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Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-15 · 556 added, 502 removed, 247 unchanged (81% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations.

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

The following discussion

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“Risk Factors” and elsewhere in this report.

We are a leading producer and marketer of specialty

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 the Midwestern state of Illinois and two of our facilities are located in the Western

states of Oregon and Idaho.

We have an annual alcohol production capacity of 350 million gallons.

We market all of the alcohols produced

at our facilities as well as fuel-grade ethanol produced by third parties.

In 2021, we marketed approximately 480 million gallons combined

of our own alcohols as well as fuel-grade ethanol produced by third parties, and over 1.2 million tons of essential ingredients on a

dry matter basis.

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, (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

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 2022, we marketed and distributed approximately 420 million gallons combined of our own alcohols as well as fuel-grade

ethanol produced by third parties, and over 1.6 million tons of essential ingredients on a dry matter basis.

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 sales of fuel-grade ethanol sourced from third parties, (2) Pekin production, which includes the

production and sale of alcohols and essential ingredients produced at our three production facilities located in Pekin, Illinois, which

we refer to as our 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 separately reportable segment.

Our mission is to expand our business as a leading

producer and marketer of specialty alcohols and essential ingredients.

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

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.

Eagle Alcohol specializes in

break bulk distribution of specialty alcohols.

The company purchases bulk alcohol from suppliers, including us.

Then it stores, denatures,

packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that garner a premium to bulk alcohols.

Eagle Alcohol delivers products to customers in the beverage, food, pharma, and related-process industries via its own dedicated trucking

fleet and common carrier.

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

Eagle Alcohol is now one of our wholly-owned

subsidiaries, and its former president, Dan Croghan, who has many years of experience and expertise in the chemical and alcohol distribution

industry, continues on as our employee.

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.

The company purchases bulk

alcohol from suppliers and then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes,

and drums, that typically garner a premium price to bulk alcohols.

Eagle Alcohol delivers products to customers in the beverage, food,

industrial 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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Essential Ingredients ;

and Renewable Fuels .

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

pharmaceuticals, hand sanitizers, disinfectants and cleaners.

Products for the Food & Beverage markets include grain neutral spirits

used in alcoholic beverages and vinegar as well as corn germ used for corn oils.

Products for Essential Ingredients markets include yeast,

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

Our Renewable Fuels products include fuel-grade ethanol

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

and Renewable

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.

We also sell yeast for human consumption.

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

as a feedstock for renewable diesel and biodiesel fuels.

Our specialty alcohols for the Food & Beverage and Health, Home

& Beauty markets represented approximately 10% and 4%, respectively, of our sales in 2022 from our two production segments.

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

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 on the West Coast are near their respective fuel and feed customers,

Our production facilities located in Oregon and Idaho are near their respective fuel and feed customers,

offering significant timing, transportation cost and logistical advantages.

We restarted our Magic Valley facility in November 2021 and we are

now operating all of our production facilities.

Our production facilities were operating for

On January 1, 2023, we temporarily hot-idled our Magic Valley production facility due to extreme natural gas prices,

other unfavorable market conditions and to facilitate the installation of our new high protein systems.

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

operating facilities or resume operations at any idled facility.

Annual Production Capacity

Annual Alcohol Production Capacity

(estimated, in gallons)

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Specialty Alcohol

Marketing Segment

We market all of the alcohols and essential ingredients

we produce at our facilities.

We also market fuel-grade ethanol produced by third parties.

Marketing and Distribution Segment

We market and distribute all of the alcohols and

essential ingredients we produce at our facilities.

We also market and distribute alcohol produced by third parties.

We have extensive and long-standing customer relationships,

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personal health/consumer health and personal care hygiene products, and global trading firms.

Our fuel-grade ethanol customers are located

throughout the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend

fuel-grade ethanol into gasoline.

Our customers depend on us to provide a reliable supply of fuel-grade ethanol and manage the

logistics and timing of delivery with very little effort on their part.

Our customers collectively require fuel-grade ethanol

volumes in excess of the supplies we produce at our facilities.

We secure additional fuel-grade ethanol supplies from third-party

fuel-grade ethanol producers.

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

through our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of

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.

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 ethanol producers.

We arrange for transportation, storage and delivery of fuel-grade ethanol

purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest

from a variety of sources.

We market our essential ingredient feed products

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Current Initiatives and Outlook

We further advanced our strategic initiatives in

the fourth quarter.

During the quarter, we sold our Stockton, California fuel-grade ethanol production facility, which completed our efforts

to optimize our asset base by divesting non-core assets in Nebraska and California.

Shortly prior to the fourth quarter, we launched our first project to

produce enhanced protein at our dry mill in Magic Valley, Idaho by installing Harvesting Technology’s patented CoPromax TM

We chose this facility because of its location near cattle, poultry, pork and acquaculture markets to serve the growing demand

for high protein feed.

We restarted production at this facility in November and expect to commence expanded corn oil production in mid-2022.

We expect full corn oil and protein feed production by year end.

Once completed, we expect the CoPromax system to produce over 33,000

tons of feed annually with a protein content greater than 50%.

The system will also increase corn oil yields by 50%, or nearly 9.0 million

pounds annually.

We expect the combination of additional sales of corn oil and premium prices from high protein feed to contribute over

$9.0 million annually in earnings before interest, taxes, depreciation and amortization, or EBITDA, based on current market prices.

We plan to roll out the CoPromax system at our

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

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

Assuming similar economics across all four dry mills, we estimate

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

This initiative is one example of our

efforts to grow and diversify our revenues and bolster the quantity and quality of our earnings.

We continue to work with new and existing customers

to act as their certified producer of a growing variety of specialty alcohols used in common, everyday consumer goods, such as vinegars,

spirits, mouthwash, cosmetics and cleaning supplies.

To proactively address our customers’ growing needs, we extended to our Pekin

wet mill in February 2022 the certifications we obtained for our ICP facility, thus creating full redundancy across our entire Pekin Campus.

These certifications appeal to customers using high grade alcohols in Health, Home & Beauty products as well as distilled spirits.

We believe the certifications help deepen existing customer relationships and enable new opportunities in domestic and export markets.

In January 2022, we completed the acquisition of

Eagle Alcohol, an established leader in premium alcohol distribution.

Eagle Alcohol expands the scope of our product offerings, our customer

base and our commercial opportunities.

We also expect the acquisition to accelerate our penetration into new markets and to lower our

exposure to bulk alcohol price volatility, increasing our margins and creating new opportunities for organic growth.

Eagle Alcohol fits

perfectly into our strategic roadmap as we continue to raise the quality of our production to the highest grades of grain neutral spirits

by further enhancing our distillation process, optimizing our production capabilities and integrating Eagle Alcohol’s strong distribution

and sales services.

We plan to invest $5.0 million in 2022 to further optimize specialty alcohol distribution and 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

We plan to reinvest further in sustainable and

profitable business segments, strengthening our core operations and further diversifying our product offerings in specialty alcohols and

essential ingredients.

We intend to expand corn storage at our Pekin Campus, which will increase our corn-buying flexibility and reduce

our need to purchase product at premium prices when farmers and elevators are not shipping corn during holidays or unfavorable weather

This capital improvement project represents an investment of approximately $6.0 million and is expected to yield over $2.0

million in EBITDA annually with a payback in less than three years beginning in the fourth quarter of 2022.

We are also evaluating an investment to bypass

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

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

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

beginning in 2024.

In addition, we remain actively engaged with third

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

Various alternatives are available, including development

of the project as a standalone system sized to our facilities or interconnecting with other viable gathering and sequestration systems

under development in proximity to our Pekin Campus.

Currently, we have contracted for sales of over 90 million

gallons in specialty alcohols for 2022.

This represents a 28% year-over-year increase in longer-term contracted sales volumes as compared

to shorter-term sales arrangements, including spot sales, and excludes Eagle Alcohol’s contracted sales volumes.

This increase is

approximately equivalent to the increase in fixed-price specialty alcohol sales we contracted in 2021 compared to 2020.

These sales, while

still priced at a premium to fuel-grade ethanol, reflect tighter spreads to ethanol than we experienced in 2021 due to higher commodity

prices as well as unusual swings in demand due to the pandemic.

As demand and supply rebalance over time, we expect specialty alcohol

margins to return to more stable and normalized levels.

Although our contracted volumes provide greater visibility into our

anticipated results for 2022, extreme volatility in commodity prices, ongoing logistical constraints and the potential impact the war

in Ukraine may have on corn supplies and other commodities prevent us from providing any specific 2022 revenue or gross profit guidance

at this time.

Nevertheless, we expect positive results throughout the year and anticipate that our cost-savings and other initiatives

and our capital improvement projects completed in 2021 will contribute an additional $18 million in EBITDA for 2022, excluding our renewable

fuels business.

We also expect that the capital improvement projects outlined above will contribute an additional $45 million in EBITDA

annually by the end of 2024, not including any additional benefits we may generate from carbon capture and sequestration or other projects

that are under evaluation and development.

During the fourth quarter,

and December in particular, extreme commodity price volatility from regional natural gas price spikes, high corn basis costs and a dramatic

decline in fuel-grade ethanol prices negatively impacted our business.

These factors outweighed performance in other areas in an already

challenging 2022.

Our results for the year demonstrate our need to further mitigate the impact of renewable fuel and commodity price volatility.

Current fuel-grade ethanol

margins are significantly improved compared to December and January levels and crush margins are positive.

Natural gas prices have declined

significantly, and we expect a favorable natural gas market during the coming months.

Corn prices, however, remain firm due to tight supplies.

We continue to focus,

both near- and long-term, on driving margin expansion through a diversified set of revenue streams from a variety of products.

increasing production of our highest quality products, including grain neutral spirits, or GNS, corn oil, high protein products and primary

We are also in advanced stages to begin our carbon capture and sequestration project.

Our goals also continue to emphasize strategies

to increase plant efficiency, reliability and capacity by adding corn storage, installing a natural gas pipeline, converting

our biogas to renewable natural gas, building energy cogeneration capabilities at our Pekin Campus, and upgrading other equipment, as

discussed further below.

As we progressed into

2022, the need to accelerate these initiatives became clear, therefore last November, we entered into a six-year term loan for up to $125

We are staging our capital improvement projects and drawing loan proceeds in tranches to minimize carrying costs while maximizing

We spent $12.5 million in the fourth quarter and $37.7 million for all of 2022 on our capital improvement projects.

will position us to add substantial additional streams of earnings before interest, taxes, depreciation and amortization, or EBITDA, to

our business, all of which will increase under an improved operating environment.

We expect additional annualized EBITDA of $65 million

from current projects by the end of 2025 and total additional annualized EBITDA of $125 million in 2026 when our carbon capture and sequestration,

cogeneration and other current initiatives are fully realized.

In 2020, we began expanding

our high-quality alcohol production and production capacity.

In 2021, we refurbished our 20 million gallon per year GNS distillation system

at our Pekin Campus wet mill.

We raised the quality of our specialty alcohol, earning certifications to attract the most demanding customers

in the pharmaceutical industry.

In 2022, we further upgraded our GNS system to produce the highest quality beverage-grade product available

on the market.

With these improvements, we are introducing new high-quality 190 proof and low-moisture 200-proof GNS products to our existing

and target customers in the beverage, food, flavor, personal care and pharmaceutical industries.

We are working with customers to qualify

these new products in preparation for our annual fall contracting period and expect to generate additional annualized EBITDA of $5 million

from the products starting in 2024.

In early 2022, we also added break bulk and distribution capabilities by acquiring Eagle Alcohol.

Eagle Alcohol’s team has provided valuable advice on high-quality alcohol production and distribution, enabling tote and drum packaging

and distribution while building customer relationships for our specialty alcohols.

We anticipate future synergies with Eagle Alcohol’s

business and our new GNS products.

In the fourth quarter,

natural gas prices increased significantly in the Western region, spiking 400% in December, compared to third quarter prices.

we moderated production at our Columbia plant in Boardman, Oregon and temporarily hot-idled our Magic Valley, Idaho facility.

the opportunity to focus on completing the installation of Harvesting Technology’s patented CoPromax TM system at

our Magic Valley plant to extract corn oil and produce enhanced protein.

installation project consists of two phases.

The first phase – corn oil extraction – was commissioned in October and

corn oil production has increased by approximately 40% in pounds per bushel.

When combined with the enhanced protein system, we

expect corn oil production to ultimately increase by 50% or more in pounds per bushel and generate additional annualized EBITDA of

$4.5 million based on current market prices.

Given these positive results, we plan to install corn oil extraction technologies at

our three other dry mills.

Although our other dry mills have somewhat different capacities, on average we expect to produce

financial results similar to those of Magic Valley, ultimately generating additional annualized EBITDA of $13.5 million, for total

additional annualized EBITDA of $18.0 million from corn oil extraction technologies at all four of our dry mills.

The second phase of the

Magic Valley system – separating and producing enhanced protein – is on schedule to reach full production in the third quarter

of 2023, achieving or exceeding 52% protein content and generating additional annualized EBITDA of $4.5 million based on current market

Once the system is fully operational and tested, we will evaluate additional deployments at our other plants.

We intend to commercially

develop primary yeast through an aerobic fermentation process at our wet mill.

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.

Having successfully completed product trials,

we are in the advanced stages of selecting an engineering and design group to finalize our plans.

Our preliminary analysis indicates that

our primary yeast product would contribute additional annualized EBITDA of approximately $19 million in the first twelve months of production,

rising to approximately $25 million annually thereafter.

Construction could begin in late 2023 or early 2024 with a completion date of

The outlook for carbon

capture and sequestration at our Pekin Campus changed markedly under the Inflation Reduction Act of 2022, which increased the price of

carbon to $85 per metric ton for twelve years, significantly strengthening project economics.

Our Pekin Campus has an annual capacity

of approximately 700,000 metric tons of carbon.

In addition, competition for offtake agreements has dramatically lowered project operating

Our analysis shows significant potential benefits.

We are in advanced negotiations to provide turnkey transportation, sequestration

and monitoring services for the project.

In addition, we are in the final stages of selecting engineering services for the design and

installation of equipment and technologies to meet the capture, compression and energy requirements of the project.

We believe that, beginning

in 2026, the project will contribute additional annualized EBITDA of over $30 million based solely on the 45Q tax incentive benefits under

the Inflation Reduction Act of 2022.

Also, by sequestering the carbon dioxide from our Pekin Campus, we expect to materially reduce our

carbon footprint enabling us to monetize additional value from the alcohol and essential ingredients we produce.

