UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number: 000-21467

ALTO INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)

Delaware		41-2170618
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1300 South Second Street, Pekin, Illinois		61554
(Address of principal executive offices)		(zip code)
(916) 403-2123 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Trading Symbol

Name of Exchange on Which Registered

Common Stock, $0.001 par value

ALTO

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐ ☒
Non-accelerated filer	☒ ☐	Smaller reporting company	☒ ☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~14, 2021,~~6, 2022, there were ~~72,707,703~~74,075,166 shares of Alto Ingredients, Inc. common stock, $0.001 par value per share, and 896 shares of Alto Ingredients, Inc. non-voting common stock, $0.001 par value per share, outstanding.

~~PART I~~

~~FINANCIAL INFORMATION~~

		Page
	PART I FINANCIAL INFORMATION

ITEM 1.	FINANCIAL ~~STATEMENTS.~~STATEMENTS.	1

	Consolidated Balance Sheets as of March 31, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	1

	Consolidated Statements of Operations for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1816

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	3026

ITEM 4.	CONTROLS AND PROCEDURES.	27

~~ITEM 4.~~		~~CONTROLS AND PROCEDURES.~~	30

	PART II
	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	3128

ITEM 1A.	RISK FACTORS.	3128

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	4137

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	4137

ITEM 4.	MINE SAFETY DISCLOSURES.	4137

ITEM 5.	OTHER INFORMATION.	4137

ITEM 6.	~~EXHIBITS.~~EXHIBITS.	4237

SIGNATURES		4338

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31, December 31,
ASSETS 2021 2020
(unaudited) *
Current Assets:
Cash and cash equivalents $ 44,146 $ 47,667
Accounts receivable (net of allowance for doubtful accounts of $351 and $260, respectively) 56,458 43,491
Inventories 55,216 37,925
Prepaid inventory 1,021 891
Derivative instruments 22,355 17,149
Assets held-for-sale 57,053 58,295
Other current assets 5,339 8,628
Total current assets 241,588 214,046
Property and equipment, net 226,183 229,486
Other Assets:
Right of use operating lease assets, net 11,704 11,046
Notes receivable 13,556 14,337
Intangible asset 2,678 2,678
Other assets 5,407 5,225
Total other assets 33,345 33,286
Total Assets $ 501,116 $ 476,818

	March 31,		December 31,
	2022		2021
	(unaudited)		*
ASSETS
Current Assets:
Cash and cash equivalents	$	36,184	$	50,612
Restricted cash		23,799		11,513
Accounts receivable (net of allowance for doubtful accounts of $409 and $378, respectively)		80,611		86,888
Inventories		58,491		54,373
Derivative instruments		19,498		15,839
Notes receivable, current		12,385		3,125
Other current assets		10,245		7,176
Total current assets		241,213		229,526
Property and equipment, net		220,996		222,550
Other Assets:
Right of use operating lease assets, net		15,099		13,413
Notes receivable, noncurrent		—		11,641
Intangible assets, net		9,460		2,678
Goodwill		5,958		—
Other assets		5,142		5,145
Total other assets		35,659		32,877
Total Assets	$	497,868	$	484,953

Amounts derived from the audited financial statements for the year ended December 31, ~~2020.~~2021.

See accompanying notes to consolidated financial statements.

-1--1-

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

March 31, December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY 2021 2020
(unaudited) *
Current Liabilities:
Accounts payable – trade $ 23,171 $ 13,047
Accrued liabilities 13,623 11,101
Current portion – operating leases 2,581 2,180
Current portion – long-term debt 37,581 25,533
Derivative instruments 4,741 —
Liabilities held-for-sale 19,231 19,542
Other current liabilities 11,822 15,524
Total current liabilities 112,750 86,927

Long-term debt, net of current portion 64,396 71,807
Operating leases, net of current portion 8,956 8,715
Other liabilities 13,332 13,134

Total Liabilities 199,434 180,583

Commitments and Contingencies (Note 6)

Stockholders’ Equity:
Alto Ingredients, Inc. Stockholders’ Equity:
Preferred stock, $0.001 par value; 10,000 shares authorized;
Series A: 1,684 shares authorized; no shares issued and outstanding as of March 31, 2021 and December 31, 2020;
Series B: 1,581 shares authorized; 927 shares issued and outstanding as of March 31, 2021 and December 31, 2020; liquidation preference of $19,975 as of March 31, 2021 1 1
Common stock, $0.001 par value; 300,000 shares authorized; 73,161 and 72,487 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 73 72
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of March 31, 2021 and December 31, 2020 — —
Additional paid-in capital 1,037,718 1,036,638
Accumulated other comprehensive loss (3,878 ) (3,878 )
Accumulated deficit (732,232 ) (736,598 )
Total Stockholders’ Equity 301,682 296,235
Total Liabilities and Stockholders’ Equity $ 501,116 $ 476,818

	March 31,			December 31,
	2022			2021
	(unaudited)			*
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable – trade	$	21,750		$	23,251
Accrued liabilities		19,479			21,307
Current portion – operating leases		4,297			3,909
Derivative instruments		27,487			13,582
Other current liabilities		7,168			7,553
Total current liabilities		80,181			69,602

Long-term debt		53,681			50,361
Operating leases, net of current portion		10,705			9,382
Other liabilities		10,336			10,394
Total Liabilities		154,903			139,739
Commitments and Contingencies (Note 7)
Stockholders’ Equity:
Alto Ingredients, Inc. Stockholders’ Equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; Series A: 1,684 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of March 31, 2022 and December 31, 2021; liquidation preference of $18,075 as of March 31, 2022		1			1
Common stock, $0.001 par value; 300,000 shares authorized; 74,411 and 72,778 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		74			73
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Additional paid-in capital		1,037,869			1,037,205
Accumulated other comprehensive loss		(284	)		(284	)
Accumulated deficit		(694,695	)		(691,781	)
Total Stockholders’ Equity		342,965			345,214
Total Liabilities and Stockholders’ Equity	$	497,868		$	484,953

Amounts derived from the audited financial statements for the year ended December 31, ~~2020.~~2021.

See accompanying notes to consolidated financial statements.

-2--2-

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

Three Months Ended
March 31,
2021 2020
Net sales $ 218,734 $ 311,404
Cost of goods sold 204,897 324,294
Gross profit (loss) 13,837 (12,890 )
Selling, general and administrative expenses 7,014 10,212
Asset impairment 1,200 —
Income (loss) from operations 5,623 (23,102 )
Fair value adjustments — 673
Interest expense, net (1,885 ) (5,307 )
Other income, net 940 580
Income (loss) before benefit for income taxes 4,678 (27,156 )
Benefit for income taxes — —
Consolidated net income (loss) 4,678 (27,156 )
Net loss attributed to noncontrolling interests — 2,056
Net income (loss) attributed to Alto Ingredients, Inc. $ 4,678 $ (25,100 )
Preferred stock dividends $ (312 ) $ (315 )
Net income (loss) available to common stockholders $ 4,366 $ (25,415 )
Net income (loss) per share, basic $ 0.06 $ (0.47 )
Net income (loss) per share, diluted $ 0.06 $ (0.47 )
Weighted-average shares outstanding, basic 70,351 53,828
Weighted-average shares outstanding, diluted 72,464 53,828

	Three Months Ended March 31,
	2022			2021
Net sales	$	308,118		$	218,734
Cost of goods sold		303,345			204,897
Gross profit		4,773			13,837
Selling, general and administrative expenses		7,629			7,014
Asset impairment		—			1,200
Income (loss) from operations		(2,856	)		5,623
Interest expense, net		(200	)		(1,885	)
Other income, net		454			940
Income (loss) before provision for income taxes		(2,602	)		4,678
Provision for income taxes		—			—
Net income (loss)	$	(2,602	)	$	4,678
Preferred stock dividends	$	(312	)	$	(312	)
Net income (loss) available to common stockholders	$	(2,914	)	$	4,366
Net income (loss) per share, basic and diluted	$	(0.04	)	$	0.06
Weighted-average shares outstanding, basic		71,390			70,351
Weighted-average shares outstanding, diluted		71,390			72,464

See accompanying notes to consolidated financial statements.

-3--3-

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended
March 31,
2021 2020
Operating Activities:
Consolidated net income (loss) $ 4,678 $ (27,156 )
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
Depreciation 5,860 9,759
Asset impairment 1,200 —
Gains (losses) on derivative instruments (10,543 ) —
Non-cash compensation 804 865
Amortization of deferred financing fees 190 305
Fair value adjustments — (673 )
Inventory valuation — 4,223
Interest added to debt — 133
Bad debt expense 91 19
Changes in operating assets and liabilities:
Accounts receivable (13,057 ) 22,024
Inventories (17,291 ) 10,845
Prepaid expenses and other assets 3,832 (396 )
Prepaid inventory (129 ) (181 )
Operating leases (1,037 ) (2,348 )
Assets held-for-sale 1,241 1,624
Liabilities held-for-sale (312 ) 9,370
Accounts payable and accrued liabilities 20,391 (1,512 )
Net cash provided by (used in) operating activities (4,082 ) 26,901
Investing Activities:
Additions to property and equipment (4,411 ) (1,245 )
Net cash used in investing activities (4,411 ) (1,245 )
Financing Activities:
Net proceeds (payments) from Kinergy’s line of credit 13,042 (18,156 )
Proceeds from stock option exercises 462 —
Proceeds from issuance of common stock — 282
Principal payments on borrowings (8,532 ) —
Net cash provided by (used in) financing activities 4,972 (17,874 )
Net increase (decrease) in cash and cash equivalents (3,521 ) 7,782
Cash and cash equivalents at beginning of period 47,667 18,997
Cash and cash equivalents at end of period $ 44,146 $ 26,779

Supplemental Information:
Interest paid $ 1,825 $ 1,968
Accrued preferred stock dividends $ 312 $ 315

	Three Months Ended March 31,
	2022			2021
Operating Activities:
Consolidated net income (loss)	$	(2,602	)	$	4,678
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of intangibles		6,134			5,860
Asset impairment		—			1,200
Gains on derivative instruments		(5,316	)		(10,543	)
Non-cash compensation		673			804
Amortization of deferred financing fees		6			190
Bad debt expense		31			91
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable		11,775			(13,057	)
Inventories		(2,773	)		(17,291	)
Other assets		14,119			3,309
Operating leases		(1,257	)		(1,037	)
Assets held-for-sale		—			1,241
Liabilities held-for-sale		—			(312	)
Accounts payable and accrued liabilities		(9,726	)		20,391
Net cash provided by (used in) operating activities		11,064			(4,476	)
Investing Activities:
Additions to property and equipment		(2,334	)		(4,411	)
Purchase of Eagle Alcohol, net of cash acquired		(14,655	)		—
Net cash used in investing activities		(16,989	)		(4,411	)
Financing Activities:
Net proceeds from Kinergy’s line of credit		3,314			13,042
Proceeds from principal payments on notes receivable		781			—
Proceeds from stock option exercises		—			462
Preferred stock dividends paid		(312	)		—
Principal payments on borrowings		—			(8,532	)
Net cash provided by financing activities		3,783			4,972
Net decrease in cash, cash equivalents and restricted cash		(2,142	)		(3,915	)
Cash, cash equivalents and restricted cash at beginning of period		62,125			48,187
Cash, cash equivalents and restricted cash at end of period	$	59,983		$	44,272

Reconciliation of total cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	36,184		$	44,146
Restricted cash		23,799			126
Total cash, cash equivalents and restricted cash	$	59,983		$	44,272
Supplemental Information:
Interest paid	$	195		$	1,825
Income tax refunds	$	81		$	—
Accrued preferred stock dividends	$	—		$	312

See accompanying notes to consolidated financial statements.

-4--4-

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

Preferred Stock Common Stock Additional
Paid-In Accumulated Accum. Other
Comprehensive Non-Controlling

Shares Amount Shares Amount Capital Deficit Income (Loss) Interests Total
Balances, January 1, 2021 927 $ 1 72,487 $ 72 $ 1,036,638 $ (736,598 ) $ (3,878 ) $ — $ 296,235
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax — — 550 1 618 — — — 619
Stock option exercises — — 124 — 462 — — — 462
Preferred stock dividends — — — — — (312 ) — — (312 )
Net loss — — — — — 4,678 — — 4,678
Balances, March 31, 2021 927 $ 1 73,161 $ 73 $ 1,037,718 $ (732,232 ) $ (3,878 ) $ — $ 301,682
Balances, January 1, 2020 927 $ 1 55,508 $ 56 $ 942,307 $ (720,214 ) $ (2,370 ) $ 7,265 $ 227,045
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax — — (38 ) (4 ) 868 — — — 864
Issuances of common stock — — 421 4 278 — — — 282
Preferred stock dividends — — — — — (315 ) — — (315 )
Net loss — — — — — (25,100 ) — (2,056 ) (27,156 )
Balances, March 31, 2020 927 $ 1 55,891 $ 56 $ 943,453 $ (745,629 ) $ (2,370 ) $ 5,209 $ 200,720

	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Accum. Other Comprehensive
	Shares		Amount		Shares		Amount		Capital			Deficit			Loss			Total
Balances, January 1, 2022		927	$	1		72,778	$	73	$	1,037,205		$	(691,781	)	$	(284	)	$	345,214
Stock-based compensation		—		—		—		—		673			—			—			673
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		684		—		(9	)		—			—			(9	)
Shares issued for Eagle Alcohol acquisition		—		—		949		1		—			—			—			1
Preferred stock dividends		—		—		—		—		—			(312	)		—			(312	)
Net loss		—		—		—		—		—			(2,602	)		—			(2,602	)
Balances, March 31, 2022		927	$	1		74,411	$	74	$	1,037,869		$	(694,695	)	$	(284	)	$	342,965

Balances, January 1, 2021		927	$	1		72,487	$	72	$	1,036,638		$	(736,598	)	$	(3,878	)	$	296,235
Stock-based compensation		—		—		—		—		804			—			—			804
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		550		1		(186	)		—			—			(185	)
Stock option exercises		—		—		124		—		462			—			—			462
Preferred stock dividends		—		—		—		—		—			(312	)		—			(312	)
Net income		—		—		—		—		—			4,678			—			4,678
Balances, March 31, 2021		927	$	1		73,161	$	73	$	1,037,718		$	(732,232	)	$	(3,878	)	$	301,682

-5-

See accompanying notes to consolidated financial statements.

-5-

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. 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 (“Alto Ingredients”), and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including ~~its wholly-owned subsidiaries,~~ Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Alto Nutrients, LLC, a California limited liability company (“Alto Nutrients”), Alto Op Co., a Delaware corporation (“Alto Op Co.”), Alto Pekin, LLC, a Delaware limited liability company (“Alto Pekin”) and ~~all seven of~~Alto ICP, LLC, a Delaware limited liability company (“ICP”), and the Company’s production facilities asin Oregon and Idaho.

On May 14, 2021 and November 4, 2021, the Company completed the sale of its production facilities located in Madera and Stockton, California, respectively. The results of these facilities are included in the Company’s results reported for the three months ended March 31, 2021. As discussed in Note 2, on January 14, 2022, the Company acquired 100% ownership of Eagle Alcohol Company LLC, a Missouri limited liability company (“Eagle Alcohol”), which is now a wholly-owned subsidiary of Alto Ingredients, Inc. The results of Eagle Alcohol since the date of the acquisition are included in the Company’s results reported for the three months ended March 31, 2022.

The Company is a leading producer and ~~marketer~~distributor of specialty alcohols and essential ingredients. The Company also produces, markets and ~~markets fuel-grade ethanol.~~distributes renewable fuel. The Company’s production facilities in Pekin, Illinois are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and allow for access to many additional domestic markets. In addition, the Company’s ability to load unit trains and barges from these facilities allows for greater access to international markets. The Company’s ~~four~~two production facilities in ~~California,~~ Oregon and Idaho are located in close proximity to both feed and ~~fuel-grade~~renewable fuel ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing.

The Company ~~had~~has a combined alcohol production capacity of ~~450~~350 million gallons per year ~~as of March 31, 2021, markets, on an annualized basis, over 500 million gallons of alcohols,~~ and produces, on an annualized basis, nearly ~~1.5~~1.2 million tons of essential ingredients on a dry matter basis, such as dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods. In addition, the Company sells alcohols acquired from other producers, and markets and distributes fuel-grade ethanol produced by third parties.

The Company focuses on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels. Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial animal feed and pet foods. Renewable Fuels includes fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

As of March 31, ~~2021,~~2022, all of the ~~Company was operating at approximately 64% of its then-450 million gallon annual~~Company’s production ~~capacity.~~facilities were operating. 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 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, ~~2020.~~2021. 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, ~~2020.~~2021. 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. All significant intercompany accounts and transactions have been eliminated in consolidation.

-6-

Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are presented at face value, net of the allowance for doubtful accounts. The Company sells specialty alcohols to large consumer products companies, sells fuel-grade ethanol to gasoline refining and distribution companies, sells essential ingredients to animal feed customers, including distillers grains and other feed co-products to dairy operators and animal feedlots and corn oil to poultry and biodiesel customers generally without requiring collateral.

-6-

The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of ability to make payments, additional allowances may be required.

Of the accounts receivable balance, approximately ~~$51,301,000~~$52,008,000 and ~~$35,839,000~~$63,929,000 at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were used as collateral under Kinergy’s operating line of credit. The allowance for doubtful accounts was ~~$351,000~~$409,000 and ~~$260,000~~$378,000 as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company recorded a bad debt expense of ~~$91,000~~$31,000 and ~~$19,000~~$91,000 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company does not have any off-balance sheet credit exposure related to its customers.

Financial Instruments – The carrying values of cash and cash equivalents, restricted cash, accounts receivable, notes 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 ~~carrying value of the Company’s senior secured notes are recorded at fair value and are considered Level 2 fair value measurements. The~~ Company believes the carrying value of its ~~notes receivable are not considered materially different than fair value due to their recent issuances, and other~~ long-term debt ~~instruments’ carrying values~~instruments are not considered materially different than fair value because the interest rates on these instruments are ~~variable,~~variable.

Business Combinations – Business acquisitions are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. FASB ASC 805 requires the reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible assets acquired, the liabilities assumed and recognize and measure goodwill or a gain from the purchase. Assets acquired and liabilities assumed are ~~considered Level 2~~recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill. Adjustments to fair value ~~measurements.~~assessments are recorded to goodwill over the measurement period (not longer than twelve months).

Estimates and Assumptions – The preparation of the consolidated financial statements in conformity with ~~GAAP~~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. Significant estimates are required as part of determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of property and equipment, long-lived asset impairments, fair value of warrants, valuation allowances on deferred income taxes, ~~and~~ the potential outcome of future tax consequences of events recognized in the Company’s financial statements or tax returns, and the valuation of assets acquired and liabilities assumed as a result of business combinations. Actual results and outcomes may materially differ from management’s estimates and assumptions.

2. ACQUISITION OF EAGLE ALCOHOL.

~~2. ASSETS AND LIABILITIES HELD-FOR-SALE.~~

~~In October 2020,~~On January 14, 2022, the Company purchased 100% of the membership interests of Eagle Alcohol. The purchase price was $14.0 million in cash plus an estimated net working capital adjustment of $1.3 million in cash. The selling members of Eagle Alcohol are eligible to receive up to an additional $14.0 million of contingent consideration, payable through a combination of $9.0 million in cash over the next three years and an aggregate of $5.0 million in the Company’s ~~Board~~common stock on the fourth and fifth year anniversaries of ~~Directors approved a plan~~the closing date, subject to ~~sell~~ the ~~Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California. As a result,~~satisfaction of certain conditions, including continued employment with the Company. With respect to these payments, the Company ~~determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020. During~~has recognized an estimated $0.9 million for the three months ended March 31, ~~2021,~~2022, in selling, general and administrative expenses in the ~~Company provided for an additional impairment charge~~accompanying consolidated statements of $1.2 million based on revised fair value estimates. On April 23, 2021, the Company entered into an asset purchase agreement to sell its Madera facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities. On May 14, 2021, the Company closed the sale.operations.

-7--7-

Eagle Alcohol specializes in break bulk distribution of specialty alcohols. Eagle Alcohol purchases bulk alcohol from suppliers. Eagle Alcohol then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that garner a premium to bulk alcohols. Eagle Alcohol delivers products to customers in the beverage, food, pharma, and related-process industries via its own dedicated trucking fleet and common carrier. The acquisition will provide the Company ~~classified~~further vertical integration and access to new markets in the ~~following assets and liabilities as held-for-sale as of~~specialty alcohol industry.

Eagle Alcohol’s unaudited results for the three months ended March 31, 2022 and 2021 generated $3.8 million and $6.8 million in net sales and $0.2 million and $0.9 million in net income, respectively. The following table presents unaudited pro forma combined financial information assuming the acquisition occurred on January 1, 2021 (dollars in thousands except per share amounts):

	Three Months Ended March 31,
	2022			2021

Revenues – pro forma	$	308,645		$	225,486
Net income (loss) available to common stockholders – pro forma	$	(2,981	)	$	4,508
Diluted net income (loss) per share – pro forma	$	(0.04	)	$	0.06
Diluted shares		72,339			73,413

The following preliminary allocation of the estimated purchase price assumes, with the exception of property and equipment and intangibles, carrying values approximate fair value. Estimates of uncollectible accounts receivable are not considered material due to the short-term nature and customer collection history. The preliminary estimate of working capital is under review by management and is subject to change. Based upon these assumptions, the preliminary purchase price allocation is as follows (in thousands):

Stockton Madera
Property and equipment, net $ 19,535 $ 27,813
Right of use operating lease assets, net 9,705 -
Assets held-for-sale $ 29,240 $ 27,813

Cash and equivalents	$	705
Accounts receivables		5,529
Inventories		1,345
Total current assets		7,579

Property and equipment		1,066
Right of use assets		2,749
Total tangible assets	$	11,394

Current liabilities	$	6,219
Right of use liabiltiy		2,749
Total liabiltiies	$	8,968

Net tangible assets acquired	$	2,426
Customer relationships		6,556
Tradename		420
Goodwill		5,958
Total Purchase Price	$	15,360

Stockton Madera
Operating lease obligations $ 10,456 $ —
Assessment financing — 8,775
Liabilities held-for-sale $ 10,456 $ 8,775

Goodwill represents the value of the downstream integration that the operations of Eagle Alcohol will add to the Company. The Company ~~classified~~expects the ~~following~~amortization of goodwill to be deductible for tax purposes. For the identifiable intangible assets, the Company has estimated 12 years for useful lives for customer relationships and ~~liabilities as held-for-sale as of December 31, 2020 (in thousands):~~

Stockton Madera
Property and equipment, net $ 19,535 $ 29,013
Right of use operating lease assets, net 9,747 -
Assets held-for-sale $ 29,282 $ 29,013

Stockton Madera
Operating lease obligations $ 10,435 $ —
Assessment financing — 9,107
Liabilities held-for-sale $ 10,435 $ 9,107

10 years for tradename. For the three months ended March 31, ~~2021, net sales attributed~~2022, the Company recorded amortization of these intangibles of $108,000 and $9,000, respectively. Any changes to the ~~results~~initial estimates of ~~operations for Stockton~~the fair value of the acquired assets and ~~Madera were $0.2 million~~assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill if net assets acquired are less than ~~$0.1 million, respectively. For~~ the three months ended March 31, 2020, net sales attributed to the results of operations for Stockton and Madera were $21.9 million and $21.5 million, respectively. For the three months ended March 31, 2021, pre-tax loss attributed to the results of operations for Stockton and Madera was $0.8 million and $1.6 million, respectively. For the three months ended March 31, 2020, pre-tax loss attributed to the results of operations for Stockton and Madera was $2.3 million and $1.8 million, respectively.purchase price. The Company did not incur any material acquisition costs.

-8-

3. SEGMENTS.

The Company reports its financial and operating performance in ~~three~~3 segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols and essential ingredients on an aggregated basis and third-party fuel-grade ethanol sales (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus (“Pekin Campus”), and (3) Other production, which includes the production and sale of ~~fuel-grade ethanol~~renewable fuel 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 reportable segment.

-8-

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

Three Months Ended
March 31,
Net Sales 2021 2020
Marketing and distribution:
Alcohol sales, gross $ 57,010 $ 57,506
Alcohol sales, net 452 429
Intersegment sales 2,244 4,315
Total marketing and distribution sales 59,706 62,250
Pekin Campus production, recorded as gross:
Alcohol sales $ 95,083 $ 84,132
Essential ingredient sales 45,077 39,870
Intersegment sales 9,985 2,332
Total Pekin Campus sales 150,145 126,334
Other production, recorded as gross:
Alcohol sales $ 15,969 $ 99,230
Essential ingredient sales 5,143 30,237
Intersegment sales 305 291
Total Other production sales 21,417 129,758

Intersegment eliminations (12,534 ) (6,938 )
Net sales as reported $ 218,734 $ 311,404

Cost of goods sold:
Marketing and distribution $ 53,957 $ 57,139
Pekin Campus production 137,376 128,683
Other production 24,118 142,310
Intersegment eliminations (10,554 ) (3,838 )
Cost of goods sold as reported $ 204,897 $ 324,294

Income (loss) before benefit for income taxes:
Marketing and distribution $ 3,973 $ 2,930
Pekin Campus production 9,691 (6,849 )
Other production (5,137 ) (16,621 )
Corporate activities (2,904 ) (2,562 )
$ 5,623 $ (23,102 )
Depreciation:
Pekin Campus production $ 4,345 $ 5,130
Other production 1,498 4,530
Corporate activities 17 99
$ 5,860 $ 9,759

Interest expense:
Marketing and distribution $ 202 $ 627
Pekin Campus production 519 2,084
Other production 136 32
Corporate activities 1,028 2,564
$ 1,885 $ 5,307

	Three Months Ended March 31,
Net Sales	2022			2021
Pekin Campus production, recorded as gross:
Alcohol sales	$	116,050		$	95,083
Essential ingredient sales		55,280			45,077
Intersegment sales		256			1,473
Total Pekin Campus sales		171,586			141,633
Marketing and distribution:
Alcohol sales, gross	$	53,926		$	57,010
Alcohol sales, net		351			452
Intersegment sales		2,996			2,244
Total marketing and distribution sales		57,273			59,706
Other production, recorded as gross:
Alcohol sales	$	59,805		$	15,969
Essential ingredient sales		18,938			5,143
Intersegment sales		12			305
Total Other production sales		78,755			21,417

Corporate and other		3,768			—
Intersegment eliminations		(3,264	)		(4,022	)
Net sales as reported	$	308,118		$	218,734

Cost of goods sold:
Pekin Campus	$	168,881		$	128,864
Marketing and distribution		54,716			53,958
Other production		78,244			24,117
Corporate and other		2,872			—
Intersegment eliminations		(1,368	)		(2,042	)
Cost of goods sold as reported	$	303,345		$	204,897

-9-

Gross profit (loss):
Pekin Campus production	$	2,705		$	12,769
Marketing and distribution		2,557			5,748
Other production		511			(2,700	)
Corporate and other		896			—
Intersegment eliminations		(1,896	)		(1,980	)
Gross profit (loss) as reported	$	4,773		$	13,837

Income (loss) before provision for income taxes:
Pekin Campus production	$	85		$	10,012
Marketing and distribution		785			3,735
Other production		(1,209	)		(5,945	)
Corporate and other		(2,263	)		(3,124	)
	$	(2,602	)	$	4,678

Depreciation and amortization:
Pekin Campus production	$	4,538		$	4,345
Other production		1,456			1,498
Corporate and other		140			17
	$	6,134		$	5,860

Interest expense:
Pekin Campus production	$	—		$	519
Marketing and distribution		200			202
Other production		—			136
Corporate and other		—			1,028
	$	200		$	1,885

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

March 31,
December 31,
Total assets: 2021 2020
Marketing and distribution $ 119,546 $ 89,337
Pekin Campus production 238,370 234,439
Other production 120,351 102,409
Corporate assets 22,849 50,633
$ 501,116 $ 476,818

	March 31, 2022		December 31, 2021
Total assets:
Pekin Campus production	$	271,771	$	266,197
Marketing and distribution		127,499		130,302
Other production		62,168		57,046
Corporate and other		36,430		31,408
	$	497,868	$	484,953

~~4. INVENTORIES.~~

INVENTORIES.

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 ~~$1,033,000~~ valuation adjustment of $249,000 and $0 as of March 31, 2022 and December 31, ~~2020.~~2021, respectively. Inventory balances consisted of the following (in thousands):

March 31, 2021 December 31,
2020
Finished goods $ 39,654 $ 25,154
Work in progress 4,965 4,333
Raw materials 9,233 7,074
Other 1,364 1,364
Total $ 55,216 $ 37,925

	March 31, 2022		December 31, 2021
Finished goods	$	38,418	$	35,509
Work in progress		7,185		6,909
Raw materials		11,770		10,837
Other		1,118		1,118
Total	$	58,491	$	54,373

-10-

5. DERIVATIVES.

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.

-10-

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 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, ~~2021~~2022 and ~~2020,~~2021, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn and ~~alcohols~~ethanol by entering into exchange-traded forward 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 ~~$10,543,000~~$5,316,000 and $0$10,543,000 as the change in the fair value of these contracts for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ 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 March 31, 2021
Assets Liabilities
Type of Instrument Balance Sheet Location Fair
Value Balance Sheet Location Fair
Value
Commodity contracts Derivative assets $ 22,355 Derivative liabilities $ 4,741

	As of March 31, 2022
	Assets			Liabilities
Type of Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Cash collateral balance	Restricted cash	$	23,799
Commodity contracts	Derivative assets	$	19,498	Derivative liabilities	$	27,487

As of December 31, 2020
Assets Liabilities
Type of Instrument Balance Sheet Location Fair
Value Balance Sheet Location Fair
Value
Cash collateral balance Other current assets $ 520
Commodity contracts Derivative assets $ 17,149 Derivative liabilities $ —

	As of December 31, 2021
	Assets			Liabilities
Type of Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value

Cash collateral balance	Restricted cash	$	11,513
Commodity contracts	Derivative assets	$	15,839	Derivative liabilities	$	13,582

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 its intent is to close out positions individually, therefore, they are reported at gross.

The classification and amounts of the Company’s recognized gains for its derivatives not designated as hedging instruments are as follows (in thousands):

Realized Gains
For the three months Ended
March 31,
Type of Instrument Statements of Operations Location 2021 2020
Commodity contracts Cost of goods sold $ 6,185 $ —
$ 6,185 $ —

		Realized Gains
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2022		2021

Commodity contracts	Cost of goods sold	$	15,562	$	6,185
		$	15,562	$	6,185

Unrealized Gains
For the three months Ended
March 31,
Type of Instrument Statements of Operations Location 2021 2020
Commodity contracts Cost of goods sold $ 4,358 $ —
$ 4,358 $ —

		Unrealized Gains (Losses)
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2022			2021

Commodity contracts	Cost of goods sold	$	(10,246	)	$	4,358
		$	(10,246	)	$	4,358

-11--11-

6. DEBT.

Long-term borrowings are summarized as follows (in thousands):

March 31,
2021 December 31,
2020
Kinergy line of credit $ 45,554 $ 32,512
Pekin revolving loan 17,580 20,580
ICP revolving loan 9,384 9,384
Parent notes payable 20,001 25,533
CARES Act loans 9,860 9,860
102,379 97,869
Less unamortized debt premium 174 230
Less unamortized debt financing costs (576 ) (759 )
Less short-term portion (37,581 ) (25,533 )
Long-term debt $ 64,396 $ 71,807

	March 31, 2022			December 31, 2021
Kinergy line of credit	$	53,715		$	50,401
Less unamortized debt financing costs		(34	)		(40	)
Less short-term portion		—			—
Long-term debt	$	53,681		$	50,361

~~Parent Notes Payable~~Excess Availability – ~~On May 14, 2021, with proceeds from the Company’s sale~~As of ~~its Madera, California facility, it repaid $19.3 million of principal on its notes payable, with $0.7 million remaining.~~

~~Maturities of Long-term Debt~~ ~~– The Company’s long-term debt matures as follows (in thousands):~~

December 31:

2021 $ 20,001
2022 82,378
$ 102,379

~~Restrictions~~ ~~– At~~ March 31, ~~2021, there were approximately $231.9~~2022, Kinergy had $15.2 million in unused borrowing availability under its line of net assets at the Company’s subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, loans or advances due to restrictions contained in the credit facilities of the Company’s subsidiaries.credit.

7. COMMITMENTS AND CONTINGENCIES.

Sales Commitments – At March 31, ~~2021,~~2022, 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 ~~102,526,000~~125,438,000 gallons as of March 31, ~~2021~~2022 and open fixed-price alcohol sales contracts totaling ~~$207,687,000~~$124,713,000 as of March 31, ~~2021.~~2022. The Company had open fixed-price sales contracts for essential ingredients totaling ~~$18,170,000~~$23,023,000 and open indexed-price sales contracts of essential ingredients for ~~146,000~~5,242,000 tons as of March 31, ~~2021.~~2022. These sales contracts are scheduled to be completed throughout ~~2021.~~2022.

Purchase Commitments – At March 31, ~~2021,~~2022, the Company had indexed-price purchase contracts to purchase ~~15,626,000~~17,439,000 gallons of alcohol and fixed-price purchase contracts to purchase ~~$1,238,000~~$81,601,000 of alcohol from its suppliers. The Company had fixed-price purchase contracts to purchase ~~$33,883,000~~$67,584,000 of corn from its suppliers as of March 31, ~~2021.~~2022. The Company had fixed-price purchase contracts for natural gas totaling $13,439,000 and indexed-price purchase contracts for natural gas totaling 2,140,000 MMBTU. The Company also had future commitments for certain capital projects totaling $26,769,000. These purchase commitments are scheduled to be satisfied throughout ~~2021.~~2022 and 2023.

-12-

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.

8. PENSION PLANS.

The Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a ~~health care~~healthcare and life insurance plan (the “Postretirement Plan”). ~~The Company assumed the Retirement Plan and the Postretirement Plan as part of its acquisition of PE Central on July 1, 2015.~~

-12-

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, ~~2020,~~2021, the Retirement Plan’s accumulated projected benefit obligation was ~~$24.6~~$23.8 million, with a fair value of plan assets of ~~$17.6~~$20.0 million. The underfunded amount of ~~$7.0~~$3.8 million is recorded on the Company’s consolidated balance sheet in other liabilities. For the three months ended March 31, 2022, the Retirement Plan’s net periodic expense (income) was ($8,000), comprised of $164,000 in interest cost and $101,000 in service cost, more than offset by $273,000 of expected return on plan assets. For the three months ended March 31, 2021, the Retirement Plan’s net periodic expense was $22,000, comprised of $151,000 in interest cost and $109,000 in service cost, partially offset by $238,000 of expected return on plan assets. For the three months ended March 31, 2020, the Retirement Plan’s net periodic expense was $48,000, comprised of $173,000 in interest cost and $101,000 in service cost, partially offset by $226,000 of expected return on plan assets.

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 reduces at age 65 from a defined benefit to a defined dollar cap based upon years of service. As of December 31, ~~2020,~~2021, the Postretirement Plan’s accumulated projected benefit obligation was ~~$5.3~~$4.3 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 March 31, 2022, the Postretirement Plan’s net periodic expense was $32,000, comprised of $26,000 of interest cost and $6,000 of service cost. For the three months ended March 31, 2021, the Postretirement Plan’s net periodic expense was $42,000, comprised of $10,000 of interest cost, $26,000 of service cost and $6,000 of amortization expense. For the three months ended March 31, 2020, the Postretirement Plan’s net periodic expense was $59,000, comprised of $38,000 of interest cost, $14,000 of service cost and $7,000 of amortization expense.

-13-

9. FAIR VALUE MEASUREMENTS.

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

●

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

●

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

●

Level 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.

Pooled separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds. 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.

-13-

Long-Lived Assets Held-for-Sale – The Company recorded its long-lived assets associated with its property and equipment held-for-sale at fair value at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 of ~~$47,348,000 and $48,548,000, respectively.~~$1,000,000. The fair values of these assets are based on observable values for the assets through corroboration with market data and are designated as Level 3 inputs.

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 March 31, ~~2021~~2022 (in thousands):

Fair
Value Level 1 Level 2 Level 3
Assets:
Derivative financial instruments $ 22,355 $ 22,355 $ — $ —
Long-lived assets held-for-sale 57,053 — — 57,053
$ 79,408 $ 22,355 $ — $ 57,053
Liabilities:
Derivative financial instruments $ (4,741 ) $ (4,741 ) $ — $ —
$ (4,741 ) $ (4,741 ) $ — $ —

-14-

	Fair Value			Level 1			Level 2		Level 3
Assets:
Derivative financial instruments	$	19,498		$	19,498		$	—	$	—
Long-lived assets held-for-sale		1,000			—			—		1,000
	$	20,498		$	19,498		$	—	$	1,000
Liabilities:

Derivative financial instruments	$	(27,487	)	$	(27,487	)	$	—	$	—

The following table summarizes recurring and nonrecurring fair value measurements by level at December 31, ~~2020~~2021 (in thousands):

Benefit Plan
Fair Percentage
Value Level 1 Level 2 Level 3 Allocation
Assets:
Derivative financial instruments $ 17,149 $ 17,149 $ — $ —
Long-lived assets held-for-sale 58,295 — — 58,295
Defined benefit plan assets(1)
(pooled separate accounts): ��
Large U.S. Equity(2) 5,470 — 5,470 — 31 %
Small/Mid U.S. Equity(3) 2,605 — 2,605 — 15 %
International Equity(4) 2,921 — 2,921 — 17 %
Fixed Income(5) 6,592 — 6,592 — 37 %
$ 93,032 $ 17,149 $ 17,588 $ 58,295

Liabilities:

$ — $ — $ — $ —

	Fair Value			Level 1			Level 2		Level 3		Benefit Plan Percentage Allocation
Assets:
Derivative financial instruments	$	15,839		$	15,839		$	—	$	—
Long-lived assets held-for-sale		1,000			—			—		1,000
Defined benefit plan assets(1)
(pooled separate accounts):
Large U.S. Equity(2)		5,612			—			5,612		—		28	%
Small/Mid U.S. Equity(3)		3,684			—			3,684		—		18	%
International Equity(4)		2,909			—			2,909		—		15	%
Fixed Income(5)		7,782			—			7,782		—		39	%
	$	36,826		$	15,839		$	19,987	$	1,000

Liabilities:
Derivative financial instruments	$	(13,582	)	$	(13,582	)	$	—	$	—

(1)

~~(1)~~

Included in other assets in the consolidated balance sheets.

(2)

~~(2)~~

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

~~(3)~~

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

~~(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)

~~(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. 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.

-14-

10.

EARNINGS PER SHARE.

~~10. EARNINGS PER SHARE.~~

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

Three Months Ended
March 31, 2021
Income Numerator Shares Denominator Per-Share Amount
Net income attributed to Alto Ingredients, Inc. $ 4,678
Less: Preferred stock dividends (312 )
Basic income per share:
Income available to common stockholders $ 4,366 70,351 $ 0.06
Add: Dilutive securities — 2,113
Diluted income per share:
Income available to common stockholders $ 4,366 72,464 $ 0.06

-15-

	Three Months Ended March 31, 2022
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss	$	(2,602	)
Less: Preferred stock dividends		(312	)
Basic and diluted loss per share:
Net loss available to common stockholders	$	(2,914	)		71,390	$	(0.04	)

	Three Months Ended March 31, 2021
	Income Numerator			Shares Denominator		Per-Share Amount
Net income	$	4,678
Less: Preferred stock dividends		(312	)
Basic income per share:
Income available to common stockholders	$	4,366			70,351	$	0.06
Add: Dilutive securities					2,113
Diluted income per share:
Income available to common stockholders	$	4,366			72,464	$	0.06

Three Months Ended
March 31, 2020
Loss
Numerator Shares Denominator Per-Share Amount
Net loss attributed to Alto Ingredients, Inc. $ (25,100 )
Less: Preferred stock dividends (315 )
Basic and diluted loss per share:
Net loss available to common stockholders $ (25,415 ) 53,828 $ (0.47 )

There were an additional aggregate potentially dilutive weighted-average shares of ~~3,265,000~~1,339,000 and ~~964,000~~3,265,000 from convertible securities outstanding for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. These securities were not considered in calculating diluted net income (loss) per share for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, as their effect would have been anti-dilutive.

~~11. PARENT COMPANY FINANCIALS.~~

~~Restricted Net Assets~~ – At March 31, ~~2021,~~2022, the Company had ~~approximately $231.9~~outstanding unexercised warrants to purchase 8.9 million shares of ~~net assets~~its common stock at ~~its subsidiaries that were not available to be transferred to Alto Ingredients in the form~~an exercise price of ~~dividends, distributions, loans or advances due to restrictions contained in the credit facilities of these subsidiaries.~~$9.76 per share. These warrants expired unexercised on April 28, 2022.

~~Parent company financial statements for the periods covered in this report are set forth below (in thousands):~~

ASSETS
March 31, 2021

December 31,
2020

Current Assets:
Cash and cash equivalents $ 16,534 $ 25,632
Receivables from subsidiaries 16,412 15,548
Other current assets 2,188 1,836
Total current assets 35,134 43,016

Property and equipment, net 125 142
Other Assets:
Investments in subsidiaries 257,547 246,518
Alto West, LLC receivable 42,649 42,649
Right of use operating lease assets, net 2,915 2,985
Other assets 1,087 1,088
Total other assets 304,198 293,240
Total Assets $ 339,457 $ 336,398
Current Liabilities:
Accounts payable and accrued liabilities $ 4,961 $ 2,001
Accrued Alto Op Co. purchase 3,829 3,829
Current portion of long-term debt 20,001 25,533
Other current liabilities 394 473
Total current liabilities 29,185 31,836

Long-term debt, net of current portion 5,665 5,564
Other liabilities 2,925 2,763
Total Liabilities 37,775 40,163
Stockholders’ Equity:
Preferred stock 1 1
Common and non-voting common stock 73 72
Additional paid-in capital 1,037,718 1,036,638
Accumulated other comprehensive loss (3,878 ) (3,878 )
Accumulated deficit (732,232 ) (736,598 )
Total Alto Ingredients, Inc. stockholders’ equity 301,682 296,235
Total Liabilities and Stockholders’ Equity $ 339,457 $ 336,398

-16--15-

Three Months Ended
March 31,

2021

2020

Management fees from subsidiaries $ 2,526 $ 3,253
Selling, general and administrative expenses 4,651 5,377
Loss from operations (2,125 ) (2,124 )
Fair value adjustments — 673
Interest expense, net (1,028 ) (1,598 )
Other income 807 —
Loss before benefit for income taxes (2,346 ) (3,049 )
Benefit for income taxes — —
Loss before equity in losses of subsidiaries (2,346 ) (3,049 )
Equity in income (losses) of subsidiaries 7,024 (24,107 )
Consolidated net income (loss) $ 4,678 $ (27,156 )

For the Three Months Ended
March 31,
2021 2020
Operating Activities:
Consolidated net income (loss) $ 4,678 $ (27,156 )
Adjustments to reconcile net income (loss) to cash used in operating activities:
Equity in (income) losses of subsidiaries (7,024 ) 24,107
Fair value adjustments — (673 )
Depreciation 17 33
Amortization (accretion) of debt discount (premium) 101 (57 )
Changes in operating assets and liabilities:
Receivables from subsidiaries (864 ) 123
Other assets (281 ) 29
Accounts payable and accrued expenses (765 ) —
Accounts payable with subsidiaries 110 2,235
Net cash used in operating activities $ (4,028 ) $ (1,359 )
Investing Activities:
Additions to property and equipment $ — $ —
Net cash used in investing activities $ — $ —
Financing Activities:
Proceeds from issuances of common stock $ 462 $ 282
Proceeds from plant receivable — 5,813
Payments on senior notes (5,532 ) —
Preferred stock dividend payments — —
Net cash provided by (used in) financing activities $ (5,070 ) $ 6,095
Net increase (decrease) in cash and cash equivalents (9,098 ) 4,736
Cash and cash equivalents at beginning of period 25,632 4,985
Cash and cash equivalents at end of period $ 16,534 $ 9,721

~~12. SUBSEQUENT EVENT.~~

~~Agreement to sell Madera facility~~ – On April 23, 2021, the Company entered into an asset purchase agreement with Seaboard Energy California, LLC, for the purchase and sale of the Company’s Madera, California production facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities. The Company closed the sale on May 14, 2021, and using net cash proceeds, repaid $19.3 million on its parent notes payable.

-17-

ITEM 2.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:

●

fluctuations in the market prices of alcohols and essential ingredients;

●

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

●

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

●

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

●

anticipated trends in our financial condition and results of operations; and

●

our ability to ~~distinguish~~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.

~~Recent Developments~~Overview

On April 23, 2021, we entered into an asset purchase agreement with Seaboard Energy California, LLC, for the purchase and sale of our Madera, California production facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities. We closed the transaction on May 14, 2021, and with the net proceeds, repaid $19.3 million in principal on our senior notes.

~~Overview~~

We are a leading producer and ~~marketer~~distributor of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United ~~States based on annualized volumes.~~States.

-18--16-

We operate ~~six~~five alcohol production facilities. Three of our production facilities are located in the Midwestern state of Illinois and ~~three~~two of our facilities are located in the Western states of ~~California,~~ Oregon and Idaho. ~~Our facility in California is held-for-sale as we are in the process of marketing the Stockton facility for sale.~~ We have an annual alcohol production capacity of ~~410~~350 million gallons. We market and distribute all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties. In ~~2020,~~2021, we marketed ~~over 500~~and distributed approximately 480 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and ~~nearly 1.5~~over 1.2 million tons of essential ingredients on a dry matter basis. ~~Our business consists of three reportable segments: two production segments and a marketing segment.~~

We report our financial and operating performance in three segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols and essential ingredients on an aggregated basis and third party fuel-grade ethanol sales, (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our Pekin, Illinois campus, or Pekin Campus, and (3) Other production, which includes the production and sale of ~~fuel-grade ethanol~~renewable fuel and essential ingredients produced at all of our other production facilities on an ~~aggregate~~aggregated basis, none of which are individually so significant as to be considered a reportable segment.

Our mission is to expand our business as a leading producer and ~~marketer~~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.

On January 14, 2022, we acquired Eagle Alcohol Company LLC, or Eagle Alcohol, for $14.0 million in cash plus an estimated net working capital adjustment of $1.3 million in cash. The members of Eagle Alcohol are eligible to receive up to an additional $14.0 million of contingent consideration, payable through a combination of cash and our common stock over the next five years, subject to the satisfaction of certain conditions, including continued employment.

Eagle Alcohol specializes in break bulk distribution of specialty alcohols. Eagle Alcohol purchases bulk alcohol from suppliers. Eagle Alcohol then stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and drums, that garner a premium to bulk alcohols. Eagle Alcohol delivers products to customers in the beverage, food, pharma, and related-process industries via its own dedicated trucking fleet and common carrier. Eagle Alcohol generated over $35 million in revenues in 2021. Eagle Alcohol is now one of our wholly-owned subsidiaries, and its former president, Dan Croghan, who has many years of experience and expertise in the chemical and alcohol distribution industry, continues on as our employee.

Production Segments

We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels. Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial animal feed and pet foods. Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

We produce our alcohols and essential ingredients at our production facilities described below. Our production facilities located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.

-17-

All of our production facilities are currently operating ~~at approximately 64%~~and have been operating through all of ~~our estimated maximum annual production capacity. Our Magic Valley and Stockton facilities are currently idled.~~the first quarter. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Annual Production Capacity
(estimated, in gallons)
Production Facility Location Fuel-Grade Ethanol Specialty Alcohol
Pekin Campus Pekin, IL 110,000,000 140,000,000
Magic Valley Burley, ID 60,000,000 —
Columbia Boardman, OR 40,000,000 —
Stockton Stockton, CA 60,000,000 —

		Annual Production Capacity (estimated, in gallons)
Production Facility	Location	Fuel-Grade Ethanol		Specialty Alcohol
Pekin Campus	Pekin, IL		110,000,000		140,000,000
Magic Valley	Burley, ID		60,000,000		—
Columbia	Boardman, OR		40,000,000		—

Marketing and Distribution Segment

We market and distribute all of the alcohols and essential ingredients we produce at our facilities. We also market ~~fuel-grade ethanol~~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 ~~fuel-grade ethanol~~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 with very little effort on their part. 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 ~~fuel-grade ethanol plants in California and other third-party suppliers in the Midwest where a majority of fuel-grade ethanol producers are located.~~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.

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We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

See “Note 3 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

Current Initiatives and Outlook

We had a solid first quarter, selling 19 million gallons of specialty alcohols through a combination of contracted volumes, spot sales and exports. The first quarter also represented our fourth consecutive quarter of gross profit, reflecting the benefits of our new business focus onOur decision to diversify further into specialty alcohols and essential ~~ingredients. Our new business focus is more sustainable~~ingredients provided a buffer against macroeconomic challenges and ~~profitable than our prior focus on fuel-grade ethanol.~~

~~We are now the largest producer of specialty alcohols~~weak renewable fuel crush margins in the ~~United States based on annualized volumes.~~first quarter of 2022. As a result, we generated positive gross margins and, despite generating a net loss of $2.6 million, we generated positive Adjusted EBITDA of $4.4 million for the quarter notwithstanding a challenging market environment. We have 410 million gallons of annual production capacity, of which approximately 140 million gallons, or 34%, is specialty alcohols and the balance is fuel-grade ethanol. We are currently operating production facilities with 290 million gallons of annual capacity, of which nearly 50% is specialty alcohols. All of our operating facilities are running at break-even or better on andefine Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, ~~basis.~~or EBITDA, adjusted for asset impairments, loss on extinguishment of debt, acquisition-related expense and fair value adjustments. A table reconciling Adjusted EBITDA to unaudited net income or loss attributed to Alto Ingredients, Inc. is included below.

~~We remain~~During the quarter, we remained focused on ~~track for sales~~managing the areas of our ~~specialty alcohols to contribute a minimum of $60 million in gross profit~~business within our control by executing on our strategic goals, investing for ~~the full year based on 70 million gallons of specialty alcohols contracted in the fall of 2020 at fixed volumes~~future growth and ~~prices. Many variables could materially impact~~further diversifying and high-grading our results, including export conditions, the ability of our customers to take all of their contracted volumes for 2021, market demand for sanitizers and disinfectants, our ability to timely sell our Stockton, California production facility, and fuel-grade ethanol crush margins. We are optimistic that we can add additional contracted specialty alcohol volumes in 2022 and future years, improving utilization over time from our expanded specialty alcohol production capacity and our ISO 9001, ICH Q7 and EXCiPACT certifications.

product offerings. As noted above, we ~~have completed~~acquired Eagle Alcohol, an established leader in premium alcohol distribution. The acquisition expands our product offerings and broadens our target markets, including by accelerating our ability to capture additional high-margin sales. We expect Eagle Alcohol to contribute $4.0 million in EBITDA for 2022 and $9.0 million in EBITDA annually starting in 2023, including synergies. We plan to invest $5.0 million in 2022 to further enhance our specialty alcohol quality and distribution before fourth quarter contract negotiations begin.

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In February, we expanded our portfolio of certifications by qualifying for two additional internationally-recognized certifications at our Pekin Campus. We received a certification for active pharmaceutical ingredients and a second certification for the ~~sale~~use of excipients. Together with the certifications we received in 2021, these new certifications create redundancy across our ~~idled fuel-grade ethanol production facility~~entire Pekin Campus. The certifications increase our appeal to customers who require a consistent, documented supply of high-grade alcohols for use in ~~Madera, California~~pharmaceutical, health, home and beauty, and distilled spirits products. As a result, we are expanding existing relationships and attracting new customers domestically and in growing international markets for ~~total consideration~~these higher-margin specialty alcohols.

As previously reported, we launched our first project to produce enhanced protein at our dry mill in Magic Valley, Idaho by installing Harvesting Technology’s patented CoPromax^TM system. In the first quarter, we made progress installing the system and expect to see initial benefits from the corn oil extraction part of ~~$28.3 million.~~the system in the second half of this year, generating $4.0 million of EBITDA on an annualized basis. We expect to ~~save approximately $0.7~~complete the protein enhancement part of the system by early 2023, producing an additional $5.0 million ~~per quarter in interest expense and approximately $0.4 million per quarter in carrying costs associated~~of EBITDA annually based on current market prices.

We plan to roll out the CoPromax system at our three other dry mills following its successful installation at our Magic Valley facility with the ~~idled facility.~~goal of having them fully operational by 2025. The total investment for all four facilities is $70.0 million. Assuming similar economics across all four dry mills, we estimate that the systems will contribute $34.0 million in EBITDA annually based on current market values.

We have begun expanding corn storage at our Pekin Campus to increase our corn-buying flexibility and reduce our need to purchase product at premium prices when farmers and elevators have stopped shipping corn, including during holidays or unfavorable weather conditions. This capital improvement ~~projects totaling $18.0~~project represents an investment of approximately $6.0 million, which we expect will yield over $2.0 million in ~~process or scheduled for 2021.~~ EBITDA annually with a payback in less than three years beginning in the first quarter of 2023.

We ~~expect these projects~~continue to ~~expand revenue~~reinvest in our facilities by upgrading equipment and operating systems to increase ~~efficiencies~~efficiency and plant reliability. For example, after only a nominal expense, we are ~~increasing~~now able to load corn oil into railcars across all our ~~yeast facility’s annual production capacity by approximately 15%.~~facilities, expanding our access to higher value corn oil markets. We are planning similar capital expenditure projects that are ongoing in nature. We will provide periodic updates on these projects as they develop throughout the year.

We are also ~~have~~evaluating an investment to bypass the ~~ability to further expand production of even higher value yeast derivatives with similar payback profiles. In addition, we are upgrading our feed dryers~~local natural gas utility at our Pekin Campus, ~~that will produce even higher value feed~~which we estimate would reduce natural gas prices by 11% based on 2021 values. This investment would also create an opportunity to sell renewable natural gas produced at our Pekin Campus directly into the pipeline. The investment would be approximately $9.0 million in 2023 and ~~improve overall plant efficiency and reliability. These two projects are scheduled for completion by the third quarter with an expected payback in less than two years, or~~yield a return of approximately $5.0 million in ~~additional annual earnings before interest, taxes, depreciation and amortization.~~EBITDA annually beginning in 2024.

~~Our Pekin Campus sits on the Mt. Simon sandstone formation, considered one of the most significant potential carbon storage resources in the United States. As a member of the Carbon Capture Coalition,~~In addition, we ~~are~~remain actively engaged ~~in discussions~~with third parties to ~~develop~~evaluate a carbon capture and sequestration program at our Pekin ~~site, which generates over 600,000 tons~~Campus. We will continue to pursue additional profitable opportunities with a focus on 2024 and beyond.

Earlier this year, we created an environmental, social and governance, or ESG, committee consisting of CO₂ ~~annually,~~senior executives, subject matter experts and ~~expect~~members of our board of directors. Our ESG committee completed an extensive review with a third party and refined our ESG strategy. As part of this process, we promoted Stacy Swanson, who led our rigorous certification efforts, to ~~be an active player~~head our day-to-day ESG programs in the ~~carbon capture space.~~newly created position of Vice President of Quality and Sustainability. As a producer and distributor of high-quality, bio-based alcohols, we are committed to creating a greener environment. We have launched initiatives, set baselines and begun tracking resources to improve employee health and safety and further reduce environmental impacts. As illustrated by our quality certifications, we are committed to producing ingredients for our customers that embody the highest levels of integrity, purity and quality for products that touch multiple areas of people’s lives. We look forward to providing periodic updates on our ESG strategy and greater transparency of our many accomplishments to date and of our activities moving forward.

~~Finally, among many~~

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Use of Non-GAAP Measures

Management believes that certain financial measures not in accordance with generally accepted accounting principles, or GAAP, are useful measures of operations. We define Adjusted EBITDA as unaudited net income (loss) attributed to Alto Ingredients, Inc. before interest expense, interest income, provision (benefit) for income taxes, asset impairments, loss on extinguishment of debt, acquisition-related expense, fair value adjustments, and depreciation and amortization expense. A table is provided below to reconcile Adjusted EBITDA to its most directly comparable GAAP measure, net income (loss) attributed to Alto Ingredients, Inc. Management provides this non-GAAP measure so that investors will have the same financial information that management uses, which may assist investors in properly assessing our performance on a period-over-period basis. Adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to net income (loss) attributed to Alto Ingredients, Inc. or any other ~~projects~~measure of performance under ~~development~~GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and you should not consider this measure in isolation or as a substitute for analysis of the company's results as reported under GAAP.

Information reconciling forward-looking EBITDA to forward-looking net income (loss) attributed to Alto Ingredients, Inc. would require a forward-looking statement of net income (loss) attributed to Alto Ingredients, Inc. prepared in accordance with GAAP, which is unavailable to us without unreasonable effort. We are not able to provide a quantitative reconciliation of forward-looking EBITDA to forward-looking net income (loss) attributed to Alto Ingredients, Inc. because certain items required for reconciliation are uncertain, outside of our plan to expand protein production at our dry-mill production facilities, which collectively represent 250 million gallons of annual production capacity. We believe the economics of expanded protein production are compelling and would expect to achieve protein concentrations in excess of 50% and an improvement in corn oil production by 50%.

~~Over the past twelve months, we have improved operations and our production footprint, and reduced controllable expenses and our overall~~control and/or cannot be reasonably predicted, such as net sales, cost of ~~capital,~~goods sold, provision (benefit) for income taxes, asset impairments and fair value adjustments, which we view as the most material components of net income (loss) attributed to ~~build a strong foundation for the future which will enable us~~Alto Ingredients, Inc. that are not presently estimable.

Reconciliation of Adjusted EBITDA to ~~aggressively pursue organic opportunities to reinvest in quality, proven high-value projects, as well as pursue accretive strategic acquisitions.~~Net Income (Loss)

	Three Months Ended March 31,
(in thousands) (unaudited)	2022			2021
Net income (loss)	$	(2,602	)	$	4,678
Adjustments:
Interest expense		200			1,885
Interest income		(158	)		(184	)
Acquisition-related expense		875			—
Asset impairments		—			1,200
Depreciation and amortization expense		6,134			5,860
Total adjustments		7,051			8,761
Adjusted EBITDA	$	4,449		$	13,439

Critical Accounting Policies and Estimates

~~The preparation~~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,~~America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and ~~estimates that may have a significant impact upon~~liabilities and disclosure of contingent assets and liabilities at the ~~portrayal~~date of ~~our~~the financial ~~condition~~statements and ~~results~~the reported amount of ~~operations.~~net sales and expenses for each period. We believe that of our significant accounting policies, the following ~~require~~critical accounting policies and estimates ~~and assumptions~~are those policies that ~~require complex, subjective judgments by management that can materially impact~~we believe are the most important to the portrayal of our financial condition and results of ~~operations:~~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: revenue recognition; accounting for business combinations; impairment of long-lived assets and held-for-sale classification; valuation of allowance for deferred taxes and derivative instruments. ~~These~~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”~~Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Accounting for Business Combinations

Determining the fair value of assets acquired and liabilities assumed in a business combination is considered a critical accounting estimate because the allocation of the purchase price to assets acquired and liabilities assumed based upon fair values requires significant management judgment and the use of subjective measurements. Variability in industry conditions and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on our financial position, liquidity or results of operations.

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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:

	Three Months Ended March 31,						Percentage
	2022			2021			Change
Renewable fuel production gallons sold (in millions)		49.2			39.0			26.2	%
Specialty alcohol production gallons sold (in millions)		23.3			19.0			22.6	%
Third party renewable fuel gallons sold (in millions)		30.7			54.0			(43.1	)%
Total gallons sold (in millions)		103.2			112.0			(7.9	)%

Total gallons produced (in millions)		74.3			58.0			28.1	%

Production capacity utilization		86	%		52	%		65.4	%
Average sales price per gallon	$	2.46		$	1.94			26.8	%

Corn cost per bushel—CBOT equivalent	$	6.22		$	4.98			24.9	%
Average basis⁽¹⁾		0.64			0.29			120.7	%
Delivered cost of corn	$	6.86		$	5.27			30.2	%

Total essential ingredients tons sold (in thousands)		398.8			276.9			44.0	%
Essential ingredients revenues as % of delivered cost of corn⁽²⁾		36.4	%		40.0	%		(9.0	)%

Average CBOT ethanol price per gallon	$	2.16		$	1.60			35.0	%
Average CBOT corn price per bushel	$	6.73		$	5.40			24.6	%

Three Months Ended
March 31, Percentage
2021 2020 Change
Fuel-grade ethanol production gallons sold (in millions) 39.0 100.2 (61.1 )%
Specialty alcohol production gallons sold (in millions) 19.0 22.3 (14.8 )%
Third party fuel-grade ethanol gallons sold (in millions) 54.0 62.4 (13.5 )%
Total gallons sold (in millions) 112.0 184.9 (39.4 )%

Total gallons produced (in millions) 58.0 116.2 (50.1 )%
Production capacity utilization 52 % 77 % (32.5 )%

Average sales price per gallon $ 1.94 $ 1.51 28.5 %

Corn cost per bushel—CBOT equivalent $ 4.98 $ 3.79 31.4 %
Average basis⁽¹⁾ 0.29 0.44 (34.1 )%
Delivered cost of corn $ 5.27 $ 4.23 24.6 %

Total essential ingredients tons sold (in thousands) 276.9 671.9 (58.8 )%
Essential ingredients revenues as % of delivered cost of corn⁽²⁾ 40.0 % 37.0 % 8.1 %

Average CBOT ethanol price per gallon $ 1.60 $ 1.24 29.0 %
Average CBOT corn price per bushel $ 5.40 $ 3.74 44.4 %

~~(1)~~

(1)

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

~~(2)~~

(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):

Three Months Ended
March 31,
Change in
2021 2020 Dollars Percent

Net sales $ 218,734 $ 311,404 $ (92,670 ) (29.8 )%
Cost of goods sold 204,897 324,294 (119,397 ) (36.8 )%
Gross profit (loss) $ 13,837 $ (12,890 ) $ 26,727
NM*

Percentage of net sales 6.3 % (4.1 )%

	Three Months Ended March 31,						Change in
	2022			2021			Dollars			Percent

Net sales	$	308,118		$	218,734		$	89,384			40.9	%
Cost of goods sold		303,345			204,897			98,448			48.0	%
Gross profit	$	4,773		$	13,837		$	(9,064	)		(65.5	)%
Percentage of net sales		1.5	%		6.3	%

~~Not meaningful~~

Net Sales

The ~~decrease~~increase in our consolidated net sales for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 was primarily due to ~~a decrease in our total gallons sold, partially offset by~~ an increase in our average sales price per ~~gallon.~~

-21-

~~Our~~gallon sold and an increase in our production gallons sold, ~~and our volume of essential ingredients sold declined for the three months ended March 31, 2021 as compared to the same period~~partially offset by a decrease in ~~2020. Our~~ third-party gallons sold also declined. Our production gallons and essential ingredients sold declined primarily due to an intentional reduction in our production of fuel-grade ethanol due to adverse market conditions as well as the sale of our Nebraska facilities in April 2020. Oursold. We marketed fewer third-party gallons ~~sold declined~~during the quarter as we ~~focused~~ended our ~~efforts on selling our own fuel-grade~~contractual relationship with one of the ethanol plants for which we previously sold its production.

On a consolidated basis, our average sales price per gallon increased ~~28.5%~~26.8% to ~~$1.94~~$2.46 for the three months ended March 31, ~~2021~~2022 as compared to ~~$1.51~~$1.94 for the same period in ~~2020.~~2021. The increase in our average sales price per gallon primarily reflects supply constraints that translated into higher ethanol prices. The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, increased ~~29.0%~~35.0% to ~~$1.60~~$2.16 for the three months ended March 31, ~~2021~~2022 as compared to ~~$1.24~~$1.60 for the same period in ~~2020.~~2021.

~~Marketing Segment~~

-21-

Net sales of fuel-grade ethanol from our marketing segment, excluding intersegment sales, decreased by $0.5 million, or 1%, to $57.4 million for the three months ended March 31, 2021 as compared to $57.9 million for the same period in 2020.

Our volume of third party fuel-grade ethanol gallons sold reported gross by our marketing segment decreased by 7.2 million gallons, or 21%, to 26.7 million gallons for the three months ended March 31, 2021 as compared to 33.9 million gallons for the same period in 2020. At our marketing segment’s average sales price per gallon of $2.14 for the three months ended March 31, 2021, we generated $15.3 million less in net sales from our marketing segment from the 7.2 million fewer gallons of third-party fuel-grade ethanol sold gross in the three months ended March 31, 2021 as compared to the same period in 2020.

Our volume of third party fuel-grade ethanol gallons sold reported net by our marketing segment decreased by 1.2 million gallons, or 4%, to 27.3 million gallons for the three months ended March 31, 2021 as compared to 28.5 million gallons for the same period in 2020. The decrease in third-party fuel-grade ethanol gallons sold reported net reduced net sales by less than $0.1 million.

The $0.44 per gallon, or 26%, increase in our marketing segment’s average sales price per gallon for the three months ended March 31, 2021 as compared to the same period in 2020 resulted in a $14.8 million increase in our net sales from third-party fuel-grade ethanol sold by our marketing segment.

Pekin Campus Production Segment

Net sales of alcohol from our Pekin Campus production segment increased by ~~$11.0~~$21.0 million, or ~~13%~~22%, to ~~$95.1~~$116.1 million for the three months ended March 31, ~~2021~~2022 as compared to ~~$84.1~~$95.1 million for the same period in ~~2020.~~2021. Our total volume of production gallons sold ~~decreased~~declined by ~~7.4~~1.3 million gallons, or ~~13%~~3%, to ~~50.6~~49.3 million gallons for the three months ended March 31, ~~2021~~2022 as compared to ~~58.0~~50.6 million gallons for the same period in ~~2020.~~2021. At our Pekin Campus production segment’s average sales price per gallon of ~~$1.88~~$2.35 for the three months ended March 31, ~~2021,~~2022, we generated ~~$13.9~~$3.0 million less in net sales from our Pekin Campus production segment from the ~~7.4~~1.3 million fewer gallons of alcohol sold in the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase of ~~$0.43,~~$0.47, or ~~30%~~25%, in our Pekin Campus production segment’s average sales price per gallon in the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 improved our net sales from our Pekin Campus production segment by ~~$24.9~~$24.0 million.

Net sales of essential ingredients increased ~~$5.2~~$10.2 million, or ~~13%~~23%, to ~~$45.1~~$55.3 million for the three months ended March 31, ~~2021~~2022 as compared to ~~$39.9~~$45.1 million for the same period in ~~2020.~~2021. Our total volume of essential ingredients sold ~~decreased~~increased by ~~27,000~~12,000 tons, or ~~11%~~5%, to ~~211,000~~242,000 tons for the three months ended March 31, ~~2021~~2022 from ~~238,000~~230,000 tons for the same period in ~~2020.~~2021. At our average sales price per ton of ~~$213.18~~$228.31 for the three months ended March 31, ~~2021,~~2022, we generated ~~$5.6~~$2.8 million ~~less~~more in net sales from the ~~27,000 fewer~~12,000 additional tons of essential ingredients sold in the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase of ~~$45.59,~~$32.36, or ~~27%~~17%, in our average sales price per ton for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 increased our net sales from our Pekin Campus production segment by ~~$10.8~~$7.4 million.

Marketing and Distribution Segment

Net sales of alcohol from our marketing and distribution segment, excluding intersegment sales, decreased by $3.2 million, or 6%, to $54.2 million for the three months ended March 31, 2022 as compared to $57.4 million for the same period in 2021.

Our volume of third party alcohol sold reported gross by our marketing and distribution segment decreased by 6.8 million gallons, or 25%, to 19.9 million gallons for the three months ended March 31, 2022 as compared to 26.7 million gallons for the same period in 2021. At our marketing and distribution segment’s average sales price per gallon of $2.71 for the three months ended March 31, 2022, we generated $18.4 million less in net sales from our marketing and distribution segment from the 6.8 million fewer gallons of third-party alcohol sold gross in the three months ended March 31, 2022 as compared to the same period in 2021.

Our volume of alcohol sold reported net by our marketing and distribution segment decreased by 16.5 million gallons, or 60%, to 10.8 million gallons for the three months ended March 31, 2022 as compared to 27.3 million gallons for the same period in 2021. The decrease in third-party alcohol volume sold reported net reduced net sales by less than $0.1 million.

The $0.57 per gallon, or 27%, increase in our marketing and distribution segment’s average sales price per gallon for the three months ended March 31, 2022 as compared to the same period in 2021 resulted in a $15.3 million increase in our net sales from third-party fuel-grade ethanol sold by our marketing and distribution segment.

-22-

Other Production Segment

Net sales of alcohol from our other production segment ~~decreased~~increased by ~~$83.3~~$43.8 million, or ~~84%~~274%, to ~~$16.0~~$59.8 million for the three months ended March 31, ~~2021~~2022 as compared to ~~$99.3~~$16.0 million for the same period in ~~2020.~~2021. Our total volume of ~~gallons~~alcohol sold ~~decreased~~increased by ~~57.1~~15.8 million gallons, or ~~89%~~214%, to ~~7.4~~23.2 million gallons for the three months ended March 31, ~~2021~~2022 as compared to ~~64.5~~7.4 million gallons for the same period in ~~2020.~~2021. At our other production segment’s average sales price per gallon of ~~$2.16~~$2.58 for the three months ended March 31, ~~2021,~~2022, we generated ~~$123.2~~$40.7 million ~~less in~~of additional net sales from our other production segment from the ~~57.1~~15.8 million ~~fewer~~additional gallons of alcohol sold in the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase of ~~$0.62,~~$0.42, or ~~40%~~20%, in our other production segment’s average sales price per gallon for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 improved our net sales from our other production segment by ~~$39.9~~$3.1 million.

Net sales of essential ingredients ~~decreased $25.1~~increased by $13.8 million, or ~~83%~~271%, to ~~$5.1~~$18.9 million for the three months ended March 31, ~~2021~~2022 as compared to ~~$30.2~~$5.1 million for the same period in ~~2020.~~2021. Our total volume of essential ingredients sold ~~decreased~~increased by ~~369,000~~110,000 tons, or ~~85%~~234%, to ~~65,000~~157,000 tons for the three months ended March 31, ~~2021~~2022 from ~~434,000~~47,000 tons for the same period in ~~2020.~~2021. At our average sales price per ton of ~~$78.64~~$120.87 for the three months ended March 31, ~~2021,~~2022, we generated ~~$29.0~~$13.2 million ~~less in~~of additional net sales from our other production segment from the ~~369,000 fewer~~110,000 additional tons of essential ingredients sold in the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The increase of ~~$8.97,~~$11.12, or ~~12.9%~~10%, in our average sales price per ton for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020~~2021 increased our net sales of essential ingredients from our other production segment by ~~$3.9~~$0.6 million.

-22-

Corporate and other

Net sales of alcohol from corporate and other represented $3.8 million associated with our sales from Eagle Alcohol.

Cost of Goods Sold and Gross Profit ~~(Loss)~~

Our consolidated gross profit ~~(loss) improved~~declined to ~~a gross profit of $13.8~~$4.8 million for the three months ended March 31, ~~2021~~2022 from ~~a gross loss of $12.9~~$13.8 million for the same period in ~~2020,~~2021, representing a gross profit margin of ~~6.3%~~1.5% for the three months ended March 31, ~~2021~~2022 compared to ~~negative 4.1%~~6.3% for the same period in ~~2020.~~2021. Our consolidated gross profit ~~(loss) improved~~declined due to ~~significantly higher margin sales~~extreme commodity price volatility, drawn-out supply chains, rail and operational disruptions, rising transportation costs and weak renewable fuel crush margins. In addition, our cost of goods sold includes $7.0 million in non-cash mark-to-market inventory adjustments and unrealized losses recorded on our ~~specialty alcohols and a substantial reduction in negative margin sales of fuel-grade ethanol as we have idled a significant amount of our fuel-grade ethanol production.~~forward derivative positions.

~~Marketing~~Pekin Campus Production Segment

Our ~~marketing~~Pekin Campus production segment’s gross profit ~~improved~~declined by ~~$2.0~~$9.9 million to ~~$3.5~~$3.3 million for the three months ended March 31, ~~2021~~2022 as compared to ~~$1.5~~$13.2 million for the same period in ~~2020. Of this improvement, $3.0 million~~2021. This decline in gross profit is largely attributable to ~~higher~~lower margins from sales of ~~third-party fuel-grade ethanol, partially offset by~~essential ingredients. Our higher sales prices for essential ingredients did not outweigh higher corn prices. In addition, we had lower sales volumes from our Pekin Campus due to a ~~reduction of $1.0 million attributable to~~ lower ~~marketing volumes of third-party fuel-grade ethanol~~capacity utilization rate for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021 due to plant maintenance and related shutdowns.

~~Pekin Campus Production~~Marketing and Distribution Segment

Our ~~Pekin Campus production~~marketing and distribution segment’s gross profit ~~improved~~(loss) declined by ~~$15.2~~$4.0 million to a gross ~~profit~~loss of ~~$13.2~~$0.4 million for the three months ended March 31, ~~2021~~2022 as compared to ~~a gross loss of $2.0~~$3.6 million for the same period in ~~2020.~~2021. Of this ~~improvement, $17.1~~decline, $3.9 million is attributable to ~~increased~~lower margins from ~~our specialty alcohols, partially offset by $1.9~~sales of third-party fuel-grade ethanol due to increased volatility in ethanol pricing and $0.1 million ~~less in gross profit~~is attributable to ~~decreased~~lower sales volumes infor the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021 as we ended our contractual relationship with one of the third-party ethanol plants for which we previously sold its production.

-23-

Other Production Segment

Our other production segment’s gross profit improved by ~~$9.5~~$4.0 million to a gross ~~loss~~profit of ~~$2.9~~$1.0 million for the three months ended March 31, ~~2021~~2022 as compared to a gross loss of ~~$12.4~~$3.0 million for the same period in ~~2020.~~2021. Of this improvement, ~~$22.6~~$3.3 million is attributable to ~~lower~~improved margins on fuel-grade ethanol and $0.7 million is attributable to higher sales volumes ~~at negative margins, partially offset by $13.1 million~~as we restarted our Magic Valley facility in ~~lower gross profit attributable to a negative margin environment for fuel-grade ethanol for the three months ended March 31, 2021 as compared to the same period in 2020.~~November 2021.

Corporate and other

Gross profit from corporate and other of $0.9 million was associated with our sales from Eagle Alcohol.

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):

Three Months Ended
March 31,
Change in
2021 2020 Dollars Percent
Selling, general and administrative expenses $ 7,014 $ 10,212 $ (3,198 ) (31.3 )%
Percentage of net sales 3.2 % 3.3 %

	Three Months Ended March 31,						Change in
	2022			2021			Dollars		Percent
Selling, general and administrative expenses	$	7,629		$	7,014		$	615		8.8	%
Percentage of net sales		2.5	%		3.2	%

Our SG&A expenses ~~decreased~~increased for the three months ended March 31, ~~2021~~2022 as compared to the same period in 2021. The ~~$3.2~~$0.6 million period over period ~~decrease~~increase in SG&A expenses is primarily due to ~~higher~~a $0.9 million acquisition-related accrual for future cash payments attributable to our acquisition of Eagle Alcohol, partially offset by lower professional ~~fees incurred in the three months ended March 31, 2021 in connection with our debt restructuring and asset sale efforts. We anticipate SG&A expenses of $20.0 million to $25.0 million for all of 2021.~~fees.

~~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
March 31,
Change in
2021 2020 Dollars Percent
Interest expense, net $ 1,885 $ 5,307 $ (3,422 ) (64.5 )%
Percentage of net sales 0.9 % 1.7 %

Our interest expense, net decreased for the three months ended March 31, 2021 as compared to the same period in 2021. The $3.4 million period over period decrease in interest expense, net is primarily due to lower average borrowings outstanding as a result of our significant principal payments on outstanding debt over the past year.

-24-

Net Income (Loss) Available to Common Stockholders

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

	Three Months Ended March 31,						Change in
	2022			2021			Dollars			Percent
Net income (loss) available to Common Stockholders	$	(2,914	)	$	4,366		$	(7,280	)		*
Percentage of net sales		(0.9	)%		2.0	%

Not meaningful

-23-

Three Months Ended
March 31,
Change in
2021 2020 Dollars Percent
Net income (loss) available to Common Stockholders $ 4,366 $ (25,415 ) $ 29,781
NM

Percentage of net sales 2.0 % (8.2 )%

The ~~increase~~decrease in net income available to common stockholders is primarily due to our ~~higher~~lower gross profit and ~~lower~~higher SG&A expenses, ~~and~~partially offset by lower interest expense, for the three months ended March 31, ~~2021~~2022 as compared to the same period in ~~2020.~~2021.

Liquidity and Capital Resources

During the three months ended March 31, ~~2021,~~2022, we funded our operations primarily from cash generated by our operations, proceeds from lines of credit and cash on hand. These funds were also used to ~~make payments on our term debt and our other credit facilities~~acquire Eagle Alcohol and for capital expenditures. As of March 31, ~~2021,~~2022, we had ~~$44.1~~$60.0 million in cash, ~~and~~ cash equivalents and ~~$4.7~~restricted cash and $15.2 million available for borrowing under Kinergy’s operating line of credit. 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. We may, however, in the future, seek and obtain additional capital in the form of secured debt to provide additional funds for accretive projects.

Quantitative Year-End Liquidity Status

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).

March 31, 2021 December 31, 2020 Change
Cash and cash equivalents $ 44,146 $ 47,667 (7.4 )%
Current assets $ 241,588 $ 214,046 12.9 %
Property and equipment, net $ 226,183 $ 229,486 (1.4 )%
Current liabilities $ 112,750 $ 86,927 29.7 %
Long-term debt, noncurrent portion $ 64,396 $ 71,807 (10.3 )%
Working capital $ 128,838 $ 127,119 1.4 %
Working capital ratio 2.14 2.46 (13.0 )%

	March 31, 2022		December 31, 2021		Change
Cash, cash equivalents and restricted cash	$	59,983	$	62,125		(3.4	)%
Current assets	$	241,213	$	229,526		5.1	%
Property and equipment, net	$	220,996	$	222,550		(0.7	)%
Current liabilities	$	80,181	$	69,602		15.2	%
Long-term debt	$	53,681	$	50,361		6.6	%
Working capital	$	161,032	$	159,924		0.7	%
Working capital ratio		3.01		3.30		(8.8	)%

-25-

~~Restricted Net Assets~~

At March 31, 2021, we had approximately $231.9 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of the subsidiaries.

Changes in Working Capital and Cash Flows

Working capital improved to ~~$128.8~~$161.0 million at March 31, ~~2021~~2022 from ~~$127.1~~$159.9 million at December 31, ~~2020~~2021 as a result of an increase of ~~$27.5~~$11.7 million in current assets, partially offset by an increase of ~~$25.8~~$10.6 million in current liabilities.

Current assets increased primarily due to an increase in ~~accounts~~notes receivable ~~and higher inventory values~~as they became current due to ~~increased commodity prices for both alcohol and corn from the prior period.~~their revised maturity date to June 30, 2022.

Our current liabilities increased primarily due to an increase in ~~accounts payable~~derivative instruments due to ~~timing~~the end of ~~payments and an increase~~period change in ~~current portion of long-term debt as amounts due within one year increased.~~commodity prices for open contracts.

Our cash, ~~and~~ cash equivalents and restricted cash declined by ~~$3.5~~$2.1 million primarily due to ~~$4.1~~$17.0 million ~~in cash used in our operating activities and $4.4 million in cash~~ used in our investing activities, partially offset by ~~$5.0~~$11.1 million in cash provided by our operating activities and $3.8 million in cash provided by our financing activities.

Cash ~~used in~~provided by our Operating Activities

We ~~used $4.1~~generated $11.1 million in cash infrom our operating activities during the three months ended March 31, ~~2021,~~2022, as compared to ~~$26.9~~$4.5 million in cash ~~provided by~~used in our operations for the same period in ~~2020.~~2021. Specific factors that contributed to the change in cash from our operating activities include:

●

~~a decrease~~an increase of ~~$35.1~~$24.8 million related to higher accounts receivable balances due to the timing of payments

●

~~a decrease~~an increase of ~~$28.1~~$14.5 million related to higher inventories due to increased commodity prices; ~~and~~

●

~~a decrease~~an increase of ~~$10.5~~$10.8 million related to other assets primarily related to derivative activity; and

●

an increase of $5.2 million from ~~losses~~gains on derivative instruments due to the recent rise in corn prices.

-24-

These amounts were partially offset by:

●

~~an increase~~a decrease of ~~$31.8~~$7.3 million in our consolidated net income due to ~~higher~~lower margins from ~~our sales of specialty alcohols;~~alcohol sales; and

●

~~an increase~~a decrease of ~~$21.9~~$30.1 million related to accounts payable due to the timing of payments.

Cash used in our Investing Activities

We used ~~$4.4~~$14.7 million of cash to acquire Eagle Alcohol, net of cash acquired, and $2.3 million of cash for additions to property and equipment in our investing activities for the three months ended March 31, ~~2021 for additions to property and equipment resulting from our capital expenditure projects.~~2022.

Cash provided by our Financing Activities

Cash provided by our financing activities was ~~$5.0~~$3.8 million for the three months ended March 31, ~~2021,~~2022, which ~~reflected~~reflects net proceeds of ~~$13.0~~$3.3 million from Kinergy’s operating line of credit and ~~$0.5 million in stock option exercises, partially offset by $8.5~~$0.8 million in principal payments received on our ~~other indebtedness.~~notes receivable, partially offset by $0.3 million paid in preferred dividends.

-26-

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for an aggregate amount of up to $100.0 million. The credit facility matures on August ~~2, 2022.~~8, 2023. Interest accrues under the credit facility at a rate equal to (i) the ~~three-month London Interbank Offered~~daily Secured Overnight Financing Rate, ~~(“LIBOR”),~~ plus (ii) a specified applicable margin ranging from ~~1.50%~~1.75% to ~~2.00%~~2.25%. 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 ~~one of our indirect wholly-owned subsidiaries,~~ markets our essential ingredients and also provides raw material procurement services to our subsidiaries.

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 2.0 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 a first-priority security interest in all of their respective assets in favor of the lender.

-25-

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
March 31, Years Ended
December 31,
2021 2020 2020 2019

Fixed-Charge Coverage Ratio Requirement 2.00 2.00 2.00 2.00
Actual 7.71 4.05 5.35 5.71
Excess 5.71 2.05 3.35 3.71

	Three Months Ended March 31,				Years Ended December 31,
	2022		2021		2021		2020

Fixed-Charge Coverage Ratio Requirement		2.00		2.00		2.00		2.00
Actual		10.18		7.71		13.32		5.35
Excess		8.18		5.71		11.32		3.35

Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of March 31, ~~2021,~~2022, Kinergy had an outstanding balance of ~~$45.5~~$53.7 million and ~~$4.7~~$15.2 million of unused borrowing availability under the credit facility.

~~Alto Pekin Credit Facilities~~

On December 15, 2016, Alto Pekin, LLC, or Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin, Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1^st ~~Farm Credit Services, PCA and CoBank, ACB, or CoBank. Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1~~^st Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a revolving term loan facility that matures on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit Facility. The Pekin Credit Facility is secured by a first-priority security interest in all of Alto Pekin’s assets.

-27-

The Pekin Credit Facility and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as follows:

●

~~Interest accrues under the Pekin Credit Facility at an annual rate equal to the 30-day LIBOR plus 5.00%.~~

●

~~Alto Pekin is required to pay a monthly fee on any unused portion of the Pekin Revolving Loan at a rate of 0.75% per annum.~~

●

Alto Pekin and Alto ICP, LLC, or ICP, one of our indirect wholly-owned subsidiaries and the entity that holds one of our production facilities in Pekin, Illinois, are collectively required to maintain working capital of not less than 50% of the combined outstanding revolving lines of credit, which was $27.0 million at March 31, 2021; and an annual debt service coverage ratio of not less than 1.25 to 1.00, in addition to various other affirmative and negative covenants.

Net proceeds arising from a sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively. Net proceeds arising from the sale of any of our western production facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

~~As of the filing of this report, we believe we are in compliance with the terms and conditions of the Notes.~~

~~ICP Credit Facilities~~

On September 15, 2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement. Under the terms of the ICP Credit Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the ICP Term Loan, and up to $18.0 million under a revolving term loan facility that matures on September 1, 2022, or the ICP Revolving Loan, and together with the ICP Term Loan, the ICP Credit Facility. The ICP Credit Facility is secured by a first-priority security interest in all of ICP’s assets.

The ICP Credit Facility and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers among ICP, its lenders and their agent, certain terms of the agreements are as follows:

●

~~Interest accrues under the ICP Credit Facility at an annual rate equal to the 30-day LIBOR plus 3.75%.~~

●

ICP is required to pay an annual nonrefundable commitment fee, calculated as 0.75% multiplied by the average daily positive difference between (i) the ICP Revolving Loan commitment (which may be reduced by ICP from time to time in increments of $0.5 million), minus (ii) the aggregate principal amounts outstanding under the ICP Revolving Loan.

●

ICP and Alto Pekin are collectively required to maintain working capital of not less than 50% of the combined outstanding revolving lines of credit, which was $27.0 million at March 31, 2021; and an annual debt service coverage ratio of not less than 1.50 to 1.00, in addition to various other affirmative and negative covenants.

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Net proceeds arising from the sale of any of our midwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively. Net proceeds arising from the sale of any of our western production facility assets will be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

~~As of the filing of this report, we believe we are in compliance with the terms and conditions of our ICP Credit Facility.~~

~~Senior Secured Notes~~

On December 12, 2016, we entered into a Note Purchase Agreement with five accredited investors and sold $55.0 million in aggregate principal amount of senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold. On June 26, 2017, we entered into a second Note Purchase Agreement with five accredited investors and sold an additional $13.9 million in aggregate principal amount of senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold, and collectively with the notes previously sold, the Notes. The Notes are secured by a first-priority security interest in all of our equity interests in Alto Op Co.

The Notes and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers with the holders of our Notes, or the senior secured noteholders, and their agent, certain terms of the agreements are as follows:

●

~~The Notes mature on December 15, 2021.~~

●

~~Payments due under the Notes rank senior to all other indebtedness of Alto Ingredients, Inc. other than permitted senior indebtedness.~~

●

~~Interest on the Notes accrues at a rate of 15% per annum.~~

●

~~Any voluntary prepayments must be made at 102% of the principal amount prepaid.~~

The Notes also contain a variety of limitations, including a prohibition on parent company indebtedness; restrictions on redemption, repurchase or payment of any dividend or distribution in respect of our or our subsidiaries’ equity interests; restrictions on asset sales and other dispositions; and restrictions on our or our subsidiaries’ ability to issue equity for purposes other than to pay down a portion of the outstanding balance of the Notes.

In March 2020, ICP granted to the senior secured noteholders a security interest in certain of its personal property. In addition, Alto Central granted to the senior secured noteholders a security interest in certain of its personal property. Alto Central also pledged its equity interests in Alto Pekin and ICP in favor of the senior secured noteholders as additional collateral securing our obligations to the senior secured noteholders. Alto Op. Co also granted to the senior secured noteholders a security interest in certain of its personal property. We and certain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

~~On May 14, 2021, in connection with the sale of our Madera, California fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes.~~

~~As of the filing of this report, we believe we are in compliance with the terms and conditions of the Notes.~~

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~~CARES Act Loans~~

On May 4, 2020, Alto Ingredients, Inc. and Alto Pekin received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, through the Paycheck Protection Program administered by the U.S. Small Business Administration. Alto Ingredients, Inc. received $6.0 million and Alto Pekin received $3.9 million in loan proceeds. The loans mature in two years and bear interest at a rate of 1.00% per annum. Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act, but we can provide no assurance that we will be able to obtain forgiveness of all or any portion of the loans. We have applied for loan forgiveness.

Effects of Inflation

The impact of inflation was not significant to our financial condition or results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to various market risks, including changes in commodity prices as discussed below. Market risk is the potential loss arising from adverse changes in market rates and prices. In the ordinary course of business, we may enter into various types of transactions involving financial instruments to manage and reduce the impact of changes in commodity prices. We do not have material exposure to interest rate risk. We do not expect to have any exposure to foreign currency risk as we conduct all of our transactions in U.S. dollars.

We produce alcohol and essential ingredients. Our business is sensitive, in particular, to changes in the prices of ethanol and corn. In the ordinary course of business, we may enter into various types of transactions involving financial instruments to manage and reduce the impact of changes in ethanol and corn prices. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

We are subject to market risk with respect to ethanol and corn pricing. Ethanol prices are sensitive to global and domestic ethanol supply; crude-oil supply and demand; crude-oil refining capacity; carbon intensity; government regulation, including governmental mandates for renewable fuel use; and consumer demand for alternative fuels. Our ethanol sales are priced using contracts that are either based on a fixed price or an indexed price tied to a specific market, such as the CBOT or the Oil Price Information Service. Under these fixed-priced arrangements, we are exposed to the risk of a decrease in the market price of ethanol between the time the price is fixed and the time the ethanol is sold.

We satisfy our physical corn needs, the principal raw material used to produce alcohol and essential ingredients, based on purchases from our corn vendors. Generally, we determine the purchase price of our corn at or near the time we begin to grind. Additionally, we also enter into volume contracts with our vendors to fix the purchase price. As such, we are also subject to market risk with respect to the price of corn. The price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade, including trade and other sanctions that may be levied against grain producing countries, and global supply and demand. Under the fixed price arrangements, we assume the risk of a decrease in the market price of corn between the time the price is fixed and the time the corn is utilized.

Essential ingredients are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives, and supply factors, primarily the production of alcohol co-products by plants and other sources.

As noted above, we may attempt to reduce the market risk associated with fluctuations in the price of ethanol or corn by employing a variety of risk management and hedging strategies. Strategies include the use of derivative financial instruments such as futures and options executed on the CBOT and/or the New York Mercantile Exchange, as well as the daily management of physical corn supplies.

These derivatives are not designated for special hedge accounting treatment, and as such, the changes in the fair values of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. We recognized net gains of $5.3 million and $10.5 million related to the changes in the fair values of these contracts for the three months ended March 31, 2022 and 2021, respectively.

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~~Not applicable.~~

At March 31, 2022, we prepared a sensitivity analysis to estimate our exposure to ethanol and corn. Market risk related to these factors was estimated as the potential change in pre-tax income resulting from a hypothetical 10% adverse change in the prices of our expected ethanol and corn volumes. The analysis uses average CBOT prices for the year and does not factor in future contracted volumes. The results of this analysis for the three months ended March 31, 2022, which may differ materially from actual results, are as follows (in millions):

Commodity	Volume		Unit of Measure	Approximate Adverse Change to Pre-Tax Income
Ethanol		103.2	Gallons	$	(15.7	)
Corn		25.9	Bushels	$	(17.4	)

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of March 31, ~~2021~~2022 that our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible that the outcome of those legal proceedings, claims and litigation could adversely affect our quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not adversely affect in any material respect our financial ~~position,~~condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other information contained in this Report and in our other filings with the Securities and Exchange Commission, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Alto Ingredients, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.

Risks Related to our Business

~~The effects of the coronavirus pandemic, or its abatement, may materially and adversely affect our business, results of operations and liquidity.~~

The coronavirus pandemic has resulted in businesses suspending or substantially curtailing operations and travel, quarantines, and an overall substantial slowdown of economic activity. Federal, state and foreign governments have implemented measures to contain the virus, including social distancing requirements, travel restrictions, border closures, limitations on public gatherings, work-from-home orders, and closure of non-essential businesses. Many of these measures remain or have been curtailed only partially. Transportation fuels in particular, including fuel-grade ethanol, experienced significant price declines and reduced demand. A further or extended ongoing downturn in global economic activity, or recessionary conditions in general, would likely lead to poor demand for, and negatively affect the prices of, fuel-grade ethanol, materially and adversely affecting our business, results of operations and liquidity.

Furthermore, to protect the health and well-being of our employees and customers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or shifted marketing and other corporate events to virtual-only formats for the foreseeable future. While we continue to monitor our circumstances and may adjust our current policies as more information and public health guidance become available, these precautionary measures could negatively affect our sales and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations.

In addition, if one or more of our employees or customers becomes ill from coronavirus and attributes their infection to us, including through exposure at one of our offices or production facilities, we could be subject to allegations of failure to adequately mitigate the risk of exposure. Such allegations could harm our reputation and expose us to the risks of litigation and liability.

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Our specialty alcohols business has benefitted significantly from the coronavirus pandemic due to a substantial increase in demand for alcohol-based sanitizers and disinfectants. As the coronavirus pandemic abates, demand for alcohol-based sanitizers and disinfectants may decline, ultimately exerting downward pressure on prices for our specialty alcohols used in those products. In addition, higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of specialty alcohols for sanitizers and disinfectants would also exert downward pressure on prices. Reduced demand and prices for our specialty alcohols used in sanitizers and disinfectants, or industry oversupply of those specialty alcohols, may materially and adversely affect our business, results of operations and liquidity.

Our results of operations and our ability to operate at a profit are largely dependent on our ability to manage the costs of corn, natural gas and other production inputs, with the prices of our alcohols and essential ingredients, all of which are subject to volatility and uncertainty.

Our results of operations are highly impacted by commodity prices, including the cost of corn, natural gas and other production inputs that we must purchase, and the prices of alcohols and essential ingredients that we sell. Prices and supplies are subject to and determined by market and other forces over which we have no control, such as weather, domestic and global demand, supply shortages, export prices and various governmental policies in the United States and throughout the world.

Price volatility of corn, natural gas and other production inputs, and alcohols and essential ingredients, may cause our results of operations to fluctuate substantially. We may fail to generate expected levels of net sales and profits even under fixed-price and other contracts for the sale of specialty alcohols used in consumer products. Our customers may not pay us timely or at all, even under longer-term, fixed-price contracts for our specialty alcohols, and may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility.

Over the past several years, for example, the spread between corn and fuel-grade ethanol prices has fluctuated significantly. Fluctuations are likely to continue to occur. A sustained narrow spread, whether as a result of sustained high or increased corn prices or sustained low or decreased alcohol or essential ingredient prices, would adversely affect our results of operations and financial ~~position.~~condition. Revenues from sales of alcohols, particularly fuel-grade ethanol, and essential ingredients could decline below the marginal cost of production, which may force us to ~~further~~ suspend production, particularly fuel-grade ethanol production, at some or all of our facilities.

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In addition, some of our fuel-grade ethanol marketing and distribution activities will likely be unprofitable in a market of generally declining prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of fuel-grade ethanol inventory for subsequent resale. Moreover, we procure much of our fuel-grade ethanol inventory outside of third-party marketing and distribution arrangements and therefore must buy fuel-grade ethanol at a price established at the time of purchase and sell fuel-grade ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of fuel-grade ethanol. As a result, our margins for fuel-grade ethanol sold in these transactions generally decline and may turn negative as the market price of fuel-grade ethanol declines.

We can provide no assurance that corn, natural gas or other production inputs can be purchased at or near current or any particular prices, or that our alcohols or essential ingredients will sell at or near current or any particular prices. Consequently, our results of operations and financial ~~position~~condition may be adversely affected by increases in the prices of corn, natural gas and other production inputs or decreases in the prices of our alcohols and essential ingredients.

Inflation, including as a result of commodity price inflation or supply chain constraints due to the war in Ukraine, may adversely impact our results of operations.

We have experienced inflationary impacts on key production inputs, wages and other costs of labor, equipment, services, and other business expenses. Commodity prices in particular have risen significantly over the past year. Inflation and its negative impacts could escalate in future periods.

Ukraine is the third largest exporter of grain in the world. Russia is one of the largest producers of natural gas and oil and is the largest exporter of fertilizers. The commodity price impact of the war in Ukraine has been a sharp and sustained rise in grain and energy prices, including corn and natural gas, two of our primary production input commodities. In addition, the war in Ukraine has adversely affected and may continue to adversely affect global supply chains resulting in further commodity price inflation for our production inputs. Lower fertilizer supplies may also impact future growing seasons, further impacting grain supplies and prices. Also, given high global grain prices, U.S. farmers may prefer to lock in prices and export additional volumes, reducing domestic grain supplies and resulting in further inflationary pressures.

We may not be able to include these additional costs in the prices of the products we sell. As a result, inflation may have a material adverse effect on our results of operations and financial condition.

Increased alcohol or essential ingredient production or higher inventory levels may cause a decline in prices for those products, and may have other negative effects, adversely impacting our results of operations, cash flows and financial condition.

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The prices of our alcohols and essential ingredients are impacted by competing third-party supplies of those products. For example, we believe that the most significant factor influencing the price of fuel-grade ethanol has been the substantial increase in production. According to the Renewable Fuels Association, domestic fuel-grade ethanol production capacity increased from an annualized rate of 1.5 billion gallons per year in January 1999 to a record 16.1 billion gallons in 2018. In addition, if fuel-grade ethanol production margins improve, we anticipate that owners of production facilities operating at below capacity, or owners of idled production facilities, will increase production levels, thereby resulting in more abundant fuel-grade ethanol supplies and inventories. Increases in the supply of alcohols and essential ingredients may not be commensurate with increases in demand for alcohols and essential ingredients, thus leading to lower prices. Moreover, higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of alcohols for sanitizers and disinfectants, and corresponding oversupply of essential ingredient co-products, may also exert downward pressure on prices. Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition.

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The prices of our products are volatile and subject to large fluctuations, which may cause our results of operations to fluctuate significantly.

The prices of our products are volatile and subject to large fluctuations. For example, the market price of fuel-grade ethanol is dependent upon many factors, including the supply of ethanol and the price of gasoline, which is in turn dependent upon the price of petroleum which itself is highly volatile and difficult to forecast. Our fuel-grade ethanol sales are tied to prevailing spot market prices rather than long-term, fixed-price contracts. Fuel-grade ethanol prices, as reported by the CBOT, ranged from $2.00 to $2.58 per gallon in the three months ended March 31, 2022, $1.48 to $3.75 per gallon in 2021, from $0.81 to $1.62 per gallon in 2020 and from $1.25 to $1.70 per gallon in 2019. In addition, even under longer-term, fixed-price contracts for our specialty alcohols, our customers may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility. Fluctuations in the prices of our products may cause our results of operations to fluctuate significantly.

Disruptions in our production or distribution may adversely affect our business, results of operations and financial condition.

Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. In particular, due to limited storage capacity at our production facilities and other considerations related to production efficiencies, our facilities depend on just-in-time delivery of corn. The production of alcohols also requires a significant and uninterrupted supply of other raw materials and energy, primarily water, electricity and natural gas. Local water, electricity and gas utilities may fail to reliably supply the water, electricity and natural gas that our production facilities need or may fail to supply those resources on acceptable terms. In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of fuel-grade ethanol by rail, the ~~principle~~principal manner by which fuel-grade ethanol from our facilities located in the Midwest is transported to market. In addition, in 2020, we experienced closure of the Illinois River for lock repairs which required greater use of less cost-effective modes of product transport such as via rail and truck, which resulted in higher costs and negatively affected our results of operations.

Disruptions in production or distribution, whether caused by labor difficulties, unscheduled downtimes and other operational hazards inherent in the alcohol production industry, including equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters such as earthquakes, floods and storms, or human error or malfeasance or other reasons, could prevent timely deliveries of corn or other raw materials and energy, and could delay transport of our products to market, and may require us to halt production at one or more production facilities, any of which could have a material adverse effect on our business, results of operations and financial condition.

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Some of these operational hazards may also cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not fully cover the potential hazards described above or we may be unable to renew our insurance on commercially reasonable terms or at all.

The effects of the coronavirus pandemic may materially and adversely affect our business, results of operations and liquidity.

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We may engage in hedging transactions and other risk mitigation strategies that could harm our results of operations and financial condition.

In an attempt to partially offset the effects of volatility of our product prices, in particular fuel-grade ethanol, corn and natural gas costs, we may enter into contracts to fix the price of a portion of our production or purchase a portion of our corn or natural gas requirements on a forward basis. In addition, we may engage in other hedging transactions involving exchange-traded futures contracts for corn, natural gas and unleaded gasoline from time to time. The financial statement impact of these activities is dependent upon, among other things, the prices involved and our ability to sell sufficient products to use all of the corn and natural gas for which forward commitments have been made. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. In addition, our open contract positions may require cash deposits to cover margin calls, negatively impacting our liquidity. As a result, our hedging activities and fluctuations in the price of corn, natural gas, fuel-grade ethanol and unleaded gasoline may adversely affect our results of operations, financial condition and liquidity.

Risks Related to our Finances

~~The industries~~We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and impede us from expanding our business.

We have incurred significant losses and negative operating cash flow in the past. For example, for the three months ended March 31, 2022 and year ended December 31, 2020, we ~~operate are extremely competitive. Many~~incurred consolidated net losses of approximately $2.6 million and $17.3 million, respectively. We may incur losses and negative operating cash flow in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our lines of credit and proceeds from our future financing activities, if any, to fund all of the cash requirements of our ~~significant competitors have greater production~~business. Additional losses and ~~financial resources~~negative operating cash flow may hamper our operations and ~~could use their greater resources to gain market share at~~impede us from expanding our ~~expense.~~business.

The industries in which we operate are extremely competitive. Many of our significant competitors have substantially greater production and financial resources than we do. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time. Successful competition will require a continued high level of investment in facility maintenance. We may fail to anticipate or respond adequately to new industry developments and other competitive pressures due to our limited resources relative to many significant competitors. This failure could reduce our competitiveness and cause a decline in market share, sales and profitability. Even if sufficient funds are available, we may not be able to make the modifications and improvements necessary to compete successfully.

We also face competition from international suppliers, particularly of fuel-grade ethanol, many of whom have cost structures substantially lower than ours. An increase in domestic or foreign competition could force us to reduce our prices and take other steps to compete effectively, which could adversely affect our business, financial condition and results of operations.

We incur significant expenses to maintain and upgrade our production facilities and operating equipment, and any interruption in our operations would harm our operating performance.

We regularly incur significant expenses to maintain and upgrade our production facilities and operating equipment. The machines and equipment we use to produce our alcohols and manufacture our essential ingredients are complex, have many parts, and some operate on a continuous basis. We must perform routine equipment maintenance and must periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our production facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled shutdowns result in lower sales and increased costs in the periods during which a shutdown occurs and could result in unexpected operational issues in future periods as a result of changes to equipment and operational and mechanical processes made during shutdown.

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~~Risks Related to our Finances~~

We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and impede us from expanding our business.

We have incurred significant losses and negative operating cash flow in the past. For the years ended December 31, 2020 and 2019, we incurred consolidated net losses of approximately $17.3 million and $101.3 million, respectively. For the three months ended March 31, 2021 and for the year ended December 31, 2019, we incurred negative operating cash flow of approximately $4.1 million and $23.4 million, respectively. We may incur losses and negative operating cash flow in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our lines of credit and proceeds from our future financing activities, if any, to fund all of the cash requirements of our business. Additional losses and negative operating cash flow may hamper our operations and impede us from expanding our business.

~~Our indebtedness exposes us to many risks that could negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.~~

Our production facilities located in the Midwest have significant indebtedness. In addition, we have significant indebtedness under our senior secured notes issued at the parent-company level. The terms of our loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our revolving credit facilities periodically and automatically declines through the maturity dates of those facilities. Our indebtedness could:

●

make it more difficult to pay or refinance our debts as they become due during adverse economic and industry conditions because those conditions could result in insufficient cash flows from operations to make our scheduled debt payments;

●

limit our flexibility to pursue strategic opportunities or react to changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to our competitors who have less debt;

●

require a substantial portion of our cash flow from operations, if any, to be used for debt service payments, thereby reducing our ability to fund working capital, capital expenditures, new business ventures, dividend payments and other general corporate purposes; and/or

●

~~limit our ability to procure additional financing for working capital or other purposes.~~

~~Our term loans and credit facilities also require compliance with numerous financial and other covenants, the violation of which could result in an acceleration of our indebtedness.~~

Much of our indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.

Our ability to generate sufficient cash to make all principal and interest payments when due depends on our business performance, which is subject to a variety of factors beyond our control, including the supply of and demand for our alcohols and other products, product prices, the cost of key production inputs, and many other factors incident to the alcohol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations.

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Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.

Federal and state income tax laws impose restrictions on our use of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership change occurs when stockholders owning 5% or more of a corporation entitled to use NOL or other loss carryforwards have increased their ownership by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months. Our ability to utilize our NOL and other loss carryforwards may be substantially limited. These limitations could result in increased future tax obligations, which could have a material adverse effect on our financial condition and results of operations.

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Risks Related to Legal and Regulatory Matters

We may be adversely affected by environmental, health and safety laws, regulations and liabilities.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes; and the health and safety of our employees. In addition, some of these laws and regulations require us to operate under permits that are subject to renewal or modification. These laws, regulations and permits often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or production facility shutdowns. In addition, we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

We may be liable for the investigation and cleanup of environmental contamination at each of our production facilities and at off-site locations where we arrange for the disposal of hazardous substances or wastes. If these substances or wastes have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant amounts for investigation, cleanup or other costs.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues will likely result in increased future investments for environmental controls at our production facilities. Present and future environmental laws and regulations, and interpretations of those laws and regulations, applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on our results of operations and financial condition.

The hazards and risks associated with producing and transporting our products (including fires, natural disasters, explosions and abnormal pressures and blowouts) may also result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. However, we could sustain losses for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverages. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations and financial condition.

Future demand for fuel-grade ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any of which could negatively affect demand for fuel-grade ethanol and our results of operations.

Although many trade groups, academics and governmental agencies have supported fuel-grade ethanol as a fuel additive that promotes a cleaner environment, others have criticized fuel-grade ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting water resources. Some studies have suggested that corn-based ethanol is less efficient than ethanol produced from other feedstock and that it negatively impacts consumers by causing increased prices for dairy, meat and other food generated from livestock that consume corn. Additionally, critics of fuel-grade ethanol contend that corn supplies are redirected from international food markets to domestic fuel markets. If negative views of corn-based ethanol production gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol as a fuel additive could decline, leading to a reduction or repeal of federal ethanol usage mandates, which would materially and adversely affect the demand for fuel-grade ethanol. These views could also negatively impact public perception of the fuel-grade ethanol industry and acceptance of ethanol as an alternative fuel.

-32-

There are limited markets for fuel-grade ethanol beyond those established by federal mandates. Discretionary blending and E85 blending (i.e., gasoline blended with up to 85% fuel-grade ethanol by volume) are important secondary markets. Discretionary blending is often determined by the price of fuel-grade ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for fuel-grade ethanol may decline. Also, the demand for fuel-grade ethanol is affected by the overall demand for transportation fuel. Demand for transportation fuel is affected by the number of miles traveled by consumers and vehicle fuel economy. Lower demand for fuel-grade ethanol and co-products would reduce the value of our ethanol and related products, erode our overall margins and diminish our ability to generate revenue or to operate profitably. In addition, we believe that consumer acceptance of E15 and E85 fuels is necessary before fuel-grade ethanol can achieve any significant growth in market share relative to other transportation fuels.

-36-

The United States fuel-grade ethanol industry is highly dependent upon various federal and state laws and any changes in those laws could have a material adverse effect on our results of operations, cash flows and financial condition.

The Environmental Protection Agency, or EPA, has implemented the Renewable Fuel Standard, or RFS, under the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the quantity of renewable fuels (such as fuel-grade ethanol) that must be blended into motor fuels consumed in the United States. The domestic market for fuel-grade ethanol is significantly impacted by federal mandates under the RFS program for volumes of renewable fuels (such as ethanol) required to be blended with gasoline. Future demand for fuel-grade ethanol will largely depend on incentives to blend ethanol into motor fuels, including the price of ethanol relative to the price of gasoline, the relative octane value of ethanol, constraints in the ability of vehicles to use higher ethanol blends, the RFS, and other applicable environmental requirements.

Under the provisions of the Clean Air Act, as amended by the Energy Independence and Security Act of 2007, the EPA has limited authority to waive or reduce the mandated RFS requirements, which authority is subject to consultation with the Secretaries of Agriculture and Energy, and based on a determination that there is inadequate domestic renewable fuel supply or implementation of the applicable requirements would severely harm the economy or environment of a state, region or the United States in general. Our results of operations, cash flows and financial condition could be adversely impacted if the EPA reduces the RFS requirements from the statutory levels specified in the RFS.

Various bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none has passed in recent years. Some legislative bills are directed at halting or reversing expansion of, or even eliminating, the renewable fuel program, while other bills are directed at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry. Our results of operations, cash flows and financial condition could be adversely impacted if any legislation is enacted that reduces the RFS volume requirements.

~~We may be adversely affected by environmental, health and safety laws, regulations and liabilities~~.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes, and the health and safety of our employees. In addition, some of these laws and regulations require us to operate under permits that are subject to renewal or modification. These laws, regulations and permits often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or production facility shutdowns. In addition, we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

-37--33-

Risks Related to Ownership of our Common Stock

~~Future sales of substantial amounts of our common stock, or perceptions that those sales could occur, could adversely affect the market price of our common stock and our ability to raise capital.~~

Future sales of substantial amounts of our common stock into the public market, including up to 8.9 million shares of our common stock that may be issued upon the exercise of outstanding warrants, or perceptions that those sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital.

Our stock price is highly volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. The market price of our common stock may continue to fluctuate in response to one or more of the following factors, many of which are beyond our control:

●

fluctuations in the market prices of our products;

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

	●
	●	the volume and timing of the receipt of orders for our products from major customers;

	●
	●	the coronavirus pandemic, including governmental and public ~~response~~responses to the pandemic;

	●
	●	competitive pricing pressures;

	●
	●	anticipated trends in our financial condition and results of operations;

	●
	●	changes in market valuations of companies similar to us;

	●
	●	stock market price and volume fluctuations generally;

	●
	●	regulatory developments or increased enforcement;

-38-

	●
	●	fluctuations in our quarterly or annual operating results;

	●
	●	additions or departures of key personnel;

	●
	●	our ability to obtain any necessary financing;

	●
	●	our financing activities and future sales of our common stock or other securities; and

	●
	●	our ability to maintain contracts that are critical to our operations.

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment. In the past, securities class action litigation has often been brought against a company following periods of high stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and our resources away from our business.

Any of the risks described above could have a material adverse effect on our results of operations, the price of our common stock, or both.

-34-

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless and until they sell them.

We intend to retain a significant portion of any future earnings to finance the development, operation and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment, and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, our results of operations, cash flows, and financial condition, operating and capital requirements, and other factors as our board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless our board of directors determines to pay dividends, our stockholders will be required to look solely to appreciation in the value of our common stock to realize aany gain on their investment. There can be no assurance that ~~this~~any such appreciation will occur.

Our bylaws contain an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Delaware Court of Chancery shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, ~~of us,~~ (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine.

For the avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

-39-

The choice of forum provision in our bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the provision making the Delaware Court of Chancery the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Delaware Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Finally, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on us.

-35-

General Risk Factors

Cyberattacks through security vulnerabilities could lead to disruption of our business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security vulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining access to our networks, data centers, cloud data centers, corporate computers, manufacturing systems, and/or access to accounts we have at our suppliers, vendors ~~and~~or customers. External parties may gain access to our data or our customers’ data, or attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account security practices such as failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and user account policies. However, there can be no assurance that these measures will be sufficient to avoid cyberattacks. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significant liability.

Further, if we fail to adequately maintain our information technology infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently deliver products to customers or develop new products. Such disruptions and data loss may adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.

~~The State of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2020.~~ Our and our business partners’ or contractors’ failure to fully comply with ~~the CCPA and other~~applicable data privacy or similar laws could lead to significant fines and require onerous corrective action. In addition, data security breaches experienced by us or our business partners or contractors could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally identifiable information (including sensitive personal information) of our employees, customers, suppliers, contractors and others.

-40-

Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

-36-

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Dividends

Our current and future debt financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the achievement of specified financial and other operating conditions and our ability to properly service our debt, thereby limiting or preventing us from paying cash dividends.

For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we accrued an aggregate of $0.3 million in dividends on our Series B Cumulative Convertible Preferred Stock, or Series B Preferred ~~Stock, but did not declare or pay~~Stock. We have paid these dividends in cash ~~dividends, as permitted under an agreement with the holders of~~and are current in our ~~Series B Preferred Stock, in an effort to preserve liquidity.~~quarterly dividend obligations.

We have never declared or paid cash dividends on our common stock and do not currently intend to pay cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain any earnings for use in the continued development of our business.

The holders of our outstanding Series B Preferred Stock are entitled to dividends of 7% per annum, payable quarterly. Accrued and unpaid dividends in respect of our Series B Preferred Stock must be paid prior to the payment of any dividends in respect of shares of our common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

-41-

ITEM 6. EXHIBITS.

Exhibit Number		Description
~~3.1~~		~~Certificate of Incorporation (*)~~
~~3.2~~31.1		~~Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stock (*)~~
~~3.3~~		~~Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock (*)~~
~~3.4~~		~~Certificate of Amendment to Certificate of Incorporation dated June 3, 2010 (*)~~
~~3.5~~		~~Certificate of Amendment to Certificate of Incorporation effective June 8, 2011 (*)~~
~~3.6~~		~~Certificate of Amendment to Certificate of Incorporation effective May 14, 2013 (*)~~
~~3.7~~		~~Certificate of Amendment to Certificate of Incorporation effective July 1, 2015 (*)~~
~~3.8~~		~~Certificate of Amendment to Certificate of Incorporation effective January 12, 2021 (*)~~
~~3.9~~		~~Second Amended and Restated Bylaws (*)~~
~~31.1~~		Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
31.2		Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)
101.INS		Inline XBRL Instance Document (*)
101.SCH		Inline XBRL Taxonomy Extension Schema Document (*)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (*)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (*)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (*)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (*)
104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) (*)

(*)

Filed herewith.

-42--37-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALTO INGREDIENTS, INC.

Dated: May ~~17, 2021~~9, 2022	By:	/S/s/ BRYON T. MCGREGOR
		Bryon T. McGregor
		Chief Financial Officer
		(Principal Financial and Accounting ~~Officer)~~Officer)

~~-43-~~-38-

iso4217:USD xbrli:shares

	Stockton		Madera
Property and equipment, net	$	19,535	$	27,813
Right of use operating lease assets, net		9,705		-
Assets held-for-sale	$	29,240	$	27,813

	Stockton		Madera
Operating lease obligations	$	10,456	$	—
Assessment financing		—		8,775
Liabilities held-for-sale	$	10,456	$	8,775

Cost of goods sold:
Marketing and distribution	$	53,957		$	57,139
Pekin Campus production		137,376			128,683
Other production		24,118			142,310
Intersegment eliminations		(10,554	)		(3,838	)
Cost of goods sold as reported	$	204,897		$	324,294

Income (loss) before benefit for income taxes:
Marketing and distribution	$	3,973		$	2,930
Pekin Campus production		9,691			(6,849	)
Other production		(5,137	)		(16,621	)
Corporate activities		(2,904	)		(2,562	)
	$	5,623		$	(23,102	)
Depreciation:
Pekin Campus production	$	4,345		$	5,130
Other production		1,498			4,530
Corporate activities		17			99
	$	5,860		$	9,759

	March 31,		December 31,
Total assets:	2021		2020
Marketing and distribution	$	119,546	$	89,337
Pekin Campus production		238,370		234,439
Other production		120,351		102,409
Corporate assets		22,849		50,633
	$	501,116	$	476,818

	March 31, 2021		December 31, 2020
Finished goods	$	39,654	$	25,154
Work in progress		4,965		4,333
Raw materials		9,233		7,074
Other		1,364		1,364
Total	$	55,216	$	37,925

		Realized Gains
		For the three months Ended
		March 31,
Type of Instrument	Statements of Operations Location	2021		2020
Commodity contracts	Cost of goods sold	$	6,185	$	—
		$	6,185	$	—

		Unrealized Gains
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2021		2020
Commodity contracts	Cost of goods sold	$	4,358	$	—
		$	4,358	$	—

	March 31, 2021			December 31, 2020
Kinergy line of credit	$	45,554		$	32,512
Pekin revolving loan		17,580			20,580
ICP revolving loan		9,384			9,384
Parent notes payable		20,001			25,533
CARES Act loans		9,860			9,860
		102,379			97,869
Less unamortized debt premium		174			230
Less unamortized debt financing costs		(576	)		(759	)
Less short-term portion		(37,581	)		(25,533	)
Long-term debt	$	64,396		$	71,807

	Fair
	Value			Level 1			Level 2		Level 3
Assets:
Derivative financial instruments	$	22,355		$	22,355		$	—	$	—
Long-lived assets held-for-sale		57,053			—			—		57,053
	$	79,408		$	22,355		$	—	$	57,053
Liabilities:
Derivative financial instruments	$	(4,741	)	$	(4,741	)	$	—	$	—
	$	(4,741	)	$	(4,741	)	$	—	$	—

									Benefit Plan
	Fair								Percentage
	Value		Level 1		Level 2		Level 3		Allocation
Assets:
Derivative financial instruments	$	17,149	$	17,149	$	—	$	—
Long-lived assets held-for-sale		58,295		—		—		58,295
Defined benefit plan assets(1)
(pooled separate accounts):						��		��
Large U.S. Equity(2)		5,470		—		5,470		—		31	%
Small/Mid U.S. Equity(3)		2,605		—		2,605		—		15	%
International Equity(4)		2,921		—		2,921		—		17	%
Fixed Income(5)		6,592		—		6,592		—		37	%
	$	93,032	$	17,149	$	17,588	$	58,295

Liabilities:

	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2021
	Income Numerator			Shares Denominator		Per-Share Amount
Net income attributed to Alto Ingredients, Inc.	$	4,678
Less: Preferred stock dividends		(312	)
Basic income per share:
Income available to common stockholders	$	4,366			70,351	$	0.06
Add: Dilutive securities		—			2,113
Diluted income per share:
Income available to common stockholders	$	4,366			72,464	$	0.06

	Three Months Ended March 31, 2020
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Alto Ingredients, Inc.	$	(25,100	)
Less: Preferred stock dividends		(315	)
Basic and diluted loss per share:
Net loss available to common stockholders	$	(25,415	)		53,828	$	(0.47	)

	March 31, 2021		December 31, 2020		Change
Cash and cash equivalents	$	44,146	$	47,667		(7.4	)%
Current assets	$	241,588	$	214,046		12.9	%
Property and equipment, net	$	226,183	$	229,486		(1.4	)%
Current liabilities	$	112,750	$	86,927		29.7	%
Long-term debt, noncurrent portion	$	64,396	$	71,807		(10.3	)%
Working capital	$	128,838	$	127,119		1.4	%
Working capital ratio		2.14		2.46		(13.0	)%