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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-14 · 799 added, 763 removed, 40 unchanged (98% of the section changed)

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

The following discussion

and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements

and notes to consolidated financial statements included elsewhere in this report.

This discussion contains forward-looking statements,

reflecting our plans and objectives that involve risks and uncertainties.

Actual results and the timing of events may differ materially

from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled

“Risk Factors” and elsewhere in this report.

We are a leading producer and distributor of specialty

alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States.

following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated

financial statements and notes to consolidated financial statements included elsewhere in this report.

This discussion contains forward-looking

statements, reflecting our plans and objectives that involve risks and uncertainties.

Actual results and the timing of events may differ

materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section

entitled “Risk Factors” and elsewhere in this report.

We produce and distribute renewable fuel and essential ingredients.

We are also the largest producer of specialty alcohols in the United States.

We operate five alcohol production facilities.

Three of our production facilities are located in Illinois, one is located in Oregon and another is located in Idaho.

We have an annual

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

of specialty alcohols.

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

by third parties.

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

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

Three of our production

facilities are located in Illinois, one is located in Oregon and another is located in Idaho.

We have an annual alcohol production capacity

of 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.

and distribute all of the alcohols produced at our facilities as well as alcohols produced by third parties.

In 2023, we marketed and

distributed approximately 383 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and

over 1.5 million tons of essential ingredients on a dry matter basis.

We also specialize in break bulk distribution of specialty alcohols

through our Eagle Alcohol subsidiary.

We purchase bulk alcohol from suppliers and then store, denature, package, and resell alcohol products

in smaller sizes, including tank trucks, totes and drums that typically garner a premium price to bulk alcohols.

We deliver products to

customers in the beverage, food, industrial and related-process industries via our own dedicated trucking fleet and common carrier.

We report our financial and operating performance

in three segments:

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

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

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

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

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

a separately reportable segment.

Our mission is to expand our business as a leading

producer and distributor of specialty alcohols and essential ingredients.

We intend to accomplish this goal in part by investing in our

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

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

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

Our wholly-owned subsidiary,

Eagle Alcohol Company LLC, or Eagle Alcohol, specializes in break bulk distribution of specialty alcohols.

The company purchases bulk

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

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

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

industrial and related-process industries via its own dedicated trucking fleet and common carrier.

Production Segments

We produce specialty alcohols, fuel-grade ethanol and essential ingredients,

focusing on four key markets:

(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) Western production, which includes the production and sale of renewable fuel and essential

ingredients produced at our two western production facilities on an aggregated basis, none of which are individually so significant as

to be considered a separately reportable segment.

mission is to produce the highest quality, sustainable ingredients from renewable resources that make everyday products better.

to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure,

expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international

markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

We produce specialty alcohols, fuel-grade ethanol

and essential ingredients, focusing on five key markets:

Health, Home & Beauty ;

1 unchanged sentence

Essential Ingredients ;

and Renewable

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

hand sanitizers, disinfectants and cleaners.

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

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

Products for Essential Ingredients markets include dried

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

and Renewable Fuels .

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

Products for Industry & Agriculture markets include alcohols and other products for paint applications and fertilizer s.

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

as a feedstock for renewable diesel and biodiesel fuels.

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

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

We produce our alcohols and essential ingredients

at our production facilities described below.

Our production facilities located in 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

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

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

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

operating facilities or resume operations at any idled facility.

Annual Alcohol Production Capacity

(estimated, in gallons)

Production Facility

Fuel-Grade Ethanol

Specialty Alcohol

Marketing and Distribution Segment

We market and distribute all of the alcohols and

essential ingredients we produce at our facilities.

We also market and distribute alcohol produced by third parties.

We have extensive and long-standing customer relationships,

both domestic and international, for our specialty alcohols and essential ingredients.

These customers include producers and distributors

of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of

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

Our renewable fuel customers are located throughout

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

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

Our customers collectively require fuel-grade ethanol volumes in excess of the supplies we produce at our facilities.

We secure additional

fuel-grade ethanol supplies from third-party ethanol producers.

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

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

from a variety of sources.

We market our essential ingredient feed products

to dairies and feedlots, in many cases located near our production facilities.

These customers use our feed products for livestock as

a substitute for corn and other sources of starch and protein.

We sell our corn oil to poultry and biodiesel customers.

We do not market

essential ingredients from other producers.

See “Note 5 – Segments” to our

Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

Current Initiatives and Outlook

During the fourth quarter,

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

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

These factors outweighed performance in other areas in an already

challenging 2022.

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

Current fuel-grade ethanol

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

Natural gas prices have declined

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

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

We continue to focus,

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

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

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

Our goals also continue to emphasize strategies

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

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

discussed further below.

As we progressed into

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

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

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

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

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

We expect additional annualized EBITDA of $65 million

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

cogeneration and other current initiatives are fully realized.

In 2020, we began expanding

our high-quality alcohol production and production capacity.

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

at our Pekin Campus wet mill.

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

in the pharmaceutical industry.

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

on the market.

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

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

We are working with customers to qualify

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

from the products starting in 2024.

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

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

and distribution while building customer relationships for our specialty alcohols.

We anticipate future synergies with Eagle Alcohol’s

business and our new GNS products.

In the fourth quarter,

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

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

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

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

installation project consists of two phases.

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

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

When combined with the enhanced protein system, we

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

$4.5 million based on current market prices.

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

our three other dry mills.

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

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

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

The second phase of the

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

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

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

We intend to commercially

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

Extending our brand along the value chain is a natural

progression to other markets that demand higher product quality and offer increased margins, including for flavors, nutraceuticals, and

baking and meat substitutes.

Although primary yeast production requires a different process and serves a different market, many existing

as well as prospective customers have for years expressed interest in a primary yeast product.

Having successfully completed product trials,

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

Our preliminary analysis indicates that

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

rising to approximately $25 million annually thereafter.

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

The outlook for carbon

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

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

Our Pekin Campus has an annual capacity

of approximately 700,000 metric tons of carbon.

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

Our analysis shows significant potential benefits.

We are in advanced negotiations to provide turnkey transportation, sequestration

and monitoring services for the project.

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

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

We believe that, beginning

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

the Inflation Reduction Act of 2022.

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

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

We are doubling our corn

storage capacity at our Pekin Campus to increase our corn-buying flexibility and reduce the need to purchase product at premium prices

when farmers and elevators are less inclined to ship corn, including during holidays, unfavorable weather conditions, or due to supply

chain and other logistical constraints.

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

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

The corn storage silo is undergoing conditioning and we expect completion

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

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

Consistent with our sustainability

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

We made significant progress in planning the installation of

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

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

would reduce our energy costs by $3.0 million annually.

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

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

The new gas pipeline would also

lower our carbon score.

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

Presently, most of our biogas is flared.

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

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

of $3.0 million.

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

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

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

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

We expect to maintain

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

We also expect to add new accounts in the

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

While we are unable to forecast

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

projects and projects that we will complete this year.

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

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

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

We continue to execute

on our business transformation plans and focus on the future.

We believe that recent extreme commodity price fluctuations are cyclical

and will pass.

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

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.

produce our alcohols and essential ingredients at our production facilities.

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 operating except our

Magic Valley plant, which we temporarily hot-idled in January 2024 to minimize losses from negative regional crush margins and to expedite

the installation of additional equipment needed to achieve our intended production rate, quality and consistency from our corn oil and

high protein system.