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 other logistical constraints.

In addition to reducing the cost of delivered corn, this new storage capacity will lower the cost

of silo cleaning and increase our operating reliability at the site.

The corn storage silo is undergoing conditioning and we expect completion

in the first quarter and full operation in the second quarter, conservatively generating additional annualized EBITDA of $1.6 million

in the first year and additional annualized EBITDA of $2.0 million thereafter.

Consistent with our sustainability

efforts, we examined alternatives to improve energy procurement and usage.

We made significant progress in planning the installation of

a new natural gas pipeline to bypass our current utility at our Pekin Campus.

When fully operational, which we expect in 2024, the pipeline

would reduce our energy costs by $3.0 million annually.

The line would also help fulfill our increased energy needs associated with our

numerous growth initiatives, including primary yeast production and carbon capture and sequestration.

The new gas pipeline would also

lower our carbon score.

We currently produce approximately 250,000 MMTBUs annually in biogas, enough energy to heat 2,300 homes for a

Presently, most of our biogas is flared.

We believe that once converted to renewable natural gas, we could use the natural

gas pipeline to monetize the value of this current waste stream and produce renewable natural gas, generating additional annualized EBITDA

of $3.0 million.

We are also in the late stages of a third-party study on cogeneration at our Pekin Campus to meet our combined energy

requirements for carbon capture and sequestration and our goals of lowering our carbon score and increasing our plant efficiencies.

on our preliminary analysis, we expect cogeneration at our Pekin Campus to contribute additional annualized EBITDA of $15.0 million based

on current energy prices and an expected completion date in late 2025 or early 2026.

We expect to maintain

or grow our contracted volumes of specialty alcohols for 2023 with our existing customer base.

We also expect to add new accounts in the

beverage category, particularly in 2024, driven by our improved GNS production system at our Pekin Campus.

While we are unable to forecast

fuel-grade ethanol margins for 2023, we expect to benefit from additional EBITDA of $10.0 million in 2023 from already completed capital

projects and projects that we will complete this year.

In addition, with our accelerated investments made possible through funding from

our new term loan, we expect to almost double our annualized EBITDA by year-end 2025 compared to our average EBITDA over the past three

years and nearly double our annualized EBITDA again when our current projects are fully operational by year-end 2026.

We continue to execute

on our business transformation plans and focus on the future.

We believe that recent extreme commodity price fluctuations are cyclical

and will pass.

To reduce their impact, we are diversifying our revenue streams and working to increase plant efficiency, reliability and capacity.

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.

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 consolidated 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.

is provided below to reconcile Adjusted EBITDA to its most directly comparable GAAP measure, consolidated net income (loss).

Adjusted EBITDA are not measures of financial performance under GAAP and should not be considered as alternatives to consolidated 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 consolidated net income (loss) would require a forward-looking statement of consolidated 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 consolidated 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 consolidated net income (loss) that are not presently

Reconciliation of Adjusted

EBITDA to Consolidated Net Income (Loss)

(in thousands) (unaudited)

Consolidated net income (loss)

Interest expense, net

Interest income

Asset impairments

Acquisition-related expense

Provision for income taxes

Depreciation and amortization expense

Total adjustments

Adjusted EBITDA

2022 Financial Performance

Our consolidated net sales increased

by $0.3 billion to $1.2 billion for 2021 from $0.9 billion for 2020.

Our net income (loss) available to common stockholders increased

by $60.6 million from a loss of $16.4 million for 2020 to income of $44.2 million for 2021.

Factors that contributed to

our results of operations for 2021 include:

Our net sales for 2021 increased by $0.3 billion, or 35%, to $1.2 billion for

2021 from $0.9 billion for 2020 as a result of an increase in our average sales price per

gallon, partially offset by a decrease in total alcohol gallons sold.

o Our average sales price per gallon increased by $0.83, or 51%, to $2.46

for 2021 from $1.63 for 2020.

The increase was driven primarily by higher fuel-grade ethanol prices in the fourth quarter of 2021 due

to supply constraints and higher prices for oil and gasoline.

We expect fuel-grade ethanol prices to normalize as additional production

moderates the supply and demand imbalance.

total gallons sold declined by 56 million gallons, or 10%, to 480 million gallons for 2021

from 536 million gallons for 2020.

● Our fuel-grade ethanol production sales

volume declined by 20 million gallons, or 11%, to 161 million gallons for 2021 from 181 million

gallons for 2020, primarily from reduced production at our California facilities.

Our California production facilities were

sold in 2021.

● Our specialty alcohol production sales volume declined by 1 million

gallons, or 1%, to 90 million gallons for 2021 from 91 million gallons for 2020, as volumes declined slightly due to higher than normal

spot sales in 2020 due to the pandemic.

Although spot sales declined in 2021, our contracted sales increased significantly during the

year as compared to 2020.

● Our third-party sales volume declined

by 35 million gallons, or 13%, to 229 million gallons for 2021 from 264 million gallons for

We intentionally reduced sales of third-party fuel-grade ethanol to focus on sales

of inventory from our own production.

Our gross profit improved by $14.9 million to a gross profit of $67.8 million

for 2021 from $52.9 million for 2020 as a result of substantially higher margins, particularly in the fourth quarter for fuel-grade ethanol, and due to strong

demand for our specialty alcohols.

In addition, we sold unprofitable fuel-grade ethanol production

facilities, substantially reducing carrying costs.

Our consolidated net sales increased by $0.1 billion

to $1.3 billion for 2022 from $1.2 billion for 2021.

Our net income available to common stockholders declined by $87.1 million to a loss

of $42.9 million for 2022 from income of $44.2 million for 2021.

Factors that contributed to these results of operations

for 2022 include:

● Net sales .

Our net sales increased by $0.1 billion to $1.3 billion for 2022 from $1.2 billion for 2021 due to an increase in

our average sales price per gallon and additional tons of essential ingredients sold at higher prices.

These factors were partially offset

by fewer total alcohol gallons sold in 2022.

o Our average sales price per gallon increased by $0.18, or 7%, to $2.64 for 2022 from $2.46 for 2021.

The increase was primarily driven

by higher fuel-grade ethanol prices in 2022 largely due to higher oil and gas prices.

o Our total gallons sold declined by 61 million gallons, or 13%, to 419 million gallons for 2022 from 480 million gallons for 2021.

◾ Our fuel-grade ethanol production sales volume increased by 48 million gallons, or 30%, to 209 million gallons for 2022 from 161 million

gallons for 2021, primarily from additional production in 2022 as all of our fuel-grade ethanol production facilities were operating near

full capacity for the year.

◾ Our specialty alcohol production sales volume increased by 3 million gallons, or 3%, to 93 million gallons for 2022 from 90 million

gallons for 2021 due to an increase in our contracted sales of specialty alcohols for the year.

◾ Our third-party sales volume declined by 111 million gallons, or 48%, to 118 million gallons for 2022 from 229 million gallons for

As we did in 2021, we continued to intentionally reduce sales of third-party fuel-grade ethanol to focus on sales of inventory from

our own production in 2022.

o Our volume of essential ingredients sold increased by 401 tons, or 32%, to 1,637 tons for 2022 from 1,236 tons for 2021 primarily

due to higher fuel-grade ethanol production.

Our average sales price for our essential ingredients increased primarily due to higher corn

● Gross Profit (Loss) .

Our gross profit declined by $95.3 million to a gross loss of $27.5 million for 2022 from gross profit

of $67.8 million for 2021 due to extreme commodity price volatility, including regional natural gas price spikes, high corn basis costs

and a dramatic decline in fuel-grade ethanol prices, particularly in the fourth quarter.

In addition, we experienced an extended shut down for maintenance over the summer of 2022 at our

Pekin Campus and logistical constraints

and rail interruptions in the third quarter resulting in plant outages in excess of six days at our Western plants.

Sales and Margins

We generate sales by marketing

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

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

market essential ingredients produced by our production facilities, including dried yeast, corn gluten meal, corn gluten feed, and distillers

grains and liquid feed used in commercial animal feed and pet foods.

all of the alcohols produced by our three production facilities in Illinois, all of the fuel-grade ethanol produced by our production

facility in Oregon, all of the fuel-grade ethanol produced by our production facility in Idaho, and fuel-grade ethanol purchased from

third-party suppliers throughout the United States.

We also market essential ingredients produced by our production facilities, including

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

We also sell yeast for human consumption.

Our profitability is highly

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of corn as reported by the CBOT increased 22% to $6.94 per bushel for 2022 from $5.67 per bushel for 2021.

We believe that our gross profit

margins depend primarily on six key factors:

prices of our specialty alcohols and the market price of fuel-grade ethanol, the latter of

which is impacted by the price of gasoline and related petroleum products, and government

regulation, including government ethanol mandates;

market price of key production input commodities, including corn and natural gas;

prices of our essential ingredients;

ability to anticipate trends in the prices of our alcohols, essential ingredients, and key

input commodities, and our ability to implement appropriate risk management and opportunistic

pricing strategies;

proportion of our sales of specialty alcohols to our sales of fuel-grade ethanol produced

at our facilities;

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

fuel-grade ethanol produced by unrelated third-parties.

We believe that our gross

profit margins depend primarily on six key factors:

● the prices of our specialty alcohols and the market price of fuel-grade ethanol, the latter of which is

impacted by the price of gasoline and related petroleum products, and government regulation, including government ethanol mandates;

● the market prices of key production input commodities, including corn (and

corn basis) and natural gas;

● the prices of our essential ingredients;

● our ability to anticipate trends in the prices of our alcohols, essential ingredients, and key input commodities,

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

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

● the proportion of our sales of fuel-grade ethanol produced at our facilities to our sales of fuel-grade

ethanol produced by unrelated third-parties.

We seek to optimize our gross

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

Our inability to anticipate the factors described above or their relative

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

periods of time.

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

gross profit margins.

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

our future gross profit margins.

Our inability to anticipate

the factors described above or their relative importance, and adverse movements in the factors themselves, could result in declining or

even negative gross profit margins over certain periods of time.

Our ability to anticipate these factors or favorable movements in these

factors may enable us to generate above-average gross profit margins.

However, given the difficulty associated with successfully forecasting

any of these factors, we are unable to estimate our future gross profit margins.

Results of Operations

Selected Financial Information

Selected Financial

The following selected financial

6 unchanged sentences

Percentage Change

Renewable fuel production

gallons sold (in millions)

Renewable fuel production gallons sold (in millions)

Specialty alcohol production 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 ingredient revenues as % of

delivered cost of corn (2)

ingredient 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.

(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 ingredient revenues as a percentage of delivered

cost of corn shows our yield based on sales of essential ingredients, including WDG and corn oil, generated

from ethanol we produced.

Year Ended December 31, 2021 Compared to the Year Ended

December 31, 2020

Percentage of

Net Sales for the

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

Year Ended December 31, 2022 Compared to the Year

Ended December 31, 2021

Results as a Percentage

of Net Sales for the

(Unfavorable)

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Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Gain on litigation settlement

Gain on sale of assets

Gain (loss) on sale (disposal) of assets

Asset impairments

Income from operations

Income (loss) from operations

Income from cash grant

Income from loan forgiveness

Interest expense

Fair value adjustments

Interest expense, net

Other income, net

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Consolidated net income (loss)

Net loss attributed to noncontrolling interests

Net income (loss) attributed to Alto Ingredients, Inc.

Preferred stock dividends

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Income (loss) available to common stockholders

The increase in our

consolidated net sales for 2021 as compared to 2020 was primarily due to an increase in our average sales price per gallon for our

alcohols and sales price per ton for our essential ingredients, partially offset by a decrease in our total gallons sold and volume of essential ingredients sold.

average sales price per gallon increased predominately due to higher fuel-grade ethanol prices, particularly in the fourth quarter,

from supply constraints and higher oil and gasoline prices.

Our average sales price for our essential ingredients increased

predominately due to the higher corn prices.

* Not meaningful.

The increase in our consolidated

net sales for 2022 as compared to 2021 was primarily due to an increase in our average sales price per gallon for our alcohols and a higher

volume of essential ingredients sold at higher sales prices per ton, partially offset by a decrease in our total gallons sold.

sales price per gallon increased primarily due to higher fuel-grade ethanol prices largely driven by higher oil and gas prices.

more tons of essential ingredients primarily due to higher fuel-grade ethanol production in 2022 compared to 2021.

Our average sales price

for our essential ingredients increased primarily due to higher corn prices.

As we did in 2021, we continued to intentionally reduce sales

of third-party fuel-grade ethanol to focus on sales of inventory from our own production in 2022.

Pekin Campus Production Segment

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Pekin Campus production segment increased by $23.1 million, or 5%, to $521.3 million for 2022 as compared to $498.2 million for 2021.

Our total volume of production gallons sold increased 19.1 million gallons, or 10%, to 213.0 million gallons for 2021 as compared to

193.9 million gallons for 2020.

At our Pekin Campus production segment’s average sales price per gallon of $2.34 for 2021, we generated

$44.7 million in additional net sales from our Pekin Campus production segment from the additional 19.1 million gallons of alcohol sold

in 2021 as compared to 2020.

The increase of $0.63, or 37%, in our Pekin Campus production segment’s average sales price per gallon

in 2021 as compared to 2020 improved our net sales from our Pekin Campus production segment by $123.1 million.

Our total volume of production gallons sold, however, decreased by 11.9 million gallons, or 6%, to 201.1 million gallons for 2022 as compared

to 213.0 million gallons for 2021, due to an extended shut down for maintenance over the summer of 2022.

At the segment’s average

sales price per gallon of $2.59 for 2022, we generated $30.8 million less in net sales from the segment because of the 11.9 million fewer

gallons of alcohol sold in 2022 as compared to 2021.

However, an increase of $0.25, or 11%, in the segment’s average sales price

per gallon in 2022 as compared to 2021 resulted in a $53.9 million increase in net sales from the segment as compared to 2021.

Net sales of essential ingredients

increased $59.2 million, or 45%, to $189.5 million for 2021 as compared to $130.3 million for 2020.

increased by $36.3 million, or 19%, to $225.8 million for 2022 as compared to $189.5 million for 2021.

Our total volume of essential ingredients

sold increased by 46,000 tons, or 6%, to 875,000 tons for 2021 from 829,000 tons for 2020.

At our average sales price per ton of $216.59

for 2021, we generated an additional $10.0 million in net sales from the 46,000 additional tons of essential ingredients sold in 2021

as compared to 2020.

The increase of $59.40, or 38%, in our average sales price per ton in 2021 as compared to 2020 increased our net

sales from our Pekin Campus production segment by $49.2 million.

Marketing Segment

sold decreased by 24,000 tons, or 3%, to 851,500 tons for 2022 from 875,100 tons for 2021, also due to the above mentioned maintenance

At our average sales price per ton of $265.26 for 2022, we generated $6.3 million less in net sales from the 24,000 fewer tons of

essential ingredients sold in 2022 as compared to 2021.

An increase of $48.68, or 23%, in our average sales price per ton in 2022 as compared

to 2021 resulted in a $42.6 million increase in net sales from the segment compared to 2021.

Marketing and Distribution

Net sales of fuel-grade ethanol from our marketing

segment, excluding intersegment sales, increased by $123.5 million, or 48%, to $381.2 million for 2021 as compared to $257.7 million

Our volume of third-party fuel-grade ethanol

gallons sold reported gross by our marketing segment decreased by 23.0 million gallons, or 14%, to 140.9 million gallons for 2021 as

compared to 163.9 million gallons for 2020.

At our marketing segment’s average sales price per gallon of $2.69 for 2021, net

sales were $61.9 million lower as a result of the 23.0 million fewer gallons sold in 2021 as compared to 2020.

This decline was more

than offset by the $1.13 increase in our sales price per gallon for 2021.

The increase of $1.13, or 72%, in our average sales price

per gallon in 2021 as compared to 2020 increased our net sales from our third party fuel-grade ethanol gallons sold by $185.4

and distribution segment, excluding intersegment sales, decreased by $152.3 million, or 40%, to $228.9 million for 2022 as compared to

$381.2 million for 2021.

Our volume of third-party fuel-grade ethanol gallons

sold reported gross by the segment decreased by 60.4 million gallons, or 43%, to 80.5 million gallons for 2022 as compared to 140.9 million

gallons for 2021.

This decline is the result of our continued strategic analysis to focus our sales of third-party gallons to certain

regions in which we operate.

At the segment’s average sales price per gallon of $2.83 for 2022, net sales were $170.8 million lower

as a result of the 60.4 million fewer gallons sold in 2022 as compared to 2021.

This decline was partially offset by the $0.13 increase

in our sales price per gallon for 2022.

An increase of $0.13, or 5%, in our average sales price per gallon in 2022 as compared to 2021

resulted in a $19.0 million increase in net sales from our third party fuel-grade ethanol gallons sold by the segment compared to 2021.

Our volume of third-party fuel-grade

ethanol gallons sold reported net by our marketing segment decreased by 12.4 million gallons, or 12%, to 88.1 million gallons for 2021

as compared to 100.5 million gallons for 2020.

ethanol gallons sold reported net by the segment decreased by 50.7 million gallons, or 58%, to 37.4 million gallons for 2022 as compared

to 88.1 million gallons for 2021.

The decrease in sales reported net resulted in a decrease of $0.5 million in net sales.

Other Production Segment

Net sales of alcohol from our

other production segment decreased by $29.8 million, or 22%, to $107.9 million for 2021 as compared to $137.7 million for 2020.

volume of gallons sold decreased by 40.4 million gallons, or 52%, to 37.6 million gallons for 2021 as compared to 78.0 million gallons

At our other production segment’s average sales price per gallon of $2.87 for 2021, net sales were $115.9 million lower

as a result of the 40.4 million fewer gallons sold in 2021 as compared to 2020.

This decline was more than offset by the $1.10 increase

in our sales price per gallon for 2021.

The increase of $1.10, or 63%, in our average sales price per gallon in 2021 as compared to 2020

increased our net sales of alcohol from our other production segment by $86.1 million.

Net sales of essential ingredients decreased $9.8

Other production segment increased by $145.7 million, or 135%, to $253.6 million for 2022 as compared to $107.9 million for 2021.

total volume of gallons sold increased by 54.7 million gallons, or 145%, to 92.3 million gallons for 2022 as compared to 37.6 million

gallons for 2021.

At the segment’s average sales price per gallon of $2.75 for 2022, net sales were $150.3 million higher as a result

of the 54.7 million additional gallons sold in 2022 as compared to 2021.

This increase was partially offset by a $0.12 reduction in our

sales price per gallon for 2022.

A decrease of $0.12, or 5%, in our average sales price per gallon in 2022 as compared to 2021 resulted

in a $4.6 million decrease in net sales of alcohol from the segment compared to 2021.

Net sales of essential ingredients increased by

$59.1 million, or 190%, to $90.2 million for 2022 as compared to $31.1 million for 2021.

Our total volume of essential ingredients sold decreased

by 258,000 tons, or 42%, to 361,000 tons for 2021 from 619,000 tons for 2020.

At our average sales price per ton of $86.00 for 2021, net

sales were $22.2 million lower as a result of the 258,000 fewer tons sold in 2021 as compared to 2020.

This decline was more than offset

by the $19.96 increase in our sales price per ton for 2021.

The increase of $19.96, or 30%, in our average sales price per ton in 2021

as compared to 2020 increased our net sales of essential ingredients from our other production segment by $12.4 million.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit improved to a gross

profit of $67.8 million for 2021 from a gross profit of $52.9 million for 2020, representing a gross profit margin of 5.6% for 2021 compared

to 5.9% for 2020.

Our consolidated gross profit improved due to significantly higher margin sales for fuel-grade ethanol as we successfully

managed our profitable production facilities, partially offset by modest declines in specialty alcohol sales volumes and compared to unusually

high spot margins in 2020.

Our total volume of essential ingredients sold

increased by 424,900 tons, or 118%, to 785,900 tons for 2022 from 361,000 tons for 2021.

At our average sales price per ton of $114.78

for 2022, net sales were $48.8 million higher as a result of the 424,900 additional tons sold in 2022 as compared to 2021.

our sales price increased $28.78 per gallon for 2022.

An increase of $28.78, or 34%, in our average sales price per ton in 2022 as compared

to 2021 resulted in an increase of $10.3 million in net sales of essential ingredients from the segment compared to 2021.

Net sales from our Corporate and other segment

increased by $15.8 million due to sales from Eagle Alcohol.

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) declined from

a gross profit of $67.8 million, representing a gross margin of 5.6%, for 2021, to a gross loss of $27.6 million, representing a gross

margin of negative 2.1%, for 2022.

Our consolidated gross profit declined due to extreme commodity price volatility, including regional

natural gas price spikes, high corn basis costs and a dramatic decline in fuel-grade ethanol prices, particularly in the fourth quarter.

In addition, we experienced an extended shut down for maintenance over the summer of 2022 at our

Pekin Campus and logistical constraints and rail interruptions in the third quarter resulting in plant outages in excess of

six days at our Western plants.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross

profit declined by $20.5 million to a gross profit of $54.0 million for 2021 as compared to $74.5 million for 2020.

profit declined by $76.2 million to a gross loss of $22.2 million for 2022 from a gross profit of $54.0 million for 2021.

Of this decline,

$25.3 million is attributable to lower margins from our specialty alcohols, partially offset by $4.8 million in increased gross profit

attributable to increased sales volumes in 2021 as compared to 2020.

Margins in 2020 were unusually high due to strong spot price demand

for sanitizers and disinfectants due to the coronavirus pandemic.

Marketing Segment

Our marketing segment’s gross profit increased

by $5.2 million to $10.8 million for 2021 as compared to $5.6 million for 2020.

Of this increase, $7.0 million is attributable to higher

margins from sales of third-party fuel-grade ethanol, partially offset by $1.8 million attributable to lower marketing volumes of third-party

fuel-grade ethanol in 2021 as compared to 2020.

$74.7 million is attributable to lower margins primarily due to higher corn costs and $1.5 million is attributable to increased sales

volumes at negative margins in 2022 as compared to 2021.

Marketing and Distribution Segment

Our marketing and distribution segment’s

gross profit declined by $11.2 million to a gross loss of $0.4 million for 2022 from a gross profit of $10.8 million for 2021.

decrease, $11.6 million is attributable to lower margins from sales of third-party fuel-grade ethanol primarily due to higher fuel-grade

ethanol delivery costs, partially offset by $0.4 million attributable to lower marketing volumes of third-party fuel-grade ethanol sold

at negative margins in 2022 as compared to 2021.

Other Production Segment

Our Other production segment’s gross profit

improved by $30.2 million to a gross profit of $3.0 million for 2021 as compared to a gross loss of $27.2 million for 2020.

Of this improvement,

$33.4 million is attributable to an improved margin environment for fuel-grade ethanol, partially offset by a $3.2 million reduction

in gross profit attributable to lower sales volumes in 2021 as compared to 2020.

declined by $12.0 million to a gross loss of $9.0 million for 2022 as compared to a gross profit of $3.0 million for 2021.

Of this decline,

$6.3 million is attributable to a lower margin environment for fuel-grade ethanol primarily due to higher natural gas, corn and fuel-grade

ethanol delivery costs and $5.7 million is attributable to higher sales volumes at negative margins in 2022 as compared to 2021.

Gross profit from our Corporate and other segment

increased by $4.0 million due to sales from Eagle Alcohol.

Selling, General and Administrative Expenses

Our selling, general and administrative, or SG&A,

expenses decreased $2.8 million to $29.2 million for 2021 as compared to $32.0 million for the same period in 2020.

expenses increased $2.4 million to $31.6 million for 2022 as compared to $29.2 million for the same period in 2021.

SG&A expenses

declined primarily due to reduced legal and consulting expenses as we completed many of our strategic realignment initiatives in 2020.

We expect SG&A expenses of under $30 million for 2022.

Gain on Sale of Assets

Gain on sale of assets increased $3.0 million

to $4.6 million for 2021 as compared to $1.6 million for the same period in 2020.

The gains in 2021 reflect the sale of our Madera and

Stockton facilities.

The gains in 2020 reflect the sale of certain land at our Magic Valley facility.

These gains are not expected to recur in future periods.

Asset Impairments

We assess the impairment of long-lived assets,

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

the net book value of the asset.

In addition, prior to our sales of our Madera and Stockton, California production facilities, we reviewed

quarterly their fair values compared to their estimated sales prices, less estimated selling costs.

As a result, we recorded an aggregate

impairment charge of $3.1 million for 2021.

Income from Loan Forgiveness

In 2020, we received loan proceeds

of $9.9 million under the Coronavirus Aid, Relief, and Economic Security Act through the Paycheck Protection Program administered by

Small Business Administration, or SBA.

In 2021, we requested and were granted forgiveness for the full amount, and accordingly,

we recognized income from loan forgiveness in 2021.

Income from loan forgiveness is not expected to recur in future periods.

Interest Expense

Interest expense decreased $14.3 million to

$3.6 million for 2021 from $17.9 million for 2020.

The decrease in interest expense is primarily due to substantial principal

payments on our outstanding indebtedness during the year, resulting in significantly lower average debt balances for 2021.

Year Ended December 31, 2020, Compared

to the Year Ended December 31, 2019

increased primarily due to an acquisition-related accrual of $3.5 million for 2022 for future cash payments attributable to our acquisition

of Eagle Alcohol.

Income from Cash Grant

We applied for and received $22.7

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

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

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

We are neither required to repay the grant

nor will it recur in the future.

Interest Expense, net

Interest expense, net, decreased

by $1.8 million to $1.8 million for 2022 from $3.6 million for 2021.

The decrease in interest expense, net, is primarily due to our repayment

of debt in 2021 and a lower average debt balance throughout 2022.

Year Ended December 31, 2021, Compared to

the Year Ended December 31, 2020

An analysis of our financial results comparing

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During the year ended December 31, 2022, we funded

our operations primarily from cash flow from operations, cash proceeds from the sales of our Madera and Stockton facilities, proceeds

from lines of credit and cash on hand.

A portion of these funds was also used to repay in full our term debt and our other credit facilities

and for capital expenditures.

As of December 31, 2021, we had $50.6 million in cash and cash equivalents and $25.4 million available for

borrowing under Kinergy’s operating line of credit.

We anticipate capital expenditures to range between $22 million and $28 million

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

liquidity needs for at least the next twelve months from the date of this report.

our operations primarily from cash flow from operations, cash proceeds from a USDA grant, proceeds from payments on notes receivable,

and proceeds from a term loan.

A portion of these funds was also used to acquire Eagle Alcohol, pay down our Kinergy line of credit and

fund capital improvements to our property and equipment.

As of December 31, 2022, we had $36.5 million in cash and cash equivalents and

$57.9 million available for borrowing under Kinergy’s operating line of credit.

In addition, we have $40.0 million available for

capital improvement projects under our term loan.

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

service, capital expenditure and other liquidity needs for at least the next twelve months from the date of this report.

Quantitative Year-End Liquidity

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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).

Cash and cash equivalents

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Changes in Working Capital and Cash Flows

Working capital improved to $159.9 million at

December 31, 2021, from $127.1 million at December 31, 2020, as a result of an increase of $15.5 million in current assets and a decrease

of $17.3 million in current liabilities.

Current assets increased primarily due to an increase

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

partially offset by a reduction in assets held-for-sale as we completed the sales of our Madera and Stockton facilities.

Our current liabilities decreased primarily due

to a reduction in liabilities held-for-sale as we completed the sales of our Madera and Stockton facilities and a reduction in the current

portion of our long-term debt, partially offset by an increase in accounts payable and accrued liabilities due to the timing of payments

and an increase in derivative instruments.

Working capital declined to $121.1 million at December

31, 2022, from $159.9 million at December 31, 2021, as a result of a $30.4 million decrease in current assets and an $8.4 million increase

in current liabilities.

Current assets decreased primarily due to decreases

in accounts receivable, cash and equivalents, inventories and derivative instruments due to changes in volumes and commodity prices.

Our current liabilities increased primarily due

to an increase in accounts payable and accrued expenses due to the timing of payments.

Our cash, cash equivalents and restricted cash

increased by $13.9 million due to $26.8 million in cash provided by our operating activities and $27.1 million in cash provided by our

investing activities, partially offset by $40.0 million in cash used in our financing activities.

decreased by $12.6 million due to $37.7 million used in our investing activities, partially offset by $19.0 million in cash provided by

our financing activities and $6.0 million in cash provided by our operating activities.

Cash provided by our Operating Activities

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activities during 2022, as compared to $26.8 million in 2021.

Specific factors that contributed significantly to the change in cash

from our operating activities include:

increase of $74.1 million related to higher accounts receivable balances primarily due to

the timing of payments and higher commodity sales prices;

increase of $35.5 million related to higher inventories primarily due to increased commodity

reduction in the impact of noncash asset impairments on operating cash flows of $21.3 million;

from debt forgiveness of $9.9 million;

increase in fair value adjustments of derivative instruments of $6.8 million.

Specific factors that contributed significantly to the change in cash generated

by our operating activities include:

● a decrease in net income of $87.7 million primarily due to lower margins resulting from higher corn and delivery costs;

● a decrease in other assets of $31.3 million from 2021 due to sales of plant assets.

These amounts were partially offset by:

improvement in net income of $63.4 million;

increase of $33.0 million in accounts payable and accrued expenses as commodity prices rose at the end of the year;

reduction of $7.0 million in depreciation expense as we reduced the amount of fixed assets

held-for-use;

● a decrease of $37.5 million in other assets due to position changes

in derivative instruments.

Cash provided by our Investing Activities

We generated $27.1 million of cash from our investing

activities for 2021, of which $24.0 million and $19.5 million in cash were generated from the sales of our Stockton and Madera facilities,

respectively, partially offset by $16.4 million for additions to property and equipment resulting from our capital expenditure projects.

Cash used in our Financing Activities

Cash used in our financing activities was $40.0

million for 2021, which reflected payments on plant borrowings of $30.0 million, payments on our senior notes of $25.5 million and payments

of preferred stock dividends of $2.9 million, partially offset by net proceeds of $17.9 million from Kinergy’s operating line of

● an increase related to accounts receivable balances of $67.5 million, primarily due to the timing of payments and higher product sales

● a decrease related to accounts payable and accrued expenses of $7.3 million, due to lower third-party volumes.

Cash used in our Investing Activities

We used $37.7 million of cash for investing activities

for 2022, of which $37.8 million is attributable to additions to property and equipment resulting from our capital improvement projects

and $14.7 million is attributable to cash paid to acquire Eagle Alcohol, partially offset by proceeds of $14.8 million from principal

payments on our notes receivable.

Cash provided by our Financing Activities

Cash provided by our financing activities was $19.0

million for 2022, of which $59.1 million is attributable to net proceeds from our term loan, partially offset by $32.3 million in paydowns

on Kinergy’s line of credit, $5.2 million in debt issuance costs, $1.3 million in stock repurchases and $1.3 million of preferred

stock dividends.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit

for an aggregate amount of up to $100.0 million.

The credit facility matures on August 8, 2023.

Kinergy maintains an operating line of credit for

an aggregate amount of up to $100.0 million.

The credit facility matures on November 7, 2027.

Interest accrues under the credit facility

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

to Kinergy are limited under the terms of

the credit facility to $1.5 million per fiscal quarter.

to Kinergy are limited under the terms of the

credit facility to $1.5 million per fiscal quarter.

The credit facility also includes the accounts receivable of our indirect wholly-owned

6 unchanged sentences

procurement services to our subsidiaries.

In addition, the amount of cash distributions that Kinergy or Alto Nutrients may make to us

is also limited to up to 75% of excess cash flow.

For all monthly periods in which excess borrowing

3 unchanged sentences

of at least 1.1 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

2 unchanged sentences

ratio financial covenant and the actual results for the periods presented:

Years Ended December 31,

Fixed Charge Coverage Ratio Requirement

1 unchanged sentence

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

As of December 31, 2021, Kinergy had an outstanding balance

of $50.4 million and $25.4 million of unused borrowing availability under the credit facility.

Alto Pekin Credit Facilities

On December 15, 2016, Alto Pekin,

LLC, or Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin,

Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1 st Farm Credit Services, PCA and CoBank, ACB,

Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1 st Farm Credit Services $64.0 million

under a term loan facility that matured on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a revolving term loan

facility that was to mature on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit

On November 5, 2021, we closed

the sale of our Stockton, California facility and, using net proceeds from the sale, repaid the Pekin Credit Facility in full.

ICP Credit Facilities

On September 15, 2017, ICP, Compeer Financial,

PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement.

Under the terms of the ICP Credit

Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matured on September 20, 2021, or the ICP Term Loan,

and up to $18.0 million under a revolving term loan facility that was to mature on September 1, 2022, or the ICP Revolving Loan, and

together with the ICP Term Loan, the ICP Credit Facility.

On November 5, 2021, we closed

the sale of our Stockton, California facility and, using net proceeds from the sale, repaid the ICP Credit Facility in full.

Senior Secured Notes

On December 12, 2016, we entered into a Note Purchase

Agreement with five accredited investors and sold $55.0 million in aggregate principal amount of senior secured notes to the investors

in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold.

On June 26, 2017, we entered into

a second Note Purchase Agreement with five accredited investors and sold an additional $13.9 million in aggregate principal amount of

senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes

sold, and collectively with the notes previously sold, the Notes.

On May 14, 2021, in connection

with the sale of our Madera, California fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes.

On November 5, 2021, we closed

the sale of our Stockton, California facility and, using net proceeds from the sale, repaid the Notes in full.

CARES Act Loans

On May 4, 2020, Alto Ingredients,

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

the Paycheck Protection Program administered by the SBA.

Alto Ingredients, Inc.

received $6.0 million and Alto Pekin received $3.9 million

in loan proceeds.

In June 2021, the SBA approved Alto Pekin’s forgiveness application for the full amount of $3.9 million, and accordingly,

we recognized income from loan forgiveness for the three months ended June 30, 2021.

In September 2021, the SBA approved Alto Ingredients,

Inc.’s forgiveness application for the full amount of $6.0 million, and accordingly, we recognized income from loan forgiveness

for the three months ended September 30, 2021.

The SBA may audit the loan forgiveness applications and further examine eligibility for

forgiveness, including the facts and circumstances existing at the time the loans were made.

We can provide no assurances that any loan

forgiven will not require repayment following an audit by the SBA.

As of December 31, 2022, Kinergy had an outstanding balance of

$18.1 million and $57.9 million of unused borrowing availability under the credit facility.

Orion Term Loan

On November 7, 2022, we entered into a credit agreement

with certain funds managed by Orion Infrastructure Capital, or Lenders, under which the Lenders extended a senior secured credit facility

in the amount of up to $125,000,000, or Term Loan.

The Term Loan is secured by a first priority lien on certain of our assets and a second

priority lien on certain assets of Kinergy and Alto Nutrients.

The Lenders agreed to advance to us up to $100,000,000,

with up to an additional $25,000,000 upon the satisfaction of certain conditions.

We committed to issue to the Lenders pro rata an aggregate

of 1,282,051 shares of our common stock at the initial funding and up to an additional 320,513 shares of our common stock based upon certain

further fundings under the credit facility.

On November 23, 2022, we received our initial funding of $60,000,000 under the credit facility

and issued an aggregate of 1,282,051 shares of our common stock to the Lenders.

We received no separate consideration for the shares of

common stock issued.

Interest accrues on the unpaid principal amount

of the Term Loan at a fixed rate of 10% per annum.

The Term Loan matures on November 7, 2028, or earlier upon acceleration.

We must prepay amounts outstanding under the Term

Loan on a semi-annual basis beginning with the six-month period ending December 31, 2023 in an amount equal to a percentage of our excess

cash flow based on a specified leverage ratio, as follows:

(i) if our leverage ratio is greater than or equal to 3.0x, then the mandatory

prepayment amount will equal 100% of our excess cash flow, (ii) if our leverage ratio is less than 3.0x and greater than or equal to 1.5x,

then the mandatory prepayment amount will equal 50% of our excess cash flow, and (iii) if our leverage ratio is less than 1.5x, then the

mandatory prepayment amount will equal 25% of our excess cash flow.

As of December 31, 2022, the amount outstanding

under the Term Loan was $60,000,000.

Share Repurchase Program

For the three months ended December

31, 2022, we repurchased 92,000 shares of our common stock as part of our publicly announced share repurchase program at an average price

per share of $3.51 for an aggregate expenditure of $0.3 million during the period.

See “Item 5 – Market For Registrant’s

Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Purchases of Equity Securities by the Issuer

and Affiliated Purchasers.”

For the year ended December 31,

2022, we repurchased 351,000 shares of our common stock as part of our publicly announced share repurchase program at an average price

per share of $3.77 for an aggregate expenditure of $1.3 million during the period.

Other Cash Obligations

As of December 31, 2021, we

had future commitments for certain capital projects totaling $19.4 million.

These commitments are scheduled to be satisfied

through mid-2022.

In connection with our acquisition of Eagle Alcohol, we committed to

payments of contingent consideration of up to $9.0 million in cash over the next three years if certain targets are met.

Effects of Inflation

The impact of inflation was not significant to our financial condition

or results of operations for 2021, 2020 or 2019.

As of December 31, 2022, we had

future commitments for certain capital projects totaling $21.0 million.

These commitments are scheduled to be satisfied through 2023.

In connection with our acquisition

of Eagle Alcohol, we committed to contingent payments of up to $9.0 million in cash over the next three years if certain targets are met.

Critical Accounting Policies and Estimates

Our discussion and analysis

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

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

The preparation of these financial

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

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

The following represents a summary of our critical accounting policies and related estimates, defined as those policies that we believe are the

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

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

inherently uncertain.

Our discussion and analysis of

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

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

The preparation of these financial statements requires

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

liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period.

The following represents

a summary of our critical accounting policies and related estimates, defined as those policies that we believe are the most important

to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or

complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

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.

Revenue Recognition

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

Finally, Kinergy has exclusive sales agreements with other third-party

owned fuel-grade ethanol plants under which it sells their fuel-grade ethanol production for a fee plus the costs to deliver the ethanol

to Kinergy’s customers.

Finally, Kinergy has an exclusive sales agreement with a third-party

owned fuel-grade ethanol plant under which it sells the plant’s fuel-grade ethanol production for a fee plus the costs to deliver

the ethanol to Kinergy’s customers.

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

Revenue from these third-party agent sales is recorded

on a net basis, with Kinergy recognizing its predetermined fees and any associated delivery costs.

Revenue from these third-party agent

sales is recorded on a net basis, with Kinergy recognizing its predetermined fees and any associated delivery costs.

We have five production facilities

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

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

responsible for fulfilling the promise to provide the products, we have inventory risk before the product has been transferred to a customer

and we have discretion in establishing the price for the product.

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

for fulfilling the promise to provide the products, we have inventory risk before the product has been transferred to a customer and we

have discretion in establishing the price for the product.

See “Note 5 –

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primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and any subsequent impairment.

We assess the impairment of long-lived assets, including property and

equipment, when events or changes in circumstances indicate that the fair value of an asset could be less than the net book value of the

Generally, we assess long-lived assets for impairment by first determining the forecasted, undiscounted cash flows each asset is

expected to generate plus the net proceeds expected from the sale of the asset.

If the total amount of the undiscounted cash flows is

less than the carrying value of the asset, we then determine the fair value of the asset.

An impairment loss would be recognized when

the fair value is less than the related net book value, and an impairment expense would be recorded in the amount of the difference.

of future cash flows are estimates based on our experience and knowledge of our operations and the industry in which we operate.

estimates could be significantly affected by future changes in market conditions, the economic environment, including inflation, and the

purchasing decisions of our customers.

We assess the impairment of long-lived

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

be less than the net book value of the asset group.

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

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

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

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

be recorded in the amount of the difference.

Forecasts of future cash flows are estimates based on our experience and knowledge of our

operations and the industry in which we operate.

These estimates could be significantly affected by future changes in market conditions,

the economic environment, including inflation, and the purchasing decisions of our customers.

Based on these reviews, we recorded an asset

impairment of $2.1 million for 2020 and none for either 2021 or 2022.

We review our intangible assets

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Assets held-for-sale are assessed

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

In 2019, we entered into a term sheet with Aurora

Cooperative Elevator Company for the sale of our interest in two fuel-grade ethanol production facilities in Nebraska.

We reviewed the

criteria for held-for-sale classification of the long-lived assets associated with the pending transaction.

for impairment by comparing the carrying values to their expected net sales proceeds.

In 2020, our Board of Directors approved a plan

to sell our fuel-grade ethanol production facilities in Madera and Stockton, California, which were ultimately sold in 2021.

the criteria for held-for-sale classification of the long-lived assets associated with these asset groups.

Our analysis concluded that

these long-lived assets should be classified as held-for-sale with a related impairment of $29.3 million to fair value.

We did not recognize

any other asset impairment charges in 2019.

In 2020, our Board of Directors

approved a plan to sell our fuel-grade ethanol production facilities in Madera and Stockton, California, which were ultimately sold in

We reviewed the criteria for held-for-sale classification of the long-lived assets associated with these asset groups.

concluded that these assets should be classified as held-for-sale as of December 31, 2020, and as such estimated the aggregate asset impairment

of $22.3 million for 2020.

We further evaluated the original estimate and recorded an additional asset impairment of $1.2 million for

these assets should be classified as held-for-sale as of December 31, 2020, and as such, we estimated an aggregate corresponding asset

impairment of $22.3 million for 2020.

We further evaluated the original estimate and recorded an additional asset impairment on these

assets held-for-sale of $1.2 million for 2021.

In 2021, we decided to sell our property and equipment located in Canton, Illinois.

We reviewed the criteria for held-for-sale classification

of the long-lived assets for this asset group.

We concluded that these assets should be classified as held-for-sale as of December 31,

2021, and as such estimated the impairment of $1.9 million for 2021.

reviewed the criteria for held-for-sale classification of the long-lived assets for this asset group.

We concluded that these assets should

be classified as held-for-sale as of December 31, 2021, and as such, we estimated a corresponding asset impairment of $1.9 million for

We did not record any impairments for assets held-for-sale for 2022.

Valuation Allowance for

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net loss in the period when such determinations are made.

We had pre-tax consolidated income of $47.6 million for the year ended

December 31, 2021.

We had pre-tax consolidated losses of $17.3 million and $101.3 million for the years ended December 31, 2020 and 2019,

respectively.

Based on our current and prior results, we do not have significant evidence to support a conclusion that we will more likely

than not be able to benefit from our remaining deferred tax assets.

As such, we have recorded a valuation allowance against our net

deferred tax assets.

We had pre-tax consolidated income of $47.6 million

for the year ended December 31, 2021.

We had pre-tax consolidated losses of $39.7 million and $17.3 million for the years ended December

31, 2022 and 2020, respectively.

Based on our current and prior results, we do not have significant evidence to support a conclusion that

we will more likely than not be able to benefit from our remaining deferred tax assets.

As such, we have recorded a valuation allowance

against our net deferred tax assets.

Derivative Instruments

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

Normal purchases and normal sales are contracts that

provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities

Normal purchases and normal sales are contracts that provide

for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis