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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 277 added, 407 removed, 205 unchanged (77% of the section changed)

FINANCIAL STATEMENTS.

ALTO INGREDIENTS, INC.

INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

Current Assets:

1 unchanged sentence

Restricted cash

Accounts receivable, net (net of allowance for credit losses of $ 51 and $ 105 , respectively)

Accounts receivable (net of allowance for credit losses of $ 58 and $ 85 , respectively)

Derivative instruments

6 unchanged sentences

Total other assets

* Amounts derived from the audited

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

See accompanying notes to consolidated financial

ALTO INGREDIENTS, INC.

derived from the audited financial statements for the year ended December 31, 2023.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

September 30,

LIABILITIES AND STOCKHOLDERS’ EQUITY

6 unchanged sentences

Total current liabilities

Long-term debt, net

Long-term debt

Operating leases, net of current portion

6 unchanged sentences

1,684 shares authorized;

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

no shares issued and outstanding as of March 31, 2024 and December 31, 2023;

1,581 shares authorized;

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

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

927 shares issued and outstanding as of March 31, 2024 and December 31, 2023;

liquidation preference of $ 18,075 as of March 31, 2024

Common stock, $ 0.001 par value;

300,000 shares authorized;

76,115 and 75,154 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

77,018 and 75,703 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Non-voting common stock, $ 0.001 par value;

3,553 shares authorized;

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

1 share issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid-in capital

3 unchanged sentences

Total Liabilities and Stockholders’ Equity

* Amounts derived from the audited

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

See accompanying notes to consolidated financial

ALTO INGREDIENTS, INC.

derived from the audited financial statements for the year ended December 31, 2023.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share

in thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

2 unchanged sentences

Interest expense, net

Income from cash grant

Other income (expense), net

Other income, net

Loss before provision for income taxes

4 unchanged sentences

Weighted-average shares outstanding, basic and diluted

See accompanying notes to consolidated financial

ALTO INGREDIENTS, INC.

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

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

Depreciation and amortization of intangibles

Gains on derivative instruments

(Gains) losses on derivative instruments

Non-cash compensation

Inventory valuation

Asset impairments

Non-cash compensation

Amortization of deferred financing fees

Amortization of debt discount

Bad debt benefit

Credit recovery

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

1 unchanged sentence

Operating leases

Accounts payable and accrued expenses

Net cash provided by operating activities

Accounts payable and accrued liabilities

Net cash provided by (used in) operating activities

Investing Activities:

Additions to property and equipment

Proceeds from principal payments on notes receivable

Deferred purchase price payments for Eagle Alcohol

Purchase of Eagle Alcohol, net of cash acquired

Net cash used in investing activities

Financing Activities:

Net proceeds from (payments on) Kinergy’s line of credit

Net proceeds from Kinergy’s line of credit

Stock repurchases

Preferred stock dividends paid

Net cash provided by (used in) financing activities

Net change in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

6 unchanged sentences

Interest paid

ROU Assets obtained in exchange for new lease obligations

Capitalized interest

See accompanying notes to consolidated

financial statements.

ALTO INGREDIENTS, INC.

Interest expense capitalized

accompanying notes to consolidated financial statements.

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

1 unchanged sentence

Preferred Stock

Additional Paid-In

Other Comprehensive

Income (Loss)

Comprehensive

Balances, January 1, 2024

2 unchanged sentences

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

Stock repurchases

Preferred stock dividends

1 unchanged sentence

$ ( 775,953 )

Stock-based compensation

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

Stock repurchases

Preferred stock dividends

Balances, June 30, 2023

$ ( 740,841 )

Stock-based compensation

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

Preferred stock dividends

Balances, September 30, 2023

$ ( 744,649 )

Balances, January 1, 2023

2 unchanged sentences

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

Shares issued for Eagle Alcohol acquisition

Preferred stock dividends

Balances, March 31, 2022

$ ( 694,695 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Preferred stock dividends

Balances, June 30,2022

$ ( 672,895 )

Stock-based compensation

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

Stock repurchases

Preferred stock dividends

Balances, September 30, 2022

Balances, March 31, 2023

$ ( 748,121 )

See accompanying notes to consolidated

financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

ORGANIZATION AND BASIS OF PRESENTATION.

Organization and Business

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

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

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

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

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

The Company is a leading producer

and distributor of specialty alcohols and essential ingredients.

The Company also produces and markets fuel-grade ethanol.

The Company’s

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

The Company’s two production facilities in Oregon

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

The Company has a combined alcohol

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

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

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

The Company focuses on four

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

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

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

company, Eagle Alcohol Company, LLC, a Delaware limited liability company (“Eagle Alcohol”), Alto Op Co., a Delaware corporation,

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

production facilities in Oregon and Idaho.

Company produces and distributes renewable fuel, essential ingredients and specialty alcohols.

The Company also specializes in

purchase and break bulk distribution of specialty alcohols produced by the Company and third parties.

The Company’s production

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

The Company’s two production facilities in Oregon and

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

Company has a combined alcohol production capacity of 350 million gallons per year and produces, on an annualized basis, over 1.6 million

tons of essential ingredients, such as dried yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid

feed used in commercial animal feed and pet foods.

In addition, the Company markets and distributes renewable fuel produced by third

Company focuses on five key markets:

Health, Home & Beauty ;

Food & Beverage ;

Essential Ingredients ;

Industry & Agriculture;

Ingredients ;

and Renewable Fuels .

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

and cleaners.

Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well

as corn germ used for corn oils.

Products for Essential Ingredients markets include dried yeast, corn protein meal, corn protein feed,

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

Products for the Renewable Fuels markets

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

As of September 30, 2023, all

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

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

its new high protein systems at the plant.

The Company restarted the facility in April 2023.

As market conditions change, the Company

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

Basis of Presentation – Interim

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

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

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

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

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

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

The accounting

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

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

In the opinion of management, all adjustments

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

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 Industry & Agriculture markets

include alcohols and other products for paint applications and fertilizers.

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

Products for Renewable Fuels markets include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel

and biodiesel fuels.

of March 31, 2024, all of the Company’s production facilities were operating, except its Magic Valley facility in Idaho.

2024, the Company temporarily hot-idled the facility to minimize losses from negative regional crush margins and to expedite the installation

of additional equipment needed to achieve the Company’s intended production rate, quality and consistency from the corn oil and

high protein system.

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

or resume operations at any idled facility.

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

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

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

Results for interim periods should not be considered

indicative of results for a full year.

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

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

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

the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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

results for interim periods have been included.

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

Accounts Receivable and Allowance for Credit

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

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

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

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

The carrying amount of accounts receivable is

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

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

the customer balance that will not be collected.

Of the accounts receivable balance, approximately

$ 60,173,000 and $ 55,667,000 at September 30, 2023 and December 31, 2022, respectively, were used as collateral under Kinergy’s operating

line of credit.

The allowance for credit losses was $ 51,000 and $ 105,000 as of September 30, 2023 and December 31, 2022, respectively.

The Company recorded a bad debt recovery of $ 8,000 and $ 253,000 for the three months ended September 30, 2023 and 2022, respectively.

The Company recorded a bad debt recovery of $ 54,000 and $ 187,000 for the nine months ended September 30, 2023 and 2022, respectively.

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

net of the allowance for credit losses.

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

to gasoline refining and distribution companies, sells essential ingredients such as dried yeast for human and pet food and to animal

feed customers, including distillers grains to export markets, sells those same and other feed co-products to dairy operators and animal

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

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

that will not be collected.

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

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

the accounts receivable balance, approximately $ 50,008,000 and $ 51,315,000 at March 31, 2024 and December 31, 2023, respectively, were

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

The allowance for credit losses was $ 58,000 and $ 85,000 as of March

31, 2024 and December 31, 2023, respectively.

The Company recorded bad debt recoveries of $ 27,000 and $ 39,000 for the three months ended

March 31, 2024 and 2023, respectively.

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

Share Repurchase Program –

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

stock with an initial purchase authorization of $ 10 million.

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

authorization to $ 5 million.

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

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

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

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

As repurchases are

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

For the nine months ended September

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

The Company did not repurchase any shares during

the three months ended September 30, 2023.

As of September 30, 2023, total repurchases under the program since its inception equaled 1,600 ,000

shares for $ 4,008 ,000 in cash.

Financial Instruments – The

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

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

The Company believes

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

Income from Cash Grant –

In 2022, the Company applied for the USDA’s Biofuel Producer Program (“BPP”).

The program was created as part of the

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

grant is not required to be repaid.

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

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

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

statements of operations.

The Company received $ 2,812 ,000 in cash from the BPP during the three and nine months ended September 30, 2023

and $ 22,652 ,000 in cash from the BPP for the nine months ended September 30, 2022.

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

United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

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

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

of these items.

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

fair value because they were recently issued.

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

accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting period.

3 unchanged sentences

acquired and liabilities assumed as a result of business combinations.

Actual results and outcomes may materially differ from

management’s estimates and assumptions.

The Company reports its financial and operating

performance in three segments:

(1) Pekin production, which includes the production and sale of alcohols and essential ingredients produced

at the Company’s Pekin, Illinois campus (“Pekin Campus”), (2) marketing and distribution, which includes marketing and

merchant trading for Company-produced alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced

from third parties, and (3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced

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

so significant as to be considered a separately reportable segment.

The following tables set forth certain financial

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

Actual results and outcomes may materially differ from management’s

estimates and assumptions.

Company reports its financial and operating performance in three segments:

(1) Pekin Campus production, which includes the production

and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois 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 fuel-grade ethanol

and essential ingredients produced at the Company’s two western production facilities on an aggregated basis, neither of which

are individually so significant to be considered a separately reportable segment.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Pekin Campus, recorded as gross:

Pekin Campus production, recorded as gross:

Alcohol sales

7 unchanged sentences

Total marketing and distribution sales

Other production, recorded as gross:

Western production, recorded as gross:

Alcohol sales

1 unchanged sentence

Intersegment sales

Total Other production sales

Total Western production sales

Corporate and other

2 unchanged sentences

Cost of goods sold:

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

2 unchanged sentences

Gross profit (loss):

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

Intersegment eliminations

Gross profit (loss) as reported

Income (loss) before provision for income taxes:

Gross loss as reported

Loss before provision for income taxes :

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

Depreciation and amortization of intangibles:

Other production

Depreciation and amortization expense:

Pekin Campus production

Western production

Corporate and other

Interest expense, net of capitalized interest:

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

The following table sets forth the Company’s

total assets by operating segment (in thousands):

September 30, 2023

December 31, 2022

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

March 31, 2024

Total assets:

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

Inventories consisted primarily of bulk ethanol,

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

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

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

December 31, 2022, respectively.

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

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

Inventory is net of a valuation allowance of $ 597,000

and $ 2,201,000 as of March 31, 2024 and December 31, 2023, respectively.

Inventory balances consisted of the following (in thousands):

September 30, 2023

December 31, 2022

Finished goods

1 unchanged sentence

Raw materials

The business and activities of the Company expose

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

The Company monitors and manages these financial

exposures as an integral part of its risk management program.

This program recognizes the unpredictability of financial markets and seeks

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

Commodity Risk – Cash

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

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

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

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

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

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

Ineffectiveness,

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

For the three and nine months ended September 30, 2023 and 2022, the Company did not designate any of its derivatives as cash flow

Commodity Risk – Non-Designated Hedges

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

futures contracts or options for those commodities.

These derivatives are not designated for hedge accounting treatment.

The changes in

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

The Company recognized

net losses of $ 2,711 ,000 and net gains of $ 1,772 ,000 as the change in the fair value of these contracts for the three months ended September

30, 2023 and 2022, respectively.

The Company recognized net gains of $ 2,463 ,000 and $ 20,164 ,000 as the change in the fair value of these

contracts for the nine months ended September 30, 2023 and 2022, respectively.

Non-Designated Derivative Instruments

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

balances, are as follows (in thousands):

As of September 30, 2023

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

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

This program recognizes

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

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

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

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

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

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

exposure to the potentially adverse effects of price volatility.

These derivatives may be designated and documented as cash flow hedges

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

the Company’s purchase and sales prices.

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

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

For the three months ended March 31, 2024 and 2023, the Company

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

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

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

These derivatives are not designated

for hedge accounting treatment.

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

in cost of goods sold.

The Company recognized net gains of $ 3,338,000 and net losses of $ 1,777,000 as the change in the fair value of

these contracts for the three months ended March 31, 2024 and 2023, respectively.

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

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

As of March 31, 2024

Type of Instrument

15 unchanged sentences

Derivative instruments

The above amounts represent the gross balances

of the contracts;

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

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

The classification and amounts of the Company’s

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

above amounts represent the gross balances of the contracts;

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

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

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

as follows (in thousands):

Realized Gains (Losses)

For the three months Ended

September 30,

Type of Instrument

2 unchanged sentences

Cost of goods sold

Realized Gains

For the Nine Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

Unrealized Gains

For the three months Ended

September 30,

Type of Instrument

2 unchanged sentences

Cost of goods sold

Unrealized Gains (Losses)

For the Nine Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Long-term borrowings are summarized as follows

(in thousands):

September 30,

borrowings are summarized as follows (in thousands):

Kinergy line of credit

4 unchanged sentences

Long-term debt

Excess Availability – As

of September 30, 2023, the Company had $ 53.4 million in unused borrowing availability under Kinergy’s line of credit and $ 40.0

million available under the Orion term loan.

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

the satisfaction of certain conditions.

Availability – As of March 31, 2024, Kinergy had $ 25.9 million in unused borrowing availability under its line of credit

and the Company had $ 65.0 million that may be available for capital improvement projects under its Orion term loan, subject to certain

COMMITMENTS AND CONTINGENCIES.

Sales Commitments – At September

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

The Company had open alcohol indexed-price contracts for 92,138,000 gallons as of September 30, 2023 and open fixed-price alcohol sales

contracts totaling $ 248,902,000 as of September 30, 2023.

The Company had open fixed-price sales contracts for essential ingredients

totaling $ 7,863,000 as of September 30, 2023.

These sales contracts are scheduled to be completed throughout 2023 and 2024.

Purchase Commitments – At

September 30, 2023, the Company had indexed-price purchase contracts to purchase 11,516,000 gallons of alcohol and fixed-price purchase

contracts to purchase $ 1,948,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 14,961,000

of corn from its suppliers as of September 30, 2023.

The Company had fixed-price purchase contracts for natural gas totaling $ 10,020,000 .

Commitments – At March 31, 2024, the Company had entered into sales contracts with its major customers to sell certain

quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 102,083,000 gallons as of March

31, 2024 and open fixed-price alcohol sales contracts totaling $ 233,854,000 as of March 31, 2024.

The Company had open fixed-price sales

contracts for essential ingredients totaling $ 5,454,000 and open indexed-price sales contracts of essential ingredients for 72,000 tons

as of March 31, 2024.

These sales contracts are scheduled to be completed throughout 2024.

Commitments – At March 31, 2024, the Company had indexed-price purchase contracts to purchase 19,195,000 gallons of alcohol

and fixed-price purchase contracts to purchase $ 1,297,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts

to purchase $ 40,521,000 of corn from its suppliers as of March 31, 2024.

The Company had indexed-price contracts to purchase 4,805,400

MMBTU for natural gas as of March 31, 2024.

The Company also had future commitments for certain capital projects totaling $ 10,802,000 .

These purchase commitments are scheduled to

be satisfied throughout 2023 and 2024.

Litigation – General –

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

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

When the Company is aware of a claim or potential

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

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

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

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

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

involved could be material.

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

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

PENSION AND RETIREMENT BENEFIT PLANS.

The Company sponsors a defined

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

The Retirement Plan is noncontributory

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

and service requirements.

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

The Retirement

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

The Company uses a December

31 measurement date for its Retirement Plan.

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

applicable regulations.

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

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

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

These purchase commitments are scheduled to be satisfied throughout 2024.

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

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

When the Company

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

If it is probable that a loss will result

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

If the loss is not probable

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

possible and the amount involved could be material.

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

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

PENSION PLANS.

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

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

facility who fulfill minimum age and service requirements.

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

years of service.

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

November 1, 2010.

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

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

contribution required by applicable regulations.

As of December 31, 2023, the Retirement Plan’s accumulated projected benefit obligation

was $ 18.6 million, with a fair value of plan assets of $ 18.5 million.

The underfunded amount of $ 0.1 million is recorded on the Company’s

consolidated balance sheet in other liabilities.

For the three months ended March 31, 2024, the Retirement Plan’s net periodic

expense was $ 13,000 , comprised of $ 222,000 in interest cost and $ 67,000 in service cost, partially offset by $ 276,000 of expected return

on plan assets.

For the three months ended March 31, 2023, the Retirement Plan’s net periodic expense was $ 39,000 , comprised of

$ 225,000 in interest cost and $ 62,000 in service cost, partially offset by $ 248,000 of expected return on plan assets.

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

at the Company’s Pekin, Illinois facility.

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

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

Benefit eligibility

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

As of December 31, 2023,

the Postretirement Plan’s accumulated projected benefit obligation was $ 4.3 million and is recorded on the Company’s consolidated

balance sheet in other liabilities.

For the three months ended September

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

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

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

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

and $ 101,000 in service cost.

For the nine months ended September 30, 2023, the Retirement Plan’s net periodic expense was $ 117,000 ,

comprised of $ 675,000 in interest cost and $ 186,000 in service cost, partially offset by $ 744,000 of expected return on plan assets.

the nine months ended September 30, 2022, the Retirement Plan’s net periodic benefit was $ 24,000 , comprised of $ 819,000 of expected

return on plan assets, partially offset by $ 492,000 in interest cost and $ 303,000 in service cost.

The Postretirement Plan provides

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

Employees hired after December

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

The Postretirement Plan is contributory, with contributions required

at the same rate as active employees.

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

cap based upon years of service.

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

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

The Company’s funding policy

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

For the three months ended September

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

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

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

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

For the nine months ended September

30, 2023, the Postretirement Plan’s net periodic expense was $ 108,000 , comprised of $ 138,000 of interest cost and $ 9,000 of service

cost, partially offset by $ 39,000 in amortization of gains.

For the nine months ended September 30, 2022, the Postretirement Plan’s

net periodic expense was $ 96,000 , comprised of $ 18,000 of interest cost and $ 78,000 of service cost.

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

For the three months ended March 31, 2024, the Postretirement Plan’s net periodic expense was $ 54,000 , comprised of

$ 49,000 of interest cost and $ 5,000 of service cost.

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

expense was $ 36,000 , comprised of $ 46,000 of interest cost and $ 3,000 of service cost, partially offset by $ 13,000 in amortization of

FAIR VALUE MEASUREMENTS.

fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:

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

assets and liabilities;

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

for the asset or liability through corroboration with market data;

3 – Unobservable inputs – includes amounts derived from valuation models where

one or more significant inputs are unobservable.

For fair value measurements using significant

unobservable inputs, a description of the inputs and the information used to develop the

inputs is required along with a reconciliation of Level 3 values from the prior reporting

1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;

2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration

with market data;

3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable.

For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the

inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or

single mutual funds.

The net asset value i s used as a practical expedient to determine fair value for these accounts.

separate account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice

requirement, therefore these funds are classified within Level 2 of the valuation hierarchy.

Other Derivative Instruments –

The Company’s other derivative instruments consist of commodity positions.

The fair values of the commodity positions are based

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

The following table summarizes recurring and nonrecurring

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

The net asset value is used as a practical expedient to determine fair value for these accounts.

Each pooled separate

account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement,

therefore these funds are classified within Level 2 of the valuation hierarchy.

Derivative Instruments – The Company’s other derivative instruments consist of commodity positions.

The fair values

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

following table summarizes recurring and nonrecurring fair value measurements by level at March 31, 2024 (in thousands):

Derivative financial instruments

The following table summarizes recurring and nonrecurring

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

following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2023 (in thousands):

Derivative financial instruments

4 unchanged sentences

Derivative financial instruments

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

(2) This category includes investments in funds comprised of equity

securities of large U.S.

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

the underlying investments is used to value the fund.

(3) This category includes investments in funds comprised of equity

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

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

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

(4) This category includes investments in funds comprised of equity

securities of foreign companies including emerging markets.

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

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

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

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

in other assets in the consolidated balance sheets.

category includes investments in funds comprised of equity securities of large U.S.

The funds are valued using the net asset

value method in which an average of the market prices for the underlying investments is used to value the fund.

category includes investments in funds comprised of equity securities of small- and medium-sized U.S.

The funds are valued

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

category includes investments in funds comprised of equity securities of foreign companies including emerging markets.

The funds are

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

category includes investments in funds comprised of U.S.

and foreign investment-grade fixed income securities, high-yield fixed income

securities that are rated below investment-grade, U.S.

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

The funds are valued using the net asset value method

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

LOSS PER SHARE.

The following tables compute basic and diluted

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

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

to value the fund.

EARNINGS PER SHARE.

following tables compute basic and diluted earnings per share (in thousands, except per share data):

Three Months Ended

September 30,

March 31, 2024

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

Net loss available to common stockholders

Three Months Ended

September 30,

Preferred stock dividends

Basic and Diluted loss per share:

Loss available to common stockholders

Nine Months Ended

September 30,

Preferred stock dividends

Basic and Diluted loss per share:

Loss available to common stockholders

Nine Months Ended

September 30,

March 31, 2023

Loss Numerator

Shares Denominator

Per-Share Amount

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

There were an additional aggregate potentially

dilutive weighted-average shares of 981,000 from convertible securities outstanding for the three and nine months ended September 30,

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

for the three and nine months ended September 30, 2022.

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

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

Net loss available to common stockholders

were an additional aggregate potentially dilutive weighted-average shares of 981,000 and 964,000 from convertible securities outstanding

for the three months ended March 31, 2024 and 2023.

These securities were not considered in calculating diluted net loss per share for

the three months ended March 31, 2024 and 2023, as their effect would have been anti-dilutive.

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

What changed 10-Q

Item 1. Financial Statements