We intend to restart Magic Valley production in the second quarter once the upgrades are complete and crush margins

have improved.

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

operations at any idled facility.

and Distribution Segment

We market and distribute all of the alcohols and essential ingredients

we produce at our facilities.

We also market and distribute alcohols produced by third parties.

have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients.

These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers,

food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

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.

Our customers depend on us to provide a reliable supply of fuel-grade

ethanol and manage the logistics and timing of delivery.

Our customers collectively require fuel-grade ethanol volumes in excess of the

supplies we produce at our facilities.

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

for transportation, storage and delivery of fuel-grade ethanol purchased by our customers through our agreements with third-party service

providers in the Western United States as well as in the Midwest from a variety of sources.

market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities.

These customers

use our feed products for livestock as a substitute for corn and other sources of starch and protein.

We sell our corn oil to poultry

and biodiesel customers.

We do not market essential ingredients from other producers.

“Note 5 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial

information about our business segments.

Review, Current Initiatives and Outlook

In 2023, we continued

our transformation to produce a variety of essential ingredients and the highest-grade beverage alcohol in the industry.

We invested significant

capital in our facilities to improve efficiency and capacity utilization rates and to expand margins long term.

These strategies have

begun to mitigate the impact of negative commodity price fluctuations.

Although ethanol crush margins exhibited greater volatility in

the second half of 2023, both our fourth quarter and full year 2023 results significantly outperformed those same periods in 2022 despite

lower overall plant utilization rates.

Gross loss declined by $18.8 million in the fourth

quarter of 2023 compared to the same period in 2022.

We generated $16 million in gross profit for the full year 2023, an improvement of

$43 million over 2022.

We reported positive Adjusted EBITDA of $3 million

for the fourth quarter of 2023, an improvement of $19 million compared the same period in 2022.

We also reported positive Adjusted EBITDA

of approximately $21 million for all of 2023, an increase of $27 million over the prior year, representing a significant year-over-year

improvement, particularly in light of $20 million less in USDA cash grants in 2023 as compared to 2022.

We define EBITDA as unaudited consolidated net

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

Adjusted EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, unrealized derivative gains and

losses, acquisition-related expense, asset impairments, provision for income taxes and depreciation and amortization expense.

Renewable fuel margins were strong for the second

and third quarters of 2023.

As a result, we shifted part of our production to renewable fuel to take advantage of the higher margin environment.

Ethanol crush margins exhibited extreme volatility in the second half of 2023, peaking in the mid-60 cents per gallon in September and

declining thereafter to slightly negative in December.

Margin volatility impacted the production volumes we were willing to sell, the

prices at which we sold and the volume of third-party production we contracted for sale.

Overall sales volume declined for 2023 due to

these factors as well as the hot-idling of our Magic Valley facility in the first quarter of the year, ongoing challenges with the corn

oil and high protein system at the facility, and longer than expected unscheduled downtime in the third quarter at our Pekin Campus.

Thus far in 2024, although crush margins have been

break-even or slightly negative, they have begun to improve compared to the end of 2023.

In addition, margins were approximately 20 cents

per gallon higher for January and February 2024 compared to the same period in 2023.

In January 2024, however, a polar vortex in the Midwest

negatively impacted both operations and logistics at our Pekin Campus.

Despite significant preparations ahead of the freeze and timely

recovery response efforts, we experienced a shift to lower margin feed products and reduced alcohol production by approximately one million

gallons due to frozen river conditions.

In addition, the hot-idle of our Magic Valley facility in January 2024 will lower renewable fuel

production, shifting sales volumes to higher third-party production compared to the fourth quarter of 2023.

We have contracted approximately 93 million gallons

of fixed-price, high-quality alcohol at an average premium to renewable fuel of 31 cents per gallon, with additional capacity to take

advantage of spot sales.

Our overall outlook for 2024 is favorable in light

of good corn inventories, low corn and natural gas prices, higher sugar prices, domestic regulatory support for summer blending and expected

global demand growth for U.S.-sourced ethanol.

These factors should result in an improved crush margin environment in the coming months

and yield positive crush spreads through most of 2024.

Markets are dynamic but we remain agile and financially prudent while we seek to

capitalize on the best opportunities.

We remain enthusiastic about our prospects and confident in our long-term growth strategy.

During the fourth quarter, repairs and maintenance

expense across our plants was $7.7 million compared to $7.1 million for the same period in 2022, bringing total repairs and maintenance

expense to $29.5 million for 2023 as compared to $30.0 million for 2022.

Our wet mill, yeast facility and distillery capabilities

at our Pekin Campus provide significant differentiation and greater production capabilities than the typical dry mill.

However, given

the nature and age of these facilities, they require consistent, ongoing repairs and maintenance, and capital upgrades integral to the

longevity, sustainable performance and modernization of these assets.

To maintain reliable and efficient operations, we normally address

smaller concerns as needed and conduct larger scheduled outages approximately every two years.

We originally scheduled our biennial Pekin Campus

wet mill repair and maintenance outage for August 2023 but due to favorable crush margins and sufficient corn supply at the time, we postponed

the outage to this coming April.

We expect the repairs and maintenance activities will take approximately ten days, lowering production

in the second quarter.

The repairs and maintenance are projected to cost approximately $4.0 million.

For the full year 2024, we expect

to track to our typical repairs and maintenance run rate of around $30.0 million, bringing the total, including the upcoming outage expense,

to $34.0 million for 2024.

We invested $5.0 million in capital expenditures

in the fourth quarter of 2023, bringing our year-end total to $30.0 million for all of 2023, compared to $13.0 million in the fourth quarter

of 2022 and $38.0 million for all of 2022.

We plan for capital expenditures of approximately $25.0 million in 2024 for equipment upgrades,

process improvements and projects with short-term paybacks.

We believe that these ongoing repairs and maintenance efforts and our capital

improvement projects position us for a much stronger future.

Our biennial outages have historically increased reliability and production

We expect these positive effects will benefit 2024, in particular as we head into the typically more favorable summer months.

We continue to pursue a number of strategic capital

investment initiatives.

In the fourth quarter of 2023 and into 2024, we continued our ongoing evaluation of these initiatives.

current market dynamics, recent findings from our updated front-end engineering and design (FEED) studies, interest from potential strategic

partners and expected project return profiles, we decided to designate our carbon capture and storage, or CCS, project as our top priority.

Under the Inflation Reduction Act, we have a compelling

opportunity to capture and store biogenic CO 2 we generate at our Pekin Campus.

Together with associated energy upgrades, we

believe that our CCS project provides excellent economics.

Given the significant time, personnel and financial resources necessary to

complete our CCS project, we decided to pause further development of our primary yeast and biogas conversion projects.

These projects

continue as opportunities for potential future development as resources permit.

We are encouraged by recent progress on many aspects

This progress includes overall system design, community outreach, financing, vendor negotiations, EPA application preparation

and schedule alignment to procure equipment and install power and compression.

We have also signed an exclusive non-binding letter of

intent with Vault 44.01 and we are nearing the execution of definitive agreements to develop our CCS project.

The project, as currently

planned, involves our installation of equipment to capture CO 2 generated at our Pekin Campus and our project partner safely

transporting and permanently storing those emissions deep underground in a secure geologic reservoir located in close proximity to the

Our intent is to substantially reduce CO 2 emissions from the alcohol production process while providing direct value

to the surrounding communities.

Unfortunately, the EPA has extended its CCS application approval process from 18 to 24 months, and equipment

manufacturing and installation times have grown longer than originally anticipated.

We intend to make positive use of this additional

time to better align our various project schedules and reduce our overall financial risk.

Overall, we believe we can generate over $30.0

million in EBITDA annually from our CCS project, after accounting for operating and storage costs, and excluding any of the substantial

additional economic benefits of the environmental attributes associated with low carbon ethanol.

In addition to CCS, we are pursuing two attractive

alternatives to increase energy capacity at our Pekin Campus with either our current utility provider or a highly regarded, independent

energy company that would build, own and operate onsite energy facilities.

Both alternatives would greatly reduce our capital requirements

and long-term energy costs while lowering our carbon footprint.

These capital-light energy alternatives may result in better earnings

accretion from our CCS project than originally estimated.

We continue to assess our current portfolio of

assets, especially our Western production facilities, as we evaluate our path to higher margins, improved profitability and the highest

return to our shareholders.

Our intent is to leverage the distinct strengths and opportunities of these facilities by investing in new

equipment and applications.

While we work on these projects, we may also consider disposing of one or both of our Western production facilities.

As demonstrated with the sale of our California and Nebraska facilities, we remain steadfast in our commitment to appropriate decisions

to optimize long-term value.

Over the past two years we have completed numerous

Some of our larger in-progress or completed initiatives over the prior twelve months include the completion in February 2024

of a new, high efficiency boiler at our Pekin Campus that replaced two inefficient, high-pressure boilers.

We expect full boiler utilization

by the end of the first quarter, reducing our energy needs and operating costs, and increasing annualized incremental EBITDA by $2.0 million.

In addition, in the second quarter of 2023, our new grain silo at our Pekin Campus became fully operational, doubling our days of corn

storage capacity.

This achieved our goal to increase flexibility around the timing of corn deliveries while lowering costs related to

quick or last-minute shipments and to reduce corn premiums during extended weekends and harsh weather conditions.

This project has already

exceeded our target of contributing annualized incremental EBITDA of $2.0 million.

We continue to expand into higher quality alcohol

and our ability to differentiate our product offerings has been very important considering market trends.

For example, in 2021 and for

part of 2022, the higher margin for specialty alcohol attracted many new producers, increasing product availability and supply.

factors, combined with ebbing consumer demand growth and supply chain dynamics, resulted in margin compression over the past 18 months.

Starting in 2022, in anticipation these changing market conditions, we began strategic investments to produce a higher volume of beverage

grade alcohols that leverage the capabilities of our Pekin Campus.

We developed our highly differentiated 192 proof and low-moisture 200

proof grain neutral spirits, or GNS, which became available in early 2023.

These new products were well received by our customers and

actively sold in the spot market, generating significant sales and bolstering our gross margins for the year.

In our pursuit to expand higher margin corn oil

and high-protein products at our Magic Valley facility, working with our corn oil and high protein system vendor, Harvesting Technology,

we engaged equipment manufacturers and independent third-party engineers in the fourth quarter of 2023 to conduct an in-depth analysis

of our challenges.

The team formulated a plan, including extensive design modifications, to achieve the intended production rate, quality

and consistency.

We decided in January 2024 to temporarily hot-idle the facility to minimize losses from negative regional crush margins

and expedite the installation of additional equipment at the plant.

Harvesting Technology has borne the direct costs associated with their

design and equipment.

We are confident in the extensive design modifications under way and in achieving our corn oil and high-protein

targets in 2024.

We intend to restart production in the second quarter once the upgrades are complete and crush margins have improved.

The operation of the upgraded high-protein system at our Magic Valley facility will influence our decision and timing to roll out the

system at our other dry mills.

In the interim, we are operating the Magic Valley facility as a terminal to service our renewable fuel

We are also working with the local feed distributor and our feed customers to meet their supply requirements.

Going forward, we intend to discuss our various

capital projects individually and not in the aggregate, using three categories:

In Operation , which includes completed projects,

such as our corn storage and boiler upgrades, our beverage grade GNS alcohols and Eagle Alcohol distribution infrastructure;

Development , which includes high priority strategic opportunities that have the greatest expected returns as well as initiatives that

support our near-term operational goals, such as CCS and potential partnerships for cogeneration and a natural gas pipeline;

Future Evaluation , which includes potential opportunities with attractive expected returns to be assessed as resources permit, such

as primary yeast, biogas conversion, the installation of higher margin corn oil and high protein systems at our three other dry mills,

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

As a renewables company, we remain dedicated to

implementing sustainable best practices that are good for our business, our stakeholders and our planet.

In December, we published our

first Sustainability Summary.

Our Sustainability Summary provides a review of our strategy and vision for advancements in sustainability,

responsible sourcing and risk management.

We are focused on continuous improvement in environmental, health and safety, product quality,

and diversification by integrating innovative practices at our facilities to ensure optimal efficiency, contributing to a lower carbon

Our efforts improved our sustainability scores across the board with all three rating agencies, which is important to our customers.

Looking ahead, we are working to obtain third-party greenhouse gas verifications, improve transportation safety and earn additional EcoVadis

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.

To increase transparency

to our operating physical margins and conform our reporting to management’s evaluation of our financial performance, we now exclude

the impact of unrealized non-cash derivative gains and losses when calculating Adjusted EBITDA.

Unrealized derivative gains and losses

are non-cash, mark-to-market adjustments of derivative instruments on open positions related to future period purchases and sales that

are recorded as part of cost of goods sold.

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

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 EBITDA or 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.

able to provide a quantitative reconciliation of forward-looking EBITDA or 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, unrealized derivative gains and losses, asset impairments and provision (benefit) for income taxes,

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

(in thousands) (unaudited)

Consolidated net income (loss)

Consolidated net loss

Interest expense, net

Interest income

Asset impairments

Unrealized derivative losses

Acquisition-related expense

Asset impairments

Provision for income taxes

2 unchanged sentences

Adjusted EBITDA

2022 Financial Performance

Our consolidated net sales increased by $0.1 billion

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

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

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

Factors that contributed to these results of operations

for 2022 include:

● Net sales .

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

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

These factors were partially offset

by fewer total alcohol gallons sold in 2022.

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

The increase was primarily driven

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

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

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

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

full capacity for the year.

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

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

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

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

our own production in 2022.

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

due to higher fuel-grade ethanol production.

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

● Gross Profit (Loss) .

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

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

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

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

Pekin Campus and logistical constraints

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

Sales and Margins

We generate sales by marketing

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

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

third-party suppliers throughout the United States.

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

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

We also sell yeast for human consumption.

Our profitability is highly

dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol.

Our consolidated average alcohol

sales price increased by 7% to $2.64 per gallon for 2022 compared to $2.46 per gallon for 2021.

The average price of fuel-grade ethanol

as reported by the Chicago Board of Options Trade, or CBOT, increased 2% to $2.16 per gallon for 2022 compared to $2.11 per gallon for

Our average delivered cost of corn increased 25% to $7.77 per bushel for 2022 from $6.22 per bushel for 2021.

The average price

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

We believe that our gross

profit margins depend primarily on six key factors:

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

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

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

corn basis) and natural gas;

● the prices of our essential ingredients;

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

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

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

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

ethanol produced by unrelated third-parties.

We seek to optimize our gross

profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and taking other

actions designed to limit risk and address these factors.

For example, we may seek to reduce inventory levels in anticipation of declining

alcohol or essential ingredient prices and increase production and inventory levels in anticipation of rising alcohol or essential ingredient

Financial Performance Summary

consolidated net sales declined by $0.1 billion to $1.2 billion for 2023 from $1.3 billion for 2022.

Our net loss available to common

stockholders improved by $13.6 million to a net loss of $29.3 million for 2023 from a net loss of $42.9 million for 2022.

that contributed to these results of operations for 2023 include:

Our net sales declined by $0.1 billion to $1.2 billion for 2023 from $1.3 billion for 2022 due to a decrease in total alcohol

gallons sold, a decline in our average sales price per gallon and fewer tons of essential ingredients sold.

total gallons sold declined by 36.4 million gallons, or 9%, to 382.5 million gallons for 2023 from 418.9 million gallons for 2022.

● Our renewable fuel production sales volume declined by 5.3 million

gallons, or 3%, to 203.2 million gallons for 2023 from 208.5 million gallons for 2022, primarily from reduced production in 2023 as our

Magic Valley facility was hot-idled in the first quarter of 2023 coupled with unusually high unscheduled production downtime later in

the year at our Pekin Campus for repairs and maintenance.

● Our specialty alcohol production sales volume declined by 15.8 million

gallons, or 17%, to 76.7 million gallons for 2023 from 92.5 million gallons for 2022 primarily due to reduced customer demand for specialty

alcohols during the year, a portion of which was shifted to 2024.

● Our third-party sales volume declined by 15.3 million gallons, or 13%,

to 102.6 million gallons for 2023 from 117.9 million gallons for 2022.

Consistent with our efforts over the past two years, we continued

to intentionally reduce sales of third-party fuel-grade ethanol in geographic areas less important to our business to focus on sales of

inventory from our own production in 2023.

average sales price per gallon declined by $0.17, or 6%, to $2.47 for 2023 from $2.64 for

The decline was primarily driven by lower renewable fuel prices in 2023 largely due

to lower oil and gasoline prices.

volume of essential ingredients sold declined by 0.1 million tons, or 7%, to 1.5 million

tons for 2023 from 1.6 million tons for 2022 primarily due to lower alcohol production volumes

Our average sales price for our essential ingredients also declined primarily

due to lower corn prices.

Profit (Loss) .

Our gross profit improved by $43.2 million to a gross profit of $15.7

million for 2023 from a gross loss of $27.5 million for 2022 due to improved commodity crush

margins from lower corn prices and successful efficiency initiatives.

Our gross profit and

margins were tempered, however, due to production challenges at our Magic Valley plant as

we continued to implement our high-protein system at the facility coupled with unusually

high unscheduled downtime at our Pekin Campus that reduced sales volumes, shifted our overall

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

and maintenance costs.

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

produced by our production facilities in Oregon and Idaho, and fuel-grade ethanol purchased from third-party suppliers throughout the

United States.

We also market essential ingredients produced by our production facilities, including dried yeast, corn gluten meal, corn

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

We also sell yeast for human

profitability is highly dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol.

Our consolidated average alcohol sales price declined by 6% to $2.47

per gallon for 2023 compared to $2.64 per gallon for 2022.

The average price of fuel-grade ethanol as reported by the Chicago Mercantile

Exchange, or CME, declined by 10% to $2.22 per gallon for 2023 compared to $2.47 per gallon for 2022.

Our average cost of corn declined

by 15% to $6.58 per bushel for 2023 from $7.77 per bushel for 2022.

The average price of corn as reported by the CME declined by 19% to

$5.64 per bushel for 2023 from $6.94 per bushel for 2022.

believe that our gross profit margins depend primarily on six key factors:

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

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

regulation, including government ethanol mandates;

market prices of key production input commodities, such as corn (including corn basis) and

market prices of our essential ingredients;

ability to anticipate trends in the market and contracted prices of our alcohols, essential

ingredients, and costs of key input commodities, and our ability to implement appropriate

risk management through hedging and other means, and opportunistic pricing strategies;

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

at our facilities relative to their respective market and contracted prices;

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

fuel-grade ethanol produced by unrelated third-parties relative to the market price of fuel-grade

ethanol and marketing and distribution fees payable for third-party sales.

We seek to optimize our gross profit margins by anticipating the factors

above and, when resources are available, implementing hedging transactions and taking other actions designed to lock in margins, limit

risk and otherwise address these factors.

For example, we may seek to reduce inventory levels in anticipation of declining alcohol or

essential ingredient prices and increase production and inventory levels in anticipation of rising alcohol or essential ingredient prices.

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

Our inability to anticipate

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

even negative gross profit margins over certain periods of time.

Our ability to anticipate these factors or favorable movements in these

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

However, given the difficulty associated with successfully forecasting

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

Results of Operations

Selected Financial

The following selected financial

information should be read in conjunction with our consolidated financial statements and notes to our 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.

Certain performance metrics

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

Years Ended December 31,

Percentage Change

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

Delivered cost of corn

Total essential ingredients tons sold (in thousands)

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

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

(1) Corn basis represents the difference between the immediate

cash price of delivered corn and the future price of corn for Chicago delivery.

(2) Essential ingredient revenues as a percentage of delivered

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

Year Ended December 31, 2022 Compared to the Year

Ended December 31, 2021

Results as a Percentage

of Net Sales for the

inability to anticipate the factors described above or their relative importance, and adverse movements in the factors themselves, could

result in declining or even negative gross profit margins over certain periods of time.

Our ability to anticipate these factors or favorable

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

However, given the difficulty associated with

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

of Operations

Financial Information

following selected financial information should be read in conjunction with our consolidated financial statements and notes to our 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.

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

Sales and Operating Metrics (unaudited)

Alcohol Sales (gallons in millions)

Pekin Campus renewable fuel gallons sold

Western production renewable fuel gallons sold

Third party renewable fuel gallons sold

Total renewable fuel gallons sold

Specialty alcohol gallons sold

Total gallons sold

Sales Price per Gallon

Western production

Marketing and distribution

Alcohol Production (gallons in millions)

Western production

Corn Cost per Bushel

Western production

Average Market Metrics

PLATTS Ethanol price per gallon

CME Corn cost per bushel

Board corn crush per gallon(1)

Essential Ingredients Sold (thousand tons)

Pekin Campus:

Distillers grains

Corn wet feed

Corn dry feed

Corn oil and germ

Syrup and other

Total Pekin Campus essential ingredients sold

Western production:

Distillers grains

Syrup and other

Total Western production essential ingredients sold

Total Essential Ingredients Sold

Ingredients Return % (2)

Pekin Campus return

Western production return

Consolidated total return

(1) Assumes corn conversion of 2.80 gallons of alcohol per bushel of corn.

(2) Essential

ingredient revenues as a percentage of total corn costs consumed.

Ended December 31, 2023 Compared to the Year Ended December 31, 2022

(Unfavorable)

(dollars in thousands)

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Gain (loss) on sale (disposal) of assets

Asset impairments

Income (loss) from operations

Income from cash grant

Income from loan forgiveness

Interest expense, net

Other income, net

Income (loss) before income taxes

Provision (benefit) for income taxes

Consolidated net income (loss)

Preferred stock dividends

Income allocated to participating securities

Income (loss) available to common stockholders

* Not meaningful.

The increase in our consolidated

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

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

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

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

Our average sales price

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

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

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

Pekin Campus Production Segment

Net sales of alcohol from our

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

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

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

At the segment’s average

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

gallons of alcohol sold in 2022 as compared to 2021.

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

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

Net sales of essential ingredients

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

Our total volume of essential ingredients

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

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

essential ingredients sold in 2022 as compared to 2021.

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

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

Marketing and Distribution

Net sales of fuel-grade ethanol from our marketing

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

$381.2 million for 2021.

Our volume of third-party fuel-grade ethanol gallons

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

gallons for 2021.

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

regions in which we operate.

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

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

This decline was partially offset by the $0.13 increase

in our sales price per gallon for 2022.

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

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

Our volume of third-party fuel-grade

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

to 88.1 million gallons for 2021.

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

Other Production Segment

Net sales of alcohol from our

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

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

gallons for 2021.

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

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

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

sales price per gallon for 2022.

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

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

Net sales of essential ingredients increased by

of goods sold

profit (loss)

general and administrative expenses

on disposal of assets

from operations

from cash grant

before income taxes

for income taxes

stock dividends

available to common stockholders

decline in our consolidated net sales for 2023 as compared to 2022 was due to a decrease in the average sales price per gallon for our

alcohols, fewer total gallons sold and lower volumes of essential ingredients sold at lower prices.

Our average sales price per gallon

decreased primarily due to lower fuel-grade ethanol prices largely driven by lower oil and gasoline prices.

Fewer total gallons sold

for 2023 as compared to 2022 resulted primarily from the hot-idling of our Magic Valley facility in the first quarter of 2023 coupled

with unusually high unscheduled production downtime later in the year at our Pekin Campus for repairs and maintenance.

In addition, we

produced and sold fewer tons of essential ingredients primarily due to lower alcohol production in 2023 compared to 2022.

sales price for our essential ingredients declined primarily due to lower corn prices.

As we did in 2021 and 2022, we continued to intentionally

reduce sales of third-party fuel-grade ethanol in geographical areas less important to our business and to instead focus on sales of

inventory from our own production in 2023.

Campus Production Segment

Net sales of alcohol from our Pekin Campus production segment declined

by $19.1 million, or 4%, to $502.2 million for 2023 as compared to $521.3 million for 2022.

Our total volume of production gallons sold,

however, increased by 4.3 million gallons, or 2%, to 208.9 million gallons for 2023 as compared to 204.6 million gallons for 2022, due

to an extended shut down for maintenance during the summer of 2022.

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

2023, we generated $10.3 million in additional net sales from the 4.3 million additional gallons of alcohol sold in 2023 as compared to

However, a decrease of $0.14, or 6%, in the segment’s average sales price per gallon in 2023 as compared to 2022 resulted

in a $29.4 million decline in net sales as compared to 2022.

Net sales of essential ingredients declined by $8.2 million, or 4%,

to $217.7 million for 2023 as compared to $225.9 million for 2022.

Our total volume of essential ingredients sold increased by 28,100

tons, or 3%, to 878,400 tons for 2023 from 850,300 tons for 2022.

Sales volumes of essential ingredients were higher in 2023 due to an

extended shut down for maintenance during the summer of 2022.

At our average sales price per ton of $247.84 for 2023, we generated $6.9

million in additional net sales from the 28,100 additional tons of essential ingredients sold in 2023 as compared to 2022.

of $17.80, or 7%, in our average sales price per ton in 2023 as compared to 2022 resulted in a $15.1 million decline in net sales as compared

and Distribution Segment

sales of renewable fuel from our marketing and distribution segment, excluding intersegment sales, increased by $34.1 million, or 15%,

to $263.0 million for 2023 as compared to $228.9 million for 2022.

Our volume of third-party renewable fuel sold reported gross by the

segment increased by 22.1 million gallons, or 28%, to 102.6 million gallons for 2023 as compared to 80.5 million gallons for 2022.

increase resulted from a shift in the source of renewable fuel from our Magic Valley facility, as we hot-idled the facility in early 2023,

to third-party suppliers.

At the segment’s average sales price per gallon of $2.56 for 2023, net sales were $56.6 million higher

as a result of the 22.1 million additional gallons sold in 2023 as compared to 2022.

This increase was partially offset by the $0.27 decrease

in our average sales price per gallon for 2023.

The decrease of $0.27, or 10%, in our average sales price per gallon in 2023 as compared

to 2022 resulted in a $21.6 million decline in net sales from our third-party renewable fuel sold by the segment compared to 2022.

volume of third-party fuel-grade ethanol sold reported net by the segment declined by 37.4 million gallons, or 100%, to no gallons sold

net for 2023 as compared to 37.4 million gallons for 2022.

The decline in sales reported net resulted in a decrease of $0.9 million in

Production Segment

Net sales of alcohol from our Western production segment declined by

$86.6 million, or 34%, to $167.0 million for 2023 as compared to $253.6 million for 2022.

Our total volume of essential ingredients sold

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

At our average sales price per ton of $114.78

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

our sales price increased $28.78 per gallon for 2022.

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

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

Net sales from our Corporate and other segment

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

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) declined from

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

Our total volume of gallons sold declined by

25.4 million gallons, or 27%, to 67.0 million gallons for 2023 as compared to 92.4 million gallons for 2022.

This decline in sales volume

primarily resulted from lower production from our Magic Valley facility as we hot-idled the facility in the first quarter of 2023.

the segment’s average sales price of $2.49 per gallon for 2023, net sales were $63.2 million lower as a result of the 25.4 million

fewer gallons sold in 2023 as compared to 2022.

A decline of $0.26, or 9%, in our average sales price per gallon in 2023 as compared to

2022 resulted in a $23.4 million decrease in net sales of alcohol from the segment compared to 2022.

Net sales of essential ingredients declined by $32.9 million, or 36%,

to $57.3 million for 2023 as compared to $90.2 million for 2022.

Our total volume of essential ingredients sold declined by 144,800 tons,

or 18%, to 642,300 tons for 2023 from 787,100 tons for 2022.

At our average sales price of $89.15 per ton for 2023, net sales were $12.9

million lower as a result of the 144,800 fewer tons sold in 2023 as compared to 2022.

In addition, our sales price declined by $25.45

per ton for 2023.

The decline of $25.45, or 22%, in our average sales price per ton in 2023 as compared to 2022 resulted in a decrease

of $20.0 million in net sales of essential ingredients from the segment compared to 2022.

and Other Segment

sales from our Corporate and other segment were flat at $15.8 million for each of 2023 and 2022.

These sales are from Eagle Alcohol’s

of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) improved to

a gross profit of $15.7 million, representing a gross margin of 1.3% for 2023, from a gross loss of $27.6 million, representing a gross

margin of negative 2.1%, for 2022.

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

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

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

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

six days at our Western plants.

Pekin Campus Production Segment

Our consolidated gross profit improved due to improved commodity crush margins, particularly for renewable

fuel, primarily due to lower corn costs, but was partially offset by $9.7 million in unrealized non-cash derivative losses from mark-to-market

adjustments on open positions related to future period sales and $2.2 million in lower-of-cost-or-market charges in the fourth quarter

of 2023 on our ending renewable fuel inventories and related fixed corn purchase commitments due to negative crush margins heading into

year-end 2023 and the first quarter of 2024.

Campus Production Segment

Our Pekin Campus production segment’s gross

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

Of this decline,

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

volumes at negative margins in 2022 as compared to 2021.

Marketing and Distribution Segment

Our marketing and distribution segment’s

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

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

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

at negative margins in 2022 as compared to 2021.

Other Production Segment

Our Other production segment’s gross profit

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

Of this decline,

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

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

Gross profit from our Corporate and other segment

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

Selling, General and Administrative Expenses

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

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

SG&A expenses

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

of Eagle Alcohol.

Income from Cash Grant

We applied for and received $22.7

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

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

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

We are neither required to repay the grant

nor will it recur in the future.

Interest Expense, net

Interest expense, net, decreased

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

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

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

Year Ended December 31, 2021, Compared to

the Year Ended December 31, 2020

An analysis of our financial results comparing

2021 to 2020 can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange

Commission on March 15, 2022, which is available free of charge on the Securities and Exchange Commission’s website at www.sec.gov.

Liquidity and Capital Resources

During the year ended December 31, 2022, we funded

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

and proceeds from a term loan.

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

fund capital improvements to our property and equipment.

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

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

In addition, we have $40.0 million available for

capital improvement projects under our term loan.

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

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

Quantitative Year-End Liquidity

We believe that the following

amounts provide insight into our liquidity and capital resources.

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).

Cash and cash equivalents

profit improved by $35.5 million to a gross profit of $13.7 million from a gross loss of $21.8 million.

Of this increase, $35.2 million

is attributable to higher commodity crush margins and $0.3 million is attributable to increased sales volumes in 2023 as compared to 2022.

and Distribution Segment

marketing and distribution segment’s gross profit improved by $4.1 million to a gross profit of $3.7 million for 2023 from a gross

loss of $0.4 million for 2022.

Of this increase, $3.3 million is attributable to higher margins from sales of third-party renewable fuel,

and $0.8 million attributable to higher marketing volumes of third-party renewable fuel sold reported gross in 2023 as compared to 2022.

Production Segment

Our Western production segment’s gross loss

improved by $3.5 million to a gross loss of $5.5 million for 2023 as compared to a gross loss of $9.0 million for 2022, despite lower

production from our Magic Valley facility during the year.

Of this improvement, $1.4 million is attributable to higher margins for renewable

fuel and $2.1 million is attributable to lower sales volumes at negative margins in 2023 as compared to 2022.

and Other Segment

profit from our Corporate and other segment was flat at $3.7 million for each of 2023 and 2022.

This gross profit was from Eagle Alcohol’s

General and Administrative Expenses

selling, general and administrative, or SG&A, expenses increased by $1.1 million to $32.7 million for 2023 as compared to $31.6 million

SG&A expenses increased primarily due to higher compensation-related expenses and litigation accruals, partially offset

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

Asset Impairments

We recorded an asset impairment charge of $6.5

million for 2023 as compared to none for 2022, of which $6.0 million is attributable to an impairment to the goodwill associated with

our acquisition of Eagle Alcohol in 2022.

This charge primarily reflects revisions to current market premiums and adjustments to projections

in our required annual goodwill valuation.

from Cash Grant

received cash grants under the USDA’s Biofuel Producer Program in the amount of $2.8 million and $22.7 million for 2023 and 2022,

respectively.

The program was created as part of the CARES Act of 2020, which allocated $700 million to support biofuel producers that

experienced market losses due to the pandemic.

We are neither required to repay the grants nor will they recur in the future.

expense, net, increased by $5.6 million to $7.4 million for 2023 from $1.8 million for 2022.

The increase in interest expense, net, is

primarily due to higher debt balances under our term loan to fund our capital improvement projects, as well as higher interest rates

under Kinergy’s line of credit consistent with an overall higher interest rate environment.

Ended December 31, 2022, Compared to the Year Ended December 31, 2021

analysis of our financial results comparing 2022 to 2021 can be found under “Management’s Discussion and Analysis of Financial

Condition and Results of Operations” in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31,

2022, filed with the Securities and Exchange Commission on March 14, 2023, which is available free of charge on the Securities and Exchange

Commission’s website at www.sec.gov.

and Capital Resources

the year ended December 31, 2023, we funded our operations primarily from cash on hand, cash flow from operations and proceeds from Kinergy’s

operating line of credit.

In addition to funding our operations, we used our capital resources to continue our capital improvement projects,

make an annual payment related to our acquisition of Eagle Alcohol, repurchase shares of our common stock and pay preferred stock dividends.

As of December 31, 2023, we had $30.0 million in

cash and cash equivalents and $33.3 million available for borrowing under Kinergy’s operating line of credit.

In addition, we have

up to an additional $65.0 million that may be available for capital improvement projects under our Orion term loan, subject to certain

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

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

Year-End Liquidity Status

believe that the following amounts provide insight into our liquidity and capital resources.

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).

equivalents and restricted cash

Current assets

Property and equipment, net

Property and equipment,

Current liabilities

Long-term debt, noncurrent portion

Long-term debt, noncurrent

Working capital

Working capital ratio

Restricted Net Assets

At December 31, 2022, we had approximately $69.3

million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc.

in the form of dividends,

distributions, loans or advances due to restrictions contained in the credit facilities of the subsidiaries.

Changes in Working Capital and Cash Flows

Working capital declined to $121.1 million at December

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

in current liabilities.

Current assets decreased primarily due to decreases

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

Our current liabilities increased primarily due

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

Our cash, cash equivalents and restricted cash

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

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

Cash provided by our Operating Activities

We generated $6.0 million in cash from our operating

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

Specific factors that contributed significantly to the change in cash generated

by our operating activities include:

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

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

These amounts were partially offset by:

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

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

Cash used in our Investing Activities

We used $37.7 million of cash for investing activities

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

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

payments on our notes receivable.

December 31, 2023, we had approximately $64.6 million of net assets at our subsidiaries that were not available to be transferred to

Alto Ingredients, Inc.

in the form of dividends, distributions, loans or advances due to restrictions contained in our subsidiaries’

credit facilities.

in Working Capital and Cash Flows

capital declined to $103.5 million at December 31, 2023 from $121.1 million at December 31, 2022 as a result of a $30.3 million decrease

in current assets, partially offset by a $12.7 million decrease in current liabilities.

assets declined primarily due to decreases in cash and cash equivalents, accounts receivable, inventories and derivative instruments,

partially offset by an increase in restricted cash.

current liabilities declined primarily due to decreases in accounts payable, accrued liabilities and other current liabilities, partially

offset by increases in derivative instruments and the current portion of our operating lease payment obligations.

cash, cash equivalents and restricted cash declined by $4.0 million due to $33.0 million used in our investing activities primarily for

our capital improvement projects, partially offset by $22.0 million in cash provided by our operating activities and $7.0 million in

cash provided by our financing activities.

Cash provided by our financing activities was $19.0

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

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

stock dividends.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for

an aggregate amount of up to $100.0 million.

provided by our Operating Activities

generated $22.0 million in cash from our operating activities during 2023, as compared to $6.0 million in 2022.

Specific factors that

contributed significantly to the change in cash generated by our operating activities include:

● a decline of $13.6 million in net loss

primarily due to improved commodity crush margins resulting from lower corn costs;

increase related to inventories of $27.3 million due to the timing of production and sales

where an increase in production did not result in a commensurate increase in sales by the

end of the period;

increase of $27.3 million related to changes in the fair value of our derivative instruments

due to changes in commodity prices at period end 2023 as compared to 2022.

amounts were partially offset by:

decrease of $33.1 million related to accounts payable and accrued expenses due to lower corn

costs and the timing of payments;

decrease $14.5 million related to accounts receivable balances primarily due to the timing

of sales and collections.

used in our Investing Activities

used $33.0 million of cash in our investing activities for 2023, of which $29.5 million is attributable to additions to property and

equipment resulting from our capital improvement projects and $3.5 million is attributable to cash paid for our acquisition of Eagle

provided by our Financing Activities

provided by our financing activities was $7.0 million for 2023, of which $12.6 million is attributable to net proceeds from Kinergy’s

line of credit, partially offset by $3.7 million in repurchases of our common stock, $1.3 million of preferred stock dividends and $0.7

million of debt issuance costs.

Operating Line of Credit

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.

For all monthly periods in which excess borrowing

availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage ratio (calculated

as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital

expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period)

of at least 1.1 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness).

obligations of Kinergy and Alto Nutrients under the credit facility are secured by all of our tangible and intangible assets.

We believe Kinergy and Alto Nutrients are in compliance

with the fixed-charge coverage ratio covenant as of the filing of this report.

The following table sets forth the fixed-charge coverage

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

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.

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

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

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.

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

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

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.

all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and Alto Nutrients must collectively

maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization

divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and

taxes paid during such twelve-month rolling period) of at least 1.1 and are prohibited from incurring certain additional indebtedness

(other than specific intercompany indebtedness).

The obligations of Kinergy and Alto Nutrients under the credit facility are secured

by all of our tangible and intangible assets.

believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio covenant as of the filing of this report.

following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented:

Fixed Charge Coverage Ratio Requirement

Alto Ingredients, Inc.

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

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

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

Orion Term Loan

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

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

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

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

priority lien on certain assets of Kinergy and Alto Nutrients.

Ingredients, Inc.

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

As of December 31, 2023, Kinergy had an

outstanding balance of $30.7 million and $33.3 million of unused borrowing availability under the credit facility.

November 7, 2022, we entered into a credit agreement with certain funds managed by Orion Infrastructure Capital, or Lenders, under which

the Lenders extended a senior secured credit facility in the amount of up to $125.0 million, or Term Loan.

The Term Loan is secured by

a first priority lien on certain of our assets and a second priority lien on certain assets of Kinergy and Alto Nutrients.

The Lenders agreed to advance to us up to $125.0

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

We committed to issue to the Lenders pro rata an aggregate

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

further fundings under the credit facility.

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

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

We received no separate consideration for the shares of

common stock issued.

Interest accrues on the unpaid principal amount

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

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

We must prepay amounts outstanding under the Term

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

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

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

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

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

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

As of December 31, 2022, the amount outstanding

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

Share Repurchase Program

For the three months ended December

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

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

See “Item 5 – Market For Registrant’s

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

and Affiliated Purchasers.”

For the year ended December 31,

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

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

Other Cash Obligations

As of December 31, 2022, we had

future commitments for certain capital projects totaling $21.0 million.

These commitments are scheduled to be satisfied through 2023.

In connection with our acquisition

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

Critical Accounting Policies and Estimates

Our discussion and analysis of

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

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

The preparation of these financial statements requires

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

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

The following represents

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

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

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

Accounting for Business

Determining the fair value of

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

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

use of subjective measurements.

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

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

Revenue Recognition

We recognize revenue primarily

from sales of alcohols and essential ingredients.

We have five alcohol production facilities from

which we produce and sell alcohols to our customers through our subsidiary, Kinergy.

Kinergy enters into sales contracts with customers

under exclusive intercompany sales agreements with each of our five production facilities.

Kinergy also acts as a principal when it purchases

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

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

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

the ethanol to Kinergy’s customers.

million upon the satisfaction of certain conditions.

We committed to issue to the Lenders pro rata an aggregate of 1,282,051 shares of

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

under the credit facility.

On November 23, 2022, we received our initial funding of $60.0 million under the credit facility and issued

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

We received no separate consideration for the shares of common stock

accrues on the unpaid principal amount of the Term Loan at a fixed rate of 10% per annum.

The Term Loan matures on November 7, 2028,

or earlier upon acceleration.

must prepay amounts outstanding under the Term Loan on a semi-annual basis beginning with the six-month period ending December 31, 2023

in an amount equal to a percentage of our excess cash flow based on a specified leverage ratio, as follows:

(i) if our leverage ratio

is greater than or equal to 3.0x, then the mandatory prepayment amount will equal 100% of our excess cash flow, (ii) if our leverage

ratio is less than 3.0x and greater than or equal to 1.5x, then the mandatory prepayment amount will equal 50% of our excess cash flow,

and (iii) if our leverage ratio is less than 1.5x, then the mandatory prepayment amount will equal 25% of our excess cash flow.

of December 31, 2023 and 2022, the principal amount outstanding under the Term Loan was $60.0 million.

Repurchase Program

the three months ended December 31, 2023, we repurchased 436,000 shares of our common stock as part of our publicly announced share repurchase

program at an average price per share of $2.27 for an aggregate expenditure of approximately $1.0 million during the period.

5 – Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities –

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

the year ended December 31, 2023, we repurchased 1,685,000 shares of our common stock as part of our publicly announced share repurchase

program at an average price per share of $2.18 for an aggregate expenditure of $3.7 million during the period.

Cash Obligations

of December 31, 2023, we had future commitments for certain capital projects totaling $15.6 million.

These commitments are scheduled

to be satisfied through 2024.

connection with our acquisition of Eagle Alcohol, we committed to contingent payments of up to $5.5 million in cash over the next two

years if certain financial targets and other conditions are met.

Accounting Policies and Estimates

discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which

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

The preparation of these

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

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

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

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

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

inherently uncertain.

for Business Combinations

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

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

judgment and the use of subjective measurements.

Variability in industry conditions and changes in assumptions or subjective measurements

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

recognize revenue primarily from sales of alcohols and essential ingredients.

have five alcohol production facilities from which we produce and sell alcohols to our customers through our subsidiary, Kinergy.

enters into sales contracts with customers under exclusive intercompany sales agreements with each of our five production facilities.

Kinergy also acts as a principal when it purchases third party fuel-grade ethanol which it resells to its customers.

Finally, in 2022

and 2021, Kinergy had exclusive sales agreements with two third-party owned fuel-grade ethanol plants under which it sold the plants’

fuel-grade ethanol production for a fee plus the costs to deliver the ethanol to Kinergy’s customers.

Kinergy has since terminated

these contracts.

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

Revenue from these third-party agent

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

We have five production facilities

from which we produce and sell essential ingredients to our customers through our subsidiary, Alto Nutrients.

Alto Nutrients enters into

sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each of our five production facilities.

We recognize revenue from sales of alcohols and

essential ingredients at the point in time when the customer obtains control of the products, which typically occurs upon delivery depending

on the terms of the underlying contracts.

In some instances, we enter into contracts with customers that contain multiple performance

obligations to deliver volumes of alcohols or essential ingredients over a contractual period of less than 12 months.

We allocate the

transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognize

the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance

When we are the agent, the supplier controls the

products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide

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

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

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

have discretion in establishing the price for the product.

See “Note 5 –

Segments” of the Notes to Consolidated Financial Statements for our revenue-breakdown by type of contract.

Impairment of Long-Lived

Assets and Held-for-Sale Classification

Our long-lived assets have been

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

We assess the impairment of long-lived

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

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

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

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

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

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

be recorded in the amount of the difference.

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

operations and the industry in which we operate.

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

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

Based on these reviews, we recorded an asset

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

We review our intangible assets

Revenue from these third-party agent sales is recorded on a

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

have five production facilities from which we produce and sell essential ingredients to our customers through our subsidiary, Alto Nutrients.

Alto Nutrients enters into sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each

of our five production facilities.

recognize revenue from sales of alcohols and essential ingredients at the point in time when the customer obtains control of the products,

which typically occurs upon delivery depending on the terms of the underlying contracts.

In some instances, we enter into contracts with

customers that contain multiple performance obligations to deliver volumes of alcohols or essential ingredients over a contractual period

of less than 12 months.

We allocate the transaction price to each performance obligation identified in the contract based on relative

standalone selling prices and recognize the related revenue as control of each individual product is transferred to the customer in satisfaction

of the corresponding performance obligations.

we are the agent, the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible

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

in establishing the price for the product.

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

because we are primarily responsible for fulfilling the promise to provide the products, we have inventory risk before the product has

been transferred to a customer and we have discretion in establishing the price for the product.

“Note 5 – Segments” of the Notes to Consolidated Financial Statements for our revenue-breakdown by type of contract.

of Long-Lived Assets and Held-for-Sale Classification

long-lived assets have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation

and amortization and any subsequent impairment.

assess the impairment of long-lived assets, including property and equipment, when events or changes in circumstances indicate that the

fair value of an asset group could be less than the net book value of the asset group.

Generally, we assess long-lived assets for impairment

by first determining the forecasted, undiscounted cash flows each asset is expected to generate plus the net proceeds expected from the

sale of the asset group.

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

determine the fair value of the asset group.

An impairment loss would be recognized when the fair value is less than the related net

book value, and an impairment expense would be recorded in the amount of the difference.

Forecasts of future cash flows are estimates

based on our experience and knowledge of our operations and the industry in which we operate.

These estimates could be significantly

affected by future changes in market conditions, the economic environment, including inflation, and the purchasing decisions of our customers.

As a result, we recorded an asset impairment of $0.6 million with respect to our right of use assets associated with our operating leases.

We did not record any impairment on our right of use assets for the years ended December 31, 2022 and 2021.

We review our intangible assets, including goodwill,

with indefinite lives at least annually or more frequently if impairment indicators arise.

In our review, we determine the fair value

of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of the acquired assets.

Assets held-for-sale are assessed

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

In 2020, our Board of Directors approved a plan

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

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

Our analysis concluded that

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

impairment of $22.3 million for 2020.

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

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

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

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

We concluded that these assets should

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

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

Valuation Allowance for

Deferred Taxes

We account for income taxes under the asset and

liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax

bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

We evaluate our deferred tax asset balance for

realizability.

To the extent we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized,

we will establish a valuation allowance against the deferred tax assets.

Realization of our deferred tax assets is dependent upon future

taxable income during the periods in which the associated temporary differences become deductible.

We consider the scheduled reversal

of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

These changes, if

any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in

net loss in the period when such determinations are made.

We had pre-tax consolidated income of $47.6 million

for the year ended December 31, 2021.

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

31, 2022 and 2020, respectively.

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

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

As such, we have recorded a valuation allowance

against our net deferred tax assets.

Derivative Instruments

We evaluate our contracts to

determine whether the contracts are derivative instruments.

Management may elect to exempt certain forward contracts that meet the definition

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

Normal purchases and normal sales are contracts that provide

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

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

Contracts that meet the requirements of normal

purchases or sales are documented as normal and exempted from the fair value accounting and reporting requirements of derivative accounting.

We enter into short-term cash,

option and futures contracts as a means of securing purchases of corn, natural gas and sales of fuel-grade ethanol and managing exposure

to changes in commodity prices.

All of our exchange-traded derivatives are designated as non-hedge derivatives for accounting purposes,

with changes in fair value recognized in net income.

Although the contracts are economic hedges of specified risks, they are not designated

or accounted for as hedging instruments.

Realized and unrealized gains

and losses related to exchange-traded derivative contracts are included as a component of cost of goods sold in the accompanying financial

The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative

assets or liabilities.

The selection of normal purchase or sales contracts, and use of hedge accounting, are accounting policies that

can change the timing of recognition of gains and losses in the statement of operations.

of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of the reporting unit.

assessed impairments will be recorded permanently and expensed in the period in which the impairment is determined.

We performed our annual

review of impairment and recognized an asset impairment loss of $6.0 million against our goodwill for the year ended December 31, 2023.

We recognized no asset impairments against intangible assets for the years ended December 31, 2022 and 2021.

held-for-sale are assessed for impairment by comparing the carrying values to their expected net sales proceeds.

In 2020, our Board of

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

sold in 2021.

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

Our analysis concluded that these assets should be classified as held-for-sale as of December 31, 2020, and as such, we estimated an

aggregate corresponding asset impairment of $22.3 million for 2020.

We further evaluated the original estimate and recorded an additional

asset impairment on these assets held-for-sale of $1.2 million for 2021.

In 2021, we decided to sell our property and equipment located

in Canton, Illinois.

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

that these assets should be classified as held-for-sale as of December 31, 2021, and as such, we estimated a corresponding asset impairment

of $1.9 million for 2021.

We did not record any impairments for assets held-for-sale for December 31, 2023 or 2022.

Allowance for Deferred Taxes

account for income taxes under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences

between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected

to be in effect when the differences reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the

amounts expected to be realized.

evaluate our deferred tax asset balance for realizability.

To the extent we believe it is more likely than not that some portion or all

of our deferred tax assets will not be realized, we will establish a valuation allowance against the deferred tax assets.

of our deferred tax assets is dependent upon future taxable income during the periods in which the associated temporary differences become

We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies

in making this assessment.

These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in

a reduction in net income or an increase in net loss in the period when such determinations are made.

We had pre-tax consolidated net losses of $27.9

million and $39.7 million for the years ended December 31, 2023 and 2022, respectively.

We had pre-tax consolidated net income of $47.6

million for the year ended December 31, 2021.

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

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

As such, we have recorded

a valuation allowance against our net deferred tax assets.

evaluate our contracts to determine whether the contracts are derivative instruments.

Management may elect to exempt certain forward

contracts that meet the definition of a derivative from derivative accounting as normal purchases or normal sales.

Normal purchases and

normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument

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

that meet the requirements of normal purchases or sales are documented as normal and exempted from the fair value accounting and reporting

requirements of derivative accounting.

enter into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of fuel-grade

ethanol and managing exposure to changes in commodity prices.

All of our exchange-traded derivatives are designated as non-hedge derivatives

for accounting purposes, with changes in fair value recognized in net income.

Although the contracts are economic hedges of specified

risks, they are not designated or accounted for as hedging instruments.

and unrealized gains and losses related to exchange-traded derivative contracts are included as a component of cost of goods sold in

the accompanying financial statements.

The fair values of contracts entered through commodity exchanges are presented on the accompanying

balance sheet as derivative assets or liabilities.

The selection of normal purchase or sales contracts, and use of hedge accounting,

are accounting policies that can change the timing of recognition of gains and losses in the statement of operations.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis