What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-09 · 436 added, 517 removed, 197 unchanged (83% 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 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 our products;

● fluctuations

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

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

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

● anticipated

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.

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.

The following discussion and

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

elsewhere in this report.

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

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

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

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

The forward-looking statements and associated risks may

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

fluctuations in the market prices of alcohols and essential ingredients;

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

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

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

anticipated trends in our financial condition and results of operations;

our ability to distinguish ourselves from our current and future competitors.

You are cautioned not to place

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

by reference, as of the date of that document.

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

as required by law.

Any of the factors described

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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 1.2 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.

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

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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.

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 ;

Food & Beverage ;

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 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

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, or GNS, 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.

We produce our alcohols and essential ingredients

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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.

Our production facilities were operating for all of the first quarter

except our Magic Valley production facility in Idaho, which we temporarily hot-idled on January 1, 2023 due to extreme natural gas prices,

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

The facility was restarted in

All of our production facilities are currently operating.

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

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Production Facility

Fuel-Grade Ethanol

Specialty Alcohol

Marketing and Distribution Segment

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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.

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.

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

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.

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.

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

During the first quarter,

crush margins improved sequentially each month compared to the prior month.

The quarter ended with regional natural gas prices, corn basis

and ethanol prices greatly improved compared to December 2022.

For the month of March, we generated positive bottom-line financial results.

In addition, the outlook for renewable fuel has further improved as the EPA recently approved E15 for summer blending.

At current crush

margin levels, we expect positive Adjusted EBITDA for the second quarter.

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.

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) 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)

Overall, we are pleased

with the current market improvements, which continue to positively impact our business.

We cannot provide guidance for the full year 2023

but we expect to benefit from approximately $10 million in additional earnings before interest expense, interest income, provision for

income taxes, and depreciation and amortization, or EBITDA, generated from the capital projects we have already completed or will complete

Despite current positive

crush margins, we have no control over commodity pricing, aside from our hedging activities which can be costly and of limited effect

in the case of a prolonged negative market environment.

For this reason, we continue to work toward implementing a series of near- and

long-term projects aimed at reducing our exposure to volatile commodity markets.

We continue to transform our business by further diversifying

our products and optimizing our operations to expand margins and increase profitability.

With the completion of our near-term projects,

we expect to increase EBITDA on an annualized basis by over $65 million by the end of 2025 and expect to increase that amount to over

$125 million by the end of 2026 when our carbon capture and sequestration, cogeneration and other initiatives are fully realized.

Our multi-path diversification

strategy includes increased production of our most differentiated and highest quality products.

Our near-term focus includes GNS, corn oil and high protein products, while our longer-term plan includes primary yeast as well as carbon capture and sequestration.

We also remain focused

on reducing production costs.

Our near-term initiatives in this regard include improvements to plant efficiency, reliability and redundancy

by adding corn storage and installing our own natural gas pipeline.

Our longer-term vision includes upgrading equipment, converting our

biogas to renewable natural gas and building energy cogeneration capabilities at our Pekin Campus.

We are confident in our

ability to fund our near-term capital projects through our term loan facility, current working capital resources and cash we expect to

generate from our operations.

For our longer-term projects, we continue to hold productive discussions with potential strategic partners

and we will continue to assess our capital needs as the projects come further into focus.

We have completed the

upgrade of our GNS distillation system at our Pekin Campus wet mill to produce the highest quality 190 proof and low-moisture 200 proof

GNS products on the market.

Recently, we have added new beverage customers and we are working to place our GNS products on a spot purchase

basis for the remainder of 2023.

This coming fall, we expect to contract for additional volumes with both new and existing customers during

our annual contracting period for 2024 sales.

Our product and process certifications will be invaluable as we work toward customer qualifications

for these high-quality products.

Beginning in 2024, we expect these products will contribute approximately $5 million in EBITDA annually

and continue to grow as part of our business over time.

In December, we moderated

production at our Columbia plant and temporarily idled our Magic Valley plant to minimize the impact of sustained high natural gas prices

in the Pacific Northwest.

This created an opportunity for us to focus our attention on completing the installation of our corn oil and

high protein technologies at our Magic Valley facility.

We have now completed all material installations of the CoProMax TM

corn oil and high protein system and have resumed production at our Magic Valley plant.

We are aligning the new and existing operating

systems at the plant to ensure optimal efficiency.

We expect to achieve full production of both higher corn oil volumes and high-quality

dry protein at the facility by the end of the second quarter, with additional sales from these products to commence in the third quarter.

We expect corn oil and high-quality protein from our Magic Valley facility to contribute in aggregate approximately $9 million in EBITDA

We plan to begin a staged

rollout in late 2023 of corn oil technology installations at our three other dry mills.

Although each dry mill is slightly different in

size, on average we expect to produce similar financial results to those anticipated from our Magic Valley plant.

When fully installed,

we expect the corn oil installations at our three other plants in aggregate will contribute over $14 million in EBITDA annually.

After our high protein

system is fully and successfully operational at our Magic Valley facility, we will evaluate the system for rollout at our three other

dry mills and anticipate similar economics.

We expect the high protein installations at our three other plants in aggregate will contribute

over $13 million in EBITDA annually.

In total, we expect our

corn oil expansion and high protein systems, when fully operational at our Magic Valley plant and our three other dry mills, will together

contribute over $36 million in EBITDA annually.

As to our longer-term

initiatives for high-margin offerings, we plan to expand into primary yeast production.

We have finished successful product trials and

selected a highly qualified third-party engineering group to complete our front-end engineering and design, or FEED, study, with the conclusion

of this work expected in the third quarter.

Our primary yeast project would expand on our past upgrades made to our yeast operations.

We expect our primary yeast product to contribute approximately $19 million in EBITDA in the first twelve months of production with a

potential increase to over $25 million annually thereafter.

Our target is to begin construction of the project in early 2024 and we anticipate

project completion in the summer of 2025.

We have a significant

opportunity for carbon capture and sequestration at our Pekin Campus, which produces approximately 700,000 metric tons of carbon annually.

We are proceeding in earnest through advanced negotiations for this important project.

We have selected a third-party FEED firm to determine

capture, compression and engineering design.

We expect this study will be completed in the third quarter.

We are finalizing the selection

of a development partner to provide turnkey transportation, sequestration and monitoring services.

Our longer-term goal is to have our

carbon capture and sequestration project operational in 2026.

Based solely on our annual carbon production volume at $85 per metric ton,

reflecting the 45Q tax incentive benefits established under the Inflation Reduction Act of 2022, we believe we can generate over $30 million

in EBITDA annually, after accounting for operating and sequestration costs, and excluding any of the substantial additional economic benefits

of the environmental attributes associated with low carbon ethanol.

We continue to advance

our initiatives to improve plant efficiency, reliability, redundancy and capacity.

Our new 850,000 bushel corn storage silo at our Pekin

Campus is now fully operational and contributing to improved corn procurement costs, plant reliability and plant operating costs across

the production facility.

Our conservative estimate has the silo contributing over $2 million in EBITDA annually.

Our third-party FEED study

for our new natural gas pipeline is complete.

We are working on the initial routing steps, which will enable the project to advance to

definitive land agreements and the construction permit application process.

We have also initiated community interaction and initial feedback

has been positive.

We plan for the pipeline to bypass the current utility with the goal of optimizing energy procurement, usage and expense,

which will contribute to our sustainability efforts.

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

reduce our energy costs by approximately $3 million annually.

The pipeline will also create the opportunity for us to convert and monetize

our current biogas waste stream into renewable natural gas.

Based on our current output, we estimate that production and sale of renewable

natural gas would contribute more than $3 million in EBITDA annually.

Our third-party FEED study

for cogeneration at our Pekin Campus is complete.

The cogeneration design is intended to address our current needs, support increased

energy requirements for both our primary yeast and carbon capture and sequestration projects, and offset grid electrical power consumption.

Based on current energy prices, we expect cogeneration to contribute approximately $15 million in EBITDA annually.

Renewable products are

part of our primary mission and producing them safely is one of our core tenets.

Each of our capital projects advances sustainability.

While these projects and our continual process improvements can be viewed as environmental, social and governance, or ESG, initiatives,

our decisions to ensure safety, quality and sustainability are good for our overall business.

Our other ESG initiatives include:

● Efforts with Nasdaq as a third-party consultant to review our ESG strategy which included a materiality survey to determine areas

We have completed all initial “roadmap” action items, and we have:

o Strengthened and communicated our environmental, health, safety and security policy and objectives;

o Added consistent standards and details to our Code of Ethics and Supplier Code of Conduct;

o Implemented a supplier transparency program with components such as supplier scorecards and on-site auditing in some cases;

o Partnered with SEDEX, a leading data platform with over 74,000 members, to improve our sustainability performance and to ensure that

we are ethically sourcing our goods and services.

● Looking ahead, we have launched a three-year employee engagement program with Gallup to identify areas of opportunity and facilitate

communication at all levels.

We completed our first engagement survey in December 2022.

Our employee engagement is more than a survey

– it is a comprehensive program with tools and training to achieve our goals for supporting our employees, one of our most important

In addition, diversity has been a focus for employee recruiting and at the board level.

We will publish further metrics in

our mid-2023 sustainability reporting.

● Lowering our carbon footprint and delivering bio-based renewable products has been at the core of our business since inception.

have completed our Scope 1 & 2 greenhouse gas emissions inventory and have third party verification for both 2021 and 2022 at all

production facilities.

This information combined with our key projects such as carbon capture and sequestration, improving energy efficiencies

with cogeneration and equipment upgrades, and maximizing biogas utilization will lead us to set and achieve carbon reduction targets and

help us do our part to meet sustainable development goals.

We look forward to sharing our ESG progress mid-year.

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)

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

revenue recognition;

accounting for business combinations;

revenue recognition;

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

3 unchanged sentences

Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Accounting for Business

Determining the fair value of

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

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

use of subjective measurements.

Variability in industry conditions and changes in assumptions or subjective measurements used to allocate

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

Results of Operations

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Three Months Ended

Nine Months Ended

September 30,

Renewable fuel production gallons sold (in millions)

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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

(1) Corn basis represents the difference between the immediate cash price of delivered

corn and the future price of corn for Chicago delivery.

(2) Essential ingredients revenues as a percentage of delivered cost of corn shows

our yield based on sales of essential ingredients, including wet distillers grains and corn oil, generated from alcohol we produced.

Net Sales, Cost of

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The following table presents

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

percentages):

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

except percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

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Percentage of net sales

* Not meaningful.

The increase in our consolidated

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 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 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

net sales for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily due to an increase in total gallons

sold on a gross basis, partially offset by a lower average sales price per gallon and lower volumes of essential ingredients sold.

marketed no third-party gallons on a net basis during the quarter as we ended our contractual relationship with the two fuel-grade ethanol

plants for which we previously sold their production to focus on sales of our own fuel-grade ethanol production.

Pekin Campus Production

Net sales of alcohol from

our Pekin Campus production segment increased by $16.3 million, or 14%, to $132.4 million for the three months ended March 31, 2023 as

compared to $116.1 million for the same period in 2022.

Our total volume of production gallons sold increased by 0.3 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 $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 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 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.

or 1%, to 49.6 million gallons for the three months ended March 31, 2023 as compared to 49.3 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.67 for the three months ended March 31, 2023, we generated $1.0 million in

additional net sales from the 0.3 million additional gallons of alcohol sold in the three months ended March 31, 2023 as compared to the

same period in 2022.

The increase of $0.32, or 14%, in the segment’s average sales price per gallon in the three months ended March

31, 2023 as compared to the same period in 2022 improved our net sales from the segment by $15.3 million.

Net sales of essential ingredients

from our Pekin Campus production segment increased $8.3 million, or 15%, to $63.6 million for the three months ended March 31, 2023 as

compared to $55.3 million for the same period in 2022.

Our total volume of essential ingredients sold declined by 15,000 tons, or 6%,

to 227,000 tons for the three months ended March 31, 2023 from 242,000 tons for the same period in 2022.

At the segment’s average

sales price per ton of $280.44 for the three months ended March 31, 2023, we generated $4.3 million less in net sales from the 15,000

fewer tons of essential ingredients sold in the three months ended March 31, 2023 as compared to the same period in 2022.

of $52.10, or 23%, in the segment’s average sales price per ton for the three months ended March 31, 2023 as compared to the same

period in 2022 increased our net sales from the segment by $12.6 million.

Marketing and Distribution

Net sales of fuel-grade ethanol from our marketing

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

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 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 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 our net sales by less than $0.1 million for the period.

Net sales of alcohol from our marketing and distribution

segment, excluding intersegment sales, increased by $30.3 million, or 56%, to $84.5 million for the three months ended March 31, 2023

as compared to $54.2 million for the same period in 2022.

Our volume of third party alcohol sold reported

gross by the segment increased by 14.0 million gallons, or 70%, to 33.9 million gallons for the three months ended March 31, 2023 as compared

to 19.9 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.49 for the three months

ended March 31, 2023, we generated $34.9 million in additional net sales from the 14.0 million additional gallons of third-party alcohol

sold gross in the three months ended March 31, 2023 as compared to the same period in 2022.

Our volume of alcohol sold reported net by the

segment decreased by 10.8 million gallons, or 100%, to no gallons sold net for the three months ended March 31, 2023 as compared to 10.8

million gallons for the same period in 2022.

This decline reduced net sales by $0.2 million.

The $0.22 per gallon, or 8%, decrease in the segment’s

average sales price per gallon for the three months ended March 31, 2023 as compared to the same period in 2022 resulted in a $4.4 million

decline in our net sales from third-party fuel-grade ethanol sold by the segment.

Other Production Segment

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

Net sales of alcohol from

our other production segment decreased by $38.9 million, or 65%, to $20.9 million for the three months ended March 31, 2023 as compared

to $59.8 million for the same period in 2022.

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

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 $2.74 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 $4.2 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 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 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 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.

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.

Our total volume of alcohol sold declined by 15.3 million gallons, or 66%, to 7.9 million

gallons for the three months ended March 31, 2023 as compared to 23.2 million gallons for the same period in 2022.

At the segment’s

average sales price per gallon of $2.64 for the three months ended March 31, 2023, we generated $40.2 million less in net sales from the

15.3 million fewer gallons of alcohol sold in the three months ended March 31, 2023 as compared to the same period in 2022.

of $0.06, or 2%, in the segment’s average sales price per gallon for the three months ended March 31, 2023 as compared to the same

period in 2022 improved our net sales from the segment by $1.3 million.

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, 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

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

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

ethanol gallons sold reported net reduced net sales by $0.5 million.

Other Production Segment

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

from our other production segment decreased by $10.5 million, or 56%, to $8.4 million for the three months ended March 31, 2023 as compared

to $18.9 million for the same period in 2022.

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

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 $2.77 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

$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.

Our total volume of essential ingredients sold declined by 85,000 tons, or 54%, to 72,000

tons for the three months ended March 31, 2023 from 157,000 tons for the same period in 2022.

At the segment’s average sales price

per ton of $115.37 for the three months ended March 31, 2023, we generated $9.7 million less in net sales from the 85,000 fewer tons of

essential ingredients sold in the three months ended March 31, 2023 as compared to the same period in 2022.

The decrease of $5.48, or

5%, in our average sales price per ton for the three months ended March 31, 2023 as compared to the same period in 2022 decreased our

net sales of essential ingredients from the segment by $0.8 million.

Corporate and other

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.

Net sales of alcohol from

corporate and other increased by $0.3 million, or 8%, to $4.1 million for the three months ended March 31, 2023 as compared to $3.8 million

for the same period in 2022.

These sales are from Eagle Alcohol’s business.

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

Our consolidated gross

profit (loss) declined to a gross loss of $3.2 million for the three months ended March 31, 2023 from gross profit of $4.8 million

for the same period in 2022, representing a gross margin of negative 1.0% for the three months ended March 31, 2023 compared to a

gross margin of 1.5% for the same period in 2022.

Our consolidated gross profit (loss) declined due to lower commodity margins as a

result of higher production input costs.

In addition, our cost of goods sold includes $1.8 million in net losses recorded on our forward

derivative positions.

Pekin Campus Production Segment

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.

Our Pekin Campus production segment’s gross profit, net of intercompany

activity, declined by $5.2 million to a loss of $1.6 million for the three months ended March 31, 2023 as compared to gross profit of

$3.6 million for the same period in 2022.

This decline in gross profit is primarily attributable to lower fuel-grade ethanol margins.

In addition, although the segment achieved higher sales prices for our essential ingredients, the higher sales prices did not outweigh

our higher production input costs, particularly corn prices, we experienced to produce the essential ingredients.

Marketing and Distribution Segment

Our marketing and distribution segment’s

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.

Our marketing and distribution segment’s gross profit (loss),

net of intercompany activity, improved by $1.8 million to a gross profit of $1.4 million for the three months ended March 31, 2023 as

compared to a gross loss of $0.4 million for the same period in 2022.

Of this improvement, $1.2 million is attributable to higher margins

from sales of third-party fuel-grade ethanol and $0.6 million is attributable to higher sales volumes for the three months ended March

31, 2023 as compared to the same period in 2022 as we met our customers’ needs through sales of third-party fuel grade ethanol while

our Magic Valley facility was temporarily idled.

Other Production Segment

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

Our other production segment’s gross profit, net of intercompany

activity, declined by $5.3 million to a gross loss of $4.6 million for the three months ended March 31, 2023 as compared to a gross profit

of $0.7 million for the same period in 2022.

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 $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 (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 $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 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.

Of this decline, $14.2 million is attributable to lower fuel-grade ethanol margins, partially

offset by $8.9 million in reduced gross losses from fewer volumes sold at negative margins as a result of the temporary shutdown of our

Magic Valley plant.

Corporate and other

Gross profit from corporate

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

and other improved by $0.8 million to a gross profit of $1.7 million for the three months ended March 31, 2023 as compared to $0.9 million

for the same period in 2022, all of which were from Eagle Alcohol’s business.

Selling, General and

3 unchanged sentences

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 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 $0.9 million and $2.6 million for the three and nine months ended September 30, 2022,

respectively.

Income from Cash Grant

We applied for and received

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

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

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

The cash grant is not required

to be repaid nor will it recur in the future.

Net Income (Loss) Available

Our SG&A expenses increased for the three months

ended March 31, 2023 as compared to the same period in 2022.

The $0.3 million period over period increase in SG&A expenses is primarily

due to increased professional fees to support our assessments of future plant improvement projects and other strategic initiatives.

Interest Expense, net

The following table presents

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

Three Months Ended

Interest expense, net

Percentage of net sales

Our interest expense, net, increased for the three

months ended March 31, 2023 as compared to the same period in 2022.

The $1.4 million period over period increase in interest expense,

net, is primarily due to increased borrowings under our Orion term loan, the proceeds of which we are using to accelerate and expand our

plant improvement projects and other strategic initiatives.

Net Loss Available

to Common Stockholders

The following table presents

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

our net 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

Net loss available to Common Stockholders

Percentage of net sales

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.

The increase in net loss available

to common stockholders is primarily due to lower margins resulting from higher commodity prices for the three months ended March 31, 2023

as compared to the same period in 2022.

Interest expense was also higher for the first quarter of 2023 compared to the same period in

2022 due to higher debt balances from our term loan to support our capital improvement projects.

Liquidity and Capital Resources

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

During the three months ended March 31, 2023, we

funded our operations primarily from proceeds from our line of credit and cash on hand.

In addition to funding our operations, our capital

resources were used to advance our capital improvement projects and make an annual payment for our acquisition of Eagle Alcohol.

March 31, 2023, we had $26.4 million in cash, cash equivalents and restricted cash, $41.6 million available for borrowing under Kinergy’s

operating line of credit and $40 million available for borrowing under our Orion term loan.

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 date of this report.

Quantitative Year-End

Liquidity Status

We believe that the following

4 unchanged sentences

report (dollars in thousands).

September 30,

Cash, cash equivalents and restricted cash

6 unchanged sentences

Changes in Working Capital and Cash Flows

Working capital declined to $131.8 million at September

Working capital declined to $117.8 million at March

31, 2023 from $121.1 million at December 31, 2022 as a result of a decrease of $27.5 million in current assets, partially offset by a

decrease of $24.2 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.

Current assets declined primarily due to a decrease

in cash and restricted cash as we used significant cash on hand for our operating activities and also used cash on hand to advance our

capital improvement projects.

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.

to lower accrued liabilities as a result of our payment of accrued contingent consideration for our acquisition of Eagle Alcohol, lower

utility accruals in the current period and a decline in the value of derivative instruments due to the end of period change in commodity

prices for open contracts.

Our cash, cash equivalents and restricted cash

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 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.

declined by $23.0 million primarily due to $23.3 million in cash used in our operating activities and $13.1 million in cash used in our

investing activities, partially offset by $13.4 million in cash provided by our financing activities.

Cash used in our Operating Activities

We used $23.3 million in cash for our operating

activities during the three months ended March 31, 2023 as compared to $11.1 million in cash provided by our operations for the same period

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 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.

an increase of $10.6 million in our net loss due to lower margins primarily caused by higher commodity prices;

increase of $14.4 million related to payments of accounts payable and accrued liabilities due to their timing;

a decrease of $10.1 million related to other assets primarily related to lower hedging activities during the quarter;

an increase of $9.6 million related to higher accounts receivable balances due to the timing of collections.

These amounts were partially offset by:

● A decrease of $19.2 million related to accounts payable due to the timing of payments;

● 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.

an increase of $7.1 million related to volatility from our derivative instruments;

a decrease of $2.3 million related to higher inventories due to increased commodity prices.

Cash used in our Investing Activities

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.

We used $9.6 million of cash during the quarter

to fund additions to property and equipment and $3.5 million of cash to make contingent purchase price payments for our acquisition of

Eagle Alcohol.

Cash provided by our Financing Activities

Cash provided by our financing activities was $13.4

million for the three months ended March 31, 2023, which reflects net proceeds of $15.4 million from Kinergy’s operating line of

credit, partially offset by $1.7 million of stock repurchases and $0.3 million paid in preferred dividends.

Kinergy’s Operating Line of Credit

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an aggregate amount of up to $100.0 million.

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.

The credit facility matures on November 7, 2027.

Interest accrues under the credit facility

at a rate equal to (a) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.25% to

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

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

Payments that may be made by Kinergy to Alto Ingredients,

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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

9 unchanged sentences

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 September 30, 2022, Kinergy had an outstanding balance

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

As of March 31, 2023, Kinergy had an outstanding balance of $33.4

million and $41.6 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 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:

(a) 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, (b) 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 (c) if our leverage ratio is less than 1.5x, then the

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

As of March 31, 2023, the amount outstanding under

the Term Loan was $60,000,000.

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.”

For the three months ended

March 31, 2023, we repurchased 860,000 shares of our common stock as part of our publicly announced share repurchase program at an average

price per share of $1.96 for an aggregate expenditure of $1.7 million during the period.

See “Unregistered Sales of Equity Securities

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

Other Cash Obligations

As of March 31, 2023, we

had future commitments for certain capital projects totaling $21.7 million.

These commitments are scheduled to be satisfied through 2024.

In connection with our acquisition

of Eagle Alcohol, we committed to contingent payments of up to $5.5 million in cash over the next two years if certain targets are met.

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