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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 520 added, 502 removed, 194 unchanged (84% of the section changed)

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

The following discussion and

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

elsewhere in this report.

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

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

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

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

The forward-looking statements and associated risks may

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

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 manageme nt

for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues

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

The forward-looking

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

● fluctuations

in the market prices of alcohols and essential ingredients;

in the market prices of our products;

● fluctuations

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

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

projected growth or contraction in the markets in which we operate;

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

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trends in our financial condition and results of operations;

● the timing, cost and results of our capital improvement

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.

are cautioned not to plac e 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

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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, 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.

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 facilities.

Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho.

We have an annual

alcohol production capacity of 350 million gallons, comprised of 210 million gallons of fuel-grade ethanol and up to 140 million gallons

of specialty alcohols.

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.

Our wholly-owned subsidiary,

Eagle Alcohol Company, LLC, or Eagle Alcohol, specializes in break bulk distribution of specialty alcohols.

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.

Production Segments

We produce specialty alcohols,

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

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 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.

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

We produce our alcohols and essential ingredients

at our production facilities described below.

Our production facilities located in Illinois 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 in Oregon and Idaho 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)

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

or more operating facilities or resume operations at any idled facility.

Annual Alcohol Production Capacity

(estimated, in gallons)

Production Facility

Marketing and Distribution Segment

We market and distribute

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

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 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

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 arrange for transportation, storage

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

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

We market our essential ingredient feed products

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

These customers use our feed products for livestock as

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

We sell our corn oil to poultry and biodiesel customers.

We do not market essential ingredients from other producers.

See “Note 3 –

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

business segments.

We do not market

essential ingredients from other producers.

See “Note 3 – Segments” to our

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

Current Initiatives and Outlook

Our decision to diversify further into specialty

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, 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.

During the third quarter, we continued our efforts

to lay the groundwork for long-term success by upgrading equipment and operating systems to increase plant efficiency, reliability and

redundancy, and corn storage capacity.

We also have plans for larger capital-intensive growth projects.

In November, we secured debt financing

for up to $125 million to accelerate and fund our diversification growth strategies, including carbon capture sequestration, additional

corn oil production, expansion of our protein and yeast products, and renewable natural gas and natural gas pipeline installations.

financing will facilitate, without the need to rely solely on our cash flow from operations, the simultaneous undertaking and timely completion

of larger capital projects with a greater cost-benefit return to all stakeholders through a more stable business.

We expect these projects

when completed to contribute significantly to our revenues and net income and to help insulate our results of operations from commodity

price and margin volatility.

We rescheduled many of our fall repair and maintenance

activities to August to reduce our use of corn and minimize the impact of short-term higher commodity prices.

However, our third quarter

results were negatively affected by logistical constraints and rail interruptions resulting in plant outages in excess of six days that

contributed to negative margins at our Western plants.

We also experienced overall higher transportation costs and lower commodity margins.

Our personnel nevertheless skillfully managed through supply chain and logistical challenges to prevent disruption with our customer base.

Through the third

quarter, we invested and capitalized over $25 million in infrastructure improvements and spent an additional $3 million in related

costs, negatively affecting our cost of goods sold, operating margins and our net income for the quarter.

We spent $15 million

during the third quarter on capital improvement projects in anticipation of our debt financing transaction.

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 system.

The project consists of two phases.

The first phase – corn oil

extraction – is complete and yields have grown significantly, meeting our initial expectations.

Based on these positive

results, we intend to install corn oil extraction technologies at our three other dry mills.

The second phase – separating and

producing enhanced protein – is on schedule for completion in the first quarter of 2023.

Once the system is fully operational

and tested, we will evaluate additional deployments at our other plants.

We are doubling 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 are less inclined to ship corn, including during holidays, unfavorable weather conditions, or due

to supply chain and logistical constraints.

We expect this increased storage capacity to reduce the volatility of our production

We are well into construction of the new storage facilities and expect completion before year-end.

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

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

We installed additional equipment, including

a demethylizer column, which we expect will be fully operational in the first quarter of 2023.

With these upgrades and our process and

quality certifications, our equipment will be best-in-class and enable us to meet the highest quality requirements for specialty alcohols

and service additional beverage customers from both our ICP distillery and our Pekin wet mill.

This production redundancy, which will

also provide surety of supply to our customers, will enable us to improve our product mix and capture higher premiums in the alcohol value

We also continue to replace or upgrade older equipment

at our Pekin Campus.

For example, we recently purchased two new state-of-the-art boilers to enhance our steam capabilities

and increase interconnectivity among our Pekin Campus facilities.

This increased capacity will allow us to replace three older boiler

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 process steam across our Pekin Campus.

Consistent with our

sustainability improvement program, we intend to add new renewable natural gas and natural gas pipelines at our Pekin Campus with

direct access to nearby major hubs.

These pipelines will increase our access to more competitively priced natural gas, better

address our future energy needs, including our support for carbon capture sequestration, and facilitate the monetization and sale of

the renewable natural gas we produce and currently flare.

When completed, these efforts will further reduce our carbon footprint and

enhance the value of our products.

This capital improvement project is in the design and permitting phase with an expected

completion date in 2024.

After 24 years operating as a valued and reliable

supplier to the pet food industry, we intend to commercially develop primary yeast through an aerobic fermentation process at our wet

Extending our brand along the value chain is a natural progression to other markets that demand higher product quality and offer

increased margins, including for flavors, nutraceuticals, and baking and meat substitutes.

Although primary yeast production requires

a different process and serves a different market, many existing as well as prospective customers have for years expressed interest in

a primary yeast product.

We are highly motivated

to further reduce the impact of commodity exposure.

Our efforts are improving our position to capture a variety of new opportunities

and drive profitable growth.

Looking ahead to the

fourth quarter, while fuel demand typically slows in the late fall and winter periods, we are encouraged by the recent improvement

in crush margins compared to the September lows, much of which is related to the late corn harvest and improving corn basis.

expect these factors to translate into much improved results in the fourth quarter.

We also expect to exceed by up to 10 million

gallons by year-end our contracted volume of 90 million gallons for 2022.

We anticipate maintaining or growing our market share with

our existing customer base for annual contracted specialty alcohols for 2023 while adding new accounts in the beverage category once

system improvements to our grain neutral spirits production at our Pekin Campus are brought online in 2023.

Based on our progress in

upgrading equipment and operating systems, we expect to see modest improvement in profits in early 2023, with a baseline earnings before

interest, taxes, depreciation and amortization, or EBITDA, of

$40.0 million for 2023 at historical average crush margins and before accounting for EBITDA contributions from our pending capital

improvement projects.

With funding from our new term loan accelerating our investments in the further diversification of our

specialty alcohol and essential ingredients products, we expect to add over $20 million in recurring annual EBITDA by the end of 2023 and an additional $30 million in recurring annual

EBITDA by 2025, resulting in total additional recurring annual EBITDA of $50 million by 2025.

These amounts do not yet include our

anticipated results for projects in the early stages of development, including primary yeast expansion and carbon capture

sequestration.

Use of Non-GAAP Financial Measures

Management believes that certain financial measures

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

We define Adjusted EBITDA

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

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

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

and amortization expense.

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

(loss) attributed to Alto Ingredients, Inc.

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

that management uses, which may assist investors in properly assessing our performance on a period-over-period basis.

Adjusted EBITDA

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

Alto Ingredients, Inc.

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

as an indicator of cash flows or as a measure of liquidity.

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

this measure in isolation or as a substitute for analysis of the company's results as reported under GAAP.

Management provides EBITDA

and Adjusted EBITDA as non-GAAP financial measures so that investors will have the same financial information that management uses, which

may assist investors in properly assessing our performance on a period-over-period basis.

We define Adjusted EBITDA as unaudited net income

(loss) before interest expense, interest income, provision for income taxes, asset impairments, loss on extinguishment of debt, acquisition-related

expense, fair value adjustments, and depreciation and amortization expense.

A table is provided below to reconcile Adjusted EBITDA to

its most directly comparable GAAP measure, net income (loss).

EBITDA and Adjusted EBITDA are not measures of financial performance under

GAAP and should not be considered as alternatives to net income (loss) or any other measure of performance under GAAP, or to cash flows

from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity.

EBITDA and Adjusted EBITDA

have limitations as analytical tools and you should not consider these measures in isolation or as a substitute for analysis of our

results as reported under GAAP.

Information reconciling forward-looking EBITDA

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

would require a forward-looking statement of net income (loss)

attributed to Alto Ingredients, Inc.

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

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

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

as net sales, cost of goods sold, provision (benefit) for income taxes 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.

Reconciliation of Adjusted EBITDA to Net Income

to forward-looking net income (loss) would require a forward-looking statement of net income (loss) prepared in accordance with GAAP,

which is unavailable to us without unreasonable effort.

We are not able to provide a quantitative reconciliation of forward-looking EBITDA

to forward-looking net income (loss) because certain items required for reconciliation are uncertain, outside of our control and/or cannot

reasonably be predicted, such 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) that are not presently estimable.

Reconciliation of Adjusted EBITDA to Net

Income (Loss)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands) (unaudited)

Net income (loss)

Interest expense

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Acquisition-related expense

Provision for income taxes

Depreciation and amortization expense

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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.

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

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

Renewable fuel production gallons sold (in

Three Months Ended

Nine Months Ended

September 30,

Renewable fuel production gallons sold (in millions)

Specialty alcohol production gallons sold (in millions)

Third party renewable fuel gallons

sold (in millions)

Third party renewable fuel gallons sold (in millions)

Total gallons sold (in millions)

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Corn cost per bushel – CBOT equivalent

Average basis (1)

Delivered cost of corn

Total essential ingredients tons sold (in thousands)

Essential ingredients revenues as

% of delivered cost of corn (2)

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.

(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

Net Sales, Cost of

Goods Sold and Gross Profit

Goods Sold and Gross Profit (Loss)

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):

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

percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Percentage of net sales

The increase in our consolidated

net sales for the three 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.

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

in our average sales price per gallon and substantial increases in sales prices and volume of essential ingredients, partially offset

by a decrease in our third-party 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

sold and our volume of essential ingredients sold increased for both the three and nine months ended September 30, 2022 as compared

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

facility was idled during the same period of 2021.

Specialty alcohols contributed 23.3 million gallons and 72.4 million gallons for

the three and nine months ended September 30, 2022, respectively, on pace with our contracted volume of 90 million gallons for all

Our 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 September

30, 2022 and 2021

On a consolidated basis, our

average sales price per gallon increased by 9% to $2.70 for the three months ended September 30, 2022 as compared to $2.47 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

The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, however, decreased 4% to $2.16 for the

three months ended September 30, 2022 as compared to $2.25 for the same period in 2021.

Pekin Campus Production Segment

Net sales of alcohol from our

Pekin Campus production segment increased by $19.1 million, or 17%, to $133.7 million for the three months ended September 30, 2022 as

compared to $114.6 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

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.

Our total volume of production gallons sold increased by 3.6 million gallons,

or 7%, to 52.8 million gallons for the three months ended September 30, 2022 as compared to 49.2 million gallons for the same period in

The increase of $0.20, or 9%, in our Pekin Campus production segment’s average sales price per gallon in the three months

ended September 30, 2022 as compared to the same period in 2021 improved our net sales from our Pekin Campus production segment by $10.0

At our Pekin Campus production segment’s average sales price per gallon of $2.53 for the three months ended September 30,

2022, we generated $9.1 million in additional net sales from our Pekin Campus production segment from the 3.6 million additional gallons

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

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

ingredients increased by $8.5 million, or 18%, to $54.5 million for the three months ended September 30, 2022 as compared to $46.0

million for the same period in 2021.

Our total volume of essential ingredients sold decreased by 9,200 tons, or 4%, to 218,100 tons

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

for the three months ended September 30, 2022 from 227,300 tons for the same period in 2021.

The increase of $47.61, or 24%, 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.

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

sales from our Pekin Campus production segment by $10.8 million.

At our average sales price per ton of $250.06 for the three months

ended September 30, 2022, we generated $2.3 million less in net sales from the 9,200 fewer tons of essential ingredients sold in the

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

Marketing and Distribution

1 unchanged sentence

and distribution segment reported gross, excluding intersegment sales, decreased by $57.1 million, or 51%, to $55.3 million for the three

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

months ended September 30, 2022 as compared to $112.4 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 24.0 million gallons, or 56%, to 19.0 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.

three months ended September 30, 2022 as compared to 43.0 million gallons for the same period in 2021.

At our marketing and distribution

segment’s average sales price per gallon of $2.91 for the three months ended September 30, 2022, we generated $69.8 million less

in net sales from our marketing and distribution segment from the 24.0 million fewer gallons of third-party fuel-grade ethanol sold gross

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

The $0.29 per gallon, or 11%, increase in our marketing

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

period in 2021 resulted in a $12.7 million increase in our net sales from third-party fuel-grade ethanol sold reported gross by our marketing

Our volume of third party fuel-grade ethanol gallons

sold reported net by our marketing and distribution segment decreased by 15.6 million gallons, or 64%, to 8.6 million gallons for the

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

three months ended September 30, 2022 as compared to 24.2 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.

ethanol gallons sold reported net reduced our net sales by less than $0.1 million for the period.

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

Net sales of alcohol from our

other production segment increased by $39.3 million, or 156%, to $64.5 million for the three months ended September 30, 2022 as compared

to $25.2 million for the same period in 2021.

Our total volume of gallons sold increased by 14.7 million gallons, or 167%, to 23.5 million

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

gallons for the three months ended September 30, 2022 as compared to 8.8 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.

segment’s average sales price per gallon of $2.74 for the three months ended September 30, 2022, we generated an additional $40.4

million in net sales from our other production segment from the 14.7 million additional gallons of alcohol sold in the three months ended

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

The decrease of $0.12, or 5%, in our other production segment’s average

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

our other production segment by $1.1 million.

Net sales of essential

ingredients increased by $17.6 million, or 259%, to $24.4 million for the three months ended September 30, 2022 as compared to $6.8

million for the same period in 2021.

Our total volume of essential ingredients sold increased by 125,600 tons, or 160%, to 203,900

tons for the three months ended September 30, 2022 from 78,300 tons for the same period in 2021.

At our average sales price per ton

of $119.86 for the three months ended September 30, 2022, we generated an additional $15.0 million in net sales from the 125,600

additional tons of essential ingredients sold in the three months ended September 30, 2022 as compared to the same period in 2021.

The increase of $32.16, or 37%, in our average sales price per ton for the three months ended September 30, 2022 as compared to the

same period in 2021 increased our net sales from our other production segment by $2.6 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

Net sales of alcohol from corporate

and other represented $4.2 million associated with our sales from Eagle Alcohol for the three months ended September 30, 2022.

Nine Months Ended September

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

On a consolidated basis, our

average sales price per gallon increased by 17% to $2.66 for the nine months ended September 30, 2022 as compared to $2.27 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

The average CBOT fuel-grade ethanol price per gallon, increased by 4% to $2.16 for the nine months ended September 30,

2022 as compared to $2.08 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 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

Pekin Campus Production Segment

Net sales of alcohol from our

Pekin Campus production segment increased by $51.5 million, or 15%, to $393.5 million for the nine months ended September 30, 2022 as

compared to $342.0 million for the same period in 2021.

Our total volume of production gallons sold declined by 0.8 million gallons, or

less than 1%, to 156.6 million gallons for the nine months ended September 30, 2022 as compared to 157.4 million gallons 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.

The increase of $0.34, or 16%, in our Pekin Campus production segment’s average sales price per gallon in the nine

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

by $53.4 million.

At our Pekin Campus production segment’s average sales price per gallon of $2.51 for the nine months ended September

30, 2022, we generated $1.9 million less in net sales from our Pekin Campus production segment from the 0.8 million fewer gallons of alcohol

sold in the nine months ended September 30, 2022 as compared to the same period in 2021.

Net sales of essential ingredients

increased by $29.0 million, or 21%, to $169.7 million for the nine months ended September 30, 2022 as compared to $140.7 million for the

same period in 2021.

Our total volume of essential ingredients sold declined by 16,000 tons, or 2%, to 644,900 tons for the nine months

ended September 30, 2022 from 660,900 tons for the same period in 2021.

The increase of $50.25, or 24%, in our average sales price per

ton for the nine months ended September 30, 2022 as compared to the same period in 2021 increased our net sales from our Pekin Campus

production segment by $33.2 million.

At our average sales price per ton of $263.10 for the nine months ended September 30, 2022, we generated

$4.2 million less in net sales from the 16,000 fewer tons of essential ingredients sold in the nine months ended September 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 $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.

and distribution segment, excluding intersegment sales, decreased by $83.5 million, or 32%, to $173.7 million for the nine months ended

September 30, 2022 as compared to $257.2 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 43.5 million gallons, or 42%, to 59.7 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 $0.51 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

nine months ended September 30, 2022 as compared to 103.2 million gallons for the same period in 2021.

At our marketing segment’s

average sales price per gallon of $2.89 for the nine months ended September 30, 2022, we generated $125.9 million less in net sales from

our marketing and distribution segment from the 43.5 million fewer gallons of third-party fuel-grade ethanol sold gross in the nine months

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

The $0.42 per gallon, or 17%, increase in our marketing

segment’s average sales price per gallon for the nine months ended September 30, 2022 as compared to the same period in 2021 resulted

in a $42.9 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 48.6 million gallons, or 63%, to 28.7 million gallons for the

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

nine months ended September 30, 2022 as compared to 77.3 million gallons for the same period in 2021.

The decrease in third-party fuel-grade

1 unchanged sentence

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.

Net sales of alcohol from our

other production segment increased $128.2 million, or 203%, to $191.5 million for the nine months ended September 30, 2022 as compared

to $63.3 million for the same period in 2021.

Our total volume of gallons sold increased by 44.9 million gallons, or 185%, to 69.2 million

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

gallons for the nine months ended September 30, 2022 as compared to 24.3 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.

segment’s average sales price per gallon of $2.77 for the nine months ended September 30, 2022, we generated $124.2 million in additional

net sales from the 44.9 million additional gallons of alcohol sold in the nine months ended September 30, 2022 as compared to the same

period in 2021.

The increase of $0.16, or 6%, in our other production segment’s average sales price per gallon for the nine months

ended September 30, 2022 as compared to the same period in 2021 improved our net sales from our other production segment by $4.0 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

$47.5 million, or 247%, to $66.7 million for the nine months ended September 30, 2022 as compared to $19.2 million for the same period

Our total volume of essential ingredients sold increased by 364,400 tons, or 162%, to 590,000 tons for the nine months ended

September 30, 2022 from 225,600 tons for the same period in 2021.

At our average sales price per ton of $113.13 for the nine months ended

September 30, 2022, we generated an additional $41.2 million in net sales from the 364,400 additional tons of essential ingredients sold

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

The increase of $27.76, or 32.5%, in our average sales

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

production segment by $6.3 million.

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

Net sales of alcohol from corporate

and other represented $12.1 million associated with our sales from Eagle Alcohol for the nine months ended September 30, 2022.

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) declined to

a loss of $19.8 million, representing a gross profit margin of negative 5.9%, for the three months ended September 30, 2022 compared to

a loss of $3.4 million, representing a gross profit margin of negative 1.1%, for the same period in 2021.

Our consolidated gross profit

(loss) declined to a loss of $6.2 million, representing a gross profit margin of negative 0.6%, for the nine months ended September 30,

2022 compared to gross profit of $25.7 million, representing a gross profit margin of 3.1%, for the same period in 2021.

Our consolidated gross profit (loss) for both the

three and nine month periods declined due to higher overall commodity prices and extreme commodity price volatility due to inflationary

pressures, including drawn-out supply chains and higher delivery costs, and logistical and service disruptions, some of which caused plant

outages for over six days in the third quarter of 2022 contributing to negative margins at our Western plants.

Corn basis costs increased

significantly in the third quarter of 2022 by approximately $11.0 million.

We also accelerated much of our fall repair and maintenance

activities to August to reduce our use of corn and minimize the impact of short-term higher commodity prices, resulting in higher costs

and lower production than we otherwise would have achieved.

For all of 2022, our corn basis costs increased significantly year-over-year.

Our cost of goods sold and gross loss for the current

periods also include $3.0 million in charges associated with the uncapitalized portion of our infrastructure upgrades.

We also recorded

an additional $3.0 million of losses on our forward derivative positions in the third quarter.

Three Months Ended September

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.

Our Pekin Campus

production segment’s gross profit declined by $11.9 million to a gross loss of $19.0 million for the three months ended

September 30, 2022 as compared to a gross loss of $7.1 million for the same period in 2021.

Of this decline, $10.6 million is

attributable to lower margins from our specialty alcohols and $1.3 million is attributable to decreased sales volumes of essential

ingredients in the three months ended September 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.

gross profit declined by $6.8 million to $0.5 million for the three months ended September 30, 2022 as compared to $7.3 million for the

same period in 2021.

Of this reduction, $0.6 million is attributable to lower marketing volumes of third-party fuel-grade ethanol and

nearly $6.2 million is attributable to lower margins from sales of third-party fuel-grade ethanol due to high volatility in fuel prices

for the three months ended September 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.

Our other production segment’s gross profit

(loss) improved by $1.0 million to a gross loss of $2.5 million for the three months ended September 30, 2022 as compared to a gross loss

of $3.5 million for the same period in 2021.

Of this improvement, $2.5 million is attributable to better, but still negative, margins

for fuel-grade ethanol, partially offset by $1.5 million attributable to increased volumes at negative margins of fuel-grade ethanol for

the three months ended September 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

and other represented $1.2 million associated with our sales from Eagle Alcohol for the three months ended September 30, 2022.

Nine Months Ended September

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

Our Pekin Campus production segment’s gross

profit (loss) declined by $24.2 million to a gross loss of $6.8 million for the nine months ended September 30, 2022 as compared to a

gross profit of $17.4 million for the same period in 2021.

Of this decline, $0.4 million is attributable to lower sales volumes and $23.8

million is attributable to lower margins from our specialty alcohols in the nine months ended September 30, 2022 as compared to the same

period in 2021.

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.

by $12.4 million to a gross profit of $0.1 million for the nine months ended September 30, 2022 as compared to a gross profit of $12.5

million for the same period in 2021.

Of this decline, $12.2 million is attributable to lower margins from sales of third-party fuel-grade

ethanol and $0.2 million is attributable to lower marketing volumes of third-party fuel-grade ethanol for the nine months ended September

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.

Our other production segment’s gross loss

improved by $1.6 million to a gross loss of $2.6 million for the nine months ended September 30, 2022 as compared to a gross loss of $4.2

million for the same period in 2021.

Of this improvement, $3.2 million is attributable to better margins, although negative, partially

offset by $1.6 million attributable to lower sales volumes at negative margins for the nine months ended September 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.

and other represented $3.0 million associated with our sales from Eagle Alcohol for the nine months ended September 30, 2022.

Selling, General and

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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

Three Months Ended

September 30,

Nine Months Ended

September 30,

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.

increased for the three and nine months ended September 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

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 $0.9 million and $2.6 million for the three and nine months ended September 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

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to be repaid nor will it recur in the future.

Net Income Available

Net Income (Loss) 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

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss) available to common stockholders

Percentage of net sales

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.

decline in our net income available to common stockholders for the three and nine months ended September 30, 2022 as compared to the

same periods in 2021 is primarily due to substantially higher production input costs resulting in negative gross margins as well as higher

SG&A expenses.

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

During the nine months

ended September 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 our line of credit, asset sales and cash on hand.

A portion of these

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

As of September 30, 2022, we had $32.4 million in cash,

cash equivalents and restricted cash and $30.7 million available for borrowing under Kinergy’s operating line of credit.

addition to Kinergy’s operating line of credit, we have a senior secured term loan facility to fund large capital-intensive

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

other liquidity needs for the next twelve months from the filing of this report.

Quantitative Period-End Liquidity

We believe that the following

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The following selected financial information should be read in conjunction

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

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

in this report (dollars in thousands).

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

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

report (dollars in thousands).

September 30,

Cash, cash equivalents and restricted cash

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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.

Working capital declined to $131.8 million at September

30, 2022 from $159.9 million at December 31, 2021 as a result of a decrease of $43.2 million in current assets, partially offset by a

decrease of $15.1 million in current liabilities.

Current assets decreased primarily due to a decrease

in cash, restricted cash, accounts receivable and derivative assets due to the timing of sales and increased capital expenditures for

the nine months ended September 30, 2022.

Our current liabilities decreased primarily due

to a decrease in derivative instruments due to the end of period change in commodity prices for open contracts and a decrease in accounts

payable due to the timing of payments.

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.

decreased by $29.7 million primarily due to $25.2 million in cash used in our investing activities and $6.4 million in cash used in our

financing activities, partially offset by $1.8 million in cash provided by our operating activities.

Cash provided by our Operating Activities

We generated $1.8 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;

activities during the nine months ended September 30, 2022, as compared to cash used in our operating activities of $19.5 million for

the same period in 2021.

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

● An increase of $51.2 million related to higher accounts receivable

balances due to the timing of payments and higher commodity prices and sales volumes;

● an increase of $6.9 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.

● a decrease in income from loan forgiveness of $9.9 million due to a CARES Act loan forgiven in the prior period;

● an increase in inventory valuation of $8.0 million due to increased commodity prices.

These amounts were partially offset by:

● A decrease of $19.2 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.

● a decrease of $18.5 million in our consolidated net income (loss) due to lower margins driven by higher corn costs;

● a decrease in other assets of $15.4 million due to changes in derivative assets related to commodity price changes;

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

We used $25.2 million of cash for additions to

property and equipment and $14.7 million of cash to acquire Eagle Alcohol, net of cash acquired, partially offset by collections of $14.8

million from notes receivable held in connection with the sale in 2020 of our ethanol production facilities in Aurora, Nebraska for the

nine months ended September 30, 2022.

Our additions to property and equipment increased by $13.0 million for the nine months ended September

30, 2022 as compared to the same period in 2021 due to higher capital expenditures associated with our plant improvement initiatives in

Cash used in our Financing Activities

Cash used in our financing activities was $6.4

million for the nine months ended September 30, 2022, which reflects net payments of $4.5 million on Kinergy’s operating line of

credit, $1.0 million of share repurchases and $0.9 million paid in cash dividends on our preferred stock.

On November 7, 2022, we

entered into a senior secured term loan 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.

As of 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.

Our obligations under the term loan are secured by all of our tangible and intangible assets.

In connection with

the term loan facility, we will issue to the lenders an aggregate of up to 1.6 million shares of our common stock.

Kinergy’s Operating Line of Credit

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an aggregate amount of up to $100.0 million.

The credit facility matures on August 8, 2023.

Interest accrues under the credit facility

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

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

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

The credit facility matures in 2027.

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%.

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,

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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.

obligations of Kinergy and Alto Nutrients under the credit facility are secured by all of our tangible and intangible assets.

We believe Kinergy and Alto Nutrients are in compliance

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Three Months Ended

September 30,

Fixed-Charge Coverage Ratio Requirement

1 unchanged sentence

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.

As of September 30, 2022, Kinergy had an outstanding balance

of $45.9 million and $30.7 million of unused borrowing availability under the credit facility.

Share Repurchase Program

For the three months ended September

30, 2022, we repurchased 259,000 shares of our common stock as part of our publicly announced share repurchase program at an average price

per share of $3.86 for an aggregate expenditure of $1,002,000 during the period.

See “Unregistered Sales of Equity Securities and

Use of Proceeds – Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

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