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 September 30, 2021

☐ 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 November 11, 2021, there were 72,799,485 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.

		Page

	PART I
	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.

	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	1

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	19

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	35

ITEM 4.	CONTROLS AND PROCEDURES.	35

	PART II
	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	36

ITEM 1A.	RISK FACTORS.	36

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	46

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	46

ITEM 4.	MINE SAFETY DISCLOSURES.	46

ITEM 5.	OTHER INFORMATION.	46

ITEM 6.	EXHIBITS.	47

SIGNATURES		48

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30,		December 31,
	2021		2020
	(unaudited)		*
ASSETS
Current Assets:
Cash and cash equivalents	$	36,029	$	47,667
Accounts receivable, net (net of allowance for doubtful accounts of $360 and $260, respectively)		78,424		43,491
Inventories		58,117		37,925
Prepaid inventory		5,480		891
Derivative instruments		12,977		17,149
Assets held-for-sale		30,158		58,295
Other current assets		5,413		8,628
Total current assets		226,598		214,046
Property and equipment, net		224,319		229,486
Other Assets:
Right of use operating lease assets, net		12,715		11,046
Notes receivable		12,423		14,337
Intangible assets		2,678		2,678
Other assets		4,671		5,225
Total other assets		32,487		33,286
Total Assets	$	483,404	$	476,818

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

See accompanying notes to consolidated financial statements.

ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except par value)

	September 30,			December 31,
	2021			2020
	(unaudited)			*
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable – trade	$	28,387		$	13,047
Accrued liabilities		15,455			11,101
Current portion – operating leases		3,216			2,180
Current portion – long-term debt		17,687			25,533
Derivative instruments		2,735			—
Liabilities held-for-sale		10,500			19,542
Other current liabilities		6,468			15,524
Total current liabilities		84,448			86,927

Long-term debt, net of current portion		70,621			71,807
Operating leases, net of current portion		9,365			8,715
Other liabilities		13,774			13,134
Total Liabilities		178,208			180,583
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 September 30, 2021 and December 31, 2020; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of September 30, 2021 and December 31, 2020; liquidation preference of $20,609 as of September 30, 2021		1			1
Common stock, $0.001 par value; 300,000 shares authorized; 72,800 and 72,487 shares issued and outstanding as of September 30, 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 September 30, 2021 and December 31, 2020		—			—
Additional paid-in capital		1,036,608			1,036,638
Accumulated other comprehensive loss		(3,878	)		(3,878	)
Accumulated deficit		(727,608	)		(736,598	)
Total Stockholders’ Equity		305,196			296,235
Total Liabilities and Stockholders’ Equity	$	483,404		$	476,818

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

ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020

Net sales	$	305,556		$	204,727		$	822,400		$	728,205
Cost of goods sold		308,955			183,797			796,729			688,983
Gross profit (loss)		(3,399	)		20,930			25,671			39,222
Selling, general and administrative expenses		(5,533	)		(6,404	)		(19,777	)		(25,245	)
Asset impairments		—			—			(3,100	)		—
Gain on litigation settlement		—			11,750			—			11,750
Income (loss) from operations		(8,932	)		26,276			2,794			25,727
Interest expense, net		(429	)		(4,199	)		(3,359	)		(14,153	)
Income from loan forgiveness		5,973			—			9,860			—
Fair value adjustments		—			(6,856	)		—			(7,497	)
Other income (expense), net		256			(6	)		641			(1,164	)
Income (loss) before benefit for income taxes		(3,132	)		15,215			9,936			2,913
Benefit for income taxes		—			—			—			—
Consolidated net income (loss)		(3,132	)		15,215			9,936			2,913
Net loss attributed to noncontrolling interests		—			—			—			2,166
Net income (loss) attributed to Alto Ingredients, Inc.	$	(3,132	)	$	15,215		$	9,936		$	5,079
Preferred stock dividends	$	(319	)	$	(319	)	$	(946	)	$	(949	)
Net income (loss) available to common stockholders	$	(3,451	)	$	14,896		$	8,990		$	4,130
Net income (loss) per share, basic	$	(0.05	)	$	0.25		$	0.13		$	0.07
Net income (loss) per share, diluted	$	(0.05	)	$	0.24		$	0.12		$	0.07
Weighted-average shares outstanding, basic		71,383			58,503			71,002			55,620
Weighted-average shares outstanding, diluted		71,383			61,699			72,260			57,958

See accompanying notes to consolidated financial statements.

ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

	Nine Months Ended September 30,
	2021			2020
Operating Activities:
Consolidated net income	$	9,936		$	2,913
Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities:
Depreciation and amortization of intangibles		17,520			26,855
Asset impairments		3,100			—
Income from loan forgiveness		(9,860	)		—
Non-cash compensation		2,282			2,012
Amortization of deferred financing fees		732			587
Fair value adjustments		—			7,497
Interest added to debt		—			133
Bad debt expense		140			1
Changes in operating assets and liabilities:
Accounts receivable		(35,072	)		29,841
Inventories		(20,192	)		22,863
Prepaid expenses and other assets		12,362			(234	)
Prepaid inventory		(4,588	)		313
Operating leases		(3,184	)		(2,348	)
Assets held-for-sale		(2,874	)		1,012
Liabilities held-for-sale		1,467			9,345
Accounts payable and accrued expenses		8,483			(25,097	)
Net cash (used in) provided by operating activities		(19,748	)		75,693
Investing Activities:
Proceeds from Madera Sale		19,500			—
Proceeds from PAL Sale		—			19,896
Additions to property and equipment		(12,240	)		(4,864	)
Net cash provided by investing activities		7,260			15,032
Financing Activities:
Net proceeds from (payments on) Kinergy’s line of credit		38,198			(39,548	)
Proceeds from stock option exercises		462			—
Principal payments on borrowings		(37,810	)		(52,100	)
Proceeds from warrant exercises		—			5,500
Proceeds from issuance of common stock		—			5,296
Proceeds from borrowings		—			9,860
Preferred stock dividends paid		—			—
Net cash provided by (used in) financing activities		850			(70,992	)
Net change in cash and cash equivalents		(11,638	)		19,733
Cash and cash equivalents at beginning of period		47,667			18,997
Cash and cash equivalents at end of period	$	36,029		$	38,730

Supplemental Cash Flow Information:
Interest paid	$	3,194		$	13,746
Accrued preferred stock dividends	$	946		$	949

See accompanying notes to consolidated financial statements.

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
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		550			1			(186	)		—			—			—			(185	)
Stock-based compensation		—		—		—			—			804			—			—			—			804
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
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		(350	)		—			(2,589	)		—			—			—			(2,589	)
Stock-based compensation		—		—		—			—			851			—			—			—			851
Preferred stock dividends		—		—		—			—			—			(315	)		—			—			(315	)
Net income		—		—		—			—			—			8,390			—			—			8,390
Balances, June 30, 2021		927	$	1		72,811		$	73		$	1,035,980		$	(724,157	)	$	(3,878	)	$	—		$	308,019
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		(11	)		—			—			—			—			—			—
Stock-based compensation		—		—		—			—			628			—			—			—			628
Preferred stock dividends		—		—		—			—			—			(319	)		—			—			(319	)
Net loss		—		—		—			—			—			(3,132	)		—			—			(3,132	)
Balances, September 30, 2021		927	$	1		72,800		$	73		$	1,036,608		$	(727,608	)	$	(3,878	)	$	—		$	305,196
Balances, January 1, 2020		927	$	1		55,508		$	56		$	942,307		$	(720,214	)	$	(2,370	)	$	7,265		$	227,045
Restricted stock issued to employees and directors, net of cancellations and tax		—		—		(38	)		(4	)		3			—			—			—			(1	)
Stock-based compensation		—		—		—			—			865			—			—			—			865
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	)	$

SEC Form 10-Q filed by Alto Ingredients Inc.