics

and product pricing.

The Company has a combined alcohol

production capacity of 350 million gallons per year and produces, on an annualized basis, over 1.5 million tons of essential ingredients,

such as dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid feed used in commercial animal feed

and pet foods.

In addition, the Company sells alcohols acquired from other producers, and markets and distributes fuel-grade ethanol produced

by third parties.

The Company focuses on four

3 unchanged sentences

and Renewable Fuels .

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

disinfectants and cleaners.

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

vinegar as well as corn germ used for corn oils.

Products for Essential Ingredients markets include dried yeast, corn gluten meal, corn

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

Renewable Fuels includes

fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.

As of June 30, 2022, all of

the Company’s production facilities were operating.

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.

Renewable Fuels includes fuel-grade ethanol

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

As of September 30, 2022, all

of the Company’s production facilities were operating.

As market conditions change, the Company may increase, decrease or idle production

at one or more operating facilities or resume operations at any then-idled facility.

Basis of Presentation – Interim

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

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

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

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

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

and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The accounting

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

statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

In the opinion of management, all

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

have been included.

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

Presentation – Interim Financial Statements – The accompanying unaudited consolidated financial

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

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

Results for interim

periods should not be considered indicative of results for a full year.

These interim consolidated financial statements should be

read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on

Form 10-K for the year ended December 31, 2021.

The accounting policies used in preparing these consolidated financial

statements are the same as those described in Note 1 to the consolidated financial statements in the Company’s Annual Report

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

In the opinion of management, all adjustments (consisting of normal recurring

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

All significant

intercompany accounts and transactions have been eliminated in consolidation.

Accounts Receivable and Allowance for Doubtful

7 unchanged sentences

attempted contacts with the customer at specified intervals.

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

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

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

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

Delinquent accounts receivable are charged against

the allowance for doubtful accounts once uncollectibility has been determined.

The factors considered in reaching this determination

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

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

additional allowances may be required.

The factors considered in reaching this determination are

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

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

allowances may be required.

Of the accounts receivable balance, approximately

$ 60,256,000 and $ 63,929,000 at June 30, 2022 and December 31, 2021, respectively, were used as collateral under Kinergy’s operating

$ 54,972,000 and $ 63,929,000 at September 30, 2022 and December 31, 2021, respectively, were used as collateral under Kinergy’s operating

line of credit.

The allowance for doubtful accounts was $ 444,000 and $ 378,000 as of June 30, 2022 and December 31, 2021, respectively.

The Company recorded a bad debt expense of $ 35,000 and $ 52,000 for the three months ended June 30, 2022 and 2021, respectively.

recorded a bad debt expense of $ 66,000 and $ 143,000 for the six months ended June 30, 2022 and 2021, respectively.

The Company does not

have any off-balance sheet credit exposure related to its customers.

The allowance for doubtful accounts was $ 135,000 and $ 378,000 as of September 30, 2022 and December 31, 2021, respectively.

The Company recorded a bad debt recovery of $ 253,000 and $ 3,000 for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded a bad debt recovery of $ 187,000 and bad debt expense of $ 140,000 for the nine months ended September 30, 2022 and

2021, respectively.

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

Financial Instruments – The

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Codification (“ASC”) 805 “Business Combinations”.

FASB ASC 805 requires the reporting entity to identify the

acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired and liabilities

assumed and recognize and measure goodwill or a gain from the purchase.

Assets acquired and liabilities assumed are recorded at their

fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill.

Adjustments to fair value assessments

are recorded to goodwill over the measurement period (not longer than twelve months).

Income from Cash Grant –

The Company applied for and received $ 22,652,000 in cash from the USDA’s Biofuel Producer Program.

The program was created as part

of the CARES Act in 2020, which allocated $ 700,000,000 to support biofuel producers who experienced market losses due to the pandemic.

FASB ASC 805 requires the reporting entity to identify the acquirer,

determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired and liabilities assumed

and recognize and measure goodwill or a gain from the purchase.

Assets acquired and liabilities assumed are recorded at their fair values

and the excess of the purchase price over the amounts assigned is recorded as goodwill.

Adjustments to fair value assessments are recorded

to goodwill over the measurement period (not longer than twelve months).

Income from Cash

Grant – The Company applied for and received $ 22,652,000 in cash from the USDA’s Biofuel Producer Program.

The program was created as part of the CARES Act in 2020, which allocated $ 700,000,000 to support biofuel producers who experienced

market losses due to the pandemic.

The cash grant is not required to be repaid.

Since these funds are provided to subsidize historical losses of the Company, and are not

required to be repaid, the Company accounted for the proceeds by analogy to International Accounting Standards 20 Accounting for Government

Grants and Disclosure of Government Assistance , and reported as income from cash grant in the accompanying consolidated

statements of operations.

Since these funds are provided to subsidize

historical losses of the Company, and are not required to be repaid, the Company accounted for the proceeds by analogy to

International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance , and reported

the amount as income from cash grant in the accompanying consolidated statements of operations.

Share Repurchase Program –

On September 12, 2022, the Company announced a share repurchase program under which it may repurchase up to $ 50 million of its common

stock with an initial purchase authorization of $ 10 million.

Amounts in excess of the initial purchase authorization of $ 10 million will

require additional board and preferred stockholder authorization.

The share repurchase program does not have an expiration date, does

not require the repurchase of any particular amount of shares, and may be implemented, modified, suspended or discontinued in whole or

in part at any time and without further notice.

As repurchases are made, the Company will retire the shares, resulting in a reduction

of issued and outstanding shares.

For the three and nine months ended September 30, 2022, the Company repurchased an aggregate of 259,000

shares for $ 1,002,000 in cash.

Estimates and Assumptions –

18 unchanged sentences

With respect to these payments, the Company has recognized an estimated $ 0.9 million

and $ 1.8 million for the three and six months ended June 30, 2022, respectively, in selling, general and administrative expenses in the

accompanying consolidated statements of operations.

and $ 2.6 million for the three and nine months ended September 30, 2022, respectively, in selling, general and administrative expenses

in the accompanying consolidated statements of operations.

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, and related-process industries via its own dedicated trucking fleet and common carrier.

The acquisition will provide the Company further vertical integration and access to new markets in the specialty alcohol industry.

Eagle Alcohol purchases bulk alcohol from suppliers and 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.

The acquisition

has provided the Company further vertical integration and access to new markets in the specialty alcohol industry.

Eagle Alcohol’s unaudited results for the

three months ended June 30, 2022 and 2021 generated $ 4.1 million and $ 8.9 million in net sales and $ 0.0 million and $ 1.1 million in net

income, respectively.

Eagle Alcohol’s unaudited results for the six months ended June 30, 2022 and 2021 generated $ 7.9 million

and $ 17.5 million in net sales and $ 0.2 million and $ 2.0 million in net income, respectively.

The following table presents unaudited

pro forma combined financial information assuming the acquisition occurred on January 1, 2021 (dollars in thousands except per share

three months ended September 30, 2022 and 2021 generated $ 4.2 million and $ 9.9 million in net sales and $ 0.0 million and $ 1.0 million

in net income, respectively.

Eagle Alcohol’s unaudited results for the nine months ended September 30, 2022 and 2021 generated

$ 12.1 million and $ 27.5 million in net sales and $ 0.1 million and $ 3.0 million in net income, respectively.

The following table presents

unaudited pro forma combined financial information assuming the acquisition occurred on January 1, 2021 (dollars in thousands except

per share amounts):

Three Months Ended

September 30,

Revenues – pro forma

Net income available to common stockholders – pro forma

Diluted net income per share – pro forma

Net loss available to common stockholders – pro forma

Diluted net loss per share – pro forma

Diluted shares

Six Months Ended

Nine Months Ended

September 30,

Revenues – pro forma

Net income available to common stockholders – pro forma

Diluted net income per share – pro forma

Net income (loss) available to common stockholders – pro forma

Diluted net income (loss) per share – pro forma

Diluted shares

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price allocation is as follows (in thousands):

Cash and cash equivalents

Cash and equivalents

Accounts receivable

4 unchanged sentences

Current liabilities

Right of use liabilities

Total liabiltiies

Right of use liability

Total liabilities

Net tangible assets acquired

3 unchanged sentences

integration that the operations of Eagle Alcohol will add to the Company.

The Company expects the amortization of goodwill to be

deductible for tax purposes.

For the identifiable intangible assets, the Company has estimated 12 years for useful lives for

customer relationships and 10 years for tradename.

For the three months ended June 30, 2022, the Company recorded amortization

The Company expects the amortization of goodwill to be deductible

for tax purposes.

For the identifiable intangible assets, the Company has estimated 12 years for useful lives for customer relationships

and 10 years for tradename.

For the three months ended September 30, 2022, the Company recorded amortization expense of $ 137,000 and $ 10,000

for customer relationships and tradename, respectively.

For the nine months ended September 30, 2022, the Company recorded amortization

expense of $ 390,000 and $ 30,000 for customer relationships and tradename, respectively.

For the six months ended June 30, 2022, the

Company recorded amortization expense of $ 245,000 and $ 19,000 for customer relationships and tradename, respectively.

to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those

assets and liabilities and residual amounts will be allocated to goodwill if net assets acquired are less than the purchase price.

The Company did not incur any material acquisition costs.

Any changes to the initial estimates of the fair

value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts

will be allocated to goodwill if net assets acquired are less than the purchase price.

The Company did not incur any material acquisition

The Company reports its financial and operating

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Pekin Campus, recorded as gross:

16 unchanged sentences

Net sales as reported

of goods sold:

Cost of goods sold:

Marketing and distribution

3 unchanged sentences

Cost of goods sold as reported

Gross profit (loss):

Marketing and distribution

2 unchanged sentences

Intersegment eliminations

Gross profit as reported

before provision for income taxes:

Gross profit (loss) as reported

Income (loss) before provision for income taxes:

Marketing and distribution

1 unchanged sentence

Corporate and other

and amortization of intangibles:

Depreciation and amortization of intangibles:

Other production

Corporate and other

expense, net of capitalized interest:

Interest expense, net of capitalized interest:

Marketing and distribution

3 unchanged sentences

total assets by operating segment (in thousands):

September 30,

Total assets:

3 unchanged sentences

Inventories consisted primarily of bulk ethanol,

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

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

Inventory is net of a valuation adjustment of $ 3,010,000 and $ 0 as of June 30, 2022 and

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

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

Inventory is net of a valuation adjustment of $ 7,963,000 and $ 0 as of September 30, 2022 and

December 31, 2021, respectively.

Inventory balances consisted of the following (in thousands):

September 30,

Finished goods

8 unchanged sentences

Commodity Risk – Cash

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

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

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

or index-based price.

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

effects of price volatility.

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

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

and sales prices.

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

recognized immediately in cost of goods sold.

For the three and six months ended June 30, 2022 and 2021, the Company did not designate

any of its derivatives as cash flow hedges.

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

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

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

contracts specify a floating or index-based price.

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

exposure to the potentially adverse effects of price volatility.

These derivatives may be designated and documented as cash flow

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

prices against the Company’s purchase and sales prices.

Ineffectiveness, which is defined as the degree to which the

derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold.

For the three and nine months

ended September 30, 2022 and 2021, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges

2 unchanged sentences

These derivatives are not designated for hedge accounting treatment.

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

The changes in

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

The Company recognized

net gains of $ 16,619,000 and $ 8,868,000 as the change in the fair value of these contracts for the three months ended June 30, 2022 and

2021, respectively.

net losses of $ 1,772,000 and $ 976,000 as the change in the fair value of these contracts for the three months ended September 30, 2022

and 2021, respectively.

The Company recognized net gains of $ 20,164,000 and $ 18,435,000 as the change in the fair value of these contracts

for the six months ended June 30, 2022 and 2021, respectively.

for the nine months ended September 30, 2022 and 2021, respectively.

Non Designated Derivative Instruments

1 unchanged sentence

balances, are as follows (in thousands):

As of June 30, 2022

As of September 30, 2022

Type of Instrument

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Derivative liabilities

The above amounts represent the gross balances of

the contracts;

however, the Company does have a right of offset with each of its derivative brokers, but its intent is to close out positions

individually, therefore, they are reported at gross.

The above amounts represent the gross balances

of the contracts;

however, the Company does have a right of offset with each of its derivative brokers, but its intent is to close out

positions individually, therefore, they are reported at gross.

The classification and amounts of the Company’s

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

Realized Gains

For the Three Months Ended

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

Realized Losses

For the Three Months

Ended September 30,

Type of Instrument

3 unchanged sentences

Realized Gains

For the Six Months Ended

Type of Instrument

Statements of Operations Location

For the Nine Months Ended September 30,

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

Unrealized Gains

For the Three Months

Ended June 30,

Ended September 30,

Type of Instrument

2 unchanged sentences

Cost of goods sold

Unrealized (Losses)

For the Six Months Ended

Unrealized Gains (Losses)

For the Nine Months

Ended September 30,

Type of Instrument

2 unchanged sentences

Cost of goods sold

Long-term borrowings are summarized as follows (in

Long-term borrowings are summarized as follows

(in thousands):

September 30,

Kinergy line of credit

2 unchanged sentences

Long-term debt

As of June 30, 2022, Kinergy had $ 28.6 million in

unused borrowing availability under its line of credit.

In addition, the Company believes it is currently in compliance with its covenants

under the line of credit.

AND CONTINGENCIES.

Sales Commitments – At June

As of September 30, 2022, Kinergy had $ 30.7 million

in unused borrowing availability under its line of credit.

The Company believes it was in compliance with its covenants under the line

of credit as of September 30, 2022.

COMMITMENTS AND CONTINGENCIES.

Sales Commitments – At September

30, 2022, the Company had entered into sales contracts with its major customers to sell certain quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 103,094,000 gallons as of June 30, 2022 and open fixed-price alcohol sales contracts

totaling $ 102,157,000 as of June 30, 2022.

The Company had open alcohol indexed-price contracts for 92,771,000 gallons as of September 30, 2022 and open fixed-price alcohol sales

contracts totaling $ 101,427,000 as of September 30, 2022.

The Company had open fixed-price sales contracts for essential ingredients totaling

as of June 30, 2022.

These sales contracts are scheduled to be completed throughout 2022.

Purchase Commitments – At June

30, 2022, the Company had indexed-price purchase contracts to purchase 12,746,000 gallons of alcohol and fixed-price purchase contracts

to purchase $ 68,886,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 104,062,000 of corn

from its suppliers as of June 30, 2022.

The Company had fixed-price purchase contracts for natural gas totaling $ 7,724,000 and indexed-price

purchase contracts for natural gas totaling 2,140,000 MMBTU.

The Company also had future commitments for certain capital projects totaling

$ 34,800,000 .

$ 17,274,000 as of September 30, 2022.

These sales contracts are scheduled to be completed throughout 2022 and 2023.

Purchase Commitments – At

September 30, 2022, the Company had indexed-price purchase contracts to purchase 13,988,000 gallons of alcohol and fixed-price purchase

contracts to purchase $ 45,599,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 38,769,000

of corn from its suppliers as of September 30, 2022.

The Company had fixed-price purchase contracts for natural gas totaling $ 1,947,000

and indexed-price purchase contracts for natural gas totaling 4,463,000 MMBTU.

The Company also had future commitments for certain capital

projects totaling $ 46,796,000 .

These purchase commitments are scheduled to be satisfied throughout 2022 and 2023.

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reasonably estimated, the Company will record a liability for the loss.

If the loss is not probable or the amount of the loss cannot

be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount

involved could be material.

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

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

RETIREMENT BENEFIT PLANS.

If the loss is not probable or the amount of the loss cannot be

reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved

could be material.

While there can be no assurances, the Company does not expect that any of its pending legal proceedings will have a

material impact on the Company’s financial condition or results of operations.

PENSION AND RETIREMENT BENEFIT PLANS.

The Company sponsors a defined

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31 measurement date for its Retirement Plan.

The Company’s funding policy is to make the minimum annual contribution required by applicable

As of December 31, 2021, the Retirement Plan’s accumulated projected benefit obligation was $ 23.8 million, with a

fair value of plan assets of $ 20.0 million.

The underfunded amount of $ 3.8 million is recorded on the Company’s consolidated balance

sheet in other liabilities.

For the three months ended June

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

applicable regulations.

As of December 31, 2021, the Retirement Plan’s accumulated projected benefit obligation was $ 23.8 million,

with a fair value of plan assets of $ 20.0 million.

The underfunded amount of $ 3.8 million is recorded on the Company’s consolidated

balance sheet in other liabilities.

For the three months ended September

30, 2022, the Retirement Plan’s net periodic benefit was $ 8,000 , comprised of $ 273,000 of expected return on plan assets, partially

offset by $ 164,000 in interest cost and $ 101,000 in service cost.

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

For the three months ended September 30, 2021, the Retirement Plan’s

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

expected return on plan assets.

For the six months ended June 30, 2022, the Retirement Plan’s net periodic benefit was $ 16,000 ,

For the nine months ended September 30, 2022, the Retirement Plan’s net periodic benefit was $ 24,000 ,

comprised of $ 819,000 of expected return on plan assets, partially offset by $ 492,000 in interest cost and $ 303,000 in service cost.

For the six months ended June 30, 2021, the Retirement Plan’s net periodic expense was $ 44,000 , comprised of $ 302,000 in interest

the nine months ended September 30, 2021, the Retirement Plan’s net periodic expense was $ 66,000 , comprised of $ 453,000 in interest

cost and $ 327,000 in service cost, partially offset by $ 714,000 of expected return on plan assets.

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

Employees hired after

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

The Postretirement Plan is contributory, with contributions

required at the same rate as active employees.

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

dollar cap based upon years of service.

As of December 31, 2021, the Postretirement Plan’s accumulated projected benefit obligation

was $ 4.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities.

The Company’s funding

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

For the three months ended June

Employees hired after December

31, 2000 are not eligible to participate in the Postretirement Plan.

The Postretirement Plan is contributory, with contributions required

at the same rate as active employees.

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

cap based upon years of service.

As of December 31, 2021, the Postretirement Plan’s accumulated projected benefit obligation was

$ 4.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities.

The Company’s funding policy

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

For the three months ended September

30, 2022, the Postretirement Plan’s net periodic expense was $ 32,000 , comprised of $ 6,000 of interest cost and $ 26,000 of service

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

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

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

For the six months ended June

For the nine months ended September

30, 2022, the Postretirement Plan’s net periodic expense was $ 96,000 , comprised of $ 18,000 of interest cost and $ 78,000 of service

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

For the nine months ended September 30, 2021, the Postretirement Plan’s net periodic expense was $ 126,000 , comprised of $ 30,000

of interest cost, $ 78,000 of service cost and $ 18,000 of amortization expense.

FAIR VALUE MEASUREMENTS.

The fair value hierarchy prioritizes the inputs

used in valuation techniques into three levels, as follows:

The fair va lue

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

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

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

Pooled separate accounts – Pooled

separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds.

The net asset value

is used as a practical expedient to determine fair value for these accounts.

Each pooled separate account provides for redemptions by

the Retirement Plan at reported net asset values per share, with little to no advance notice requirement, therefore these funds are classified

within Level 2 of the valuation hierarchy.

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

single mu tual funds.

The net asset value is used as a practical expedient to determine fair value for these accounts.

separate account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice

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

Long-Lived Assets Held-for-Sale

The Company recorded its long-lived assets associated with its property and equipment held-for-sale at fair value at June 30, 2022 and

December 31, 2021 of $ 1,000,000 .

The fair values of these assets are based on observable values for the assets through corroboration

with market data and are designated as Level 3 inputs.

– The Company recorded its long-lived assets associated with its property and equipment held-for-sale at fair value at December

31, 2021 of $ 1,000,000 .

These assets were sold during the three months ended September 30, 2022.

The fair values of these assets are based

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

Other Derivative Instruments –

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

The following table summarizes recurring and nonrecurring

fair value measurements by level at June 30, 2022 (in thousands):

The following table summarizes recurring and

nonrecurring fair value measurements by level at September 30, 2022 (in thousands):

Derivative financial instruments

Long-lived assets held-for-sale

Derivative financial instruments

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Long-lived assets held-for-sale

Defined benefit plan assets(1)

(pooled separate accounts):

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

Small/Mid U.S.

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Derivative financial instruments

in other assets in the consolidated balance sheets.

category includes investments in funds comprised of equity securities of large U.S.

(1) Included in other assets in the consolidated balance sheets.

(2) This category includes investments in funds comprised of

equity securities of large U.S.

The funds are valued using the net asset value method in which an average of the market prices

for the underlying investments is used to value the fund.

category includes investments in funds comprised of equity securities of small- and medium-sized

(3) This category includes investments in funds comprised of

equity securities of small- and medium-sized U.S.

The funds are valued using the net asset value method in which an average

of the market prices for the underlying investments is used to value the fund.

category includes investments in funds comprised of equity securities of foreign companies

including emerging markets.

The funds are valued using the net asset value method in which

an average of the market prices for the underlying investments is used to value the fund.

category includes investments in funds comprised of U.S.

and foreign investment-grade fixed

income securities, high-yield fixed income securities that are rated below investment-grade,

treasury securities, mortgage-backed securities, and other asset-backed securities.

The funds are valued using the net asset value method in which an average of the market prices

for the underlying investments is used to value the fund.

The following tables compute basic and diluted earnings

per share (in thousands, except per share data):

Three Months Ended June 30, 2022

Net income attributed to Alto Ingredients, Inc.

(4) This category includes investments in funds comprised of

equity securities of foreign companies including emerging markets.

The funds are valued using the net asset value method in which an

average of the market prices for the underlying investments is used to value the fund.

(5) This category includes investments in funds comprised of U.S.

and foreign investment-grade fixed income

securities, high-yield fixed income securities that are rated below investment-grade, U.S.

treasury securities, mortgage-backed securities,

and other asset-backed securities.

The funds are valued using the net asset value method in which an average of the market prices for

the underlying investments is used to value the fund.

EARNINGS (LOSS) PER SHARE.

The following tables compute basic and diluted

earnings (loss) per share (in thousands, except per share data):

Three Months Ended September 30, 2022

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

Three Months Ended June 30, 2021

Income Numerator

Shares Denominator

Per-Share Amount

Net income attributed to Alto Ingredients, Inc.

Basic and Diluted loss per share:

Loss available to common stockholders

Three Months Ended September 30, 2021

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

Six Months Ended June 30, 2022

Income Numerator

Shares Denominator

Per-Share Amount

Net income attributed to Alto Ingredients, Inc.

Basic and Diluted loss per share:

Loss available to common stockholders

Nine Months Ended September 30, 2022

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

Six Months Ended June 30, 2021

Income Numerator

Shares Denominator

Per-Share Amount

Net income attributed to Alto Ingredients, Inc.

Basic and Diluted loss per share:

Loss available to common stockholders

Nine Months Ended September 30, 2021

Preferred stock dividends

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There were an additional aggregate potentially

dilutive weighted-average shares of 964,000 from convertible securities outstanding for the three and six months ended June 30, 2022

These securities were not considered in calculating diluted net income (loss) per share for the three and six months ended

June 30, 2022 and 2021, as their effect would have been anti-dilutive.

dilutive weighted-average shares of 964,000 from convertible securities outstanding for the three and nine months ended September 30,

2022 and 2021.

These securities were not considered in calculating diluted net income (loss) per share for the three and nine months ended

September 30, 2022 and 2021, as their effect would have been anti-dilutive.

At December 31, 2021, the Company had outstanding unexercised

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on April 28, 2022 .

SUBSEQUENT EVENTS.

Loan Facility – On November 7, 2022, the Company closed on a senior secured term loan credit facility with certain

funds managed by Orion Infrastructure Capital for up to $125 million.

The term loan allows for periodic draws in an aggregate amount

of up to $100 million, with an additional $25 million available upon the attainment of certain performance conditions.

November 7, 2022, no amounts had been drawn.

The six-year term loan has a fixed annual interest rate of 10% and will be issued at

an original issue discount of 1.5%.

The term loan does not require scheduled principal amortization payments but includes customary

prepayment obligations as well as semi-annual sweeps of a portion of excess cash flow commencing for the six-month period ending

December 31, 2023.

The Company’s obligations under the term loan are secured by all of the Company’s tangible and

intangible assets.

In connection

with the term loan facility, the Company will issue to the lenders an aggregate of up to 1,602,564 shares of the

Company’s common stock.

Operating Line of Credit Extension – On November 7, 2022, the Company amended Kinergy’s operating line of credit

to extend the maturity to 2027.

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 1. Financial Statements