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Item 1. Financial Statements

2023-08-08 compared with 2023-05-09 · 428 added, 326 removed, 166 unchanged (82% of the section changed)

FINANCIAL STATEMENTS.

INGREDIENTS, INC.

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

and cash equivalents

Accounts receivable (net of allowance for credit losses of $ 66 and $ 105 , respectively)

Current Assets:

current assets

and equipment, net

of use operating lease assets, net

derived from the audited financial statements for the year ended December 31, 2022.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

Cash and cash equivalents

Restricted cash

Accounts receivable, net (net of allowance for credit losses of $ 59 and $ 105 , respectively)

Derivative instruments

Other current assets

Total current assets

Property and equipment, net

Other Assets:

Right of use operating lease assets, net

Intangible assets, net

Total other assets

* Amounts derived from the audited

consolidated financial statements for the year ended December 31, 2022.

See accompanying notes to consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

AND STOCKHOLDERS’ EQUITY

Current Liabilities:

portion – operating leases

current liabilities

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

leases, net of current portion

and Contingencies (Note 6)

Stockholders’

Accounts payable

Accrued liabilities

Current portion – operating leases

Derivative instruments

Other current liabilities

Total current liabilities

Long-term debt, net

Operating leases, net of current portion

Other liabilities

Total Liabilities

Commitments and Contingencies (Note 6)

Stockholders’ Equity:

Preferred stock, $ 0.001 par value;

1 unchanged sentence

1,684 shares authorized;

no shares issued and outstanding as of March 31, 2023 and December 31, 2022;

no shares issued and outstanding as of June 30, 2023 and December 31, 2022;

1,581 shares authorized;

927 shares issued and outstanding as of March 31, 2023 and December 31, 2022;

liquidation preference of $ 18,075 as of March 31, 2023

927 shares issued and outstanding as of June 30, 2023 and December 31, 2022;

liquidation preference of $ 18,075 as of June 30, 2023

Common stock, $ 0.001 par value;

300,000 shares authorized;

76,187 and 75,154 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

75,923 and 75,154 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Non-voting common stock, $ 0.001 par value;

3,553 shares authorized;

1 share issued and outstanding as of March 31, 2023 and December 31, 2022

paid-in capital

other comprehensive income

Stockholders’ Equity

Liabilities and Stockholders’ Equity

1 share issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

* Amounts derived from the audited

financial statements for the year ended December 31, 2022.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

consolidated financial statements for the year ended December 31, 2022.

See accompanying

notes to consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

in thousands, except per share data)

of goods sold

profit (loss)

general and administrative expenses

from operations

before provision for income taxes

for income taxes

stock dividends

loss available to common stockholders

Net loss per share, basic and diluted

Weighted-average

shares outstanding, basic

Weighted-average

shares outstanding, diluted

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

(unaudited, in thousands, except per share

Three Months Ended

Six Months Ended

Cost of goods sold

Selling, general and administrative expenses

Asset impairments

Income (loss) from operations

Interest expense, net

Income from cash grant

Other income (expense), net

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Preferred stock dividends

Income allocated to participating securities

Net income (loss) available to common stockholders

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

See accompanying

notes to consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended

Six Months Ended

Operating Activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to

net cash (used in) provided by operating activities:

Depreciation and amortization of intangibles

Losses (gains) on derivative instruments

Non-cash compensation

Gains on derivative instruments

Inventory valuation

Asset impairments

Non-cash compensation

Amortization of deferred financing fees

Amortization of debt discount

Bad debt expense (recovery)

Bad debt (recovery) expense

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

1 unchanged sentence

Operating leases

Accounts payable and accrued liabilities

Net cash provided by (used in) operating activities

Accounts payable and accrued expenses

Net cash (used in) provided by operating activities

Investing Activities:

Additions to property and equipment

Proceeds from principal payments on notes receivable

Deferred purchase price payments for Eagle Alcohol

4 unchanged sentences

Stock repurchases

Proceeds from principal payments on notes receivable

Preferred stock dividends paid

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

6 unchanged sentences

Interest paid

Interest expense capitalized

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

Capitalized interest

See accompanying notes to consolidated

financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

Comprehensive

January 1, 2023

Preferred Stock

Additional Paid-In

Other Comprehensive

Balances, January 1, 2023

$ ( 734,643 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

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

Stock repurchases

Preferred stock dividends

March 31, 2023

Balances, March 31, 2023

$ ( 748,121 )

January 1, 2022

Stock-based compensation

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

Stock repurchases

Preferred stock dividends

Balances, June 30, 2023

$ ( 740,841 )

Balances, January 1, 2022

$ ( 691,781 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Shares issued for Eagle Alcohol

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

Shares issued for Eagle Alcohol acquisition

Preferred stock dividends

March 31, 2022

Balances, March 31, 2022

$ ( 694,695 )

accompanying notes to consolidated financial statements.

Stock-based compensation

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

Preferred stock dividends

Balances, June 30, 2022

$ ( 672,895 )

See accompanying notes to consolidated financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

ORGANIZATION AND BASIS OF PRESENTATION.

and Business – The consolidated financial statements include, for all periods presented, the accounts of Alto Ingredients,

Inc., a Delaware corporation, and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including

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

company, Eagle Alcohol Company, LLC, a Delaware limited liability company, Alto Op Co., a Delaware corporation,

Alto Pekin, LLC, a Delaware limited liability company, and Alto ICP, LLC, a Delaware limited liability company, and the Company’s

production facilities in Oregon and Idaho.

Company is a leading producer and distributor of specialty alcohols and essential ingredients.

The Company also produces and markets

fuel-grade ethanol.

The Company’s production facilities in Pekin, Illinois are located in the heart of the Corn Belt.

Organization and Business

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

and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including Kinergy Marketing LLC, an Oregon

limited liability company (“Kinergy”), Alto Nutrients, LLC, a California limited liability company, Eagle Alcohol Company,

LLC, a Delaware limited liability company, Alto Op Co., a Delaware corporation, Alto Pekin, LLC, a Delaware limited liability company,

and Alto ICP, LLC, a Delaware limited liability company, and the Company’s production facilities in Oregon and Idaho.

The Company is a leading producer

and distributor of specialty alcohols and essential ingredients.

The Company also produces and markets fuel-grade ethanol.

The Company’s

two production facilities in Oregon and Idaho are located in close proximity to both feed and fuel-grade ethanol customers.

Company has a combined alcohol production capacity of 350 million gallons per year and produced in 2022 over 1.6 million tons of essential

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

animal feed and pet foods.

production facilities in Pekin, Illinois are located in the heart of the Corn Belt.

The Company’s two production facilities in Oregon

and Idaho are located in close proximity to both feed and fuel-grade ethanol customers.

The Company has a combined alcohol

production capacity of 350 million gallons per year and produced in 2022 over 1.6 million tons of essential ingredients, such as dried

yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and pet foods.

In addition, the Company markets and distributes fuel-grade ethanol produced by third parties.

Company focuses on four key markets:

The Company focuses on four

Health, Home & Beauty ;

1 unchanged sentence

Essential Ingredients ;

Renewable Fuels .

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

hand sanitizers, disinfectants and cleaners.

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

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

Products for Essential Ingredients markets include dried yeast, corn gluten

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

Renewable Fuels

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

As of March 31, 2023, all of the Company’s production facilities

were operating, except its Magic Valley facility in Idaho.

On January 1, 2023, the Company temporarily hot-idled its Magic Valley production

facility due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of its new high protein

and Renewable Fuels .

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 protein meal, corn protein feed,

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

Products for the Renewable Fuels markets

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

As of June 30, 2023, all of

the Company’s production facilities were operating, however, from January 2023 to April 2023, its Magic Valley plant in Idaho was

temporarily hot-idled due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of its

new high protein systems at the plant.

The Company restarted the facility in April 2023.

All production facilities are currently operating.

As market conditions change,

the Company may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

of Presentation – Interim Financial Statements – The accompanying unaudited consolidated financial statements

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

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

Results for interim periods should not be considered

indicative of results for a full year.

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

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

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

the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the

results for interim periods have been included.

As market conditions change, the Company may

increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Basis of Presentation – Interim

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

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

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

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

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

and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The accounting

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

statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In the opinion of management, all adjustments

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

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

Receivable and Allowance for Credit Losses – Trade accounts receivable are presented at original invoice amount, net of

the allowance for credit losses.

The Company sells specialty alcohols to large consumer product companies, sells fuel-grade ethanol to

gasoline refining and distribution companies, sells essential ingredients to animal feed customers, including distillers grains and other

feed co-products to dairy operators and animal feedlots and corn oil to poultry and biodiesel customers, in each case generally without

requiring collateral.

carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts

that will not be collected.

The Company regularly reviews accounts receivable and based on assessments of current customer creditworthiness,

estimates the portion, if any, of the customer balance that will not be collected.

the accounts receivable balance, approximately $ 53,655,000 and $ 55,667,000 at March 31, 2023 and December 31, 2022, respectively, were

used as collateral under Kinergy’s operating line of credit.

The allowance for credit losses was $ 66,000 and $ 105,000 as of March

31, 2023 and December 31, 2022, respectively.

The Company recorded a bad debt recovery of $ 39,000 and bad debt expense of $ 31,000 for

the three months ended March 31, 2023 and 2022, respectively.

The Company does not have any off-balance sheet credit exposure related

to its customers.

Repurchase Program – On September 12, 2022, the Company announced a share repurchase program under which it may repurchase

up to $ 50 million of its common stock with an initial purchase authorization of $ 10 million.

The Company’s lender has further limited

the Company’s purchase authorization to $ 5 million.

Amounts in excess of the purchase authorization of $ 5 million will require

additional lender consent and amounts in excess of the initial purchase authorization of $ 10 million will require additional board and

preferred stockholder authorization.

The share repurchase program does not have an expiration date, does not require the repurchase of

any particular amount of shares, and may be implemented, modified, suspended or discontinued in whole or in part at any time and without

further notice.

As repurchases are made, the Company will retire the shares, resulting in a reduction of issued and outstanding shares.

For the three months ended March 31, 2023, the Company repurchased an aggregate of 860,000 shares for $ 1,682,000 in cash.

31, 2023, total repurchases under the program since its inception were $ 3,007,000 .

Instruments – The carrying values of cash and cash equivalents, restricted cash, accounts receivable, derivative assets,

accounts payable, accrued liabilities and derivative liabilities are reasonable estimates of their fair values because of the short maturity

of these items.

The Company believes the carrying value of its long-term debt instruments are not considered materially different than

fair value because they were just recently issued.

and Assumptions – The preparation of the consolidated financial statements in conformity with accounting principles generally

accepted in the United States requires management to make estimates and assumptions 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 amounts of revenues and

expenses during the reporting period.

Significant estimates are required as part of determining the allowance for credit losses, net

realizable value of inventory, long-lived asset impairments, valuation allowances on deferred income taxes, the potential outcome of

future tax consequences of events recognized in the Company’s financial statements or tax returns, and the valuation of assets

acquired and liabilities assumed as a result of business combinations.

Actual results and outcomes may materially differ from management’s

Accounts Receivable and Allowance for Credit

Losses – Trade accounts receivable are presented at original invoice amount, net of the allowance for credit losses.

Company sells specialty alcohols to large consumer product companies, sells fuel-grade ethanol to gasoline refining and distribution companies,

sells essential ingredients to animal feed customers, including distillers grains and other feed products to dairy operators and animal

feedlots and corn oil to poultry and biodiesel customers, in each case generally without requiring collateral.

The carrying amount of accounts receivable is

reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected.

regularly reviews accounts receivable and based on assessments of current customer creditworthiness, estimates the portion, if any, of

the customer balance that will not be collected.

Of the accounts receivable balance, approximately

$ 52,732,000 and $ 55,667,000 at June 30, 2023 and December 31, 2022, respectively, were used as collateral under Kinergy’s operating

line of credit.

The allowance for credit losses was $ 59,000 and $ 105,000 as of June 30, 2023 and December 31, 2022, respectively.

Company recorded a bad debt recovery of $ 7,000 and bad debt expense of $ 35,000 for the three months ended June 30, 2023 and 2022, respectively.

The Company recorded a bad debt recovery of $ 46,000 and bad debt expense $ 66,000 for the six months ended June 30, 2023 and 2022, respectively.

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

Share Repurchase Program –

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

stock with an initial purchase authorization of $ 10 million.

The Company’s lender has further limited the Company’s purchase

authorization to $ 5 million.

Amounts in excess of the purchase authorization of $ 5 million will require additional lender consent and

amounts in excess of the initial purchase authorization of $ 10 million will require additional board and preferred stockholder authorization.

The share repurchase program does not have an expiration date, does not require the repurchase of any particular amount of shares, and

may be implemented, modified, suspended or discontinued in whole or in part at any time and without further notice.

As repurchases are

made, the Company will retire the shares, resulting in a reduction of issued and outstanding shares.

For the three and six months ended

June 30, 2023, the Company repurchased an aggregate of 389,000 shares and 1,249,000 shares for $ 1,001,000 and $ 2,683,000 in cash, respectively.

As of June 30, 2023, total repurchases under the program since its inception equaled 1,600,000 shares for $ 4,008,000 in cash.

Financial Instruments – The

carrying values of cash and cash equivalents, restricted cash, accounts receivable, derivative assets, accounts payable, accrued liabilities

and derivative liabilities are reasonable estimates of their fair values because of the short maturity of these items.

The Company believes

the carrying value of its long-term debt instruments are not considered materially different than fair value because they were just recently

Income from Cash Grant –

In 2022, the Company applied for and received $ 22,652,000 in cash from the USDA’s Biofuel Producer Program.

The program was created

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

The cash grant is not required to be repaid.

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

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

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

statements of operations.

Estimates and Assumptions –

Company reports its 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 the

Company’s Pekin, Illinois campus (“Pekin Campus”), and (3) Other production, which includes the production and sale

of fuel-grade ethanol and essential ingredients produced at all of the Company’s other production facilities on an aggregated basis

(“Other production”), none of which are individually so significant to be considered a separately reportable segment.

following tables set forth certain financial data for the Company’s operating segments (in thousands):

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States

requires management to make estimates and assumptions 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 amounts of revenues and expenses during the reporting

Significant estimates are required as part of determining the allowance for credit losses, net realizable value of inventory,

long-lived asset impairments, valuation allowances on deferred income taxes, the potential outcome of future tax consequences of events

recognized in the Company’s financial statements or tax returns, and the valuation of assets acquired and liabilities assumed as

a result of business combinations.

Actual results and outcomes may materially differ from management’s estimates and assumptions.

The Company reports its 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 the Company’s Pekin, Illinois campus (“Pekin

Campus”), and (3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced

at all of the Company’s other production facilities on an aggregated basis (“Other production”), none of which are individually

so significant as to be considered a separately reportable segment.

The following tables set forth certain financial

data for the Company’s operating segments (in thousands):

Three Months Ended

Pekin Campus production, recorded as gross:

Six Months Ended

Pekin Campus, recorded as gross:

Alcohol sales

16 unchanged sentences

Cost of goods sold:

Pekin Campus production

Marketing and distribution

3 unchanged sentences

Cost of goods sold as reported

Gross profit (loss):

Pekin Campus production

Gross profit:

Marketing and distribution

2 unchanged sentences

Intersegment eliminations

Gross profit (loss) as reported

Loss before provision for income taxes:

Pekin Campus production

Gross profit as reported

Income (loss) before provision for income taxes:

Marketing and distribution

1 unchanged sentence

Corporate and other

Depreciation and amortization expense:

Pekin Campus production

Depreciation and amortization of intangibles:

Other production

Corporate and other

Interest expense, net of capitalized

Pekin Campus production

Interest expense, net of capitalized interest:

Marketing and distribution

1 unchanged sentence

Corporate and other

following table sets forth the Company’s total assets by operating segment (in thousands):

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

Pekin Campus production

Marketing and distribution

1 unchanged sentence

Corporate and other

consisted primarily of bulk ethanol, specialty alcohols, corn, essential ingredients and unleaded fuel, and are valued at the lower of

cost or net realizable value, with cost determined on a first-in, first-out basis.

Inventory is net of a valuation adjustment of $ 0 and

$ 4,612,000 as of March 31, 2023 and December 31, 2022, respectively.

Inventories consisted primarily of bulk ethanol,

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

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

Inventory is net of a valuation adjustment of $ 0 and $ 4,612,000 as of June 30, 2023 and December

31, 2022, respectively.

Inventory balances consisted of the following (in thousands):

2 unchanged sentences

Raw materials

business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices.

The Company monitors and manages these financial exposures as an integral part of its risk management program.

This program recognizes

the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating

Risk – Cash Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations

caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially

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

if the contracts specify a floating or index-based price.

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

exposure to the potentially adverse effects of price volatility.

These derivatives may be designated and documented as cash flow hedges

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

the Company’s purchase and sales prices.

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

the underlying exposure, is recognized immediately in cost of goods sold.

For the three months ended March 31, 2023 and 2022, the Company

did not designate any of its derivatives as cash flow hedges.

Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn

and alcohols by entering into exchange-traded futures contracts or options for those commodities.

These derivatives are not designated

for hedge accounting treatment.

The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately

in cost of goods sold.

The Company recognized net losses of $ 1,777,000 and net gains of $ 5,316,000 as the change in the fair value of

these contracts for the three months ended March 31, 2023 and 2022, respectively.

Designated Derivative Instruments – The classification and amounts of the Company’s derivatives not designated as

hedging instruments, and related cash collateral balances, are as follows (in thousands):

of March 31, 2023

of Instrument

Sheet Location

The business and activities of the Company expose

it to a variety of market risks, including risks related to changes in commodity prices.

The Company monitors and manages these financial

exposures as an integral part of its risk management program.

This program recognizes the unpredictability of financial markets and seeks

to reduce the potentially adverse effects that market volatility could have on operating results.

Commodity Risk – Cash

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

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

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

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

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

of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and sales prices.

Ineffectiveness,

which is defined as the degree to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods

For the three and six months ended June 30, 2023 and 2022, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges

– The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering into exchange-traded

futures contracts or options for those commodities.

These derivatives are not designated for hedge accounting treatment.

The changes in

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

The Company recognized

net gains of $ 6,951,000 and $ 16,619,000 as the change in the fair value of these contracts for the three months ended June 30, 2023 and

2022, respectively.

The Company recognized net gains of $ 5,174,000 and $ 21,936,000 as the change in the fair value of these contracts

for the six months ended June 30, 2023 and 2022, respectively.

Non Designated Derivative Instruments

– The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral

balances, are as follows (in thousands):

As of June 30, 2023

Type of Instrument

Balance Sheet Location

Cash collateral balance

3 unchanged sentences

Derivative instruments

of December 31, 2022

of Instrument

Sheet Location

As of December 31, 2022

Type of Instrument

Balance Sheet Location

Cash collateral balance

3 unchanged sentences

Derivative instruments

above amounts represent the gross balances of the contracts;

however, the Company does have a right of offset with each of its derivative

brokers, but the Company’s intent is to close out positions individually, therefore the positions are reported at gross.

classification and amounts of the Company’s realized gains (losses) for its derivatives not designated as hedging instruments

are as follows (in thousands):

Gains (Losses)

the three months Ended

of Instrument

of Operations Location

The above amounts represent the gross balances

of the contracts;

however, the Company does have a right of offset with each of its derivative brokers, but the Company’s intent

is to close out positions individually, therefore, the positions are reported at gross.

The classification and amounts of the Company’s

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

Realized Gains

For the Three Months Ended June 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Gains (Losses)

the three months Ended March 31,

of Instrument

of Operations Location

Realized (Losses) Gains

For the Six Months Ended

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

borrowings are summarized as follows (in thousands):

Unrealized Gains

For the Three Months Ended June 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

For the Six Months Ended

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Long-term borrowings are summarized as follows

(in thousands):

Kinergy line of credit

4 unchanged sentences

Long-term debt

Availability – As of March 31, 2023, Kinergy had $ 41.6 million in unused borrowing availability under its line of credit.

Excess Availability – As

of June 30, 2023, the Company had $ 49.4 million in unused borrowing availability under the Kinergy line of credit and $ 40.0 million available

under the Orion term loan.

The Company also has an option to expand the Orion term loan by up to $ 25.0 million upon the satisfaction

of certain conditions.

COMMITMENTS AND CONTINGENCIES.

Commitments – At March 31, 2023, the Company had entered into sales contracts with its major customers to sell certain

quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 89,084,000 gallons as of March

31, 2023 and open fixed-price alcohol sales contracts totaling $ 110,251,000 as of March 31, 2023.

The Company had open fixed-price sales

contracts for essential ingredients totaling $ 13,652,000 and open indexed-price sales contracts of essential ingredients for 128,000

tons as of March 31, 2023.

These sales contracts are scheduled to be completed throughout 2023.

Commitments – At March 31, 2023, the Company had indexed-price purchase contracts to purchase 21,049,000 gallons of alcohol

and fixed-price purchase contracts to purchase $ 612,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts

to purchase $ 73,170,000 of corn from its suppliers as of March 31, 2023.

The Company had fixed-price purchase contracts for natural gas

totaling $ 487,000 as of March 31, 2023.

Sales Commitments – At June

30, 2023, the Company had entered into sales contracts with its major customers to sell certain quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 78,432,000 gallons as of June 30, 2023 and open fixed-price alcohol sales contracts

totaling $ 73,909,000 as of June 30, 2023.

The Company had open fixed-price sales contracts for essential ingredients totaling $ 12,075,000

and open indexed-price sales contracts of essential ingredients for 113,000 tons as of June 30, 2023.

These sales contracts are scheduled

to be completed throughout 2023.

Purchase Commitments – At

June 30, 2023, the Company had indexed-price purchase contracts to purchase 18,593,000 gallons of alcohol and fixed-price purchase contracts

to purchase $ 2,461,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 43,984,000 of corn

from its suppliers as of June 30, 2023.

The Company had indexed-price purchase contracts for natural gas totaling 448,500 MMBTU as of

June 30, 2023.

The Company also had future commitments for certain capital projects totaling $ 17,419,000 .

purchase commitments are scheduled to be satisfied throughout 2023 and 2024.

– General – The Company is subject to various claims and contingencies in the ordinary course of its business, including

those related to litigation, business transactions, employee-related matters, environmental regulations, and others.

When the Company

is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure.

If it is probable that a loss will result

and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss.

If the loss is not probable

or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably

possible and the amount involved could be material.

While the Company can provide no assurances, the Company does not expect that any

of its pending legal proceedings will have a material impact on the Company’s financial condition or results of operations.

PENSION PLANS.

Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a healthcare and life insurance plan (the “Postretirement

Retirement Plan is noncontributory and covers only “grandfathered” unionized employees at the Company’s Pekin, Illinois

facility who fulfill minimum age and service requirements.

Benefits are based on a prescribed formula based upon the employee’s

years of service.

The Retirement Plan, which is part of a collective bargaining agreement, covers only union employees hired prior to

November 1, 2010.

Company uses a December 31 measurement date for its Retirement Plan.

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

contribution required by applicable regulations.

As of December 31, 2022, the Retirement Plan’s accumulated projected benefit obligation

was $ 18.0 million, with a fair value of plan assets of $ 16.7 million.

The underfunded amount of $ 1.3 million is recorded on the Company’s

consolidated balance sheet in other liabilities.

For the three months ended March 31, 2023, the Retirement Plan’s net periodic

expense was $ 39,000 , comprised of $ 225,000 in interest cost and $ 62,000 in service cost, partially offset by $ 248,000 of expected return

on plan assets.

For the three months ended March 31, 2022, the Retirement Plan’s net periodic expense (income) was ($ 8,000 ), comprised

of $ 164,000 in interest cost and $ 101,000 in service cost, more than offset by $ 273,000 of expected return on plan assets.

Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered” unionized employees

at the Company’s Pekin, Illinois facility.

Employees hired after December 31, 2000 are not eligible to participate in the Postretirement

The Postretirement Plan is contributory, with contributions required at the same rate as active employees.

Benefit eligibility

under the plan reduces at age 65 from a defined benefit to a defined dollar cap based upon years of service.

As of December 31, 2022,

the Postretirement Plan’s accumulated projected benefit obligation was $ 3.9 million and is recorded on the Company’s consolidated

These purchase commitments

are scheduled to be satisfied throughout 2023 and 2024.

Litigation – General –

The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation,

business transactions, employee-related matters, environmental regulations, and others.

When the Company is aware of a claim or potential

claim, it assesses the likelihood of any loss or exposure.

If it is probable that a loss will result and the amount of the loss can be

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

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

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

involved could be material.

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

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

PENSION AND RETIREMENT BENEFIT PLANS.

The Company sponsors a defined

benefit pension plan (the “Retirement Plan”) and a healthcare and life insurance plan (the “Postretirement Plan”).

The Retirement Plan is noncontributory,

and covers only “grandfathered” unionized employees at the Company’s Pekin, Illinois facility who fulfill minimum age

and service requirements.

Benefits are based on a prescribed formula based upon the employee’s years of service.

The Retirement

Plan, which is part of a collective bargaining agreement, covers only union employees hired prior to November 1, 2010.

The Company uses a December

31 measurement date for its Retirement Plan.

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

applicable regulations.

As of December 31, 2022, the Retirement Plan’s accumulated projected benefit obligation was $ 18.0 million,

with a fair value of plan assets of $ 16.7 million.

The underfunded amount of $ 1.3 million is recorded on the Company’s consolidated

balance sheet in other liabilities.

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

For the three months ended March 31, 2023, the Postretirement Plan’s net periodic expense was $ 36,000 , comprised of

$ 46,000 of interest cost and $ 3,000 of service cost, partially offset by $ 13,000 in amortization of gains.

For the three months ended

March 31, 2022, the Postretirement Plan’s net periodic expense was $ 32,000 , comprised of $ 26,000 of interest cost and $ 6,000 of

service cost.

June 30, 2023, the Retirement Plan’s net periodic expense was $ 39,000 , comprised of $ 225,000 in interest cost and $ 62,000 in service

cost, partially offset by $ 248,000 of expected return on plan assets.

For the three months ended June 30, 2022, the Retirement Plan’s

net periodic benefit was $ 8,000 , comprised of $ 273,000 of expected return on plan assets, partially offset by $ 164,000 in interest cost

and $ 101,000 in service cost.

For the six months ended June 30, 2023, the Retirement Plan’s net periodic expense was $ 78,000 , comprised

of $ 450,000 in interest cost and $ 124,000 in service cost, partially offset by $ 496,000 of expected return on plan assets.

months ended June 30, 2022, the Retirement Plan’s net periodic benefit was $ 16,000 , comprised of $ 546,000 of expected return on

plan assets, partially offset by $ 328,000 in interest cost and $ 202,000 in service cost.

The Postretirement Plan provides

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

Employees hired after

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

The Postretirement Plan is contributory, with contributions

required at the same rate as active employees.

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

dollar cap based upon years of service.

As of December 31, 2022, the Postretirement Plan’s accumulated projected benefit obligation

was $ 3.9 million and is recorded on the Company’s consolidated balance sheet in other liabilities.

The Company’s funding

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

For the three months ended

June 30, 2023, the Postretirement Plan’s net periodic expense was $ 36,000 , comprised of $ 46,000 of interest cost and $ 3,000 of

service cost, partially offset by $ 13,000 in amortization of gains.

For the three months ended June 30, 2022, the Postretirement Plan’s

net periodic expense was $ 32,000 , comprised of $ 6,000 of interest cost and $ 26,000 of service cost.

For the six months ended June

30, 2023, the Postretirement Plan’s net periodic expense was $ 72,000 , comprised of $ 92,000 of interest cost and $ 6,000 of service

cost, partially offset by $ 26,000 in amortization of gains.

For the six months ended June 30, 2022, the Postretirement Plan’s net

periodic expense was $ 64,000 , comprised of $ 12,000 of interest cost and $ 52,000 of service cost.

FAIR VALUE MEASUREMENTS.

1 unchanged sentence

used in valuation techniques into three levels, as follows:

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

and liabilities;

● Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for

the asset or liability through corroboration with market data;

● Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or

more significant inputs are unobservable.

For fair value measurements using significant unobservable inputs, a description of the inputs

and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

● Level 1 – Observable inputs – unadjusted quoted

prices in active markets for identical assets and liabilities;

● Level 2 – Observable inputs other than quoted prices

included in Level 1 that are observable for the asset or liability through corroboration with market data;

● Level 3 – Unobservable inputs – includes amounts

derived from valuation models where one or more significant inputs are unobservable.

For fair value measurements using significant unobservable

inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3

values from the prior reporting period.

Pooled separate accounts –

9 unchanged sentences

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

The following table summarizes recurring and nonrecurring

fair value measurements by level at March 31, 2023 (in thousands):

The following table summarizes recurring and

nonrecurring fair value measurements by level at June 30, 2023 (in thousands):

Derivative financial instruments

The following table summarizes recurring and nonrecurring

fair value measurements by level at December 31, 2022 (in thousands):

The following table summarizes recurring and

nonrecurring fair value measurements by level at December 31, 2022 (in thousands):

Derivative financial instruments

5 unchanged sentences

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

(2) This category includes investments in funds comprised of equity securities of large U.S.

funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value

(3) This category includes investments in funds comprised of equity securities of small- and medium-sized

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

is used to value the fund.

(4) This category includes investments in funds comprised of equity securities of foreign companies including

emerging markets.

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

is used to value the fund.

(2) This category includes investments in funds comprised of

equity securities of large U.S.

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

for the underlying investments is used to value the fund.

(3) This category includes investments in funds comprised of

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

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

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

(4) This category includes investments in funds comprised of

equity securities of foreign companies including emerging markets.

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

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

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

and foreign investment-grade fixed income

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

treasury securities, mortgage-backed securities,

and other asset-backed securities.

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

the underlying investments is used to value the fund.

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

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

The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

EARNINGS PER SHARE.

1 unchanged sentence

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

Three Months Ended

March 31, 2023

Three Months Ended June 30, 2023

Preferred stock dividends

Basic and diluted loss per share:

Net loss available to common stockholders

Three Months Ended

March 31, 2022

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

Three Months Ended June 30, 2022

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

Six Months Ended June 30, 2023

Preferred stock dividends

Basic and diluted loss per share:

Net loss available to common stockholders

Loss available to common stockholders

Six Months Ended June 30, 2022

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive instruments

Diluted income per share:

Income available to common stockholders

There were an additional aggregate potentially

dilutive weighted-average shares of 964,000 and 1,339,000 from convertible securities outstanding for the three months ended March 31,

2023 and 2022.

These securities were not considered in calculating diluted net loss per share for the three months ended March 31, 2023

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

dilutive weighted-average shares of 981,000 from convertible securities outstanding for the three and six months ended June 30, 2023.

There were an additional aggregate potentially dilutive weighted-average shares of 964,000 from convertible securities outstanding for

the three and six months ended June 30, 2022.

These securities were not considered in calculating diluted net income (loss) per share

for the three and six months ended June 30, 2023 and 2022, as their effect would have been anti-dilutive.

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

What changed 10-Q

Item 1. Financial Statements