What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 454 added, 345 removed, 288 unchanged (74% of the section changed)

9 unchanged sentences

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.

● fluctuations in the market prices of alcohols and essential

● fluctuations in the costs of key production input commodities

such as corn and natural gas;

● our ability to fund, and the costs, timing and effects of our plant improvement and other capital projects;

● the projected growth or contraction in the alcohols 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

21 unchanged sentences

(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.

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

2 unchanged sentences

specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential

ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies

of scale and by capturing a greater portion of the value stream.

ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and

economies of scale and by capturing a greater portion of the value stream.

Our wholly-owned subsidiary,

6 unchanged sentences

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, 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

at our production facilities described below.

Our production facilities located in Illinois are in the heart of the Corn Belt, benefit

from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international

markets via truck, rail or barge.

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

offering significant timing, transportation cost and logistical advantages.

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

Products for the Health, Home & Beauty markets 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 protein meal, corn protein 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 products for the Renewable Fuels markets include fuel-grade

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

We produce our alcohols

and essential ingredients at our production facilities described below.

Our production facilities located in Illinois are in the

heart of the Corn Belt, benefit from relatively low-cost and abundant feedstock and enjoy logistical advantages that enable us to

provide our products to both domestic and international markets via truck, rail or barge.

Our production facilities located in

Oregon and Idaho are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical

Our production facilities were operating for all

of the first quarter except our Magic Valley plant in Idaho, which we temporarily hot-idled in January 2023 due to extreme

natural gas prices, other unfavorable market conditions and to facilitate the installation of our new high protein systems at the plant.

The facility was restarted in April 2023.

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.

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

13 unchanged sentences

Our renewable fuel customers are located throughout

the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol into

the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend fuel-grade ethanol

into gasoline.

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

15 unchanged sentences

Current Initiatives and Outlook

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.

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

Crush margins, particularly for fuel-grade ethanol,

continued to improve during the second quarter.

We also benefitted from favorable economics from our specialty alcohol and essential ingredients

products, enabling us to generate net income and cash flow from operations, and to report positive Adjusted EBITDA of nearly $16 million.

We increased our production

capacity utilization sequentially to 81% in the second quarter as compared to 70% in the first quarter and expect to further increase

utilization based on two primary factors:

first, when our corn oil extraction and high protein systems at our Magic Valley plant are fully

aligned, we expect to achieve optimal capacity at the facility;

and second, the state of Washington recently approved a new low-carbon

fuel standard that justifies shipping fuel-grade ethanol from our Columbia plant, thereby opening a new low-carbon fuel market for the

Given our positive crush

margins for the month of July, we locked in positive spreads for a portion of our production.

As a result of these favorable spreads and

a positive forward crush margin curve, we expect positive Adjusted EBITDA for the third quarter.

We continue to make significant

capital expenditures to support our business transformation, diversify our revenue streams and reduce our exposure to often volatile commodity

Since late 2019, we have focused on modifying our operations to pursue low-cost, high-value initiatives to expand margins and

increase profitability.

In 2020, when demand for pharmaceutical grade alcohol rose sharply due to the pandemic, we were prepared to serve

the market as a long-standing producer of high-quality alcohols.

We successfully increased our market share and improved our top- and

bottom-line financial results.

Since then, we have made considerable progress on our business strategy, strengthening our balance sheet

and liquidity as well as accelerating investment in longer-term projects.

We are successfully executing our plan to transform Alto Ingredients

and to achieve our long-term EBITDA targets.

For the second quarter, capital expenditures totaled $8 million, bringing our investments

in capital projects to $18 million for the first half of 2023.

Our near-term focus has

been to increase production of high-quality products, including grain neutral spirits, or GNS, corn oil and high protein products.

have also focused on developing and executing strategies to improve plant efficiency and reliability by adding corn storage and other

We are now preparing to install a natural gas pipeline at our Pekin Campus, convert our biogas waste to renewable natural gas,

produce primary yeast, expand our cogeneration capabilities and, most importantly, launch carbon capture and sequestration, or CCS.

Each of our projects has

a different timeline yet we remain focused on capital efficiency.

For our near-term endeavors, we are using our working capital resources,

cash generated from our operations and excess availability under our credit facilities.

For our longer-term projects, we continue to hold

productive discussions with strategic partners to fulfill our capital needs as appropriate.

We now produce, at our

Pekin Campus wet mill, the highest quality 192 proof and ultra-low moisture 200 proof GNS products on the market.

We are working to obtain

qualifications that will position us to contract for additional high value GNS sales to new and existing beverage customers during the

annual contracting period for 2024.

We will also continue to supply GNS, especially our unique highly differentiated ultra-low moisture

200 proof product, on a spot sale basis for the remainder of 2023.

At our Magic Valley plant,

we continue to align the CoProMax TM corn oil extraction and high protein systems and we are working to obtain dryer permits

to achieve the full production capacity integral to optimizing low-cost production of fuel-grade ethanol, corn oil, high protein and other

feed products.

We expect to achieve full production value for these products in the fourth quarter.

As part of 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.

Our design work is on schedule and progressing

Unfortunately, inflationary pressures have negatively impacted costs, and we expect our overall installation cost will be higher

than originally anticipated.

Fortunately, product prices for primary yeast have also risen.

Assuming product returns remain justified,

we will continue to target construction commencement in early 2024.

Our CCS project presents

a unique and compelling opportunity at our Pekin Campus, which produces approximately 700,000 metric tons of carbon annually.

is located above the Mount Simon sandstone formation, one of the most significant carbon storage resources in the United States, and is

proximate to the Illinois Basin, one of the largest carbon sequestration locations.

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, including 45Z benefits and use in the

production of ethanol-to-jet fuel, blue ethanol, synthetic natural gas and sustainable aviation fuel.

We have selected a third-party front-end

engineering design, or FEED, firm to determine capture, compression and engineering design.

In addition, we have selected our development

partner to provide turnkey transportation, sequestration and monitoring services.

Our CCS project requires

upgrades to our natural gas pipeline and cogeneration projects, both of which have excellent projected returns on a standalone basis.

Our longer-term goal is to have our CCS project operational by the end of 2026, which represents an aggressive but achievable schedule.

We continue to advance

1 unchanged sentence

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.

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

costs across the production facility.

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.

for our new natural gas pipeline at our Pekin Campus is complete.

We are finalizing easements and access while targeting construction

commencement before year-end.

Our goal is to improve energy procurement, pricing and stability, lowering our natural gas costs at our

Pekin Campus.

The pipeline will also create the opportunity for a new revenue stream by allowing us to convert and monetize our current

biogas waste stream into renewable natural gas.

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.

We have also furthered our design and preparation work and initiated financing discussions.

We expect that our cogeneration capabilities at our Pekin Campus will address our energy needs for both our current operations as well

as our expanded operations from our in-progress capital projects.

We remain focused on renewable

products, underscoring our ongoing commitment to sustainability.

As part of this pursuit, during the second quarter, we achieved EcoVadis

Silver Medal status at our Pekin and ICP plants, indicating sustainability ratings in the 80 th percentile amongst our peers.

We take pride in these awards and of our team efforts to build and strengthen procedures and implement programs focused on our sustainability,

health and safety.

Our team is dedicated

to driving sustainable long-term value for all stakeholders, including customers, employees and investors.

As part of that mission, our

management, together with our board, continually pursue opportunities to maximize the value of our assets through capital investment and

partnerships with strategic third-party industrial enterprises that share our vision.

We believe this approach provides the best option

to liberate our inherent value.

Where appropriate, we have also elected to sell non-core assets, including our Aurora, Nebraska, Madera,

California and Stockton, California production facilities, and invest the proceeds in more productive and profitable alternatives.

Our team is experienced

and committed to leveraging our assets to deliver more diversified, higher value, sustainable revenue streams from our specialty alcohol

and essential ingredient products.

Our strategic plan is coming to fruition, as evidenced by our new high-quality products and the benefits

accruing from our production cost improvements.

The aggregate sum of our parts carries far greater intrinsic value than the individual

pieces and will be an even higher value when CCS is deployed.

As such, we continue to be excited about our capital projects, and 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 approximately $125 million by the end of 2026 when our CCS, cogeneration and other long-term initiatives

are fully realized.

Use of Non-GAAP Financial Measures

3 unchanged sentences

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.

We define EBITDA as unaudited

consolidated net income (loss) before interest expense, interest income, provision for income taxes and depreciation and amortization

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, consolidated net income (loss).

EBITDA and 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

8 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands) (unaudited)

Net income (loss)

Interest expense

31 unchanged sentences

Three Months Ended

Six Months Ended

Renewable fuel production gallons sold (in millions)

9 unchanged sentences

Total essential ingredients tons sold (in thousands)

Essential ingredients revenues as % of delivered cost of corn (2)

Essential ingredients revenues

as % of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

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

corn and the future price of corn for Chicago delivery.

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

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

Corn basis represents the difference between the immediate cash price of delivered corn and the future price of corn for Chicago delivery.

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

Goods Sold and Gross Profit (Loss)

Goods Sold and Gross Profit

The following table presents

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):

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

Three Months Ended

Six Months Ended

Cost of goods sold

Gross profit (loss)

Percentage of net sales

* Not meaningful.

The increase in our consolidated

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.

Three months ended June 30, 2023 as compared to the three months

ended June 30, 2022

The decline in our consolidated

net sales for the three months ended June 30, 2023 as compared to the same period in 2022 was primarily due to fewer total gallons sold

on a gross basis, mainly specialty alcohol, and lower average sales prices per gallon of alcohol and per ton of essential ingredients.

We produced and sold fewer gallons of specialty alcohol to align production and sales volumes with our customer order volumes during

We marketed no third-party gallons on a net basis during the quarter since we had previously ended our contractual relationship

with the two fuel-grade ethanol plants for which we sold their production to instead 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 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 alcohol from our

Pekin Campus production segment decreased by $16.1 million, or 11%, to $127.7 million for the three months ended June 30, 2023 as compared

to $143.8 million for the same period in 2022.

Our total volume of production gallons sold decreased by 1.8 million gallons, or 3%, to

50.2 million gallons for the three months ended June 30, 2023 as compared to 52.0 million gallons for the same period in 2022.

segment’s average sales price per gallon of $2.54 for the three months ended June 30, 2023, we generated $4.6 million less in net

sales from the 1.8 million fewer gallons of alcohol sold in the three months ended June 30, 2023 as compared to the same period in 2022.

The decrease of $0.22, or 8%, in the segment’s average sales price per gallon for the three months ended June 30, 2023 as compared

to the same period in 2022 reduced our net sales from the segment by $11.5 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

from our Pekin Campus production segment decreased $5.9 million, or 10%, to $54.0 million for the three months ended June 30, 2023 as

compared to $59.9 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.

Our total volume of essential ingredients sold increased by 73,800 tons, or 34%,

to 291,700 tons for the three months ended June 30, 2023 from 217,900 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.

sales price per ton of $184.96 for the three months ended June 30, 2023, we generated $13.6 million in additional net sales from the

73,800 additional tons of essential ingredients sold in the three months ended June 30, 2023 as compared to the same period in 2022.

The decrease of $89.72, or 33%, in the segment’s average sales price per ton for the three months ended June 30, 2023 as compared

to the same period in 2022 reduced our net sales from the segment by $19.5 million.

Marketing and Distribution

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.

segment, excluding intersegment sales, increased by $8.8 million, or 14%, to $72.7 million for the three months ended June 30, 2023 as

compared to $63.9 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

gross by the segment increased by 5.8 million gallons, or 28%, to 26.6 million gallons for the three months ended June 30, 2023 as compared

to 20.8 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.73 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.

ended June 30, 2023, we generated $15.8 million in additional net sales from the 5.8 million additional gallons of third-party alcohol

sold gross in the three months ended June 30, 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

segment decreased by 9.2 million gallons, or 100%, to no gallons sold net for the three months ended June 30, 2023 as compared to 9.2

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.

The $0.33 per gallon, or 11%, decrease in the

segment’s average sales price per gallon for the three months ended June 30, 2023 as compared to the same period in 2022 resulted

in a $6.8 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 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.

Net sales of alcohol from our

Other production segment decreased by $22.8 million, or 34%, to $44.4 million for the three months ended June 30, 2023 as compared to

$67.2 million for the same period in 2022.

Our total volume of alcohol sold declined by 6.1 million gallons, or 27%, to 16.5 million

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

gallons for the three months ended June 30, 2023 as compared to 22.6 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.

average sales price per gallon of $2.69 for the three months ended June 30, 2023, we generated $16.4 million less in net sales from the

6.1 million fewer gallons of alcohol sold in the three months ended June 30, 2023 as compared to the same period in 2022.

of $0.28, or 10%, in the segment’s average sales price per gallon for the three months ended June 30, 2023 as compared to the same

period in 2022 reduced our net sales from the segment by $6.4 million.

The decline in gallons sold by our other production segment resulted

from the idling of our Magic Valley plant due to unfavorable market conditions and to facilitate the installation of our new high protein

systems at the plant.

Net sales of essential ingredients

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

from our other production segment decreased by $9.0 million, or 38%, to $14.4 million for the three months ended June 30, 2023 as compared

to $23.4 million for the same period in 2022.

Our total volume of essential ingredients sold declined by 123,800 tons, or 63%, to 72,400

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

tons for the three months ended June 30, 2023 from 196,200 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.

per ton of $199.19 for the three months ended June 30, 2023, we generated $24.7 million less in net sales from the 123,800 fewer tons

of essential ingredients sold in the three months ended June 30, 2023 as compared to the same period in 2022.

The increase of $80.06,

or 68%, in our average sales price per ton for the three months ended June 30, 2023 as compared to the same period in 2022 increased

our net sales of essential ingredients from the segment by $15.7 million.

Corporate and other

Net sales of alcohol from corporate

and other remained flat at $4.1 million for the three months ended June 30, 2023 as compared to the same period in 2022.

are from Eagle Alcohol’s business.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit increased to $17.2

million for the three months ended June 30, 2023 from $8.8 million for the same period in 2022, representing a gross margin of 5.4% for

the three months ended June 30, 2023 compared to a gross profit margin of 2.4% for the same period in 2022.

Our consolidated gross profit

increased due to improved commodity margins as a result of lower corn costs relative to the price of fuel-grade ethanol.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross

profit, net of intercompany activity, improved by $5.7 million to a gross profit of $14.3 million for the three months ended June 30,

2023 as compared to gross profit of $8.6 million for the same period in 2022.

This improvement in gross profit is primarily attributable

to higher fuel-grade ethanol margins.

Marketing and Distribution Segment

Our marketing and distribution segment’s

gross profit, net of intercompany activity, improved by $1.0 million to a gross profit of $1.1 million for the three months ended June

30, 2023 as compared to $0.1 million for the same period in 2022.

Of this improvement, $0.8 million is attributable to higher margins

from sales of third-party fuel-grade ethanol and $0.2 million is attributable to higher sales volumes for the three months ended June

30, 2023 as compared to the same period in 2022.

Other Production Segment

Our other production segment’s gross profit,

net of intercompany activity, improved by $1.9 million to a gross profit of $1.1 million for the three months ended June 30, 2023 as

compared to a gross loss of $0.8 million for the same period in 2022.

Of this improvement, $2.3 million is attributable to higher fuel-grade

ethanol margins, partially offset by $0.4 million in lower volumes sold.

Corporate and other

Gross profit from corporate

and other declined by $0.2 million to a gross profit of $0.7 million for the three months ended June 30, 2023 as compared to $0.9 million

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

Six months ended June 30, 2023 as compared to the six months ended

June 30, 2022

The decline in our consolidated

net sales for the six months ended June 30, 2023 as compared to the same period in 2022 was primarily due to fewer total gallons sold,

mainly specialty alcohol, an overall lower average sales price per gallon and lower volumes of essential ingredients sold.

and sold fewer gallons of specialty alcohol to align production and sales volumes with our customer order volumes during the period.

We marketed no third-party gallons on a net basis during the period since we had previously ended our contractual relationship with the

two fuel-grade ethanol plants for which we sold their production to instead 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 $0.3 million, or less than 1%, to $260.1 million for the six months ended June 30, 2023

as compared to $259.8 million for the same period in 2022.

Our total volume of production gallons sold increased by 4.7 million gallons,

or 5%, to 106.0 million gallons for the six months ended June 30, 2023 as compared to 101.3 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.45 for the six months ended June 30, 2023, we generated $11.5 million in

additional net sales from the 4.7 million additional gallons of alcohol sold in the six months ended June 30, 2023 as compared to the

same period in 2022.

The decrease of $0.11, or 4%, in the segment’s average sales price per gallon for the six months ended June

30, 2023 as compared to the same period in 2022 reduced our net sales from the segment by $11.2 million.

Net sales of essential ingredients

from our Pekin Campus production segment increased $2.5 million, or 2%, to $117.6 million for the six months ended June 30, 2023 as compared

to $115.1 million for the same period in 2022.

Our total volume of essential ingredients sold increased by 7,300 tons, or 2%, to 434,100

tons for the six months ended June 30, 2023 from 426,800 tons for the same period in 2022.

At the segment’s average sales price

per ton of $270.87 for the six months ended June 30, 2023, we generated $2.0 million in additional net sales from the 7,300 additional

tons of essential ingredients sold in the six months ended June 30, 2023 as compared to the same period in 2022.

The increase of $1.11,

or less than 1%, in the segment’s average sales price per ton for the six months ended June 30, 2023 as compared to the same period

in 2022 increased our net sales from the segment by $0.5 million.

Marketing and Distribution

Net sales of alcohol from our marketing and distribution

segment, excluding intersegment sales, increased by $39.0 million, or 33%, to $157.2 million for the six months ended June 30, 2023 as

compared to $118.2 million for the same period in 2022.

Our volume of third-party alcohol sold reported

gross by the segment increased by 19.7 million gallons, or 48%, to 60.4 million gallons for the six months ended June 30, 2023 as compared

to 40.7 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.60 for the six months

ended June 30, 2023, we generated $51.2 million in additional net sales from the 19.7 million additional gallons of third-party alcohol

sold gross in the six months ended June 30, 2023 as compared to the same period in 2022.

Our volume of alcohol sold reported net by the

segment decreased by 20.1 million gallons, or 100%, to no gallons sold net for the six months ended June 30, 2023 as compared to 20.1

million gallons for the same period in 2022.

This decline reduced net sales by $0.4 million.

The $0.29 per gallon, or 10%, decrease in the

segment’s average sales price per gallon for the six months ended June 30, 2023 as compared to the same period in 2022 resulted

in a $11.7 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 decreased by $61.7 million, or 49%, to $65.3 million for the six months ended June 30, 2023 as compared to $127.0

million for the same period in 2022.

Our total volume of alcohol sold declined by 21.3 million gallons, or 47%, to 24.4 million gallons

for the six months ended June 30, 2023 as compared to 45.7 million gallons for the same period in 2022.

At the segment’s average

sales price per gallon of $2.68 for the six months ended June 30, 2023, we generated $57.0 million less in net sales from the 21.3 million

fewer gallons of alcohol sold in the six months ended June 30, 2023 as compared to the same period in 2022.

The decrease of $0.10, 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.

4%, in the segment’s average sales price per gallon for the six months ended June 30, 2023 as compared to the same period in 2022

reduced our net sales from the segment by $4.7 million.

The decline in gallons sold by our other production segment resulted from the

idling of our Magic Valley plant due to unfavorable market conditions and to facilitate the installation of our new high protein systems

at the plant.

We restarted our Magic Valley facility in April 2023, but did not achieve higher fuel-grade ethanol production levels until

later in the second quarter.

Net sales of essential ingredients

from our other production segment decreased by $19.5 million, or 46%, to $22.8 million for the six months ended June 30, 2023 as compared

to $42.3 million for the same period in 2022.

Our total volume of essential ingredients sold declined by 156,800 tons, or 41%, to 229,300

tons for the six months ended June 30, 2023 from 386,100 tons for the same period in 2022.

At the segment’s average sales price

per ton of $99.32 for the six months ended June 30, 2023, we generated $15.6 million less in net sales from the 156,800 fewer tons of

essential ingredients sold in the six months ended June 30, 2023 as compared to the same period in 2022.

The decrease of $10.27, or 9%,

in our average sales price per ton for the six months ended June 30, 2023 as compared to the same period in 2022 reduced our net sales

of essential ingredients from the segment by $3.9 million.

Corporate and other

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.

Net sales of alcohol from corporate

and other increased by $0.4 million, or 5%, to $8.3 million for the six months ended June 30, 2023, as compared to $7.9 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 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.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit increased to $14.0

million for the six months ended June 30, 2023 from $13.6 million for the same period in 2022, representing a gross margin of 2.2% for

the six months ended June 30, 2023 compared to a gross profit margin of 2.0% for the same period in 2022.

Our consolidated gross profit

improved due to improved commodity margins as a result of lower corn costs relative to the price of ethanol.

Pekin Campus Production Segment

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.

Our Pekin Campus production segment’s gross

profit, net of intercompany activity, increased by $0.2 million to a gross profit of $12.5 million for the six months ended June 30,

2023 as compared to gross profit of $12.3 million for the same period in 2022.

Marketing and Distribution Segment

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.

Our marketing and distribution segment’s

gross profit, net of intercompany activity, improved by $2.8 million to a gross profit of $2.4 million for the six months ended June

30, 2023 as compared to a gross loss of $0.4 million for the same period in 2022.

Of this improvement, $2.2 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 six months

ended June 30, 2023 as compared to the same period in 2022.

Other Production Segment

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 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.

Our other production segment’s gross profit,

net of intercompany activity, declined by $3.4 million to a gross loss of $3.4 million for the six months ended June 30, 2023 as compared

to a gross loss of less than $0.1 million for the same period in 2022.

Of this decline, $4.7 million is attributable to lower fuel-grade

ethanol margins, partially offset by $1.3 million in savings from lower volumes sold at negative margins as our Magic Valley plant was

idled for the entire first quarter of 2023.

Corporate and other

Gross profit from corporate

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

and other improved by $0.7 million to a gross profit of $2.5 million for the six months ended June 30, 2023 as compared to $1.8 million

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

4 unchanged sentences

Three Months Ended

Six Months Ended

Selling, general and administrative expenses

Percentage of net sales

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

Our SG&A expenses decreased for the three and

six months ended June 30, 2023 as compared to the same period in 2022.

The period over period decreases in SG&A expenses are primarily

due to reduced professional services fees from diligence work on debt financing and lower accruals in the 2023 period related to

deferred payments according to schedule for our acquisition of Eagle Alcohol.

Interest Expense,

The following table presents

1 unchanged sentence

Three Months Ended

Six 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

Our interest expense increased for the three and

six months ended June 30, 2023 as compared to the same period in 2022.

The increase resulted from higher debt balances due to our recent

term loan to fund our capital improvement projects.

Income from Cash Grant

We applied for and received

a $22.7 million cash grant from the USDA’s Biofuel Producer Program for the three and six months ended June 30, 2022.

No such amounts

were received for the three and six months ended June 30, 2023.

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 grant is not required to be repaid nor

will it recur in the future.

Net Income (Loss)

Available to Common Stockholders

The following table presents

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

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

Three Months Ended

Net loss available to Common Stockholders

Six Months Ended

Net income (loss) available to common stockholders

Percentage of net sales

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.

* Not meaningful.

in our net income available to common stockholders for the three and six months ended June 30, 2023 as compared to the same periods in

2022 is primarily due to non-recurring income in 2022 from a cash grant under the CARES Act in the amount of $22.7 million, as discussed

Liquidity and Capital Resources

During the three months ended March 31, 2023, we

During the six months ended June 30, 2023, we

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

1 unchanged sentence

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

June 30, 2023, we had $25.1 million in cash, cash equivalents and restricted cash, $49.4 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

We also have an option to expand the Orion

term loan by up to $25.0 million upon the satisfaction of certain conditions.

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 Period-End

Liquidity Status

2 unchanged sentences

The following selected financial information should be read in conjunction

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

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

report (dollars in thousands).

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

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

in this report (dollars in thousands).

Cash, cash equivalents and restricted cash

6 unchanged sentences

Changes in Working Capital and Cash Flows

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.

Working capital declined slightly to $120.8 million

at June 30, 2023 from $121.1 million at December 31, 2022 due to a decrease of $19.6 million in current assets and a decrease of $19.3

million in current liabilities.

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 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.

in cash, cash equivalents and restricted cash of $24.4 million and a decrease in accounts receivable, partially offset by an increase

in inventories and derivative assets due to higher average commodity prices for the six months ended June 30, 2023 as compared to the

same period in 2022.

Our current liabilities

decreased primarily due to lower accrued liabilities as a result of our payment of accrued contingent consideration for our

acquisition of Eagle Alcohol and lower utility accruals in the current period, partially offset by an increase 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

declined by $24.4 million primarily due to $12.9 million in cash used in our operating activities and $21.5 million in cash used in our

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

investing activities, partially offset by $9.9 million in cash provided by our financing activities, as further detailed below.

Cash used in our Operating Activities

We used $12.9 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

activities during the six months ended June 30, 2023 as compared to $20.7 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 $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.

● a decrease of $25.1

million in our net income primarily due to a cash grant under the CARES Act in the prior year of $22.6

million that did not recur in 2023;

● a decrease of $38.7

million related to accounts payable and accrued liabilities due to timing

These amounts were partially offset by:

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.

● a decrease of $16.8

million related to derivative instruments due to changes in commodity prices;

● an increase of $10.2

million related to changes in inventories due to changes in commodity prices;

● an increase of $5.7

million related to changes in accounts receivable balances due to the timing of our collections.

Cash used in our Investing Activities

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.

We used $21.5 million in cash during the period

to fund $18.0 million of additions to property and equipment, including for our capital improvement projects, and to fund $3.5 million

of contingent purchase price payments for our acquisition of Eagle Alcohol.

We used $8.2 million more in cash for additions to property

and equipment during the current period as compared to the same period in 2022 as we accelerated our capital improvement projects in 2023.

We generated $14.8 million less in cash from principal payments on notes receivable in the current period as compared to the same period

in 2022 as the notes receivable from the sale of our Aurora, Nebraska facility fully matured and were repaid in 2022.

Cash provided by our Financing Activities

Cash provided by our financing activities was $9.9

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.

million for the six months ended June 30, 2023, which reflects net proceeds of $13.2 million from Kinergy’s operating line of credit,

partially offset by $2.7 million of stock repurchases and $0.6 million paid in preferred stock dividends, as compared to $1.6 million

of cash provided by our financing activities for the same period in 2022.

Our use of Kinergy’s line of credit generated an additional

$11.1 million in cash in the current period as compared to the same period in 2022 due to higher commodity prices and the timing of payments

and collections.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for

an aggregate amount of up to $100.0 million.

Kinergy maintains an operating line of credit

for an aggregate amount of up to $100.0 million.

The credit facility matures on November 7, 2027.

Interest accrues under the credit facility

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

at a rate equal to (i) 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

2 unchanged sentences

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

to Kinergy are limited under the terms of the

credit facility to $1.5 million per fiscal quarter.

to Kinergy are limited under the terms of

the credit facility to $1.5 million per fiscal quarter.

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

22 unchanged sentences

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

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

As of June 30, 2023, Kinergy had an outstanding balance of $31.3

million and $49.4 million of unused borrowing availability under the credit facility.

24 unchanged sentences

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

As of March 31, 2023, the amount outstanding under

As of June 30, 2023, the amount outstanding under

the Term Loan was $60,000,000.

Share Repurchase Program

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.”

For the three and six months

ended June 30, 2023, we repurchased 389,000 and 1,249,000 shares of our common stock as part of our publicly announced share repurchase

program at an average price per share of $2.57 and $2.15 for an aggregate expenditure of $1,001,000 and $2,683,000, respectively.

“Unregistered Sales of Equity Securities and Use of Proceeds – Purchases of Equity Securities by the Issuer and Affiliated

Other Cash Obligations

As of March 31, 2023, we

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

As of June 30, 2023, we had

future commitments for certain capital projects totaling $17.4 million.

These commitments are scheduled to be satisfied through 2024.

2 unchanged sentences

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