What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-08 · 424 added, 466 removed, 276 unchanged (76% 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

● 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.

● 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;

ability to fund, and the costs, timing and effects of, our plant improvement initiatives

and other capital projects;

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

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

● anticipated

trends in our financial condition and results of operations;

ability to distinguish ourselves from our current and future competitors.

You are cautioned not to place

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We have an annual

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

of specialty alcohols.

We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced

by third parties.

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

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

alcohol production capacity of up to 350 million gallons, including both fuel-grade ethanol and specialty alcohols ranging from industrial-,

pharmaceutical-, and high-quality food- and beverage-grade alcohols.

Of this amount, we are able to produce up to 110 million gallons

annually of specialty alcohols, depending on our product mix among high-quality beverage-grade alcohol and alcohols of other quality specifications.

We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties.

we marketed and distributed approximately 420 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third

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

We report our financial and operating performance

in three segments:

(1) marketing and distribution, which includes marketing and merchant trading for company-produced alcohols and essential

ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties, (2) Pekin production, which includes

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

which we refer to as our Pekin Campus, and (3) Other production, which includes the production and sale of renewable fuel and essential

ingredients produced at all of our other production facilities on an aggregated basis, none of which are individually so significant

as to be considered a separately reportable segment.

(1) 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, (2) 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, and (3) Other production, which includes the production and sale of renewable fuel and essential ingredients

produced at all of our other production facilities on an aggregated basis, none of which are individually so significant as to be considered

a separately reportable segment.

Our mission is to expand our business as a leading

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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,

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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.

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.

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.

Annual Alcohol Production Capacity

(estimated, in gallons)

Production Facility

Fuel-Grade Ethanol

Specialty Alcohol

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 advantages.

All of our production facilities are currently

As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations

at any idled facility.

Marketing and Distribution Segment

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Our renewable fuel customers are located throughout

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

into gasoline.

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

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

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Current Initiatives and Outlook

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.

Our third quarter results reflect a positive contribution

from improved ethanol crush margins, particularly in September as corn basis declined as the corn harvest commenced, mitigating an unexpected

sharp increase in corn basis levels earlier in the quarter.

Our profit for the quarter did not, however, meet our expectations due to

the sharp increase in corn basis levels and unusually high unscheduled production downtime that reduced sales volumes, shifted our overall

product mix toward lower margin products, and resulted in significant increases in repair and maintenance costs.

In addition, lower sales

volumes from this unscheduled downtime adversely impacted our hedging strategy to lock in favorable crush spreads, resulting in unanticipated

derivative losses.

We nevertheless generated positive Adjusted EBITDA for the third quarter and greatly improved our results compared

to the third quarter of 2022.

Lower consumer demand has

impacted our specialty alcohol sales thus far in 2023, but we are working with our customers to roll a portion of their current-year

volume commitments into 2024.

Our 2024 contracting season is underway and we are on pace to exceed 2023 delivered gallons at premiums

to fuel-grade ethanol.

Our goal is to move up the value chain and capture a larger share of the beverage-grade market where our high-quality,

low-moisture specialty alcohols and location differentiations create competitive advantages.

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.

Since late 2019, we have focused on modifying our operations to pursue initiatives to expand margins and increase profitability.

In early 2023, we outlined our revenue-enhancing and cost-reducing capital initiatives.

These projects have different timelines, returns

on investment and risk profiles.

As a result, we have evaluated and prioritized our funding needs and options for each project separately

with an overall goal of fiscal responsibility.

For the third quarter, capital expenditures totaled $7 million, bringing our investments

in our plants to $25 million for the first nine months of 2023.

We expect the extensive repair and maintenance work completed during the

quarter to benefit future production uptime and reliability.

We have already completed

several of our short-term projects, including the expansion of our high-quality alcohol product offerings, installation of additional

corn storage capacity, replacement of boiler equipment and various other upgrades to our facilities and systems.

For our longer-term,

more capital-intensive projects, we have engaged experts – third party front-end engineering and design, or FEED, firms –

to conduct deeper analyses on the scope, timing and costs of the projects.

These projects include implementing systems to produce primary

yeast, carbon capture and sequestration, or CCS, installing a natural gas pipeline, developing a cogeneration system, and biogas conversion.

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.

we continue to align the CoProMax TM corn oil extraction and high protein system to achieve the system’s performance guarantees.

This process has taken longer than anticipated but we are determined to improve output consistency and optimize production.

to evaluate the rollout of corn oil extraction and high protein systems at our other plants, but we have already achieved comparable improvements

in corn oil yields at our Pekin Campus dry mill through process optimization unique to the mill’s design.

As part of our longer-term

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

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

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

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

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

costs across the production facility.

Our third-party FEED study

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.

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.

initiatives for high-margin offerings, we plan to expand into primary yeast production and recently received the preliminary results of

our FEED study for this project.

While the overall findings are promising, inflationary pressures and supply chain constraints have materially

impacted installation costs from our original estimates.

In addition, the construction period for the project has expanded from eighteen

to twenty-seven months.

Partially offsetting these adverse developments are an expected decline in operating costs and an improvement

in the market price for primary yeast.

We continue to evaluate this project and explore funding alternatives to transform this unique

opportunity into a completed project.

To better ensure that

the construction costs of our other projects reflect current market conditions, we are critically reviewing all of our projects and prioritizing

those with sustainable profitability while remaining fiscally vigilant given the challenging capital market environment.

Our new 850,000-bushel

corn storage silo at our Pekin Campus is now fully operational and contributing to improved corn procurement costs, greater plant reliability

and lower plant operating costs across the production facility.

We expect this added capacity to further benefit our operations this coming

We are presently negotiating

engineering, procurement and construction contracts for our natural gas pipeline and cogeneration projects.

We also continue to make progress

on our CCS project.

Together with our development partner, we are designing a dedicated pipeline and sequestration system located within

a relatively short distance of our Pekin Campus, materially reducing installation costs and external risks to the system.

Based on the current economic

environment, our estimates and projections, preliminary FEED study findings and changing capital requirements, we have extended our EBITDA

expansion goals by six to twelve months.

We are now targeting an incremental increase in annualized Adjusted EBITDA by over $65 million

by mid-2026, following the completion of our near-term projects, and by approximately $125 million by year-end 2027, when our primary

yeast, CCS and other long-term initiatives are fully realized.

We continue to work on

our sustainability goals and in this regard our Pekin Campus earned the Safe Feed/Safe Food third-party product safety certification for

our corn meal and corn germ products, further differentiating these essential ingredients from various competing products.

we plan to publish our sustainability report by year-end with the goal of providing key disclosures annually in the same format.

Use of Non-GAAP Financial Measures

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Information reconciling

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

income (loss) prepared in accordance with GAAP, which is unavailable to us without unreasonable effort.

We are not able to provide a quantitative

reconciliation of forward-looking EBITDA to forward-looking consolidated net income (loss) because certain items required for reconciliation

are uncertain, outside of our control and/or cannot reasonably be predicted, such as net sales, cost of goods sold, provision (benefit)

for income taxes and asset impairments, which we view as the most material components of consolidated net income (loss) that are not presently

forward-looking Adjusted EBITDA to forward-looking consolidated net income (loss) would require a forward-looking statement of consolidated

net income (loss) prepared in accordance with GAAP, which is unavailable to us without unreasonable effort.

We are not able to provide

a quantitative reconciliation of forward-looking Adjusted EBITDA to forward-looking consolidated net income (loss) because certain items

required for reconciliation are uncertain, outside of our control and/or cannot reasonably be predicted, such as net sales, cost of goods

sold, provision (benefit) for income taxes and asset impairments, which we view as the most material components of consolidated net income

(loss) that are not presently estimable.

Reconciliation of Adjusted

EBITDA to Consolidated Net Income (Loss)

EBITDA to Consolidated Net Loss

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands) (unaudited)

Net income (loss)

Interest expense

2 unchanged sentences

Acquisition-related expense

Provision for income taxes

Depreciation and amortization expense

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

Three Months Ended

Six Months Ended

Renewable fuel production gallons sold (in millions)

Specialty alcohol production gallons sold (in millions)

Third-party renewable fuel gallons sold (in millions)

Total gallons sold (in millions)

Total gallons produced (in millions)

Production capacity utilization

Average sales price per gallon

Corn cost per bushel – CBOT equivalent

Average basis (1)

Delivered cost of corn

Total essential ingredients tons sold (in thousands)

Essential ingredients revenues

as % of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

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.

September 30,

fuel production gallons sold (in millions)

alcohol production gallons sold (in millions)

party renewable fuel gallons sold (in millions)

gallons sold (in millions)

gallons produced (in millions)

capacity utilization

sales price per gallon

cost per bushel – CBOT equivalent

essential ingredients tons sold (in thousands)

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

CBOT ethanol price per gallon

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.

Net Sales, Cost of

Goods Sold and Gross Profit

Goods Sold and Gross Profit (Loss)

The following table presents

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

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

except percentages):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Percentage of net sales

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

ended June 30, 2022

* Not meaningful

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

ended September 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 for the three months ended September 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.

We produced and sold fewer gallons of specialty

alcohol in part to align production and sales volumes with our customer order volumes during the quarter.

In addition, we experienced

unusually high unscheduled production downtime during the quarter which also reduced sales volumes.

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 focus on sales of our own fuel-grade ethanol production.

Pekin Campus Production Segment

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

Pekin Campus production segment decreased by $5.1 million, or 4%, to $128.6 million for the three months ended September 30, 2023 as compared

to $133.7 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

Our total volume of production gallons sold increased by 1.7 million gallons, or 3%, to

52.0 million gallons for the three months ended September 30, 2023 as compared to 50.3 million gallons for the same period in 2022.

decrease of $0.19, or 7%, in the segment’s average sales price per gallon for the three months ended September 30, 2023 as compared

to the same period in 2022 reduced our net sales from the segment by $9.3 million.

At the segment’s average sales price per gallon

of $2.47 for the three months ended September 30, 2023, we generated $4.2 million more in net sales from the 1.7 million additional gallons

of alcohol sold in the three months ended September 30, 2023 as compared to the same period in 2022.

Net sales of essential ingredients

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.

from our Pekin Campus production segment decreased by $2.9 million, or 5%, to $51.6 million for the three months ended September 30, 2023

as compared to $54.5 million for the same period in 2022.

Our total volume of essential ingredients sold increased by 8,000 tons, or 4%,

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 $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.

to 226,100 tons for the three months ended September 30, 2023 from 218,100 tons for the same period in 2022.

The decrease of $21.69, or

9%, in the segment’s average sales price per ton for the three months ended September 30, 2023 as compared to the same period in

2022 reduced our net sales from the segment by $4.7 million.

At the segment’s average sales price per ton of $228.37 for the three

months ended September 30, 2023, we generated $1.8 million in additional net sales from the 8,000 additional tons of essential ingredients

sold in the three months ended September 30, 2023 as compared to the same period in 2022.

Marketing and Distribution

Net sales of alcohol from our marketing and distribution

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.

segment, excluding intersegment sales, increased by $3.3 million, or 6%, to $58.9 million for the three months ended September 30, 2023

as compared to $55.6 million for the same period in 2022.

Our volume of third-party alcohol sold reported

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 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.

gross by the segment increased by 2.9 million gallons, or 15%, to 21.9 million gallons for the three months ended September 30, 2023 as

compared to 19.0 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.69 for the three

months ended September 30, 2023, we generated $7.8 million in additional net sales from the 2.9 million additional gallons of third-party

alcohol sold gross in the three months ended September 30, 2023 as compared to the same period in 2022.

The $0.22 per gallon, or 8%, decrease

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

2022 resulted in a $4.2 million decline in our net sales from third-party fuel-grade ethanol sold by the segment.

Our volume of alcohol sold reported net by the

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

segment decreased by 8.6 million gallons, or 100%, to no gallons sold net for the three months ended September 30, 2023 as compared to

8.6 million gallons for the same period in 2022.

This decline reduced net sales by $0.3 million.

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 $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.

Other production segment decreased by $7.3 million, or 11%, to $57.2 million for the three months ended September 30, 2023 as compared

to $64.5 million for the same period in 2022.

Our total volume of alcohol sold declined by 1.3 million gallons, or 6%, to 22.2 million

gallons for the three months ended June 30, 2023 as compared to 22.6 million gallons for the same period in 2022.

gallons for the three months ended September 30, 2023 as compared to 23.5 million gallons for the same period in 2022.

At the segment’s

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.

average sales price per gallon of $2.57 for the three months ended September 30, 2023, we generated $3.3 million less in net sales from

the 1.3 million fewer gallons of alcohol sold in the three months ended September 30, 2023 as compared to the same period in 2022.

decrease of $0.17, or 6%, in the segment’s average sales price per gallon for the three months ended September 30, 2023 as compared

to the same period in 2022 reduced our net sales from the segment by $4.0 million.

Net sales of essential ingredients

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.

from our other production segment decreased by $6.6 million, or 27%, to $17.8 million for the three months ended September 30, 2023 as

compared to $24.4 million for the same period in 2022.

Our total volume of essential ingredients sold declined by 6,800 tons, or 3%, to

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 $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.

197,100 tons for the three months ended September 30, 2023 from 203,900 tons for the same period in 2022.

The decrease of $29.34, or 24%,

in our average sales price per ton for the three months ended September 30, 2023 as compared to the same period in 2022 decreased our

net sales of essential ingredients from the segment by $6.0 million.

At the segment’s average sales price per ton of $90.52 for

the three months ended September 30, 2023, we generated $0.6 million less in net sales from the 6,800 fewer tons of essential ingredients

sold in the three months ended September 30, 2023 as compared to the same period in 2022.

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.

and other remained flat at $4.1 million for the three months ended September 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.

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) increased to $4.2 million in gross

profit for the three months ended September 30, 2023 from a gross loss of $19.8 million for the same period in 2022, representing a gross

margin of 1.3% for the three months ended September 30, 2023 compared to a negative gross margin of 5.9% 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

Our gross profit for the quarter did not, however, meet our expectations due to unusually high unscheduled production downtime

that reduced sales volumes, shifted our overall product mix toward lower margin products, and resulted in significant increases in repair

and maintenance costs.

In addition, lower sales volumes from this unscheduled downtime adversely impacted our hedging strategy to lock

in favorable crush spreads, resulting in unanticipated derivative losses.

Our gross profit for the quarter was also negatively impacted

by an unexpected sharp increase in corn basis levels earlier in the quarter despite a decline in corn basis levels in September as the

corn harvest commenced.

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.

profit, net of intercompany activity, improved by $20.1 million to a gross profit of $1.1 million for the three months ended September

30, 2023 as compared to gross loss of $19.0 million for the same period in 2022.

This improvement in gross profit is primarily attributable

1 unchanged sentence

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.

Our marketing and distribution segment’s gross profit, net of

intercompany activity, improved by $0.5 million to a gross profit of $0.9 million for the three months ended September 30, 2023 as compared

to $0.4 million for the same period in 2022.

Of this improvement, $0.4 million is attributable to higher margins from sales of third-party

fuel-grade ethanol and $0.1 million is attributable to higher sales volumes for the three months ended September 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.

net of intercompany activity, improved by $4.2 million to a gross profit of $1.7 million for the three months ended September 30, 2023

as compared to a gross loss of $2.5 million for the same period in 2022.

Of this improvement, $4.3 million is attributable to higher fuel-grade

2 unchanged sentences

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

and other declined by $0.8 million to a gross profit of $0.5 million for the three months ended September 30, 2023 as compared to $1.3

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

Nine months ended September 30, 2023 as compared to the nine months

ended September 30, 2022

The decline in our consolidated net sales for the nine months ended

September 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 at lower prices.

We produced and sold fewer

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

we experienced unusually high unscheduled production downtime during the third quarter which also reduced sales volumes for the nine-month

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 Segment

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

Pekin Campus production segment decreased by $4.9 million, or 1%, to $388.6 million for the nine months ended September 30, 2023 as compared

to $393.5 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.

Our total volume of production gallons sold increased by 9.6 million gallons, or 6%, to

158.0 million gallons for the nine months ended September 30, 2023 as compared to 148.4 million gallons for the same period in 2022.

decrease of $0.19, or 7%, in the segment’s average sales price per gallon for the nine months ended September 30, 2023 as compared

to the same period in 2022 reduced our net sales from the segment by $28.5 million.

At the segment’s average sales price per gallon

of $2.46 for the nine months ended September 30, 2023, we generated $23.6 million in additional net sales from the 9.6 million additional

gallons of alcohol sold in the nine months ended September 30, 2023 as compared to the same period in 2022.

Net sales of essential

ingredients from our Pekin Campus production segment decreased by $0.5 million, or less than 1%, to $169.2 million for the nine

months ended September 30, 2023 as compared to $169.7 million for the same period in 2022.

Our total volume of essential ingredients

sold increased by 15,300 tons, or 2%, to 660,200 tons for the nine months ended September 30, 2023 from 644,900 tons for the same

period in 2022.

The decrease of $6.78, or 3%, in the segment’s average sales price per ton for the nine months ended September

30, 2023 as compared to the same period in 2022 decreased our net sales from the segment by $4.4 million.

At the segment’s

average sales price per ton of $256.32 for the nine months ended September 30, 2023, we generated $3.9 million in additional net

sales from the 15,300 additional tons of essential ingredients sold in the nine months ended September 30, 2023 as compared to the

same period in 2022.

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.

segment, excluding intersegment sales, increased by $42.3 million, or 24%, to $216.0 million for the nine months ended September 30, 2023

as compared to $173.7 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.

gross by the segment increased by 22.6 million gallons, or 38%, to 82.3 million gallons for the nine months ended September 30, 2023 as

compared to 59.7 million gallons for the same period in 2022.

At the segment’s average sales price per gallon of $2.62 for the nine

months ended September 30, 2023, we generated $59.2 million in additional net sales from the 22.6 million additional gallons of third-party

alcohol sold gross in the nine months ended September 30, 2023 as compared to the same period in 2022.

The $0.27 per gallon, or 9%, decrease

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

resulted in a $16.2 million decline in our net sales from third-party fuel-grade ethanol sold by the segment.

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

segment decreased by 28.7 million gallons, or 100%, to no gallons sold net for the nine months ended September 30, 2023 as compared to

28.7 million gallons for the same period in 2022.

This decline reduced net sales by $0.7 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

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

other production segment decreased by $69.0 million, or 36%, to $122.5 million for the nine months ended September 30, 2023 as compared

to $191.5 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.

Our total volume of alcohol sold declined by 25.8 million gallons, or 36%, to 46.6 million

gallons for the nine months ended September 30, 2023 as compared to 72.4 million gallons for the same period in 2022.

At the segment’s

average sales price per gallon of $2.63 for the nine months ended September 30, 2023, we generated $67.8 million less in net sales from

the 25.8 million fewer gallons of alcohol sold in the nine months ended September 30, 2023 as compared to the same period in 2022.

decrease of $0.02, or less than 1%, in the segment’s average sales price per gallon for the nine months ended September 30, 2023

as compared to the same period in 2022 reduced our net sales from the segment by $1.2 million.

The decline in gallons sold by our other

production segment resulted from the idling of our Magic Valley plant during the first quarter of 2023 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 $26.1 million, or 39%, to $40.6 million for the nine months ended September 30, 2023 as

compared to $66.7 million for the same period in 2022.

Our total volume of essential ingredients sold declined by 163,600 tons, or 28%,

to 426,400 tons for the nine months ended September 30, 2023 from 590,000 tons for the same period in 2022.

At the segment’s average

sales price per ton of $95.25 for the nine months ended September 30, 2023, we generated $15.6 million less in net sales from the 163,600

fewer tons of essential ingredients sold in the nine months ended September 30, 2023 as compared to the same period in 2022.

of $17.88, or 16%, in our average sales price per ton for the nine months ended September 30, 2023 as compared to the same period in 2022

reduced our net sales of essential ingredients from the segment by $10.5 million.

Corporate and other

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.

and other increased by $0.3 million, or 3%, to $12.3 million for the nine months ended September 30, 2023, as compared to $12.0 million

for the same period in 2022.

These sales are from Eagle Alcohol’s business.

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.

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit increased to $18.2 million for the nine

months ended September 30, 2023 from a gross loss of $6.2 million for the same period in 2022, representing a gross margin of 1.9% for

the nine months ended September 30, 2023 compared to a negative gross margin of 0.6% 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 fuel-grade ethanol.

profit for the period did not, however, meet our expectations in part due to unusually high unscheduled production downtime in the third

quarter that reduced sales volumes, shifted our overall product mix toward lower margin products, and resulted in significant increases

in repair and maintenance costs.

Pekin Campus Production Segment

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.

profit, net of intercompany activity, increased by $20.3 million to a gross profit of $13.7 million for the nine months ended September

30, 2023 as compared to gross loss of $6.6 million for the same period in 2022.

Marketing and Distribution Segment

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

gross profit, net of intercompany activity, improved by $3.4 million to a gross profit of $3.3 million for the nine months ended September

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

Of this improvement, $3.0 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.

higher margins from sales of third-party fuel-grade ethanol and $0.4 million is attributable to higher sales volumes for the nine months

ended September 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 $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.

net of intercompany activity, improved by $0.8 million to a gross loss of $1.8 million for the nine months ended September 30, 2023 as

compared to a gross loss of $2.6 million for the same period in 2022.

Of this improvement, $0.7 million is attributable to higher fuel-grade

ethanol margins and $0.1 million is attributable to higher sales volumes.

Corporate and other

Gross profit from corporate

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.

and other remained flat at $3.0 million for the nine months ended September 30, 2023, all of which were from Eagle Alcohol’s business.

Selling, General and

2 unchanged sentences

our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended

Six Months Ended

Selling, general and administrative expenses

Percentage of net sales

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,

September 30,

general and administrative expenses

Our SG&A expenses increased for the three and

nine months ended September 30, 2023 as compared to the same period in 2022.

The period over period increases in SG&A expenses are

primarily due to increased stock compensation expenses, compensation-related expenses and litigation accruals, partially offset by a reduction

in accruals for deferred cash payments attributable to our acquisition of Eagle Alcohol.

Interest Expense, net

The following table presents

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Interest Expense, net

1 unchanged sentence

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.

nine months ended September 30, 2023 as compared to the same periods in 2022.

The increase resulted from higher debt balances due to our

recent term loan to fund our capital improvement projects as well as higher interest rates under Kinergy’s line of credit resulting

from the general rise in interest rates.

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

We applied for the USDA’s

Biofuel Producer Program in 2022.

As a result, we received $2.8 million for the three and nine months ended September 30, 2023 after receiving

an initial payment of $22.7 million for the nine months ended September 30, 2022.

These cash grants are not required to be repaid nor

will they recur in the future.

Net Loss Available

to Common Stockholders

The following table presents

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

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

Three Months Ended

Six Months Ended

Net income (loss) available to common stockholders

September 30,

Nine Months Ended

September 30,

Net loss available to common stockholders

Percentage of net sales

* 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

The decline in

our net loss available to common stockholders for the three months ended September 30, 2023 as compared to the same period in 2022 is

primarily due to improved margins from a lower cost of corn.

Liquidity and Capital Resources

During the six months ended June 30, 2023, we

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

In addition to funding our operations, our capital

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

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 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

During the nine months ended September 30, 2023,

we funded our operations primarily from cash generated by our operations, proceeds from our line of credit and cash on hand.

to funding our operations, our capital resources were used to advance our capital improvement projects and make an annual payment for

our acquisition of Eagle Alcohol.

As of September 30, 2023, we had $26.2 million in cash and cash equivalents, $53.4 million available

for borrowing under Kinergy’s operating line of credit and $40.0 million available for borrowing under our Orion term loan.

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

Quantitative Period-End Liquidity

We believe that the following

1 unchanged sentence

The following selected financial information should be read in conjunction

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

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

in this report (dollars in thousands).

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

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

report (dollars in thousands).

September 30,

Cash, cash equivalents and restricted cash

7 unchanged sentences

Working capital declined slightly to $109.8 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

at September 30, 2023 from $121.1 million at December 31, 2022 due to a decrease of $30.9 million in current assets and a decrease of

$19.6 million in current liabilities.

Current assets declined primarily due to a decrease

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.

in cash, cash equivalents and restricted cash of $14.7 million and a decrease in accounts receivable, inventories and derivative assets

due to changes in average commodity prices for the nine months ended September 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 $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 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:

● 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

declined by $14.7 million primarily due to $28.1 million in cash used in our investing activities, partially offset by $10.2 million in

cash provided by our operating activities and $3.2 million in cash provided by our financing activities, as further detailed below.

Cash provided by our Operating Activities

We generated $10.2 million in cash from our operating

activities for the nine months ended September 30, 2023 as compared to $1.8 million for the same period in 2022.

Specific factors that

contributed to the change in cash generated by our operating activi ties include:

● a decrease of $17.7 million in gains from our derivative instruments due to changes in the number of positions and commodity prices;

● an increase of $22.8 million related to changes in inventories due to changes in the quantity of finished goods and commodity prices.

These amounts were partially offset by:

● 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.

● a decrease of $13.5 million related to changes in accounts receivable balances due to the timing of our collections;

● a decrease of $9.4 million related to other assets, primarily driven by changes in the value of derivative instruments due to changes

in commodity prices;

● a decrease of $8.0 million related to higher inventory valuations, as various commodity prices increased for the period.

Cash used in our Investing Activities

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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 $3.2

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.

million for the nine months ended September 30, 2023, which reflects net proceeds of $6.8 million from Kinergy’s operating line

of credit, partially offset by $2.7 million of stock repurchases and $0.9 million paid in preferred stock dividends, as compared to $6.4

million of cash used in our financing activities for the same period in 2022.

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 (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

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

Payments that may be made by Kinergy to Alto Ingredients,

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.

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

subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral.

Payments that may be made by Alto Nutrients to Alto Ingredients,

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

to Alto Nutrients are limited under the terms

of the credit facility to $0.5 million per fiscal quarter.

Alto Nutrients markets our essential ingredients and also provides raw material

procurement services to our subsidiaries.

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

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

Interest accrues under the credit facility at a rate equal to

(i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging from 1.25% to 1.75%.

The credit facility’s

monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility exceeds the average daily principal

balance during the immediately preceding month.

Payments that may be made by Kinergy to Alto Ingredients, Inc.

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.

The credit facility also includes the accounts receivable of our indirect wholly-owned subsidiary, Alto Nutrients, LLC,

or Alto Nutrients, as additional collateral.

Payments that may be made by Alto Nutrients to Alto Ingredients, Inc.

as reimbursement for

management and other services provided by Alto Ingredients, Inc.

to Alto Nutrients are limited under the terms of the credit facility

to $0.5 million per fiscal quarter.

Alto Nutrients markets our essential ingredients and also provides raw material procurement services

to our subsidiaries.

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

to 75% of excess cash flow.

For all monthly periods in which excess borrowing

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

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.

As of September 30, 2023, Kinergy had an outstanding balance

of $24.9 million and $53.4 million of unused borrowing availability under the credit facility.

Orion Term Loan

23 unchanged sentences

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

As of June 30, 2023, the amount outstanding under

the Term Loan was $60,000,000.

As of September 30, 2023, the outstanding principal

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

Share Repurchase Program

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

For the nine months ended September

30, 2023, we repurchased 1,249,000 shares of our common stock as part of our publicly announced share repurchase program at an average

price per share of $2.15 for an aggregate expenditure of $2,683,000.

We did not repurchase any shares in the three months ended September

Other Cash Obligations

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.

As of September 30, 2023, we had future commitments for certain capital

projects totaling $23.6 million.

These commitments are scheduled to be satisfied throughout 2024.

In connection with our acquisition

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What changed 10-Q

Item 2. Management’s Discussion and Analysis