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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 486 added, 641 removed, 59 unchanged (95% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and

analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included

elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated financial statements contain

forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and

objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might

earn if we are successful in implementing our business and growth strategies.

The forward-looking statements and associated risks may

include, relate to or be qualified by other important factors, including:

following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated

financial statements included elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated

financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations,

including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate

and profits we might earn if we are successful in implementing our business and growth strategies.

The forward-looking statements and

associated risks may include, relate to or be qualified by other important factors, including:

● fluctuations

2 unchanged sentences

in the costs of key production input commodities such as corn and natural gas;

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

and other capital projects;

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

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

improvement initiatives and other capital projects, including our carbon capture and storage project;

projected growth or contraction in the alcohol and essential ingredients markets in which we operate;

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

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ability to distinguish ourselves from our current and future competitors.

You are cautioned not to place

undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a document incorporated

by reference, as of the date of that document.

We do not undertake to update, revise or correct any forward-looking statements, except

as required by law.

Any of the factors described

immediately above or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk Factors”

section below could cause our financial results, including our net income or loss or growth in net income or loss to differ materially

from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

We are a leading producer and distributor of specialty

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

are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the

case of a document incorporated by reference, as of the date of that document.

We do not undertake to update, revise or correct any forward-looking

statements, except as required by law.

of the factors described immediately above or referenced from time to time in our filings with the Securities and Exchange Commission

or in the “Risk Factors” section below could cause our financial results, including our net income or loss or growth in net

income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock

to fluctuate substantially.

produce and distribute renewable fuel and essential ingredients.

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

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

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

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

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

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

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

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

We report our financial and operating performance

in three segments:

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

three production facilities located in Pekin, Illinois, which we refer to as our Pekin Campus, (2) marketing and distribution, which includes

marketing and merchant trading for company-produced alcohols and essential ingredients on an aggregated basis, and sales of fuel-grade

ethanol sourced from third parties, and (3) Other production, which includes the production and sale of renewable fuel and essential ingredients

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

a separately reportable segment.

Our mission is to expand our business as a leading

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.

Eagle Alcohol 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:

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 renewable fuel 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 the highest quality beverage-grade alcohol and alcohols of other quality specifications.

We market and distribute

all of the alcohols produced at our facilities as well as 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.

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.

report our financial and operating performance in three segments:

(1) Pekin campus 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.

produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on five key markets:

Health, Home & Beauty ;

Food & Beverage ;

Industry & Agriculture;

Essential Ingredients ;

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 Essential Ingredients markets

include dried yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid feed used in commercial animal

feed and pet foods.

We also sell yeast for human consumption.

Our products for the Renewable Fuels markets include fuel-grade ethanol

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

We produce our alcohols and essential ingredients

at our production facilities described below.

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

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

and international markets via truck, rail or barge.

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

and feed customers, offering significant timing, transportation cost and logistical advantages.

All of our production facilities are currently

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

at any idled facility.

Marketing and Distribution Segment

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.

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 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 late June or early July once the modifications are complete.

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

and Distribution Segment

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.

We market food-grade essential ingredients to human and pet food markets,

our feed products such as distillers grains primarily to export markets from our Pekin Campus, and other 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, renewable diesel and biodiesel customers.

We do not market

essential ingredients from other producers.

See “Note 2 – Segments” to our

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

Current Initiatives and Outlook

Our third quarter results reflect a positive contribution

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

sharp increase in corn basis levels earlier in the quarter.

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

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

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

In addition, lower sales

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

derivative losses.

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

to the third quarter of 2022.

Lower consumer demand has

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

volume commitments into 2024.

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

to fuel-grade ethanol.

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

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

We continue to make significant

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

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

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

These projects have different timelines, returns

on investment and risk profiles.

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

with an overall goal of fiscal responsibility.

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

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

We expect the extensive repair and maintenance work completed during the

quarter to benefit future production uptime and reliability.

We have already completed

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

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

For our longer-term,

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

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

These projects include implementing systems to produce primary

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

At our Magic Valley plant,

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

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

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

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

As part of our longer-term

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

our FEED study for this project.

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

impacted installation costs from our original estimates.

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

to twenty-seven months.

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

in the market price for primary yeast.

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

opportunity into a completed project.

To better ensure that

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

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

Our new 850,000-bushel

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

and lower plant operating costs across the production facility.

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

We are presently negotiating

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

We also continue to make progress

on our CCS project.

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

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

Based on the current economic

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

expansion goals by six to twelve months.

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

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

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

We continue to work on

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

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

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

“Note 2 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial

information about our business segments.

Initiatives and Outlook

We began the year with

a refined vision to produce a variety of essential ingredients and the highest-grade beverage alcohol in the industry while prioritizing

our carbon capture and storage, or CCS, initiative.

Although encouraged by our strategic and operational progress thus far in 2024, relatively

low but now improving crush margins and various weather factors impacted our first quarter financial results.

Despite these challenges,

specialty alcohol sales from our Pekin Campus increased year-over-year contributing toward an overall improved gross profit and higher

Adjusted EBITDA.

Our results also reflect our ability to leverage the unique capabilities of our Pekin Campus and our other production

assets to moderate the impact of crush margin fluctuations.

During the first quarter, we also completed our annual Scope I and II greenhouse

gas verifications as part of our sustainability efforts.

Our outlook for the remainder

of 2024 is positive.

Crush margins have continued to improve in the second quarter compared to the first quarter, and we expect further

improvement, particularly during the summer driving season.

While we forecast lower feed prices for the balance of the year, we have solid

corn inventories and see improved export demand for ethanol.

In addition, the EPA’s summer waiver for 15% blends will facilitate

sustained use of higher-blend renewable transportation fuel and support ethanol prices in the coming months.

We expect our recent repair

and maintenance work will result in more consistent and higher production rates, enhancing reliability and profitability.

to evaluate our path to increase margins, improve profitability and deliver the highest return to our shareholders by evaluating our current

portfolio of assets.

Our goal for our CCS project

is to create value for us, our customers and the communities surrounding our Pekin Campus by substantially reducing our carbon footprint.

Our Pekin Campus facilities, given their CO 2 production and their location, provide us with a unique CCS opportunity.

to negotiate the terms of our proposed CCS agreements with potential financial partners and with Vault 44.01, a leading CCS company focused

on the development, capitalization and operation of carbon storage assets.

Our plan is to work with Vault to safely transport CO 2

to a geological reservoir nearby and permanently and securely store the CO 2 deep underground.

As noted in our March update,

together with Vault, we are driving forward with our respective activities for system design, community outreach, vendor negotiations

and schedule alignment requirements to procure equipment for compression and to support the installation of additional power.

completed a 2-dimensional seismic geological survey and has begun data analysis.

Vault has also advanced the work required to submit the

EPA Class VI permit application.

Our goal is for Vault to submit its application by the end of the third quarter, which will impact the

timing of when we order CCS equipment and when our energy needs for the project must be resolved.

We expect the most significant outlays

of capital for our CCS project will begin in the first half of 2025.

Our CCS project provides

compelling economics that we believe we can enhance with more efficient, lower-cost energy production.

To this end, we are evaluating

multiple capital-light options.

We are in discussions with a highly regarded, independent energy company.

We engaged this potential partner

to complete a front-end engineering and design (FEED) study for an energy cogeneration facility that the partner would build, own, operate

and maintain onsite at our Pekin Campus.

The cogeneration facility would lower our capital expenditures, improve operating efficiencies

and reduce our forecasted long-term energy costs.

We also continue to explore an opportunity with our current utility provider to expand

energy supply capabilities as an alternative to cogeneration.

Longer term, the updated

guidelines around tax credits for including ethanol in the production of sustainable aviation fuel further validates our CCS efforts.

Overall, we are pleased with the progress we have made with our CCS initiative and the value we expect to deliver to stakeholders.

In the first quarter,

we sold 26 million gallons of specialty alcohol, up from 21 million gallons in the same period for 2023.

As discussed in our March update,

we have contracted to sell approximately 93 million gallons of fixed-price specialty alcohol for 2024 at an average premium to renewable

fuel of 31 cents per gallon.

Our specialty alcohols include highly differentiated 192 proof and low-moisture 200 proof grain neutral spirits

that create customer opportunities higher up the value chain.

We completed our biennial

wet mill outage at our Pekin Campus in April.

The wet mill was offline for ten days while we executed a scope of work with over 450 discrete

tasks focused on corrective and preventative maintenance as well as upgrades to plant infrastructure.

The plant has returned safely to

operation and is ramping up to target production rates.

Although these efforts will negatively impact sales and margins for the second

quarter, they will result in more consistent and higher production rates, improving reliability as we approach the summer driving season.

At our Magic Valley facility,

we are diligently working on our corn oil and high protein system to return the plant to more sustainable profitability by reducing the

impact of periodic low crush margins and higher destination corn basis costs.

As outlined in our March update, we are working with the

system vendor, Harvesting Technology, to achieve the intended production rate, quality and consistency of corn oil and high protein output

at the facility.

We will evaluate a roll-out of the system to our other plants based on the system’s performance at our Magic Valley

The equipment for the system modifications has been ordered and based on current delivery and installation schedules, we expect

to resume production in late June or early July.

Harvesting Technology continues to pay for the direct costs of equipment and design changes

associated with the system.

During this downtime we are accelerating routine maintenance activities to optimize plant efficiency upon

Use of Non-GAAP Financial Measures

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

We define Adjusted EBITDA as unaudited consolidated net income (loss) before interest expense, interest income, provision for

income taxes, asset impairments, loss on extinguishment of debt, acquisition-related expense, fair value adjustments, and depreciation

and amortization expense.

We define 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.

A table is provided below

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Information reconciling

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

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

We are not able to provide

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

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

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

(loss) that are not presently estimable.

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

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands) (unaudited)

Interest expense

Consolidated net loss

Interest expense, net

Interest income

Asset impairments

Unrealized derivative gains

Acquisition-related expense

Asset impairments

Provision for income taxes

2 unchanged sentences

Adjusted EBITDA

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.

We believe that

of our significant accounting policies, the following critical accounting policies and estimates are 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 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 amounts of net sales and expenses for each

We believe that of our significant accounting policies, the following critical accounting policies and estimates are 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 combinations;

1 unchanged sentence

impairment of long-lived assets and held-for-sale classification;

allowance for deferred taxes and derivative instruments.

Except as noted below, these significant accounting principles are more fully

described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting

Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

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:

September 30,

fuel production gallons sold (in millions)

alcohol production gallons sold (in millions)

party renewable fuel gallons sold (in millions)

gallons sold (in millions)

gallons produced (in millions)

capacity utilization

sales price per gallon

cost per bushel – CBOT equivalent

essential ingredients tons sold (in thousands)

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

CBOT ethanol price per gallon

CBOT corn price per bushel

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

of corn for Chicago delivery.

(2) Essential ingredients revenues as a percentage of delivered cost of corn shows our yield based on sales of

essential ingredients, including wet distillers grains and corn oil, generated from alcohol we produced.

Net Sales, Cost of

Goods Sold and Gross Profit (Loss)

The following table presents

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

except percentages):

valuation allowance for deferred taxes and derivative instruments.

Except as noted below, these significant accounting principles are

more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical

Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023.

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:

Alcohol Sales

(gallons in millions)

Campus renewable fuel gallons sold

production renewable fuel gallons sold

party renewable fuel gallons sold

renewable fuel gallons sold

alcohol gallons sold

and distribution

Production (gallons in millions)

Cost per Bushel

Average Market

PLATTS Ethanol

price per gallon

Corn cost per bushel

corn crush per gallon (1)

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

Essential Ingredients Return % (2)

Pekin Campus return

Western production return

Consolidated total return

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

(2) Essential ingredient revenues as a percentage of total corn

costs consumed.

* Not meaningful

Sales, Cost of Goods Sold and Gross Loss

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

of net sales (in thousands, except percentages):

Cost of goods sold

Gross profit (loss)

Percentage of net sales

* Not meaningful

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

ended September 30, 2022

The decline in our consolidated

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

sold on a gross basis, mainly specialty alcohol, and lower average sales prices per gallon.

We produced and sold fewer gallons of specialty

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

In addition, we experienced

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

We marketed no third-party gallons

on a net basis during the quarter since we had previously ended our contractual relationship with the two fuel-grade ethanol plants for

which we sold their production to focus on sales of our own fuel-grade ethanol production.

Pekin Campus Production Segment

Net sales of alcohol from our

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

to $133.7 million for the same period in 2022.

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

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

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

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

At the segment’s average sales price per gallon

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

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

Net sales of essential ingredients

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

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

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

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

The decrease of $21.69, or

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

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

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

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

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

Marketing and Distribution

Net sales of alcohol from our marketing and distribution

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

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

Our volume of third-party alcohol sold reported

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

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

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

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

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

The $0.22 per gallon, or 8%, decrease

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

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

Our volume of alcohol sold reported net by the

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

8.6 million gallons for the same period in 2022.

This decline reduced net sales by $0.3 million.

Other Production Segment

Net sales of alcohol from our

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

to $64.5 million for the same period in 2022.

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

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

At the segment’s

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

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

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

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

Net sales of essential ingredients

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

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

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

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

The decrease of $29.34, or 24%,

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

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

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

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

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

Corporate and other

Net sales of alcohol from corporate

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

are from Eagle Alcohol’s business.

Cost of Goods Sold and Gross Profit (Loss)

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

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

margin of 1.3% for the three months ended September 30, 2023 compared to a negative gross margin of 5.9% for the same period in 2022.

Our consolidated gross profit increased due to improved commodity margins as a result of lower corn costs relative to the price of fuel-grade

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

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

and maintenance costs.

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

in favorable crush spreads, resulting in unanticipated derivative losses.

Our gross profit for the quarter was also negatively impacted

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

corn harvest commenced.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross

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

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

This improvement in gross profit is primarily attributable

to higher fuel-grade ethanol margins.

Marketing and Distribution Segment

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

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

to $0.4 million for the same period in 2022.

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

fuel-grade ethanol and $0.1 million is attributable to higher sales volumes for the three months ended September 30, 2023 as compared

The decrease in our consolidated net sales for the three months ended

March 31, 2024 as compared to the same period in 2023 is attributable to lower average sales prices per gallon for both specialty alcohol

and renewable fuel as well as lower average sales prices of essential ingredients due to a lower commodity price environment.

Campus Production Segment

Net sales of alcohol from our Pekin Campus production segment declined

by $24.0 million, or 18%, to $108.4 million for the three months ended March 31, 2024 as compared to $132.4 million for the same period

Our total volume of production gallons sold increased by 1.3 million gallons, or 2%, to 57.1 million gallons for the three months

ended March 31, 2024 as compared to 55.8 million gallons for the same period in 2023.

The decrease of $0.48, or 20%, in the segment’s

average sales price per gallon for the three months ended March 31, 2024 as compared to the same period in 2023 reduced our net sales

from the segment by $26.5 million.

With the segment’s average sales price per gallon of $1.90 for the three months ended March 31,

2024, we generated $2.5 million more in net sales from the 1.3 million additional gallons of alcohol sold in the three months ended March

31, 2024 as compared to the same period in 2023.

Net sales of essential ingredients from our Pekin Campus production

segment declined by $16.9 million, or 27%, to $46.7 million for the three months ended March 31, 2024 as compared to $63.6 million for

the same period in 2023.

Our total volume of essential ingredients sold declined by 14,300 tons, or 6%, to 212,600 tons for the three

months ended March 31, 2024 from 226,900 tons for the same period in 2023.

The decrease of $60.73, or 22%, in the segment’s average

sales price per ton for the three months ended March 31, 2024 as compared to the same period in 2023 reduced our net sales from the segment

by $13.8 million.

With the segment’s average sales price per ton of $219.70 for the three months ended March 31, 2024, we generated

$3.1 million less in net sales from the 14,300 fewer tons of essential ingredients sold in the three months ended March 31, 2024 as compared

to the same period in 2023.

Other Production Segment

Our other production segment’s gross profit,

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

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

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

ethanol margins, partially offset by $0.1 million in lower volumes sold.

Corporate and other

Gross profit from corporate

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

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

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

ended September 30, 2022

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

September 30, 2023 as compared to the same period in 2022 was primarily due to fewer total gallons sold, mainly specialty alcohol, an

overall lower average sales price per gallon and lower volumes of essential ingredients sold at lower prices.

We produced and sold fewer

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

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

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

with the two fuel-grade ethanol plants for which we sold their production to instead focus on sales of our own fuel-grade ethanol production.

Pekin Campus Production Segment

Net sales of alcohol from our

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

to $393.5 million for the same period in 2022.

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

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

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

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

At the segment’s average sales price per gallon

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

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

Net sales of essential

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

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

Our total volume of essential ingredients

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

period in 2022.

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

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

At the segment’s

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

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

same period in 2022.

Marketing and Distribution

Net sales of alcohol from our marketing and distribution

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

and Distribution Segment

sales of alcohol from our marketing and distribution segment, excluding intersegment sales, declined by $30.0 million, or 36%, to $54.5

million for the three months ended March 31, 2024 as compared to $84.5 million for the same period in 2023.

Our volume of third-party alcohol sold reported gross by the segment

declined by 4.2 million gallons, or 12%, to 29.7 million gallons for the three months ended March 31, 2024 as compared to 33.9 million

gallons for the same period in 2023.

With the segment’s average sales price per gallon of $1.83 for the three months ended March

31, 2024, we realized $7.7 million less in net sales from the 4.2 million fewer gallons of third-party alcohol sold gross in the three

months ended March 31, 2024 as compared to the same period in 2023.

$0.66 per gallon, or 27%, decrease in the segment’s average sales price per gallon for the three months ended March 31, 2024 as

compared to the same period in 2023 resulted in a $22.3 million decline in our net sales from third-party fuel-grade ethanol sold by

Production Segment

Net sales of alcohol from our Western production segment declined by

$0.7 million, or 3%, to $20.2 million for the three months ended March 31, 2024 as compared to $20.9 million for the same period in 2023.

Our total volume of alcohol sold increased by 3.3 million gallons, or 42%, to 11.2 million gallons for the three months ended March 31,

2024 as compared to 7.9 million gallons for the same period in 2023.

With the segment’s average sales price per gallon of $1.80

for the three months ended March 31, 2024, we generated $6.0 million more in net sales from the 3.3 million additional gallons of alcohol

sold in the three months ended March 31, 2024 as compared to the same period in 2023.

However, the decrease of $0.84, or 32%, in the segment’s

average sales price per gallon for the three months ended March 31, 2024 as compared to the same period in 2023 reduced our net sales

from the segment by $6.7 million.

Net sales of essential ingredients from our Western production segment

declined by $0.6 million, or 7%, to $7.8 million for the three months ended March 31, 2024 as compared to $8.4 million for the same period

Our total volume of essential ingredients sold increased by 28,400 tons, or 39%, to 100,800 tons for the three months ended March

31, 2024 from 72,400 tons for the same period in 2023.

With the segment’s average sales price per ton of $77.64 for the three months

ended March 31, 2024, we generated $2.2 million more in net sales from the 28,400 additional tons of essential ingredients sold in the

three months ended March 31, 2024 as compared to the same period in 2023.

The decrease of $37.73, or 33%, in our average sales price per

ton for the three months ended March 31, 2024 as compared to the same period in 2023 reduced our net sales of essential ingredients from

the segment by $2.8 million.

sales of alcohol from corporate and other declined by $1.1 million, or 27%, to $3.0 million for the three months ended March 31, 2024

as compared to $4.1 million for the same period in 2023.

Our volume of third-party alcohol sold reported

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

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

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

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

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

The $0.27 per gallon, or 9%, decrease

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

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

Our volume of alcohol sold reported net by the

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

28.7 million gallons for the same period in 2022.

This decline reduced net sales by $0.7 million.

Other Production Segment

Net sales of alcohol from our

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

to $191.5 million for the same period in 2022.

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

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

At the segment’s

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

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

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

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

The decline in gallons sold by our other

production segment resulted from the idling of our Magic Valley plant during the first quarter of 2023 due to unfavorable market conditions

and to facilitate the installation of our new high protein systems at the plant.

We restarted our Magic Valley facility in April 2023,

but did not achieve higher fuel-grade ethanol production levels until later in the second quarter.

Net sales of essential ingredients

from our other production segment decreased by $26.1 million, or 39%, to $40.6 million for the nine months ended September 30, 2023 as

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

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

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

At the segment’s average

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

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

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

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

Corporate and other

Net sales of alcohol from corporate

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

for the same period in 2022.

These sales are from Eagle Alcohol’s business.

Cost of Goods Sold and Gross Profit (Loss)

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

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

the nine months ended September 30, 2023 compared to a negative gross margin of 0.6% for the same period in 2022.

Our consolidated gross

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

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

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

in repair and maintenance costs.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross

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

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

Marketing and Distribution Segment

Our marketing and distribution segment’s

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

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

Of this improvement, $3.0 million is attributable to

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

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

Other Production Segment

Our other production segment’s gross profit,

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

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

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

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

Corporate and other

Gross profit from corporate

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

Selling, General and

Administrative Expenses

The following table presents

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

September 30,

of Goods Sold and Gross Profit (Loss)

Our consolidated gross loss declined to a gross

loss of $2.4 million for the three months ended March 31, 2024 from a gross loss of $3.2 million for the same period in 2023, representing

a gross margin of negative 1.0% for the three months ended March 31, 2024 and 2023.

With sales volumes relatively flat, our consolidated

gross loss declined due to slightly higher average commodity margins from proportionally lower production input costs despite lower sales

prices, and increased sales of higher-margin specialty alcohol as well as the positive impact of our efforts to increase returns on our

essential ingredients, reduce costs and expand our operating efficiencies.

Three significant additional factors impacted our

gross profit in the first quarter.

First, we recognized $4.9 million in incremental costs, compared to $8.6 million for the

same period in 2023, from our natural gas hedging activities, which benefitted us during the cold spike in January but resulted in losses

for the remainder of the quarter due to unseasonably moderate weather conditions and ensuing historically low natural gas prices resulting

from higher natural gas production and supply coupled with lower consumer demand.

Second, extreme cold weather conditions in January at

our Pekin Campus restricted barge deliveries and increased standby fees.

To manage inventory levels, we transported more product by rail,

a higher cost mode of transportation.

Cold weather conditions also required us to shift to lower margin feed products and reduced our

production rates across our Pekin Campus, hindering our ability to produce specialty alcohol at full capacity.

Finally, first quarter

production at our Colombia facility was hampered by equipment issues which we addressed by extending the facility’s regularly scheduled

outage in mid-March to install equipment upgrades that will increase reliability and reduce ongoing maintenance costs.

Our repairs and maintenance expense for the first

quarter was $7.5 million, an increase of $1.0 million compared to the same period in 2023.

This increase reflects accelerated

repairs and maintenance costs, and we remain on track to achieve our overall estimate of $34 million in repairs and maintenance expenses

Campus Production Segment

Pekin Campus production segment’s gross profit, net of intercompany activity, improved by $6.5 million to a gross profit of $4.9

million for the three months ended March 31, 2024 as compared to a gross loss of $1.6 million for the same period in 2023.

Of this improvement,

$6.4 million is attributable to higher fuel-grade ethanol margins and $0.1 million is attributable to higher sales volumes.

and Distribution Segment

marketing and distribution segment’s gross profit, net of intercompany activity, declined by $0.6 million to a gross profit of

$0.7 million for the three months ended March 31, 2024 as compared to a gross profit of $1.3 million for the same period in 2023.

this decline, $0.5 million is attributable to lower margins from sales of third-party fuel-grade ethanol and $0.1 million is attributable

to lower sales volumes for the three months ended March 31, 2024 as compared to the same period in 2023.

Production Segment

Western production segment’s gross profit, net of intercompany activity, declined by $3.7 million to a gross loss of $8.3 million

for the three months ended March 31, 2024 as compared to a gross loss of $4.6 million for the same period in 2023.

Of this decline, $1.3

million is attributable to lower renewable fuel margins and $2.4 million is attributable to higher sales volumes of both renewable fuel

and essential ingredients at lower margins.

profit from corporate and other declined by $1.4 million to a gross profit of $0.3 million for the three months ended March 31, 2024

as compared to $1.7 million for the same period in 2023, all of which were from Eagle Alcohol’s business.

General and Administrative Expenses

Our SG&A expenses increased for the three and

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

The period over period increases in SG&A expenses are

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

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

Interest Expense, net

The following table presents

our interest expense, net in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Interest Expense, net

Percentage of net sales

Our interest expense increased for the three and

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

The increase resulted from higher debt balances due to our

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

from the general rise in interest rates.

Income from Cash Grant

We applied for the USDA’s

Biofuel Producer Program in 2022.

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

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

These cash grants are not required to be repaid nor

will they recur in the future.

Net Loss Available

to Common Stockholders

The following table presents

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net loss available to common stockholders

Percentage of net sales

The decline in

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

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

Liquidity and Capital Resources

During the nine months ended September 30, 2023,

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

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

our acquisition of Eagle Alcohol.

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

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

have an option to expand the Orion term loan by up to $25.0 million upon the satisfaction of certain conditions.

We believe we have sufficient

liquidity to meet our anticipated working capital, debt service and other liquidity needs for the next twelve months from the date of

Quantitative Period-End Liquidity

We believe that the following

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).

September 30,

following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in

thousands, except percentages):

general and administrative expenses

Our SG&A expenses were essentially flat for the three months ended

March 31, 2024 as compared to the same period in 2023.

However, as a percentage of net sales, our SG&A expenses increased primarily

due to additional legal and other costs associated with progress on our strategic capital improvement projects.

following table presents our interest expense, net, in dollars and as a percentage of net sales (in thousands, except percentages):

interest expense, net, increased for the three months ended March 31, 2024 as compared to the same period in 2023.

The less than $0.1

million period over period increase in interest expense, net, is primarily due to higher debt balances compared to the prior year period.

Loss Available to Common Stockholders

following table presents our net loss available to common stockholders in dollars and as a percentage of net sales (in thousands, except

percentages):

loss available to Common Stockholders

decrease in net loss available to common stockholders is primarily due to lower net sales at negative margins and a decline of $0.6 million

in asset impairments for the three months ended March 31, 2024 as compared to the same period in 2023.

and Capital Resources

During the three months ended March 31, 2024, we funded our operations

primarily from proceeds from cash on hand, cash flow from our operations, and Kinergy’s operating line of credit.

In addition to

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

acquisition of Eagle Alcohol.

As of March 31, 2024, we had $42.1 million in cash, cash equivalents and restricted cash, $25.9 million

available for borrowing under Kinergy’s operating line of credit and $65.0 million that may be available for capital improvement

projects under our Orion term loan, subject to certain conditions.

We believe we have sufficient liquidity to meet our anticipated working

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

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).

Cash, cash equivalents and restricted cash

2 unchanged sentences

Current liabilities

Long-term debt

Long-term debt, noncurrent portion

Working capital

Working capital ratio

Changes in Working Capital and Cash Flows

Working capital declined slightly to $109.8 million

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

$19.6 million in current liabilities.

Current assets declined primarily due to a decrease

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

due to changes in average commodity prices for the nine months ended September 30, 2023 as compared to the same period in 2022.

Our current liabilities decreased primarily due

to lower accrued liabilities as a result of our payment of accrued contingent consideration for our acquisition of Eagle Alcohol and lower

utility accruals in the current period, partially offset by an increase in the value of derivative instruments due to the end of period

change in commodity prices for open contracts.

Our cash, cash equivalents and restricted cash

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

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

Cash provided by our Operating Activities

We generated $10.2 million in cash from our operating

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

Specific factors that

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

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

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

These amounts were partially offset by:

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

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

in commodity prices;

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

Cash used in our Investing Activities

We used $28.1 million in cash during the period

to fund $24.6 million of additions to property and equipment, including for our capital improvement projects, and to fund $3.5 million

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

Cash provided by our Financing Activities

Cash provided by our financing activities was $3.2

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

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

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

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for an aggregate amount

of up to $100.0 million.

March 31, 2024, we had approximately $53.0 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 $95.8 million at March 31, 2024 from $103.5 million at December 31, 2023 as a result of a decrease of $17.9 million

in current assets, partially offset by a decrease of $10.2 million in current liabilities.

Current assets declined primarily due to a decrease in inventories

from reduced production volumes.

Our current liabilities decreased primarily due to lower accounts payable

and accrued liabilities as a result of timing of payments, and a decrease in derivative liabilities from changes in commodity prices for

open contracts.

cash, cash equivalents and restricted cash declined by $3.4 million due to $6.0 million in cash used in our investing activities,

partially offset by $1.4 million in cash provided by our operating activities and $1.2 million in cash provided by our financing activities.

provided by our Operating Activities

cash flow provided by our operations was $1.4 million for the three months ended March 31, 2024 as compared to $23.3 million of cash

used in our operating activities for the same period in 2023.

Specific factors that contributed to the change in cash provided by our

operating activities include:

increase of $22.0 million related to payments of accounts payable and accrued liabilities

due to their timing;

increase of $9.9 million related to lower inventories due to reduced production volumes.

amounts were partially offset by:

decrease of $5.1 million related to higher period-end commodity prices applicable to our

derivative instruments;

decrease of $1.5 million related to lower accounts receivable balances due to the timing

of collections;

● a decrease of $1.4 million in net loss due to lower sales volumes at

negative margins.

used in our Investing Activities

We used $4.6 million in cash during the quarter for capital expenditures

to fund additions to property and equipment and $1.4 million in cash to make contingent purchase price payments for our acquisition of

Eagle Alcohol.

Our capital expenditures for the first quarter are in line with our overall $25 million capital expenditure budget for

provided by our Financing Activities

Cash provided by our financing activities was $1.2 million for the

three months ended March 31, 2024, which reflects net proceeds of $1.5 million from Kinergy’s operating line of credit, partially

offset by $0.3 million paid in preferred dividends.

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 1.75%.

The credit facility’s

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

balance during the immediately preceding month.

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

as reimbursement for management

and other services provided by Alto Ingredients, Inc.

to Kinergy are limited under the terms of the credit facility to $1.5 million per

fiscal quarter.

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

or Alto Nutrients, as additional collateral.

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

as reimbursement for

management and other services provided by Alto Ingredients, Inc.

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

to $0.5 million per fiscal quarter.

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

to our subsidiaries.

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

to 75% of excess cash flow.

For all monthly periods in which excess borrowing

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:

Three Months Ended

Fixed-Charge Coverage Ratio Requirement

Alto Ingredients, Inc.

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

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

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

Orion Term Loan

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.

The Lenders agreed to advance up to $100,000,000,

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:

(a) 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, (b) 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 (c) if our leverage ratio is less than 1.5x, then the

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

As of September 30, 2023, the outstanding principal

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

Share Repurchase Program

For the nine months ended September

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

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

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

Other Cash Obligations

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

projects totaling $23.6 million.

These commitments are scheduled to be satisfied throughout 2024.

In connection with our acquisition

of Eagle Alcohol, we committed to contingent payments of up to $5.5 million in cash over the next two years if certain targets are met.

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

Ingredients, Inc.

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

As of March 31, 2024, Kinergy had an outstanding

balance of $32.2 million and $25.9 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.

Lenders agreed to advance to us up to $125.0 million upon the satisfaction of certain conditions.

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 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 March 31, 2024, the principal amount outstanding under the Term Loan was $60,000,000.

Cash Obligations

of March 31, 2024, we had future commitments for certain capital projects totaling $10.8 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 $4.1 million in cash over the next two

years if certain targets are met.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis