What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-26 compared with 2020-03-30 · 1448 added, 1499 removed, 789 unchanged (79% of the section changed)

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 and 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 December 31, 2019 that our disclosure controls and procedures were effective at a reasonable assurance

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 and 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 December 31, 2020 that our disclosure controls and procedures were effective at a reasonable assurance level.

Management’s

Report on Internal Control over Financial Reporting

Our management is

responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)

and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures

Our management is responsible

for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)

under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the

reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records

1 unchanged sentence

of our assets;

reasonable assurance that transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles,

and that our receipts and expenditures are being made only in accordance with authorizations

of our management and directors;

(iii) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use or disposition of our assets that could have a material effect on our financial statements.

(ii) provide reasonable assurance that

transactions are recorded as necessary to permit preparation of financial statements

in accordance with generally accepted accounting principles, and that our receipts and

expenditures are being made only in accordance with authorizations of our management

and directors;

(iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use or disposition of our

assets that could have a material effect on our financial statements.

Because of its inherent

3 unchanged sentences

or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness

is defined by the Public Company Accounting Oversight Board’s Audit Standards AS 2201 as being a deficiency, or combination

A material weakness is

defined by the Public Company Accounting Oversight Board’s Audit Standards AS 2201 as being a deficiency, or combination

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement

9 unchanged sentences

concluded that our internal control over financial reporting was effective as of December 31, 2020.

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.

Inherent Limitations on the Effectiveness

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.

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

9 unchanged sentences

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.

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.

Other Information.

Executive Officers and Corporate Governance.

Directors, Executive Officers and Corporate Governance.

The information under

2 unchanged sentences

Statement, is hereby incorporated by reference.

Compensation.

The information under

the caption “Executive Compensation and Related Information,”

appearing in the Proxy Statement, is hereby incorporated

by reference.

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under

the captions “Security Ownership of Certain Beneficial Owners and Management”

and “Equity Compensation Plan

Information,”

Executive Compensation.

The information under the caption “Executive

Compensation and Related Information,”

appearing in the Proxy Statement, is hereby incorporated by reference.

Relationships and Related Transactions, and Director Independence.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the captions “Security

Ownership of Certain Beneficial Owners and Management”

and “Equity Compensation Plan Information,”

in the Proxy Statement, is hereby incorporated by reference.

Certain Relationships and Related Transactions, and Director Independence.

The information under

5 unchanged sentences

Accounting Fees and Services.

The information under

the caption “Audit Matters—Principal Accountant Fees and Services,”

appearing in the Proxy Statement, is hereby

incorporated by reference.

Exhibits, Financial

Statement Schedules.

The information under the caption “Audit

Matters—Principal Accountant Fees and Services,”

appearing in the Proxy Statement, is hereby incorporated by reference.

Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements

Reference is made

to the financial statements listed on and attached following the Index to Consolidated Financial Statements contained on page

F-1 of this report.

Reference is made to

the financial statements listed on and attached following the Index to Consolidated Financial Statements contained on page F-1

of this report.

(a)(2) Financial Statement Schedules

(a)(3) Exhibits

Reference is made

to the exhibits listed on the Index to Exhibits.

10-K Summary.

Reference is made to

the exhibits listed on the Index to Exhibits.

Form 10-K Summary.

to Consolidated Financial Statements

Reports of Independent Registered Public Accounting

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31,

2019 and 201 8

Consolidated Statements of Comprehensive Income (Loss) for the Years

Ended December 31, 2019 and 2018

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’

Equity for the Years

Ended December 31, 2019 and 2018

Consolidated Statements of Cash Flows for the Years Ended December 31,

2019 and 2018

Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

Pacific Ethanol, Inc.

Alto Ingredients, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Pacific Ethanol, Inc.

and its subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated

statements of operations, other comprehensive income (loss), stockholders’

equity and cash flows for the years then ended,

and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial

statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and

the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally

accepted in the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have

been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements,

the Company has suffered recurring losses from operations and has limited additional liquidity available.

This raises substantial

doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters also

are described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have audited the accompanying consolidated balance sheets

of Alto Ingredients, Inc.

and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements

of operations, comprehensive loss, stockholders’

equity and cash flows for the years then ended, and the related notes to

the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results

of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the

United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting as of December 31, 2019.

our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of

expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express

no such opinion as of December 31, 2019.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required

to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations

of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks

of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as

well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis

for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising

from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially

challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate

opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Long-Lived Asset Impairment

As discussed in Note 1 to the financial statements, the

Company assesses the impairment of long-lived assets, including property and equipment, internally developed software and purchased

intangibles subject to amortization, when events or circumstances exist that indicate that the fair value of assets may be less

than their net book value.

The Company’s model includes forecasted undiscounted cash flows and estimated net proceeds expected

from the sale of the asset group used for the determination of any impairment of the Company’s long-lived assets.

The projections

used for analysis are judgmental and based on circumstances and future plans as determined by management.

We identified the assessment of the Company’s impairment

of long-lived assets as a critical audit matter because auditor judgment was required in evaluating significant assumptions related

to the Company’s estimate, including the estimated residual value of the asset group.

Our audit procedures related to the Company’s long-lived

asset impairment assessment included the following, among others:

● We compared plant efficiency and profitability at the asset group

to comparable asset groups that have been sold by the Company and others in the industry, to determine the reasonableness of the

estimated residual value of the asset group.

● For the asset group with an indicator of impairment, we obtained the

third-party valuation report for the asset group and evaluated the reasonableness of the sales approach by evaluating market data,

used in the valuation, for plants that have been sold recently by the Company and others in the industry.

/s/ RSM US LLP

We have served as the Company’s auditor since 2015.

Sioux Falls, South Dakota

Rochester, Minnesota

March 26, 2021

PACIFIC ETHANOL,

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

2 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $39 and

$12, respectively

Accounts receivable, net of allowance for doubtful accounts of $260 and $39, respectively

Prepaid inventory

6 unchanged sentences

Right of use operating lease assets, net

Notes receivable

Assets held-for-sale

1 unchanged sentence

Total other assets

The accompanying notes are an integral

part of these consolidated financial statements.

PACIFIC ETHANOL, INC.

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

21 unchanged sentences

1,684,375 shares authorized;

no shares issued

and outstanding as of December 31, 2019 and 2018

no shares issued and outstanding as of December 31, 2020 and 2019

1,580,790 shares authorized;

926,942 shares

issued and outstanding as of December 31, 2019 and 2018;

926,942 shares issued and outstanding as of December 31, 2020 and 2019;

liquidation preference of $19,663 as of December 31, 2020

8 unchanged sentences

Accumulated deficit

Total Pacific Ethanol, Inc.

Total Alto Ingredients, Inc.

stockholders’

2 unchanged sentences

Total Liabilities and Stockholders’

The accompanying

notes are an integral part of these consolidated financial statements.

PACIFIC ETHANOL,

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

2 unchanged sentences

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Asset impairment

Loss from operations

Loss on debt extinguishment

Gain on litigation settlement

Gain on sale of assets

Asset impairments

Income (loss) from operations

Interest expense, net

Loss on debt extinguishment

Fair value adjustments

Other income, net

3 unchanged sentences

Net loss attributed to noncontrolling interests

Net loss attributed to Pacific Ethanol, Inc.

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

2 unchanged sentences

Weighted-average shares outstanding, basic and diluted

The accompanying notes

are an integral part of these consolidated financial statements.

ETHANOL, INC.

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

2 unchanged sentences

Consolidated net loss

Other comprehensive income (expense)

Other comprehensive income (expense) –

net gain (loss) arising during the period on defined benefit pension plans

1 unchanged sentence

Comprehensive loss attributed to noncontrolling interests

Comprehensive loss attributed to Pacific Ethanol, Inc.

The accompanying notes are an integral

part of these consolidated financial statements.

PACIFIC ETHANOL,

Comprehensive loss attributed to Alto Ingredients, Inc.

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

1 unchanged sentence

Preferred Stock

Additional Paid-In

Other Comprehensive

December 31, 2017

Stock-based compensation expense

Common Stock and

Non-Voting Common

Comprehensive

Balances, December

Stock-based compensation expense –

restricted stock and options to employees and directors, net of cancellations and tax

Common stock issuances

Common stock issuances ATM

Common stock issuances senior notes

Pension plan adjustment

Preferred stock dividends

December 31, 2018

Stock-based compensation expense

Balances, December

Stock-based compensation expense –

restricted stock and options to employees and directors, net of cancellations and tax

Common stock issuances

Warrant exercises

Common stock issuances ATM

Senior Notes Amendment:

Sale of interests in PAL

Pension plan adjustment

Preferred stock dividends

December 31, 2019

The accompanying notes

are an integral part of these consolidated financial statements.

PACIFIC ETHANOL,

Balances, December

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December

For the Years Ended

Operating Activities:

Consolidated net loss

Adjustments to reconcile consolidated net loss to cash

provided by (used in) operating activities:

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

Depreciation and amortization of intangibles

Asset impairment

Asset impairments

Fair value adjustments

Gain on sale of assets

Loss on debt extinguishment

Deferred income taxes

Inventory valuation

(Gain) loss on derivative instruments

Gain on derivative instruments

Amortization of deferred financing costs

Amortization of debt discounts

Amortization of debt discounts (premiums)

Noncash compensation

6 unchanged sentences

Operating leases

Assets held-for-sale

Liabilities held-for-sale

Accounts payable and accrued expenses

1 unchanged sentence

Investing Activities:

Proceeds from sale of interests in PAL

Proceeds from Magic Valley asset sale

Additions to property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing Activities:

Proceeds from issuances of common stock

Proceeds from CoGen contract amendment

Proceeds from assessment financing

Payments on assessment financing

Proceeds from issuances of common stock and warrants

Proceeds from warrant exercises

Proceeds from CARES Act loans

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

2 unchanged sentences

Preferred stock dividend payments

Payments on capital leases

Proceeds from CoGen contract amendment

Debt issuance costs

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended

Supplemental Information:

2 unchanged sentences

Noncash financing and investing activities:

Initial right of use assets and liabilities recorded

under ASC 842

Initial right of use assets and liabilities recorded under ASC 842

Issuance of common stock for senior note amendment

1 unchanged sentence

Accrued preferred stock dividends

The accompanying notes

are an integral part of these consolidated financial statements.

ETHANOL, INC.

accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND SIGNIFICANT ACCOUNTING POLICIES .

Organization and Business

The consolidated financial statements include, for all periods presented, the accounts of Pacific Ethanol, Inc.,

a Delaware corporation (“Pacific Ethanol”), and its direct and indirect subsidiaries (collectively, the “Company”),

including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Pacific

Products, LLC, a California limited liability company (“PAP”), PE Op Co., a Delaware corporation (“PE Op

Co.”)and Illinois Corn Processing, LLC (“ICP”).

On December 15, 2016, the

Company and Aurora Cooperative Elevator Company, a Nebraska cooperative corporation (“ACEC”), closed a transaction

under a contribution agreement under which the Company contributed its Aurora, Nebraska ethanol facilities and ACEC contributed

its Aurora grain elevator and related grain handling assets to Pacific Aurora, LLC (“Pacific Aurora”) in exchange

for equity interests in Pacific Aurora.

On December 15, 2016, concurrently with the closing under the contribution agreement,

the Company sold a portion of its equity interest in Pacific Aurora to ACEC.

As a result, the Company owns 73.93% of Pacific Aurora

and ACEC owns 26.07% of Pacific Aurora.

Further, the Company has consolidated 100% of the results of Pacific Aurora and recorded

ACEC’s 26.07% equity interest as noncontrolling interests in the accompanying financial statements for all periods presented.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES .

Organization and

Business –

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

(formerly known as Pacific Ethanol, Inc.), a Delaware corporation (“Alto Ingredients”), and its direct and indirect

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

limited liability company (“Kinergy”), Alto Nutrients, LLC (formerly known as Pacific Ag.

Products, LLC), a California

limited liability company (“Alto Nutrients”), Alto Op Co.

(formerly known as PE Op Co.), a Delaware corporation (“Alto

Op Co.”), Alto Pekin, LLC (formerly known as Pacific Ethanol Pekin, LLC), a Delaware limited liability company (“Alto

Pekin”) and Alto ICP, LLC (formerly known as Illinois Corn Processing, LLC), a Delaware limited liability company (“ICP”).

On December 15, 2016, the Company and Aurora

Cooperative Elevator Company, a Nebraska cooperative corporation (“ACEC”), closed a transaction under a contribution

agreement under which the Company contributed its Aurora, Nebraska ethanol production facilities and ACEC contributed its Aurora

grain elevator and related grain handling assets to Pacific Aurora, LLC (“Pacific Aurora”) in exchange for equity interests

in Pacific Aurora.

As a result, the Company owned 73.93% of Pacific Aurora and ACEC owned 26.07% of Pacific Aurora.

further in Note 2, the Company sold its interest in Pacific Aurora on April 15, 2020.

Therefore, from December 15, 2016 through

April 15, 2020, the Company consolidated 100% of the results of Pacific Aurora and recorded ACEC’s 26.07% equity interest

as noncontrolling interests in the accompanying financial statements.

The Company is a leading

producer and marketer of low-carbon renewable fuels in the United States.

The Company’s four ethanol plants in the Western

United States (together with their respective holding companies, the “Pacific Ethanol West Plants”) are located in

close proximity to both feed and ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing.

The Company’s five ethanol plants in the Midwest (together with their respective holding companies, the “Pacific Ethanol

Central Plants”) are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and

allow for access to many additional domestic markets.

In addition, the Company’s ability to load unit trains from these

facilities in the Midwest allows for greater access to international markets.

producer and marketer of specialty alcohols and essential ingredients.

The Company also produces and markets fuel-grade ethanol.

The Company’s production facilities in Pekin, Illinois are located in the heart of the Corn Belt, 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 production

facilities in California, Oregon and Idaho are located in close proximity to both feed and fuel-grade ethanol customers and thus

enjoy unique advantages in efficiency, logistics and product pricing.

The Company has a combined

production capacity of 605 million gallons per year, markets, on an annualized basis, nearly 1.0 billion gallons of ethanol and

specialty alcohols, and produces, on an annualized basis, over 3.0 million tons of co-products on a dry matter basis, such as

wet and dry distillers grains, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, dried

yeast and CO 2 .

production capacity of 450 million gallons per year, markets, on an annualized basis, over 500 million gallons of alcohols, and

produces, on an annualized basis, nearly 1.5 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.

The Company focuses on

four key markets:

Health, Home & Beauty ;

Food & Beverage ;

Essential Ingredients ;

and Renewable

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

hand sanitizers, disinfectants and cleaners.

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

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

Products for Essential Ingredients markets include 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 December 31, 2020,

all but one of the Company’s production facilities, specifically, the Company’s Aurora East facility, 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.

the Company was operating at approximately 64% of its 450 million gallon annual production capacity.

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 –

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally

accepted in the United States (“GAAP”) and include the accounts of the Company.

All significant intercompany accounts

and transactions have been eliminated in consolidation.

Liquidity –

The accompanying

consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates

the realization of assets and the satisfaction of liabilities in the normal course of business.

As a result of ethanol industry

conditions that have negatively affected the Company’s business, the Company does not currently have sufficient liquidity

to meet its anticipated working capital, debt service and other liquidity needs in the near-term.

The Company has reduced production

at its facilities by more than 60% subsequent to year end due to market conditions and in an effort to conserve capital.

The Company has also taken

and expects to take additional steps to preserve liquidity.

However, despite any additional cost-saving steps that the Company

may take, the Company does not believe that it has sufficient working capital to continue operations for the next twelve months, unless it successfully restructures its debt, sells assets, experiences

a significant improvement in margins and/or obtains other sources of liquidity.

In addition, if margins do not promptly and sustainably

improve from current levels, the Company may be forced to further curtail or cease production at one or more of its operating

As a result of these factors, there exists substantial doubt

as to the Company’s ability to continue as a going concern.

The Company has agreed with its lenders to

present by April 20, 2020 a comprehensive plan to restructure its assets and liabilities.

The Company has appointed a chief restructuring

officer to facilitate the development of such a plan and to assist in the Company’s present strategic initiatives.

Company expects the plan will include completing planned asset sales, additional assets sales, soliciting new investments in the

Company or its assets, further debt payment deferrals and reductions, cutting overhead expenses and other cash preserving initiatives.

The Company intends that the plan will provide the means to maintain sufficient liquidity for the next twelve months.

PACIFIC ETHANOL, INC.

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted

in the United States (“GAAP”) and include the accounts of the Company.

All significant

intercompany accounts and transactions have been eliminated in consolidation.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liquidity –

the year ended December 31, 2020, the Company experienced significant adverse conditions in the fuel-grade ethanol market as demand

and pricing reached record lows due to reduced domestic transportation and resulting lower gasoline demand resulting from stay-at-home

orders issued in response to the coronavirus pandemic.

In response, the Company reduced fuel-grade ethanol production at its production

facilities by more than 50% in an effort to conserve capital.

The Company continued producing and selling its specialty alcohols,

but also converted a portion of its fuel-grade ethanol production to specialty alcohol production to respond to substantial increased

demand from the sanitizer and disinfectant markets.

Sales of specialty alcohols were at a mix of fixed and spot prices, both of

which resulted in significant cash flow from operations during the year.

As of December 31, 2020, the Company had

$47.7 million in cash and $16.0 million available for borrowing under Kinergy’s operating line of credit.

During 2020, the

Company generated $71.8 million in cash from its operations.

The Company also realized $19.9 million in net cash proceeds from

the sale of its interest in Pacific Aurora and $10.0 million from its sale of certain real property and related assets at its Magic

Valley production facility.

In addition, the Company received net proceeds of approximately $75.8 million from issuances of common

stock and warrants and $5.5 million from warrant exercises.

These sources of cash enabled the Company to make principal payments

totaling $157.6 million on its debt during 2020, resulting in the Company’s return to compliance with its lenders.

the Company’s current liquidity and outlook for the rest of 2021, it believes it has sufficient liquidity to meet its anticipated

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

Segments –

a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision

is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision

maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial

1 unchanged sentence

The Company determines and discloses its segments in accordance with the Financial Accounting Standards

Board’s (“FASB”) Accounting Standards Codification Section 280, Segment Reporting , which defines how

to determine segments.

The Company reports its financial and operating performance in two reportable segments:

(1) ethanol production,

which includes the production and sale of ethanol, specialty alcohols and co-products, with all of the Company’s production

facilities aggregated, and (2) marketing and distribution, which includes marketing and merchant trading for Company-produced

ethanol, specialty alcohols and co-products and third-party ethanol.

Cash and Cash Equivalents –

Board’s (“FASB”) Accounting Standards Codification Section 280, Segment Reporting , which defines how to

determine segments.

In 2020, with the Company’s strategic shift to an increased focus on specialty alcohol sales, the Company

now reports financial and operating performance in three reportable segments (1) marketing and distribution, which includes marketing

and merchant trading for Company-produced specialty alcohols, fuel-grade ethanol and essential ingredients, and third-party fuel-grade

ethanol, (2) Pekin production, which includes the entire campus in Pekin, Illinois (“Pekin Campus”), and (3) other

production, which includes all of the Company’s other production facilities on an aggregated basis (“Other production”).

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents.

The Company maintains its accounts at several financial institutions.

These cash balances regularly exceed amounts insured by

the Federal Deposit Insurance Corporation, however, the Company does not believe it is exposed to any significant credit risk

on these balances.

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 ethanol to gasoline refining and distribution companies, sells distillers grains and other feed co-products

to dairy operators and animal feedlots and sells corn oil to poultry and biodiesel customers generally without requiring collateral.

Due to a limited number of ethanol customers, the Company had significant concentrations of credit risk from sales of ethanol

as of December 31, 2019 and 2018, as described below.

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.

These cash balances regularly exceed amounts insured by the

Federal Deposit Insurance Corporation;

however, the Company does not believe it is exposed to any significant credit risk on these

Accounts Receivable and Allowance

for Doubtful Accounts –

Trade accounts receivable are presented at face value, net of the allowance for doubtful

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

and distribution companies, sells essential ingredients to animal feed customers, including distillers grains and other feed co-products

to dairy operators and animal feedlots and corn oil to poultry and biodiesel customers, in each case generally without requiring

Due to a limited number of customers, the Company had significant concentrations of credit risk from sales as of December

31, 2020 and 2019, as described below.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

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.

If the financial condition of a Company customer deteriorates, resulting in an impairment of

ability to make payments, additional allowances may be required.

Of the accounts receivable balance, approximately

5 unchanged sentences

Concentration Risks –

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely

to perform as contracted.

Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments

exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability

to meet contractual obligations to be similarly affected by changes in economic or other conditions described below.

instruments that subject the Company to credit risk consist of cash balances maintained in excess of federal depository insurance

limits and accounts receivable which have no collateral or security.

The Company has not experienced any significant losses in

such accounts and believes that it is not exposed to any significant risk of loss of cash.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company sells fuel-grade ethanol to gasoline

refining and distribution companies.

The Company sold ethanol to customers representing 10% or more of the Company’s total

net sales, as follows.

Years Ended December 31,

The Company had accounts receivable due from

these customers totaling $15,624,000 and $13,405,000, representing 21% and 20% of total accounts receivable, as of December 31,

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to

perform as contracted.

Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist

for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet

contractual obligations to be similarly affected by changes in economic or other conditions described below.

Financial instruments

that subject the Company to credit risk consist of cash balances maintained in excess of federal depository insurance limits and

accounts receivable which have no collateral or security.

The Company has not experienced any significant losses in such accounts

and believes that it is not exposed to any significant risk of loss of cash.

The Company sells specialty alcohols to

consumer product companies and fuel-grade ethanol to gasoline refining and distribution companies.

The Company sold to customers

representing 10% or more of the Company’s total net sales, as follows.

Ended December 31,

The Company had accounts receivable due

from these customers totaling $4,421,000 and $15,624,000, representing 10% and 21% of total accounts receivable, as of December

31, 2020 and 2019, respectively.

The Company purchases corn, its largest cost

component in producing ethanol, from its suppliers.

The Company purchased corn from suppliers representing 10% or more of the

Company’s total corn purchases, as follows:

Years Ended December 31,

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company purchases corn, its largest

cost component in producing alcohols, from its suppliers.

The Company purchased corn from suppliers representing 10% or more of

the Company’s total corn purchases, as follows:

Ended December 31,

As of December 31, 2020, approximately

of the Company’s employees are covered by a collective bargaining agreement.

51% of the Company’s employees were covered by a collective bargaining agreement.

Inventories –

consisted primarily of bulk ethanol, specialty alcohols, corn, co-products, low-carbon and Renewable Identification Number (“RIN”)

credits and unleaded fuel, and are valued at the lower of cost or net realizable value, with cost determined on a first-in, first-out

consisted primarily of alcohols, corn, essential ingredients, carbon and Renewable Identification Number (“RIN”) credits

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 and $1,290,000 valuation adjustment as of December 31, 2020 and 2019, respectively.

3 unchanged sentences

Raw materials

Low-carbon and RIN credits

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Carbon and RIN credits

Property and Equipment –

6 unchanged sentences

is charged to operations as incurred.

Significant capital expenditures that increase the life of an asset are capitalized and

depreciated over the estimated remaining useful life of the asset.

The cost of property and equipment sold, or otherwise disposed

of, and the related accumulated depreciation or amortization are removed from the accounts, and any resulting gains or losses

are reflected in current operations.

Significant capital expenditures that increase the life of an asset are capitalized and depreciated

over the estimated remaining useful life of the asset.

The cost of property and equipment sold, or otherwise disposed of, and the

related accumulated depreciation or amortization are removed from the accounts, and any resulting gains or losses are reflected

in current operations.

Intangible Asset –

Company assesses indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment

The Company assesses indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment

may have occurred.

4 unchanged sentences

Leases –

In February 2016,

the FASB issued new guidance on accounting for leases (ASC 842).

Under the new guidance, lessees are required to recognize the

following for all leases (with the exception of short-term leases) at the commencement date:

(1) a lease liability, which is a

lessee’s obligation to make lease payments arising from a lease, measured on a discounted cash flow basis;

and (2) a “right

of use”

asset, which is an asset that represents the lessee’s right to use the specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged, with some minor exceptions.

Lease expense under the new guidance

is substantially the same as prior to the adoption.

accounts for leases under ASC 842, whereby, lessees are required to recognize the following for all leases (with the exception

of short-term leases) at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments

arising from a lease, measured on a discounted cash flow basis;

and (2) a “right of use”

asset, which is an asset that

represents the lessee’s right to use the specified asset for the lease term.

See Note 9 for further information.

Derivative Instruments and Hedging Activities

Derivative transactions, which can include exchange-traded forward contracts and futures positions on the New

York Mercantile Exchange or the Chicago Board of Trade, are recorded on the balance sheet as assets and liabilities based on the

derivative’s fair value.

Changes in the fair value of derivative contracts are recognized currently in income unless specific

hedge accounting criteria are met.

If derivatives meet those criteria, and hedge accounting is elected, effective gains and losses

are deferred in accumulated other comprehensive income (loss) and later recorded together with the hedged item in consolidated

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments and Hedging

Activities –

Derivative transactions, which can include exchange-traded forward contracts and futures positions on

the New York Mercantile Exchange or the Chicago Board of Trade, are recorded on the balance sheet as assets and liabilities based

on the derivative’s fair value.

Changes in the fair value of derivative contracts are recognized currently in income unless

specific hedge accounting criteria are met.

If derivatives meet those criteria, and hedge accounting is elected, effective gains

and losses are deferred in accumulated other comprehensive income (loss) and later recorded together with the hedged item in consolidated

income (loss).

15 unchanged sentences

the Company satisfies the performance obligation.

Effective January 1, 2018, the Company adopted

ASC 606 using the modified retrospective method for all of its contracts.

Following the adoption of ASC 606, the Company continues

to recognize revenue at a point-in-time when control of goods transfers to the customer.

The timing of recognition is consistent

with the Company’s previous revenue recognition accounting policy under which the Company recognized revenue when title

and risk of loss pass to the customer and collectability was reasonably assured.

In addition, ASC 606 did not impact the Company’s

presentation of revenue on a gross or net basis.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes revenue primarily from

sales of ethanol and its related co-products.

The Company has nine ethanol production facilities

from which it produces and sells ethanol to its customers through Kinergy.

Kinergy enters into sales contracts with ethanol customers

under exclusive intercompany ethanol sales agreements with each of the Company’s nine ethanol plants.

Kinergy also acts

as a principal when it purchases third party ethanol which it resells to its customers.

Finally, Kinergy has exclusive sales agreements

with other third-party owned ethanol plants under which it sells their ethanol production for a fee plus the costs to deliver

the ethanol to Kinergy’s customers.

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

Revenue from these third-party

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

The Company has nine ethanol production facilities

from which it produces and sells co-products to its customers through PAP.

PAP enters into sales contracts with co-product customers

under exclusive intercompany co-product sales agreements with each of the Company’s nine ethanol plants.

The Company recognizes revenue primarily

from sales of alcohols and essential ingredients.

The Company has seven production facilities

from which it produces and sells alcohols to its customers through Kinergy.

Kinergy enters into sales contracts with its customers

under exclusive intercompany sales agreements with each of the Company’s seven production facilities.

Kinergy also acts as

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

Finally, Kinergy has exclusive

sales agreements with other third-party owned fuel-grade ethanol production facilities under which it sells their fuel-grade ethanol

for a fee plus the costs to deliver the ethanol to Kinergy’s customers.

These sales are referred to as third-party agent

Revenue from these third-party agent sales is recorded on a net basis, with Kinergy recognizing its predetermined fees and

any associated delivery costs.

The Company has seven production facilities

from which it produces and sells essential ingredients to its customers through Alto Nutrients.

Alto Nutrients enters into sales

contracts with essential ingredient customers under exclusive intercompany sales agreements with each of the Company’s seven

production facilities.

The Company recognizes revenue from sales

of ethanol and co-products at the point in time when the customer obtains control of such products, which typically occurs upon

delivery depending on the terms of the underlying contracts.

of alcohols and essential ingredients at the point in time when the customer obtains control of the products, which typically occurs

upon delivery depending on the terms of the underlying contracts.

In some instances, the Company enters into contracts with customers

that contain multiple performance obligations to deliver volumes of ethanol or co-products over a contractual period of less than

The Company allocates the transaction price to each performance obligation identified in the contract based on relative

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

in satisfaction of the corresponding performance obligations.

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

of less than 12 months.

The Company allocates the transaction price to each performance obligation identified in the contract based

on relative standalone selling prices and recognizes the related revenue as control of each individual product is transferred to

the customer in satisfaction of the corresponding performance obligations.

When the Company is the agent, the supplier

5 unchanged sentences

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

See Note 4 for the Company’s revenue

8 unchanged sentences

in the accompanying consolidated statements of operations.

Stock-Based Compensation –

The Company accounts for the cost of employee services received in exchange for the award of equity instruments based on the fair

value of the award, determined on the date of grant.

The expense is recognized over the period during which an employee is required

to provide services in exchange for the award.

Stock-Based Compensation

The Company accounts for the cost of employee services received in exchange for the award of equity instruments based on

the fair value of the award, determined on the date of grant.

The expense is recognized over the period during which an employee

is required to provide services in exchange for the award.

The Company accounts for forfeitures as they occur.

The Company recognizes stock-based

compensation expense as a component of selling, general and administrative expenses in the consolidated statements of operations.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Long-Lived

Assets –

The Company assesses the impairment of long-lived assets, including property and equipment, internally

developed software and purchased intangibles subject to amortization, when events or changes in circumstances indicate that

the fair value of assets could be less than their net book value.

In such event, the Company assesses long-lived assets for

impairment by first determining the forecasted, undiscounted cash flows the asset group is expected to generate plus the net

proceeds expected from the sale of the asset group.

If this amount is less than the carrying value of the asset, the Company

will then determine the fair value of the asset group.

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

than the related asset group’s net book value, and an impairment expense would be recorded in the amount of the

Forecasts of future cash flows are judgments based on the Company’s experience and knowledge of its

operations and the industries in which it operates.

These forecasts could be significantly affected by future changes in

market conditions, the economic environment, including inflation, and purchasing decisions of the Company’s customers.

The Company performed an undiscounted cash flow analysis for its long-lived assets held-for-use, exclusive of the

Company’s Pacific Aurora assets held-for-sale, as of December 31, 2019 and 2018, resulting in amounts in excess of

carrying values.

Deferred Financing Costs –

Deferred financing costs are costs incurred to obtain debt financing, including all related fees, and are amortized as interest

expense over the term of the related financing using the straight-line method, which approximates the interest rate method.

of deferred financing costs was approximately $511,000 and $900,000 for the years ended December 31, 2019 and 2018, respectively.

Unamortized deferred financing costs were approximately $2,153,000 and $1,377,000 as of December 31, 2019 and 2018, respectively,

and are recorded net of long-term debt in the consolidated balance sheets.

Provision for Income Taxes –

The Company recognizes

stock-based compensation expense as a component of either cost of goods sold or selling, general and administrative expenses in

the consolidated statements of operations.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets, including property and equipment, internally developed software

and purchased intangibles subject to amortization, when events or changes in circumstances indicate that the fair value of assets

could be less than their net book value.

In such event, the Company assesses long-lived assets for impairment by first determining

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

the asset group.

If this amount is less than the carrying value of the asset, the Company will then determine the fair value of

the asset group.

An impairment loss would be recognized when the fair value is less than the related asset group’s net book

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

Forecasts of future cash flows are judgments

based on the Company’s experience and knowledge of its operations and the industries in which it operates.

These forecasts

could be significantly affected by future changes in market conditions, the economic environment, including inflation, and purchasing

decisions of the Company’s customers.

The Company performed an undiscounted cash flow analysis for its long-lived assets

held-for-use, exclusive of the Company’s assets held-for-sale, and for those that failed step 1, the Company performed a

further fair value assessment, resulting in an impairment of $2.1 million for the year ended December 31, 2020.

Deferred Financing Costs

Deferred financing costs are costs incurred to obtain debt financing, including all related fees, and are amortized as

interest expense over the term of the related financing using the straight-line method, which approximates the effective interest

Amortization of deferred financing costs was approximately $1,394,000 and $511,000 for the years ended December 31,

2020 and 2019, respectively.

Amortization was accelerated in 2020 to reflect increased payments of principal and the reduction

of outstanding debt balances.

Unamortized deferred financing costs were approximately $759,000 and $2,153,000 as of December 31,

2020 and 2019, respectively, and are recorded net of long-term debt in the consolidated balance sheets.

Provision for Income Taxes

Income taxes are accounted for under the asset and liability approach, where deferred tax assets and liabilities are determined

3 unchanged sentences

reduce deferred tax assets to the amounts expected to be realized.

The Company accounts for uncertainty in income

taxes using a two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position

for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution

of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount which

is more than 50% likely of being realized upon ultimate settlement.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company accounts for uncertainty in

income taxes using a two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the

tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including

resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount

which is more than 50% likely of being realized upon ultimate settlement.

An uncertain tax position is considered effectively settled

5 unchanged sentences

balance sheets.

The Company files a consolidated federal income

This return includes all wholly-owned subsidiaries as well as the Company’s pro-rata share of taxable income

from pass-through entities in which the Company owns less than 100%.

State tax returns are filed on a consolidated, combined or

separate basis depending on the applicable laws relating to the Company and its subsidiaries.

The Company files a consolidated federal

income tax return.

This return includes all wholly-owned subsidiaries as well as the Company’s pro-rata share of taxable

income from pass-through entities in which the Company owns less than 100%.

State tax returns are filed on a consolidated, combined

or separate basis depending on the applicable laws relating to the Company and its subsidiaries.

Income (Loss) Per Share –

Basic income (loss) per share is computed on the basis of the weighted-average number of shares of common stock outstanding during

Preferred dividends are deducted from net income (loss) attributed to Pacific Ethanol, Inc.

Preferred dividends are deducted from net income (loss) attributed to Alto Ingredients, Inc.

and are considered in

2 unchanged sentences

to preferred stock are considered participating securities and are also included in this calculation when dilutive.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables compute basic and diluted

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

Year Ended December 31, 2019

Net loss attributed to Pacific Ethanol

The following tables compute basic and

diluted earnings per share (in thousands, except per share data):

Ended December 31, 2020

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

1 unchanged sentence

Loss available to common stockholders

Year Ended December 31, 2018

Net loss attributed to Pacific Ethanol

Ended December 31, 2019

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

1 unchanged sentence

Loss available to common stockholders

There were an aggregate 635,000 potentially

dilutive shares from convertible securities outstanding as of December 31, 2019 and 2018.

These convertible securities were not

considered in calculating diluted income (loss) per common share for the years ended December 31, 2019 and 2018 as their effect

would be anti-dilutive.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were an aggregate 2,463,000 and 635,000

potentially dilutive shares from convertible securities outstanding as of December 31, 2020 and 2019, respectively.

These convertible

securities were not considered in calculating diluted loss per common share for the years ended December 31, 2020 and 2019 as their

effect would be anti-dilutive.

Financial Instruments –

2 unchanged sentences

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 other long-term debt and assessment financing is not considered materially different

than fair value because the interest rates on these instruments are variable, and are considered Level 2 fair value measurements.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 are not considered materially different than fair value because the

interest rates on these instruments are variable, and are considered Level 2 fair value measurements.

Employment-related Benefits

4 unchanged sentences

based on a spot yield curve that includes bonds with maturities that match expected benefit payments under the plan.

Estimates and Assumptions –

The preparation of the consolidated financial statements in conformity with GAAP 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, 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.

Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with GAAP 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.

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.

Uncertainty –

As previously

mentioned, the impact of the coronavirus pandemic has negatively impacted the Company’s operations and demand for fuel-grade

Any future quarantines, labor shortages or other disruptions to the Company’s operations, or those of its customers,

may adversely impact the Company’s revenues, ability to provide its services and operating results.

In addition, a significant

outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could

adversely affect the economies and financial markets of many countries, including the geographical area in which the Company operates,

resulting in an economic downturn that could further affect demand for its goods and services.

The extent to which the coronavirus

impacts the Company’s long-term results will depend on future developments, which are highly uncertain and cannot be predicted,

including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus

or its impact, among others.

Subsequent Events –

evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the

financial statements are issued for either disclosure or adjustment to the consolidated financial results.

Management evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date

that the financial statements are issued for either disclosure or adjustment to the consolidated financial results.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications –

prior year amounts have been reclassified to conform to the current presentation.

Such reclassifications had no effect on the

consolidated net income (loss), working capital or stockholders’

Certain prior year amounts have been reclassified to conform to the current presentation.

Such reclassifications had no effect

on the consolidated net loss, working capital or stockholders’

equity reported in the consolidated statements of operations

and consolidated balance sheets.

ETHANOL PLANTS.

ASSET SALES AND HELD-FOR-SALE CLASSIFICATION.

Pacific Aurora

On December 15, 2016, PE Central closed on

an agreement with ACEC under which (i) PE Central contributed to Pacific Aurora 100% of the equity interests of its wholly-owned

subsidiaries, Pacific Ethanol Aurora East, LLC (“AE”) and Pacific Ethanol Aurora West, LLC (“AW”), which

owned the Company’s Aurora East and Aurora West ethanol plants, respectively, and (ii) ACEC contributed to Pacific Aurora

its grain elevator adjacent to the Aurora East and Aurora West properties and related grain handling assets, including the outer

rail loop and the real property on which they are located.

Following the closing of these transactions, PE Central owned 73.93%

of Pacific Aurora and ACEC owned 26.07% of Pacific Aurora.

The Company has consolidated 100% of the results

of Pacific Aurora and recorded the amount attributed to ACEC as noncontrolling interests under the voting rights model.

the Company had control of AE and AW prior to forming Pacific Aurora, there was no gain or loss recorded on the contribution and

ultimate sale of a portion of the Company’s interests in Pacific Aurora.

A noncontrolling interest was recognized to reflect

ACEC’s proportional ownership interest multiplied by the book value of Pacific Aurora’s net assets.

As a result, the

Company recorded $16.2 million as additional paid-in capital attributed to the difference between Pacific Aurora’s book

value and the contribution and sale.

Held-for-Sale Classification

On December 19, 2019, PE Central entered into

a term sheet covering the proposed sale of its 73.93% ownership interest in Pacific Aurora to ACEC for $52.8 million, and as a

result, the Company determined that as of December 31, 2019, the long-lived assets of Pacific Aurora should be classified as held-for-sale.

The Company’s analysis resulted in an impairment of $29.3 million in its production segment.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has the following assets and liabilities

of Pacific Aurora that will be derecognized upon sale of PE Central’s interest in Pacific Aurora and as to which the Company

will no longer consolidate any portion of Pacific Aurora:

Cash and equivalents

Other current assets

Total current assets

Property and equipment

Total assets held-for-sale

noncurrent assets

Total assets held-for-sale, current portion

Accounts payable and accrued expenses

Other current liabilities

Total current liabilities

Other non-current liabilities

Total liabilities held-for-sale

In addition to the above accounts, upon the

sale, the Company will no longer have noncontrolling interests on its balance sheet and no longer record income (loss) of noncontrolling

interests for the future periods.

On December 19, 2019, the Company entered

into a term sheet covering the proposed sale of its 73.93% ownership interest in Pacific Aurora to ACEC for $52.8 million, and

as a result, the Company determined that as of December 31, 2019, the long-lived assets of Pacific Aurora should be classified

as held-for-sale.

On April 15, 2020, the Company closed

the sale of its ownership interest in Pacific Aurora and preliminarily received total consideration of $52.8 million, subject

to working capital adjustments of approximately $35.3 million, resulting in cash proceeds of $19.9 million and the balance of

$16.5 million in long-term ACEC promissory notes, resulting in a net loss on sale of approximately $1.4 million, recorded as

gain (loss) on sale of assets in the Company’s consolidated statements of operations.

Approximately $14.5 million of

the cash proceeds were used to repay a portion of the Company’s term debt.

In September 2020, the Company and ACEC

agreed to certain post-closing adjustments to the purchase price, resulting in a decrease of $0.9 million, and a

corresponding reduction in the aggregate principal amount owed under the long-term ACEC promissory notes.

The Company received two promissory notes,

as adjusted, in the amounts of $8.6 million and $7.0 million as part consideration for the sale, both maturing on April 15, 2025.

The $8.6 million note accrues interest at an annual rate of 5.00%.

Interest payments are due quarterly beginning July 1, 2020 and

principal payments of $0.4 million are due quarterly beginning July 1, 2021.

The $7.0 million note accrues interest at an annual

rate of 4.50%.

Interest payments are due quarterly beginning July 1, 2020 and principal payments of $0.4 million are due quarterly

beginning January 3, 2022.

In addition, upon the sale, the Company

no longer had noncontrolling interests on its balance sheet and no longer records income (loss) of noncontrolling interests for

future periods.

For the years ended December 31, 2020 and

1 unchanged sentence

and $2.2 million and $12.3 million in net loss attributed to noncontrolling interests, respectively.

On February 28, 2020, the Company entered

into a definitive membership interest purchase agreement with ACEC for this sale and expects to close the sale during the second

quarter of 2020.

Upon close, the Company expects to receive total consideration of $52.8 million, subject to certain working capital

adjustments, payable in cash and $16.5 million in ACEC promissory notes.

The Company expects the promissory notes to be noncurrent upon the sale, and as such has shown the amount

as assets held-for-sale noncurrent.

The Company, directly or through one of its

subsidiaries, has entered into the following management and marketing agreements:

Affiliate Management Agreement

Pacific Ethanol entered into an Affiliate Management Agreement (“AMA”) with its operating subsidiaries, namely

Kinergy, PAP, the Pacific Ethanol West Plants and the Pacific Ethanol Central Plants, effective July 1, 2015, with Pacific Aurora,

effective December 15, 2016, and with ICP, effective July 1, 2017, under which Pacific Ethanol agreed to provide operational and

administrative and staff support services.

These services generally include, but are not limited to, administering the subsidiaries’

compliance with their credit agreements and performing billing, collection, record keeping and other administrative and ministerial

Pacific Ethanol agreed to supply all labor and personnel required to perform its services under the AMA, including the

labor and personnel required to operate and maintain the production facilities and marketing activities.

These services are billed

at a predetermined amount per subsidiary each month plus out of pocket costs such as employee wages and benefits.

PACIFIC ETHANOL, INC.

On November 30, 2020, the Company sold

134 acres, the related rail loop and grain handling assets at its Magic Valley facility located in Burley, Idaho for $10.0 million

The Company retained the fuel-grade ethanol production facility and terminal on the remaining 25 acres and has entered

into certain agreements with the buyer for delivery of grain to the plant.

Upon the sale, the Company recognized a gain on sale

of $3.2 million in gain (loss) on sale of assets in the accompanying consolidated statements of operations.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockton and Madera

In October 2020, the Company’s Board

of Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton,

As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December

The analysis of these potential sales resulted in an aggregate asset impairment of $22.3 million in the Company’s

other production segment.

The Company classified the following assets

and liabilities as held-for-sale as of December 31, 2020 (in thousands):

Property and equipment, net

Right of use operating lease assets, net

Assets held-for-sale

Operating lease obligations

Assessment financing

Liabilities held-for-sale

For the year ended December 31, 2020, net

sales attributed to the results of operations for Stockton and Madera were $21.9 million and $22.7 million, respectively.

year ended December 31, 2019, net sales attributed to the results of operations for Stockton and Madera were $132.9 million and

$82.7 million, respectively.

For the year ended December 31, 2020, pre-tax loss attributed to the results of operations for Stockton

and Madera was $6.5 million and $6.1 million, respectively.

For the year ended December 31, 2019, pre-tax loss attributed to the

results of operations for Stockton and Madera was $3.9 million and $2.7 million, respectively.

In addition, asset impairments

associated with Stockton and Madera recorded for the year ended December 31, 2020 were $17.9 million and $4.4 million, respectively.

INTERCOMPANY AGREEMENTS.

The Company, directly or through one of

its subsidiaries, has entered into the following management and marketing agreements:

Affiliate Management Agreement

Alto Ingredients entered into an Affiliate Management Agreement (“AMA”) with its operating subsidiaries, under

which Alto Ingredients agreed to provide operational and administrative and staff support services.

These services generally include,

but are not limited to, administering the subsidiaries’

compliance with their credit agreements and performing billing, collection,

record keeping and other administrative and ministerial tasks.

Alto Ingredients agreed to supply all labor and personnel required

to perform its services under the AMA, including the labor and personnel required to operate and maintain the production facilities

and marketing activities.

These services are billed at a predetermined amount per subsidiary each month plus out of pocket costs

such as employee wages and benefits.

The AMAs have an initial term of one year

and automatic successive one year renewal periods.

Pacific Ethanol may terminate the AMA, and any subsidiary may terminate the

Alto Ingredients may terminate the AMA, and any subsidiary may terminate the

AMA, at any time by providing at least 90 days prior notice of such termination.

Pacific Ethanol recorded

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Alto Ingredients recorded

revenues of approximately $11,724,000 and $12,682,000 related to the AMAs in place for the years ended December 31, 2020 and 2019,

3 unchanged sentences

Agreements –

Kinergy entered into separate ethanol marketing agreements with each of the Company’s nine plants,

which granted it the exclusive right to purchase, market and sell the ethanol produced at those facilities.

Kinergy entered into separate marketing agreements with each of the Company’s production facilities,

which granted it the exclusive right to purchase, market and sell the alcohols produced at those facilities.

Under the terms of

the ethanol marketing agreements, within ten days after delivering ethanol to Kinergy, an amount is paid to Kinergy equal to (i)

the estimated purchase price payable by the third-party purchaser of the ethanol, minus (ii) the estimated amount of transportation

costs to be incurred, minus (iii) the estimated incentive fee payable to Kinergy, which equals 1% of the aggregate third-party

purchase price, provided that the marketing fee shall not be less than $0.015 per gallon and not more than $0.0225 per gallon.

Each of the ethanol marketing agreements had an initial term of one year and successive one year renewal periods at the option

of the individual plant.

the marketing agreements, within ten days after delivering alcohol to Kinergy, an amount is paid to Kinergy equal to (i) the estimated

purchase price payable by the third-party purchaser of the alcohol, minus (ii) the estimated amount of transportation costs to

be incurred, minus (iii) the estimated incentive fee payable to Kinergy, which equals 1% of the aggregate third-party purchase

price, provided that the marketing fee shall not be less than $0.015 per gallon and not more than $0.0225 per gallon.

marketing agreements had an initial term of one year and successive one year renewal periods at the option of the individual plant.

Kinergy recorded revenues

of approximately $7,900,800 and $8,773,000 related to the ethanol marketing agreements for the years ended December 31, 2019 and

of approximately $4,275,000 and $7,900,800 related to the marketing agreements for the years ended December 31, 2020 and 2019,

respectively.

1 unchanged sentence

Corn Procurement and Handling Agreements

PAP entered into separate corn procurement and handling agreements with each of the Company’s plants, with

the exception of the Pacific Aurora facilities, which terminated its agreements with PAP on December 15, 2016.

Under the terms

of the corn procurement and handling agreements, each facility appointed PAP as its exclusive agent to solicit, negotiate, enter

into and administer, on its behalf, corn supply arrangements to procure the corn necessary to operate its facility.

PAP also provides

grain handling services including, but not limited to, receiving, unloading and conveying corn into the facility’s storage

and, in the case of whole corn delivered, processing and hammering the whole corn.

Alto Nutrients entered into separate corn procurement and handling agreements with each of the Company’s production

facilities, with the exception of the Pacific Aurora facilities.

Under the terms of the corn procurement and handling agreements,

each facility appointed Alto Nutrients as its exclusive agent to solicit, negotiate, enter into and administer, on its behalf,

corn supply arrangements to procure the corn necessary to operate the facility.

Alto Nutrients also provides grain handling services

including, but not limited to, receiving, unloading and conveying corn into the facility’s storage and, in the case of whole

corn delivered, processing and hammering the whole corn.

Under these agreements,

PAP receives a fee of $0.045 per bushel of corn delivered to each facility as consideration for its procurement and handling services,

payable monthly.

Effective December 15, 2016, this fee is $0.03 per bushel of corn.

Each corn procurement and handling agreement

had an initial term of one year and successive one year renewal periods at the option of the individual plant.

PAP recorded revenues

of approximately $4,288,000 and $4,531,000 related to the corn procurement and handling agreements for the years ended December

31, 2019 and 2018, respectively.

Alto Nutrients receives a fee of $0.03 per bushel of corn delivered to each production facility as consideration for its procurement

and handling services, payable monthly.

Each corn procurement and handling agreement had an initial term of one year and successive

one year renewal periods at the option of the individual facility.

Alto Nutrients recorded revenues of approximately $2,595,000

and $4,288,000 related to the corn procurement and handling agreements for the years ended December 31, 2020 and 2019, respectively.

These amounts have been eliminated upon consolidation.

Effective December 15, 2016,

each Pacific Aurora facility entered into a new grain procurement agreement with ACEC.

Under this agreement, ACEC receives a fee

of $0.03 per bushel of corn delivered to each facility as consideration for its procurement and handling services, payable monthly.

The grain procurement agreement has an initial term of one year and successive one year renewal periods at the option of the individual

Pacific Aurora recorded expenses of approximately $1,103,000 and $1,381,000 for the years ended December 31, 2019 and 2018,

respectively.

These amounts have not been eliminated upon consolidation as they are with a related but unconsolidated third-party.

PACIFIC ETHANOL, INC.

Through April 15, 2020,

each Pacific Aurora production facility operated under a grain procurement agreement with ACEC.

Under this agreement, ACEC received

a fee of $0.03 per bushel of corn delivered to each facility as consideration for ACEC’s procurement and handling services,

payable monthly.

The grain procurement agreement had an initial term of one year and successive one year renewal periods at the

option of the individual facility.

Pacific Aurora recorded expenses of approximately $210,000 and $1,103,000 for the years ended

December 31, 2020 and 2019, respectively, associated with these agreements.

These amounts have not been eliminated upon consolidation

as they were with a related but unconsolidated third-party.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Distillers Grains

Marketing Agreements –

PAP entered into separate distillers grains marketing agreements with each of the Company’s

plants, which grant PAP the exclusive right to market, purchase and sell the various co-products produced at each facility.

the terms of the distillers grains marketing agreements, within ten days after a plant delivers co-products to PAP, the plant

is paid an amount equal to (i) the estimated purchase price payable by the third-party purchaser of the co-products, minus (ii)

the estimated amount of transportation costs to be incurred, minus (iii) the estimated amount of fees and taxes payable to governmental

authorities in connection with the tonnage of the co-products produced or marketed, minus (iv) the estimated incentive fee payable

to the Company, which equals (a) 5% of the aggregate third-party purchase price for wet corn gluten feed, wet distillers grains,

corn condensed distillers solubles and distillers grains with solubles, or (b) 1% of the aggregate third-party purchase price

for corn gluten meal, dry corn gluten feed, dry distillers grains, corn germ and corn oil.

Each distillers grains marketing agreement

had an initial term of one year and successive one year renewal periods at the option of the individual plant.

PAP recorded revenues of

approximately $6,029,000 and $6,572,000 related to the distillers grains marketing agreements for the years ended December 31,

2019 and 2018, respectively.

Essential Ingredients Marketing

Agreements –

Alto Nutrients entered into separate marketing agreements with each of the

Company’s production facilities which grant Alto Nutrients the exclusive right to market, purchase and sell the various

essential ingredients produced at each facility.

Under the terms of the marketing agreements, within ten days after a

facility delivers essential ingredients to Alto Nutrients, the production facility is paid an amount equal to (i) the

estimated purchase price payable by the third-party purchaser of the essential ingredients, minus (ii) the estimated amount

of transportation costs to be incurred, minus (iii) the estimated amount of fees and taxes payable to governmental

authorities in connection with the tonnage of the essential ingredients produced or marketed, minus (iv) the estimated

incentive fee payable to the Company, which equals (a) 5% of the aggregate third-party purchase price for wet corn gluten

feed, wet distillers grains, corn condensed distillers solubles and distillers grains with solubles, or (b) 1% of the

aggregate third-party purchase price for corn gluten meal, dry corn gluten feed, dry distillers grains, corn germ and corn

Each marketing agreement had an initial term of one year and successive one year renewal periods at the option of the

individual facility.

Alto Nutrients recorded

revenues of approximately $2,778,000 and $6,029,000 related to the marketing agreements for the years ended December 31, 2020 and

2019, respectively.

These amounts have been eliminated upon consolidation.

The Company reports its financial and operating

performance in two segments:

(1) ethanol production, which includes the production and sale of ethanol, specialty alcohols and

co-products, with all of the Company’s production facilities aggregated, and (2) marketing and distribution, which includes

marketing and merchant trading for Company-produced ethanol, specialty alcohols and co-products, and third-party ethanol.

Income before provision for income taxes includes

management fees charged by Pacific Ethanol to the segment.

The production segment incurred $10,522,000 and $10,248,000 in management

fees for the years ended December 31, 2019 and 2018, respectively.

The marketing and distribution segment incurred $2,160,000

in management fees for each of the years ended December 31, 2019 and 2018.

Corporate activities include selling, general and administrative

expenses, consisting primarily of corporate employee compensation, professional fees and overhead costs not directly related to

a specific operating segment.

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 (2) Pekin Campus production, which

includes the production and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus, and

(3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of the

Company’s other production facilities on an aggregated basis, none of which are individually significant to be considered a

reportable segment.

Income before provision for income taxes

includes management fees charged by Alto Ingredients to the segments.

The Pekin Campus production segment incurred $4,344,000 and

$4,014,000 in management fees for the years ended December 31, 2020 and 2019, respectively.

The marketing and distribution segment

incurred $3,480,000 in management fees for each of the years ended December 31, 2020 and 2019, respectively.

The Other production

segment incurred $3,893,000 and $5,188,000 in management fees for the years ended December 31, 2020 and 2019, respectively.

activities include selling, general and administrative expenses, consisting primarily of corporate employee compensation, professional

fees and overhead costs not directly related to a specific operating segment.

During the normal course of business, the

1 unchanged sentence

The preponderance of this activity occurs when the Company’s marketing segment markets

ethanol produced by the production segment for a marketing fee, as discussed in Note 3.

alcohol produced by the production segments for a marketing fee, as discussed in Note 3.

These intersegment activities are considered

arms’-length transactions.

Consequently, although these transactions impact segment performance, they do not impact the

Company’s consolidated results since all revenues and corresponding costs are eliminated in consolidation.

Capital expenditures are substantially all

incurred at the Company’s production segment.

PACIFIC ETHANOL, INC.

Consequently, although these transactions impact segment performance, they do not impact the Company’s

consolidated results since all revenues and corresponding costs are eliminated in consolidation.

Capital expenditures are substantially

all incurred at the Company’s Pekin Campus production segment.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth certain financial

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

The following tables set forth certain

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

Years Ended December 31,

Production, recorded as gross:

Ethanol/alcohol sales

Co-product sales

Intersegment sales

Total production sales

Marketing and distribution:

Ethanol/alcohol sales, gross

Ethanol/alcohol sales, net

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Pekin Campus production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Pekin Campus sales

Other Production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Other production sales

Intersegment eliminations

2 unchanged sentences

Marketing and distribution

Pekin Campus production

Other production

Intersegment eliminations

Cost of goods sold as reported

Income (loss) before benefit

for income taxes:

Income (loss) before benefit for income taxes:

Marketing and distribution

Pekin Campus production

Other production

Corporate activities

Depreciation:

Pekin Campus production

Other production

Corporate activities

1 unchanged sentence

Marketing and distribution

Pekin Campus production

Other production

Corporate activities

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

Marketing and distribution

Corporate assets

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND EQUIPMENT.

and distribution

Pekin Campus production

Other production

PROPERTY AND EQUIPMENT.

Property and equipment consisted of the following (in thousands):

3 unchanged sentences

Accumulated depreciation

Depreciation expense was

$40,931,000 and $40,849,000 for the years ended December 31, 2019 and 2018, respectively.

For the year ended December

31, 2019 and 2018, the Company capitalized interest of $563,000 and $1,170,000, respectively, related to its capital investment

The Company recorded a tradename valued at

$2,678,000 in 2006 as part of its acquisition of Kinergy.

Depreciation expense

was $30,268,000 and $40,931,000 for the years ended December 31, 2020 and 2019, respectively.

For the years ended December

31, 2020 and 2019, the Company capitalized interest of $224,000 and $563,000, respectively, related to its capital investment activities.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTANGIBLE ASSET.

The Company recorded a tradename valued

at $2,678,000 in 2006 as part of its acquisition of Kinergy.

The Company determined that the Kinergy tradename has an indefinite

6 unchanged sentences

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.

This program recognizes the unpredictability of financial

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

Commodity Risk –

Flow Hedges –

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 ethanol sale and purchase commitments where the prices are set at a future date and/or if the

contracts specify a floating or index-based price for ethanol.

In addition, the Company hedges anticipated sales of ethanol 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 years

ended December 31, 2019 and 2018, the Company did not designate any of its derivatives as cash flow hedges.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2020

and 2019, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk –

1 unchanged sentence

Hedges –

The Company uses derivative instruments to lock in prices for certain amounts of corn and ethanol by entering

into exchange-traded forward contracts 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 $555,000 and net losses of $6,714,000 as the change in the fair value of these contracts for

The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering

into exchange-traded forward contracts or options for those commodities.

These derivatives are not designated for hedge accounting

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

The Company recognized net gains of $14,780,000 and $555,000 as the change in the fair value of these contracts for

the years ended December 31, 2020 and 2019, 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):

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

collateral balances, are as follows (in thousands):

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020

20 unchanged sentences

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

Realized Losses

For the Years Ended

Gains (Losses)

the Years Ended December 31,

Type of Instrument

Statements of Operations Location

Statements of Operations

Commodity contracts

Cost of goods sold

Unrealized Gains

For the Years

the Years Ended December 31,

Type of Instrument

2 unchanged sentences

Cost of goods sold

PACIFIC ETHANOL, INC.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term borrowings are summarized as follows

(in thousands):

Kinergy line of credit

Pekin term loan

Pekin revolving loan

ICP term loan

ICP revolving loan

Parent notes payable

Less unamortized debt premium (discount)

Less unamortized debt financing costs

Less short-term portion

Long-term debt

Kinergy Line of Credit

Long-term borrowings are summarized as

follows (in thousands):

line of credit

revolving loan

notes payable

unamortized debt premium

unamortized debt financing costs

short-term portion

Kinergy Line of

Credit –

Kinergy has an operating line of credit for an aggregate amount of up to $100,000,000.

The line of credit matures

on August 2, 2022.

The line of credit

matures on August 2, 2022.

The credit facility is based on Kinergy’s eligible accounts receivable and inventory levels, subject

10 unchanged sentences

facility to $1,500,000 per fiscal quarter.

The credit facility also includes the accounts receivable of PAP as additional collateral.

Payments that may be made by PAP to the Company as reimbursement for management and other services provided by the Company to

PAP are limited under the terms of the credit facility to $500,000 per fiscal quarter.

If Kinergy and PAP’s monthly excess

borrowing availability falls below certain thresholds, they are collectively required to maintain a fixed-charge coverage ratio

(calculated as a twelve-month rolling EBITDA 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).

PACIFIC ETHANOL, INC.

The credit facility also includes the accounts receivable of Alto Nutrients as additional

Payments that may be made by Alto Nutrients to the Company as reimbursement for management and other services provided

by the Company to Alto Nutrients are limited under the terms of the credit facility to $500,000 per fiscal quarter.

If the monthly excess borrowing availability of Kinergy and

Alto Nutrients falls below certain thresholds, they are collectively required to 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 assets in favor

of the lender.

Alto Ingredients has guaranteed all of Kinergy’s obligations under the line of credit.

As of December 31,

2020, Kinergy had $16.0 million in unused borrowing availability under the credit facility.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kinergy and PAP’s

obligations under the credit facility are secured by a first-priority security interest in all of their assets in favor of the

Pacific Ethanol has guaranteed all of Kinergy’s obligations under the line of credit.

As of December 31, 2019, Kinergy

had no unused availability under the credit facility.

Pekin Credit Facilities

On December 15, 2016, the Company’s wholly-owned subsidiary, Pacific Ethanol Pekin, LLC (“Pekin”),

entered into a Credit Agreement (the “Pekin Credit Agreement”) with 1 st Farm Credit Services, PCA and CoBank,

ACB (“CoBank”).

On December 15, 2016, under the terms of the Pekin Credit Agreement, Pekin borrowed from 1 st

Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021 (the “Pekin Term Loan”)

and $32.0 million under a revolving term loan facility that matures on February 1, 2022 (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 Pekin’s assets under the terms of a Security Agreement, dated December 15, 2016, by and between

Pekin and CoBank (the “Pekin Security Agreement”).

Interest accrues under the Pekin Credit Facility at an annual rate

equal to the 30-day LIBOR plus 3.75%, payable monthly.

Pekin is required to make quarterly principal payments in the amount of

$3.5 million on the Pekin Term Loan beginning on May 20, 2017 and a principal payment of $4.5 million at maturity on August 20,

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.

of the Pekin Credit Facility is subject to a prepayment penalty.

Under the terms of the Pekin Credit Agreement, Pekin is required

to maintain not less than $20.0 million in working capital and an annual debt coverage ratio of not less than 1.25 to 1.0.

Pekin Credit Agreement contains a variety of affirmative covenants, negative covenants and events of default.

On August 7, 2017, Pekin

amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 25 basis points

to an annual rate equal to the 30-day LIBOR plus 4.00%.

Pekin and its lender also agreed that Pekin is required to maintain working

capital of not less than $17.5 million from August 31, 2017 through December 31, 2017 and working capital of not less than $20.0

million from January 1, 2018 and continuing at all times thereafter.

In addition, the required Debt Service Coverage Ratio was

reduced to 0.15 to 1.00 for the fiscal year ending December 31, 2017.

For the month ended January 31, 2018, Pekin was not in compliance

with its working capital requirement due to larger than anticipated repair and maintenance related expenses to replace faulty

Pekin received a waiver from its lender for this noncompliance.

Further, the lender decreased Pekin’s working

capital covenant requirement to $13.0 million for the month ended February 28, 2018, excluding the $3.5 million principal payment

due in May 2018 from the calculation.

On March 30, 2018, Pekin

amended its term loan facility by reducing the amount of working capital it is required to maintain to not less than $13.0 million

from March 31, 2018 through November 30, 2018 and not less than $16.0 million from December 1, 2018 and continuing at all times

In addition, a principal payment in the amount of $3.5 million due for May 2018 was deferred until the maturity date

of the term loan.

At December 31, 2018 and

January 31, 2019, Pekin experienced certain covenant violations under its term and revolving credit facilities.

In February 2019,

Pekin reached an agreement with its lender to forbear until March 11, 2019 and to defer a $3.5 million principal payment until

On March 21, 2019, Pekin

amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 125 basis points

to an annual rate equal to the 30-day LIBOR plus 5.00%.

Pekin and its lender also agreed that it is required to maintain working

capital of not less than $15.0 million from March 21, 2019 through July 15, 2019 and working capital of not less than $30.0 million

from July 15, 2019 and continuing at all times thereafter.

On July 15, 2019, Pekin and its lender agreed to a further amendment

extending the aforementioned July 15, 2019 dates to November 15, 2019.

On August 6, 2019, Pekin paid its $3,500,000 principal

payment scheduled for August 20, 2019.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under these amendments,

the lender agreed to temporarily waive financial covenant violations, working capital maintenance violations and intercompany

accounts receivable collections violations that occurred with respect to the credit agreement.

The lenders also agreed to defer

all scheduled principal payments, including further deferral of principal payments in the amount of $3.5 million each due on February

20, 2019 and May 20, 2019.

The waivers and principal

deferral expired on November 15, 2019, at which time the waivers were to become permanent if PE Central made a contribution to

Pekin in an amount equal to $30.0 million, minus the then-existing amount of Pekin’s working capital, plus the amount of

any accounts receivable owed by PE Central to Pekin, plus $12.0 million, or the Parent Contribution Amount.

In addition, if the

Parent Contribution Amount was timely received, the lender agreed to waive Pekin’s debt service coverage ratio financial

covenant for the year ended December 31, 2019.

If the Parent Contribution Amount was not timely made, then the temporary waivers

would automatically expire.

Pekin was also required

to pay by November 15, 2019 the aggregate amount of $10.5 million representing all deferred and unpaid scheduled principal payments

and all additional scheduled principal payments for the remainder of 2019.

On November 15, 2019, Pekin

amended its term and revolving credit facilities by agreeing to extend the temporary waiver of violations of financial and other

covenants relating to working capital maintenance, intercompany accounts receivable collections, financial projections, cash flow

forecasts, and sales reports.

The lender also agreed to extend the deferral of all scheduled principal payments payable on February

20, 2019, May 20, 2019 and November 15, 2019 to December 15, 2019.

The amendment also made a payment default of $250,000 or more

under Kinergy’s credit facility or the senior secured notes, or any acceleration of indebtedness, or any termination of

any commitment to lend or termination of any forbearance or other accommodation, an event of default.

The waivers and principal

deferral expired on December 15, 2019.

On December 15, 2019, the waivers were to become permanent if PE Central made a contribution

to Pekin in an amount equal to the Parent Contribution Amount.

In addition, if the Parent Contribution Amount was timely received,

the lender agreed to waive Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019.

If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically expire.

On December 16, 2019, Pekin

amended its term and revolving credit facilities by agreeing to extend the deferral of all scheduled principal payments payable

on February 20, 2019, May 20, 2019 and November 20, 2019 to December 20, 2019.

On December 20, 2019, Pekin’s

lender agreed to temporarily waive working capital covenant violations, debt service coverage ratio covenant violations, reporting

covenant violations and certain other covenant violations that occurred under the Pekin credit agreement, and replaced those covenants

with new EBITDA and production volume covenants.

Pekin’s lender also agreed to defer all scheduled principal installments

payable under the term note on February 20, 2019, May 20, 2019 and November 20, 2019 until August 20, 2021.

In addition, Pekin

was not required to make its prior scheduled quarterly principal payments of $3.5 million until September 30, 2020, at which time

$3.5 million will be due, with the same amount due quarterly thereafter until maturity.

PACIFIC ETHANOL, INC.

On December 15, 2016, Alto Pekin entered into a Credit Agreement (“Pekin Credit Agreement”) with 1 st

Farm Credit Services, PCA and CoBank, ACB, (“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 (the “Pekin

Term Loan”) and up to $32.0 million under a revolving term loan facility that matures on February 1, 2022 (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.

The Pekin Credit

Facility and related agreements contain a variety of representations, warranties, covenants and events of default.

a series of amendments and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as

● Interest accrues under the Pekin Credit Facility at an annual rate equal to the 30-day LIBOR plus

● 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 ICP are collectively required to maintain working capital of not less than 50% of

the combined outstanding revolving lines of credit, which was $30.0 million at December 31, 2020;

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.

Alto Pekin and ICP collectively

agreed to pay Alto Pekin’s and ICP’s lenders an aggregate of $40.0 million on or before September 30, 2020 (the “September

Paydown Amount”) to reduce the outstanding balances of Alto Pekin’s and ICP’s respective term loans, to be allocated

between them.

Alto Pekin, ICP and their lenders contemplated funding the September Paydown Amount through asset sales, proceeds

of any award, judgment or settlement of litigation, or, at our election, from funds contributed by Alto Ingredients to Alto Pekin

In March 2020, the Company

granted to Alto Pekin’s lender a security interest in all of its equity interests in Alto Op Co.

The Company and certain

subsidiaries also entered into intercreditor agreements with the Alto Pekin’s and ICP’s lenders, and the agent for

the Company’s senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On December 18, 2020,

Alto Pekin and its lender further amended the Pekin Credit Facility to waive certain covenant defaults, including the covenant

requiring Alto Pekin and ICP to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

The effect of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed

to amend the Pekin Credit Facility to provide for a payment to Alto Pekin’s and ICP’s lenders of an aggregate of $24.9

million (the “December Paydown Amount”), on or prior to December 21, 2020, with $19.9 million allocated to Alto Pekin’s

lenders and $5.0 million allocated to ICP’s lenders.

On December 18, 2020, Alto Pekin and ICP paid the December Paydown Amount

Following receipt of

the December Paydown Amount, any additional proceeds arising from the sale of any of the Company’s midwestern production

facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, the Company’s

senior secured noteholders, and the Company, respectively;

and any additional proceeds arising from the sale of any of the Company’s

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, the Company’s senior

secured noteholders, and the Company, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the amendment, Pekin,

collectively with ICP, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce the outstanding

balances of the term loans under the Pekin credit agreement and the ICP credit agreement.

The $40.0 million is an aggregate amount

payable to ICP’s lender and Pekin’s lender, and allocated between them.

The $40.0 million is to be funded through

asset sales, proceeds of any award, judgment or settlement of litigation, or, at the Company’s election, from funds contributed

to Pekin by the Company.

Following receipt by the lenders under the ICP credit agreement and the Pekin credit agreement, collectively,

of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, additional proceeds

from the sale of any of the Company’s midwestern plant assets will generally be allocated 33/34/33% among ICP’s lender

and Pekin’s lender, collectively, the selling security holders, and the Company, respectively.

Proceeds from the sale of

any of the Company’s western assets will generally be allocated 33/34/33% among Pekin’s lender and ICP’s lender,

collectively, the selling security holders, and the Company, respectively.

Pekin’s lender also

imposed cross-default terms such that, until Pekin’s lender and ICP’s lender receive $40.0 million, a default under

the ICP credit agreement would constitute a default under the Pekin credit agreement.

Pekin agreed to provide additional collateral

security to support its obligations under the Pekin credit agreement, including second lien positions in the Company’s western

plants, which will terminate and be released upon Pekin’s lender’s receipt of $40.0 million.

On December 29, 2019, Pekin

agreed to amend the secured obligations under its security agreement to include Pekin’s unconditional guarantee of the payment

of up to an aggregate $40.0 million to satisfy the obligations of ICP to ICP’s lender under the ICP credit agreement.

On March 20, 2020, Pekin

and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20,

On that same date, the Company granted to the lender a security interest in all of the Company’s equity interests

in PE Op Co., which indirectly owns the Company’s plants located on the West Coast.

The Company and certain subsidiaries

also entered into intercreditor agreements with the Pekin and ICP lenders, and the agent for the Company’s senior secured

noteholders, to address issues of priority and the allocation of proceeds from asset sales.

As of the filing of this

report, the Company believes it is in compliance with the terms and conditions of the Pekin Credit Facility.

ICP Credit Facilities —

On September 15, 2017, ICP, Compeer Financial, PCA (“Compeer”), and CoBank as agent, entered into a Credit Agreement

(“ICP Credit Agreement”).

Under the ICP Credit Agreement, Compeer agreed to extend to ICP a term loan in the amount

of $24,000,000 and a revolving loan in an amount of up to $18,000,000.

ICP used the proceeds of the term loan to refinance the

Seller Notes.

ICP is to make amortizing principal payments in sixteen equal consecutive quarterly installments of $1,500,000 each

until September 20, 2021, at which time the entire remaining balance is due and payable.

Interest on the unpaid principal amount

of the term loan accrues at a rate equal to 3.75% plus the one-month LIBOR index rate.

ICP used the proceeds of the revolving

term facility to refinance the Seller Notes and for ICP’s working capital needs.

The revolving loan matures on September

The revolving loan gives ICP the right, in ICP’s sole discretion, to permanently reduce from time to time the revolving

term commitment in increments of $500,000 by giving CoBank ten days prior written notice.

The revolving loan requires ICP to pay

CoBank a nonrefundable commitment fee equal to 0.75% per annum multiplied by the average daily positive difference between the

amounts of (i) the revolving term commitment, minus (ii) the aggregate principal amount of all loans outstanding under the revolving

Interest on the unpaid principal amount of the loan accrues, pursuant to ICP’s election of the LIBOR Index Option,

at a rate equal to 3.75% plus the one-month LIBOR index rate.

Under the terms of the credit facilities, ICP is required to maintain

working capital of not less than $8.0 million.

In addition, ICP is required to maintain an annual debt service coverage ratio

of not less than 1.50 to 1.00 beginning for the year ending December 31, 2018.

PACIFIC ETHANOL, INC.

On September 15, 2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement (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 (the “ICP Term Loan”), and up to $18.0 million under a revolving term loan

facility that matures on September 1, 2022 (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

● 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 $30.0 million at December 31, 2020;

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.

ICP and Alto Pekin collectively

agreed to pay ICP’s and Alto Pekin’s lenders an aggregate of $40.0 million on or before September 30, 2020, the same

amount referred to above as the September Paydown Amount, to reduce the outstanding balances of ICP’s and Alto Pekin’s

respective term loans, to be allocated between them.

ICP, Alto Pekin, and their lenders contemplated funding the September Paydown

Amount through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed

by the Company to ICP or Alto Pekin.

In March 2020, the Company granted to Alto

Pekin’s lender a security interest in all of its equity interests in Alto Op Co.

The Company and certain subsidiaries also

entered into intercreditor agreements with the ICP’s and Alto Pekin’s lenders, and the agent for the Company’s

senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On December 18, 2020,

ICP and its lender further amended the ICP Credit Facility to waive certain covenant defaults, including the covenant requiring

ICP and Alto Pekin to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed to amend

the ICP Credit Facility to provide for a payment to ICP’s and Alto Pekin’s lenders of an aggregate of $24.9

million, the same amount referred to above as the December Paydown Amount, on or prior to December 21, 2020, with $5.0 million

allocated to ICP’s lenders and $19.9 million allocated to Alto Pekin’s lenders.

On December 18, 2020, ICP

and Alto Pekin paid the December Paydown Amount in full.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2019, ICP had no additional

borrowing availability under its revolving credit facility.

As of September 30, 2019, ICP did not meet its minimum working capital

requirement, however, ICP’s lender subsequently waived the minimum working capital deficiency.

On December 20, 2019, ICP amended its term

and revolving credit facilities under which ICP’s lender granted waivers for certain ICP covenant defaults and replaced

those covenants with new EBITDA and production volume covenants.

ICP’s lender also imposed cross-default terms such that,

until ICP’s lender and Pekin’s lender receive an aggregate of $40.0 million, a default under the Pekin credit agreement

would constitute a default under the ICP credit agreement.

ICP agreed to provide additional collateral security to support its

obligations under the ICP credit agreement, including second lien positions in the Company’s western plants, which will

terminate and be released upon ICP’s lender’s receipt of an aggregate of $40.0 million.

ICP’s prior scheduled

principal payment of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September 20, 2021.

Scheduled quarterly principal payments of $1.5 million will resume March 20, 2020.

Under the amendment, ICP, collectively with

Pekin, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce the outstanding balances

of the term loans under the ICP credit agreement and the Pekin credit agreement.

The $40.0 million is an aggregate amount payable

to ICP’s lender and Pekin’s lender, and allocated between them.

The $40.0 million is to be funded through asset sales,

proceeds of any award, judgment or settlement of litigation, or, at the Company’s election, from funds contributed to ICP

by the Company.

Following receipt by the lenders under the ICP credit agreement and the Pekin credit agreement, collectively,

of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, any additional

proceeds from a sale of the Company’s midwestern plant assets will generally be allocated 33/34/33% among ICP’s lender

and Pekin’s lender, collectively, the selling security holders, and the Company, respectively.

Proceeds from the sale of

any of the Company’s western assets will generally be allocated 33/34/33% among Pekin’s lender and ICP’s lender,

collectively, the selling security holders, and the Company, respectively.

On December 29, 2019, ICP agreed to amend

the secured obligations under its security agreement to include ICP’s unconditional guarantee of the payment of up to an

aggregate $40.0 million to satisfy the obligations of Pekin to Pekin’s lender under the Pekin credit agreement.

As of December 31, 2019 and the filing of

this report, the Company believes ICP is in compliance with its working capital requirement.

On March 20, 2020, ICP and its lender agreed

to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate interest payments due March 20, 2020

and April 20, 2020 until May 20, 2020.

On that same date, the Company granted to the lender a security interest in all of the

Company’s equity interests in PE Op Co.

The Company and certain of its subsidiaries also entered into intercreditor agreements

with the Pekin and ICP lenders, and the agent for the Company’s senior secured noteholders, to address issues of priority

and the allocation of proceeds from asset sales.

Pacific Ethanol, Inc.

Notes Payable

On December 12, 2016, Pacific Ethanol entered into a Note Purchase Agreement (the “Note Purchase Agreement”)

with five accredited investors.

On December 15, 2016, under the terms of the Note Purchase Agreement, Pacific Ethanol sold $55.0

million in aggregate principal amount of its senior secured notes to the Investors in a private offering for aggregate gross proceeds

of 97% of the principal amount of the Notes sold.

Following receipt of

the December Paydown Amount, any additional proceeds arising from the sale of any of the Company’s midwestern production

facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, the Company’s

senior secured noteholders, and the Company, respectively;

and any additional proceeds arising from the sale of any of the Company’s

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, the Company’s senior secured noteholders, and the

Company, respectively.

As of the filing of this report, the Company

believes it is in compliance with the terms and conditions of the ICP Credit Facility.

Alto Ingredients, Inc.

Senior Secured

Notes –

On December 12, 2016, the Company 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, the Company entered into a second Note Purchase Agreement

with five accredited investors.

On June 30, 2017, under the terms of the second Note Purchase Agreement, the Company sold an additional

$13.9 million in aggregate principal amount of its senior secured notes to the investors in a private offering for aggregate gross

proceeds of 97% of the principal amount of the notes sold (collectively with the notes sold on December 15, 2016, the “Notes”),

for a total of $68.9 million in aggregate principal amount of Notes.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Notes had an original maturity date of

December 15, 2019 (the “Maturity Date”).

Interest on the Notes accrued at a rate equal to (i) the greater of 1% and

the three-month LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and LIBOR, plus 9% between

December 15, 2017 and December 14, 2018, and (iii) the greater of 1% and LIBOR plus 11% between December 15, 2018 and the Maturity

The interest rate would increase by an additional 2% per annum above the interest rate otherwise applicable upon the occurrence

and during the continuance of an event of default until such event of default has been cured.

Interest was payable in cash on

the 15th calendar day of each March, June, September and December.

Pacific Ethanol is required to pay all outstanding principal

and any accrued and unpaid interest on the Notes on the Maturity Date.

Pacific Ethanol may, at its option, prepay the outstanding

principal amount of the Notes at any time without premium or penalty.

The Notes contain a variety of events of default.

due under the Notes rank senior to all other indebtedness of Pacific Ethanol, other than permitted senior indebtedness.

contain a variety of obligations on the part of Pacific Ethanol not to engage in certain activities, including that (i) Pacific

Ethanol and certain of its subsidiaries will not incur other indebtedness, except for certain permitted indebtedness, (ii) Pacific

Ethanol and certain of its subsidiaries will not redeem, repurchase or pay any dividend or distribution on their respective capital

stock without the prior consent of the holders of the Notes holding 66-2/3% of the aggregate principal amount of the Notes, other

than certain permitted distributions, (iii) Pacific Ethanol and certain of its subsidiaries will not sell, lease, assign, transfer

or otherwise dispose of any assets of Pacific Ethanol or any such subsidiary, except for certain permitted dispositions (including

the sales of inventory or receivables in the ordinary course of business), and (iv) Pacific Ethanol and certain of its subsidiaries

will not issue any capital stock or membership interests for any purpose other than to pay down a portion of all of the amounts

owed under the Notes and in connection with Pacific Ethanol’s stock incentive plans.

The Notes are secured by a first-priority

security interest in the equity interest held by Pacific Ethanol in its wholly-owned subsidiary, PE Op.

Co., which indirectly

owns the Company’s plants located on the West Coast.

On December 16, 2019, Pacific Ethanol amended

the notes to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the interest rate from the greater

of 1% and the three-month LIBOR, plus 11% between December 15, 2018 through December 14, 2019, to 15% commencing on September

Under the amendment, Pacific Ethanol also agreed to pay the December 15, 2019 interest payment 50% in cash and 50% in-kind

through the issuance of an additional note in the principal amount equal thereto.

On December 22, 2019, Pacific Ethanol amended

and restated the notes which extended the maturity date from December 23, 2019 to December 15, 2021.

Interest on the Notes accrues

at a rate of 15% per annum, payable quarterly.

In addition, the Company issued 5.5 million shares of its common stock and 5.5

million warrants to the noteholders.

The Company evaluated the above amendment

and determined that debt extinguishment accounting was appropriate.

Therefore, the Company

recorded a loss on debt extinguishment of $6,517,000, comprised of the fair value of common stock issued, fair value of warrants

issued and fair value of the carrying value of the debt.

On March 20, 2020, the Company and the noteholders

agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May 20, 2020.

On that same date, ICP granted

a junior lien in certain of its personal property to the noteholders, and PE Central granted a junior lien in certain of its personal

property to the noteholders.

PE Central also pledged its equity interests in Pacific Aurora, Pekin and ICP in favor of the noteholders.

In addition, PE Op Co.

and Pacific Ethanol West, LLC, which directly owns the Company’s plants located on the West Coast,

granted a security interest in certain of their personal property to the noteholders.

The Company and certain of its subsidiaries

also entered into intercreditor agreements with the Pekin and ICP lenders, and the agent for the Company’s senior secured

noteholders, to address issues of priority and the allocation of proceeds from asset sales.

PACIFIC ETHANOL, INC.

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

the Company’s 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 senior secured note holders 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.

than permitted senior indebtedness.

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

● Any voluntary prepayments must 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 noteholders.

Co also granted to the senior secured noteholders a security interest in certain of its personal

The Company and certain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto

Pekin’s lenders, and the agent for the Company’s senior secured noteholders, to address issues of priority

and the allocation of proceeds from asset sales.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2020, the Company repaid $35.3

million in principal under the Notes using a portion of the net proceeds of its then-recent offerings of common stock and warrants

and the sale of certain real property assets at our Magic Valley production facility.

As of the filing of this report, the Company

believes it is in compliance with the terms and conditions of the Notes.

CARES Act Loans –

May 4, 2020, Alto Ingredients and Alto Pekin received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief,

and Economic Security Act (“CARES Act”), through the Paycheck Protection Program administered by the U.S.

Small Business

Administration.

Alto Ingredients 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 the Company can provide no assurance that it will be able to

obtain forgiveness of all or any portion of the loans.

The Company is in the process of applying for loan forgiveness.

Maturities of Long-term Debt

The Company’s long-term debt matures as follows (in thousands):

As discussed in Note 1, on January 1,

2019, the Company adopted the provisions of ASC 842 using the prospective transition approach, which applies the provisions of

ASC 842 upon adoption, with no change to prior periods.

This adoption resulted in the Company recognizing initial right of use

assets and lease liabilities of $43,753,000.

The adoption did not have a significant impact on the Company’s consolidated

statements of operations.

Upon the initial adoption of ASC 842,

the Company elected the following practical expedients allowable under the guidance:

not to reassess whether any expired or existing

contracts are or contain leases;

not to reassess the lease classification for any expired or existing leases;

not to reassess

initial direct costs for any existing leases;

not to separately identify lease and nonlease components;

and not to evaluate historical

land easements.

Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842

to only long-term (greater than 1 year) leases.

The Company leases railcar equipment,

office equipment and land for certain of its facilities.

Operating lease right of use assets and liabilities are recognized at

commencement date based on the present value of lease payments over the lease term.

The Company uses its estimated incremental

borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present

value of lease payments.

For the year ended December 31, 2019, the Company’s weighted average discount rate was 6.00%.

The Company leases railcar equipment, office

equipment and land for certain of its facilities.

Operating lease right of use assets and liabilities are recognized at commencement

date based on the present value of lease payments over the lease term.

The Company uses its estimated incremental borrowing rate,

unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease

For the years ended December 31, 2020 and 2019, the Company’s weighted average discount rate was 6.00%.

lease expense is recognized on a straight-line basis over the lease term.

Upon the adoption of ASC 842, the Company

elected the following practical expedients allowable under the guidance:

not to reassess whether any expired or existing contracts

are or contain leases;

not to reassess the lease classification for any expired or existing leases;

not to reassess initial direct

costs for any existing leases;

not to separately identify lease and non-lease components;

and not to evaluate historical land easements.

Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to only long-term

(greater than 1 year) leases.

The Company determines if an arrangement

2 unchanged sentences

years, which may include options to extend the lease when it is reasonably certain the Company will exercise those options.

For the year ended December 31, 2019, the weighted average remaining lease terms of equipment and land-related leases were 2.46

the year ended December 31, 2020, the weighted average remaining lease terms of equipment and land-related leases were 1.10

years and 4.73 years, respectively.

The Company does not have lease arrangements with residual value guarantees, sale leaseback

terms or material restrictive covenants.

The Company does not have any material finance lease obligations nor sublease agreements.

PACIFIC ETHANOL, INC.

The Company does not have lease arrangements with residual value guarantees, sale

leaseback terms or material restrictive covenants.

The Company does not have any material finance lease obligations nor

sublease agreements.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Less Interest

For the year ended December 31, 2019,

the Company recorded operating lease costs of $9,948,000 in cost of goods sold and $472,000 in selling, general and administrative

expenses, in the Company’s statements of operations.

For the years ended December 31, 2020 and

2019, the Company recorded operating lease costs of $5,461,000 and $9,948,000, respectively, in cost of goods sold and $482,000

and $472,000, respectively, in selling, general and administrative expenses, in the Company’s statements of operations.

PENSION PLANS.

1 unchanged sentence

sponsors a defined benefit pension plan (the “Retirement Plan”) that is noncontributory, and covers only “grandfathered”

unionized employees at its Pekin, Illinois, facility.

The Company assumed the Retirement Plan as part of its acquisition of PE

Central on July 1, 2015.

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

hired after November 1, 2010, are not eligible to participate in the Retirement Plan.

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

Information related to the Retirement

Plan as of and for the years ended December 31, 2019 and 2018 is presented below (dollars in thousands):

unionized employees at its Alto Pekin production facilities.

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

years of service.

Employees hired after November 1, 2010, are not eligible to participate in the Retirement Plan.

The Company uses

a December 31 st measurement date for its Retirement Plan.

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

contribution required by applicable regulations.

Information related to the Retirement Plan

as of and for the years ended December 31, 2020 and 2019 is presented below (dollars in thousands):

Changes in plan assets:

Fair value of plan assets, beginning

Actual gains (losses)

Benefits paid

6 unchanged sentences

Other liabilities

Accumulated other comprehensive loss (income)

Accumulated other comprehensive loss

Components of net periodic benefit costs are as follows:

2 unchanged sentences

Net periodic benefit cost

Loss recognized in other comprehensive income (expense)

Assumptions used in computation benefit obligations:

Loss recognized in other comprehensive expense

Assumptions used in computation of benefit obligations:

Discount rate

1 unchanged sentence

Rate of compensation increase

PACIFIC ETHANOL, INC.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 unchanged sentences

A weighted average rate was developed based on those overall rates and the target asset allocation

The Company’s pension committee

is responsible for overseeing the investment of pension plan assets.

The pension committee is responsible for determining and

monitoring the appropriate asset allocations and for selecting or replacing investment managers, trustees, and custodians.

pension plan’s current investment target allocations are 50% equities and 50% debt.

The pension committee reviews the actual

asset allocation in light of these targets periodically and rebalances investments as necessary.

of the Retirement Plan.

The Company’s pension committee is

responsible for overseeing the investment of pension plan assets.

The pension committee is responsible for determining and monitoring

the appropriate asset allocations and for selecting or replacing investment managers, trustees, and custodians.

The Retirement

Plan’s current investment target allocations are 50% equities and 50% debt.

The pension committee reviews the actual asset

allocation in light of these targets periodically and rebalances investments as necessary.

The pension committee also evaluates

the performance of investment managers as compared to the performance of specified benchmarks and peers and monitors the investment

managers to ensure adherence to their stated investment style and to the plan’s investment guidelines.

managers to ensure adherence to their stated investment style and to the Retirement Plan’s investment guidelines.

Postretirement Plan - The

1 unchanged sentence

medical benefits and life insurance to certain “grandfathered”

unionized employees.

The Company assumed the Postretirement

Plan as part of its acquisition of PE Central on July 1, 2015.

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

in the Postretirement Plan.

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

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

unionized employees at its Alto Pekin production facilities.

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

The 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information related to the Postretirement Plan as of December

31, 2020 and 2019 is presented below (dollars in thousands):

Amounts at the end of the year:

Accumulated/projected benefit obligation

Fair value of plan assets

Funded status, (underfunded)/overfunded

Amounts recognized in the consolidated balance sheets:

Accrued liabilities

Other liabilities

Accumulated other comprehensive loss

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts at the end of

Accumulated/projected

benefit obligation

value of plan assets

status, (underfunded)/overfunded

recognized in the consolidated balance sheets:

other comprehensive loss

Information related to the Postretirement Plan for the years

ended December 31, 2020 and 2019 is presented below (dollars in thousands):

Years Ended December 31,

Ended December 31,

Amounts recognized in the plan for the year:

Company contributions

Participant contributions

4 unchanged sentences

Net periodic benefit cost

Gain recognized in other comprehensive

Gain recognized in other comprehensive income

Discount rate used in computation of benefit obligations

1 unchanged sentence

any amortization of net actuarial loss during the year ended December 31, 2021.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the expected

benefit payments for the Company’s Post-Retirement Plan for each of the next five fiscal years and in the aggregate for

the five fiscal years thereafter (in thousands):

benefit payments for the Company’s Postretirement Plan for each of the next five fiscal years and in the aggregate for the

five fiscal years thereafter (in thousands):

For purposes of determining the cost and

obligation for pre-Medicare postretirement medical benefits, 6.75% annual rate of increase in the per capita cost of covered benefits

(i.e., health care trend rate) was assumed for the plan in 2021, adjusting to a rate of 4.50% in 2030.

Assumed health care cost

trend rates have a significant effect on the amounts reported for health care plans.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

obligation for pre-Medicare postretirement medical benefits, a 7.00% annual rate of increase in the per capita cost of covered

benefits (i.e., health care trend rate) was assumed for the Postretirement Plan in 2022, adjusted to a rate of 4.50% in 2031.

health care cost trend rates have a significant effect on the amounts reported for health care plans.

INCOME TAXES.

1 unchanged sentence

for income taxes as follows (in thousands):

Years Ended December 31,

Ended December 31,

Current provision (benefit)

3 unchanged sentences

is as follows:

Years Ended December 31,

Ended December 31,

Statutory rate

1 unchanged sentence

Change in valuation allowance

Fair value adjustments

Noncontrolling interest

1 unchanged sentence

Effective rate

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are provided using

1 unchanged sentence

of assets and liabilities using presently enacted tax rates and laws.

The components of deferred income taxes included in the

consolidated balance sheets were as follows (in thousands):

The components of deferred income taxes included in the consolidated

balance sheets were as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards

R&D, Energy and AMT credits

Disallowed interest

R&D, Energy and AMT credits

Pension liability

Railcar contracts

1 unchanged sentence

Allowance for doubtful accounts and other assets

Pension liability

Property and equipment

5 unchanged sentences

Net deferred tax liabilities, included in other liabilities

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A portion of the Company’s net operating

loss carryforwards are subject to provisions of the tax law that limits the use of losses incurred by a corporation prior to the

loss carryforwards are subject to provisions of the tax law that limit the use of losses incurred by a corporation prior to the

date certain ownership changes occur.

4 unchanged sentences

Due to the limitation

on the use of net operating losses and deprecation deductions, a significant portion of these carryforwards will expire regardless

on the use of net operating losses and depreciation deductions, a significant portion of these carryforwards will expire regardless

of whether the Company generates future taxable income.

8 unchanged sentences

2036 and after*

Non-expiring NOLs

Certain of these net operating losses

are not immediately available, but become available to be utilized in each of the years ended December 31, as follows (in thousands):

PACIFIC ETHANOL, INC.

* Includes indefinite life federal

net operating losses of $77.5 million generated after 2017.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of these net operating losses are

not immediately available, but become available to be utilized in each of the years ended December 31, as follows (in thousands):

To the extent amounts are not utilized

2 unchanged sentences

limitations on their utilization.

In assessing whether the deferred tax

assets are realizable, a more likely than not standard is applied.

If it is determined that it is more likely than not that deferred

tax assets will not be realized, a valuation allowance must be established against the deferred tax assets.

Federal capital loss of $113,928,000 may

be carried forward for 5 years and will expire in 2025.

State capital loss of $110,279,000 may be carried forward for 5 years for

most of the states in which the Company files returns and will expire in 2025.

In assessing whether the deferred tax assets

are realizable, a more likely than not standard is applied.

If it is determined that it is more likely than not that deferred tax

assets will not be realized, a valuation allowance must be established against the deferred tax assets.

The ultimate realization

3 unchanged sentences

income and tax planning strategies in making this assessment.

A valuation allowance was established

in the amount of $84,065,000 and $40,588,000 as of December 31, 2019 and 2018, respectively, based on the Company’s

assessment of the future realizability of certain deferred tax assets.

The valuation allowance on deferred tax assets is related

to future deductible temporary differences and net operating loss carryforwards for which the Company has concluded it is more

likely than not that these items will not be realized in the ordinary course of operations.

For the year ended December

31, 2019, the Company recorded an increase in valuation allowance of $43,477,000.

Of this increase, $22,641,000 was primarily

the offsetting impact of an increase in deferred tax assets associated with additional net operating losses in 2019.

The remaining

increase of $20,836,000 relates to a deferred asset related to previously disallowed depreciation discussed above.

ended December 31, 2018, the Company recorded an increase in the valuation allowance of $15,949,000.

This increase was primarily

the offsetting impact of an increase in deferred tax assets associated with additional net operating losses in 2018.

At December 31, 2018,

the Company accrued $235,000 in tax uncertainties related to a refund claim.

There was no accrued interest or penalties relating

to tax uncertainties at December 31, 2019.

The Tax Cuts and Jobs

Act (“TCJA”) was enacted on December 22, 2017.

The Company recognized the income tax effects of the TCJA in its 2017

financial statements in accordance with Staff Accounting Bulletin No.

118, which provides SEC staff guidance for the application

of ASC Topic 740, Income Taxes , in the reporting period in which the TCJA was signed into law.

The Company did not identify

items for which the income tax effects of the TCJA was not completed as of December 31, 2017.

Amounts recorded where

accounting was complete principally related to the reduction in the U.S.

corporate income tax rate to 21%.

This resulted in the

Company reporting an income tax benefit of $321,000 as the deferred tax liabilities associated with indefinite lived intangible

assets were remeasured at the new 21% rate.

This rate reduction decreased gross deferred assets by approximately $10,170,000 and

valuation allowance by $10,545,000.

Absent this deferred tax liability, the Company was in a net deferred tax asset position that

is offset by a full valuation allowance, resulting in a net tax effect of zero.

A valuation allowance was established in

the amount of $85,688,000 and $84,065,000 as of December 31, 2020 and 2019, respectively, based on the Company’s assessment

of the future realizability of certain deferred tax assets.

The valuation allowance on deferred tax assets is related to future

deductible temporary differences and net operating loss carryforwards for which the Company has concluded it is more likely than

not that these items will not be realized in the ordinary course of operations.

For the year ended December 31, 2020, the

Company recorded an increase in valuation allowance of $1,623,000.

This was primarily the offsetting impact of an increase in deferred

tax assets associated with the capital loss carryforward offset by changes in depreciation and other adjustments associated with

property plant and equipment, and mark-to-market adjustment related to derivatives in 2020.

For the year ended December 31, 2019,

31, 2018, provisions of Internal Revenue Code Section 163(j), as amended by the TCJA, became effective which now limits the deductibility

of interest expense to 30% of adjusted taxable income.

The Company recorded a related deferred asset of $8,242,000 and $3,769,000

at December 31, 2019 and 2018, respectively, which has been fully offset by a valuation allowance.

PACIFIC ETHANOL, INC.

the Company recorded an increase in the valuation allowance of $43,477,000.

Of this increase, $22,641,000 was primarily the offsetting

impact of an increase in deferred tax assets associated with additional net operating losses in 2019.

The remaining increase of

$20,836,000 relates to a deferred asset related to previously disallowed depreciation discussed above.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

open to audit under the applicable statutes of limitation, are as follows:

South Carolina

However, because the Company had net operating

6 unchanged sentences

Board of Directors.

As of December 31, 2019, the Company had the following designated preferred stock:

As of December 31, 2020, the Company had the following designated classes of preferred stock:

Series A Preferred Stock

3 unchanged sentences

into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon any issuance, the Series A Preferred

1 unchanged sentence

Holders of Series A Preferred

Stock would be entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 5% per annum of the

purchase price per share of the Series A Preferred Stock.

Stock would be entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 5% per annum of the purchase price per share of the Series A Preferred Stock.

The holders of the Series A Preferred Stock would have conversion rights

6 unchanged sentences

paid in cash upon any conversion of the Series A Preferred Stock.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The holders of Series A Preferred Stock

would have a liquidation preference over the holders of the Company’s common stock equivalent to the purchase price per

share of the Series A Preferred Stock plus any accrued and unpaid dividends on the Series A Preferred Stock.

A liquidation would

be deemed to occur upon the happening of customary events, including transfer of all or substantially all of the Company’s

capital stock or assets or a merger, consolidation, share exchange, reorganization or other transaction or series of related transactions,

would have a liquidation preference over the holders of the Company’s common stock equivalent to the purchase price per share

of the Series A Preferred Stock plus any accrued and unpaid dividends on the Series A Preferred Stock.

A liquidation would be deemed

to occur upon the happening of customary events, including transfer of all or substantially all of the Company’s capital

stock or assets or a merger, consolidation, share exchange, reorganization or other transaction or series of related transactions,

unless holders of 66 2/3% of the Series A Preferred Stock vote affirmatively in favor of or otherwise consent to such transaction.

Series B Preferred

Stock –

The Company has authorized 1,580,790 shares of Series B Cumulative Convertible Preferred Stock (“Series

B Preferred Stock”), with 926,942 shares outstanding at December 31, 2019 and 2018.

Shares of Series B Preferred Stock that

are converted into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred

Series B Preferred Stock

The Company has authorized 1,580,790 shares of Series B Cumulative Convertible Preferred Stock (“Series B Preferred

Stock”), with 926,942 shares outstanding at December 31, 2020 and 2019.

Shares of Series B Preferred Stock that are converted

into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock.

The Series B Preferred

Stock ranks senior in liquidation and dividend preferences to the Company’s common stock.

Holders of Series B Preferred

Stock are entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 7.00% per annum of the purchase

Holders of Series B Preferred Stock

are entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 7.00% per annum of the purchase

price per share of the Series B Preferred Stock;

16 unchanged sentences

the Series B Preferred Stock was convertible into 964,230 shares of the Company’s common stock.

The conversion ratio is

subject to customary antidilution adjustments.

In addition, antidilution adjustments are to occur in the event that the Company

issues equity securities, including derivative securities convertible into equity securities (on an as-converted or as-exercised

basis), at a price less than the conversion price then in effect.

The shares of Series B Preferred Stock are also subject to forced

conversion upon the occurrence of a transaction that would result in an internal rate of return to the holders of the Series B

Preferred Stock of 25% or more.

The conversion ratio is subject

to customary antidilution adjustments.

In addition, antidilution adjustments are to occur in the event that the Company issues

equity securities, including derivative securities convertible into equity securities (on an as-converted or as-exercised basis),

at a price less than the conversion price then in effect.

The shares of Series B Preferred Stock are also subject to forced conversion

upon the occurrence of a transaction that would result in an internal rate of return to the holders of the Series B Preferred Stock

of 25% or more.

The forced conversion is to be based upon the conversion ratio as last adjusted.

Accrued but unpaid

dividends on the Series B Preferred Stock are to be paid in cash upon any conversion of the Series B Preferred Stock.

Accrued but unpaid dividends on

the Series B Preferred Stock are to be paid in cash upon any conversion of the Series B Preferred Stock.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The holders of Series

9 unchanged sentences

expressly waived its rights under the Certificate of Designations relating to the Series B Preferred Stock to make dividend payments

in additional shares of Series B Preferred Stock in lieu of cash dividend payments without the prior written consent of Lyles

United and the other purchasers.

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in additional shares of Series B Preferred Stock in lieu of cash dividend payments without the prior written consent of Lyles United

and the other purchasers.

On or about December

2 unchanged sentences

until the next scheduled quarterly installment of Series B Preferred Stock dividends, or (ii) the occurrence of a specified event

of default under the letter agreement, or (c) two years from the date of the letter agreement (collectively, the “Waiver

of default under the letter agreement, or (iii) two years from the date of the letter agreement (collectively, the “Waiver

Period”), the holders waive any rights and remedies against the Company with respect to any unpaid dividends.

dividends on the Series B Preferred Stock will continue to accrue during the Waiver Period and remain owing to the holders of

the Series B Preferred Stock.

Registration Rights Agreement

In connection with the sale of its Series B Preferred Stock, the Company entered into a registration rights agreement

with Lyles United.

The registration rights agreement is to be effective until the holders of the Series B Preferred Stock, and

their affiliates, as a group, own less than 10% for each of the series issued, including common stock into which such Series B

Preferred Stock has been converted.

The registration rights agreement provides that holders of a majority of the Series B Preferred

Stock, including common stock into which such Series B Preferred Stock has been converted, may demand and cause the Company to

register on their behalf the shares of common stock issued, issuable or that may be issuable upon conversion of the Preferred

Stock and as payment of dividends thereon, and upon exercise of the related warrants (collectively, the “Registrable Securities”).

The Company is required to keep such registration statement effective until such time as all of the Registrable Securities are

sold or until such holders may avail themselves of Rule 144 for sales of Registrable Securities without registration under the

Securities Act of 1933, as amended.

The holders are entitled to two demand registrations on Form S-1 and unlimited demand registrations

provided, however, that the Company is not obligated to effect more than one demand registration on Form S-3 in any

calendar year.

In addition to the demand registration rights afforded the holders under the registration rights agreement, the

holders are entitled to unlimited “piggyback”

dividends on the Series B Preferred Stock will continue to accrue during the Waiver Period and remain owing to the holders of the

Series B Preferred Stock.

Registration Rights

These rights entitle the holders who so elect to

be included in registration statements to be filed by the Company with respect to other registrations of equity securities.

Company is responsible for all costs of registration, plus reasonable fees of one legal counsel for the holders, which fees are

not to exceed $25,000 per registration.

The registration rights agreement includes customary representations and warranties on

the part of both the Company and the holders and other customary terms and conditions.

Agreement –

In connection with the sale of its Series B Preferred Stock, the Company entered into a registration

rights agreement with Lyles United.

The registration rights agreement is to be effective until the holders of the Series B Preferred

Stock, and their affiliates, as a group, own less than 10% for each of the series issued, including common stock into which such

Series B Preferred Stock has been converted.

The registration rights agreement provides that holders of a majority of the Series

B Preferred Stock, including common stock into which such Series B Preferred Stock has been converted, may demand and cause the

Company to register on their behalf the shares of common stock issued, issuable or that may be issuable upon conversion of the

Preferred Stock and as payment of dividends thereon, and upon exercise of the related warrants (collectively, the “Registrable

Securities”).

The Company is required to keep such registration statement effective until such time as all of the Registrable

Securities are sold or until such holders may avail themselves of Rule 144 for sales of Registrable Securities without registration

under the Securities Act of 1933, as amended.

The holders are entitled to two demand registrations on Form S-1 and unlimited demand

registrations on Form S-3;

provided, however, that the Company is not obligated to effect more than one demand registration on

Form S-3 in any calendar year.

In addition to the demand registration rights afforded the holders under the registration rights

agreement, the holders are entitled to unlimited “piggyback”

registration rights.

These rights entitle the holders

who so elect to be included in registration statements to be filed by the Company with respect to other registrations of equity

The Company is responsible for all costs of registration, plus reasonable fees of one legal counsel for the holders,

which fees are not to exceed $25,000 per registration.

The registration rights agreement includes customary representations and

warranties on the part of both the Company and the holders and other customary terms and conditions.

The Company accrued and paid in cash preferred

stock dividends of $946,000 and $1,265,000 for the years ended December 31, 2019 and 2018, respectively.

The Company accrued but

did not pay in cash preferred stock dividends of $319,000 for the year ended December 31, 2019.

stock dividends of $946,000 for the year ended December 31, 2019.

The Company accrued but did not pay in cash preferred stock dividends

of $1,268,000 and $319,000 for the years ended December 31, 2020 and 2019, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMON STOCK AND WARRANTS.

Warrants issued

to Senior Noteholders –

On December 22, 2019, in connection with an extension of the Company’s Notes, the Company

issued warrants to purchase an aggregate of 5,500,000 shares of the Company’s common stock.

The warrants had an exercise

price of $1.00 per share and were exercisable commencing June 22, 2020 and were to expire on December 22, 2020.

The Company had

determined that the warrants issued in this transaction did not meet the conditions for classification in stockholders’

and as such, the Company recorded them as a liability at fair value.

In August 2020, these warrants were fully exercised for $1.00

For the period they were outstanding in 2020, the Company revalued them at each reporting period.

These warrants were

valued at $977,000 as of December 31, 2019 and are included in other assets on the accompanying consolidated balance sheets.

Note 16 for the Company’s fair value assumptions.

Warrants issued

in Equity Offering –

On October 28, 2020, the Company closed an underwritten public offering of 5,075,000 shares

of its common stock at a public offering price of $8.42 per share and 5-year pre-funded warrants to purchase 3,825,493 shares of

common stock at a public offering price of $8.42 per pre-funded warrant.

The Company had determined that the warrants issued in

this transaction did not meet the conditions for classification in stockholders’

equity and as such, the Company recorded

them as a liability at fair value.

In November 2020, these warrants were fully exercised.

For the period they were outstanding

in 2020, the Company revalued them at each reporting period.

See Note 16 for the Company’s fair value assumptions.

In addition, in a concurrent private placement,

the Company also issued to the investor, for a nominal price, warrants to purchase an additional 8,900,493 shares of common stock

at an exercise price of $9.757 per share.

The warrants became exercisable after the six-month anniversary of the offering and will

expire on the 18-month anniversary of the offering.

The Company had determined that when initially issued, these warrants did not

meet the conditions for classification in stockholders’

equity, however, in November 2020, the Company amended these warrants

which then met the conditions of classification in stockholders’

equity and as such, the Company recorded them initially

as a liability at fair value and upon their amendment, reclassified their then fair value to equity.

See Note 16 for the Company’s

fair value assumptions.

The aggregate gross proceeds from the offerings

of common stock, pre-funded warrants and warrants was approximately $75.0 million.

The net offering proceeds were approximately

$70.5 million after deducting underwriting discounts and commissions and other estimated offering expenses.

The following table summarizes warrant

activity for the years ended December 31, 2020 and 2019 (number of shares in thousands):

Exercise Price

Balance at December 31, 2018

Warrants expired

Balance at December 31, 2018

Warrants issued

Balance at December 31, 2019

PACIFIC ETHANOL, INC.

Warrants exercised

Pre-funded warrants issued

Pre-funded warrants exercised

Series A warrants issued

Balance at December 31, 2020

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Warrants issued to Senior Noteholders

On December 22, 2019, in connection with an extension of the Company’s senior Notes, the Company issued

warrants to purchase an aggregate of 5,500,000 shares of the Company’s common stock.

The warrants have an exercise price

of $1.00 per share and are exercisable commencing June 22, 2020 and expire on December 22, 2021.

The Company has determined that

the warrants issued in the above transaction did not meet the conditions for classification in stockholders’

as such, the Company has recorded them as a liability at fair value.

The Company will revalue them at each reporting period, beginning

in the first quarter of 2020.

See Note 16 for the Company’s fair value assumptions.

Nonvoting Common Stock –

In connection with the Company’s PE Central acquisition, the Company issued nonvoting common shares exercisable at the holders’

As of December 31, 2019, an aggregate of 3,539,236 shares of nonvoting common stock had been exchanged for an equal

number of shares of the Company’s common stock upon the holders’

As of December 31, 2019, 896 shares of nonvoting

common stock were outstanding.

In 2015, the Company issued nonvoting common shares exercisable at the holders’

As of December 31, 2020, an aggregate

of 3,539,236 shares of nonvoting common stock had been exchanged for an equal number of shares of the Company’s common stock

upon the holders’

As of December 31, 2020, 896 shares of nonvoting common stock were outstanding.

At-the-Market Program –

In October 2018, the Company has established an “at-the-market”

equity distribution program under which it may offer

In October 2018, the Company established an “at-the-market”

equity distribution program under which it could offer

and sell shares of common stock to, or through, sales agents by means of ordinary brokers’

transactions on the NASDAQ, in

block transactions, or as otherwise agreed to between the Company and its sales agent at prices deemed appropriate.

is under no obligation to offer and sell shares of common stock under the program.

For the years ended December 31, 2019 and 2018,

the Company issued 3,137,392 and 838,213 shares of common stock through its “at-the-market”

equity program that resulted

in net proceeds of $3,670,413 and $2,056,966 and fees paid to its sales agent of $65,838 and $36,951, respectively.

The net proceeds

from these issuances were used to prepay a portion of the Company’s senior secured notes.

transactions on The Nasdaq Stock

Market, in block transactions, or as otherwise agreed to between the Company and its sales agent at prices deemed appropriate.

For the years ended December 31, 2020 and 2019, the Company issued 1,421,000 and 3,137,000 shares of common stock through its “at-the-market”

equity program that resulted in net proceeds of $5,296,000 and $3,670,000 and fees paid to its sales agent of $171,000 and $66,000,

respectively.

The Company terminated its “at-the-market”

program in October 2020.

STOCK-BASED COMPENSATION.

6 unchanged sentences

the Company for up to an aggregate of 1,715,000 shares of common stock.

In June 2016, this plan was terminated, except to the

extent of issued and outstanding unvested stock awards and options.

In June 2016, the 2006 Stock Incentive plan was terminated,

except to the extent of issued and outstanding unvested stock awards and options.

2016 Stock Incentive Plan

4 unchanged sentences

On June 14, 2018, the Company’s shareholders approved an increase

to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 3,650,000.

On November 7, 2019, the Company’s

shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 5,650,000.

PACIFIC ETHANOL, INC.

to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 3,650,000 shares.

On November 7, 2019, the

Company’s shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan

to 5,650,000 shares.

On November 18, 2020, the Company’s shareholders approved an increase to the aggregate number of shares

authorized under the 2016 Stock Incentive Plan to 7,400,000 shares.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2 unchanged sentences

the Company’s plans during those years are as follows (number of shares in thousands):

Years Ended December 31,

Weighted Average Exercise Price

Weighted Average

Ended December 31,

Exercise Price

Outstanding at beginning of year

Options cancelled

Options exercised

Outstanding at end of year

2 unchanged sentences

2020 were as follows (number of shares in thousands):

Options Outstanding

Options Exercisable

Exercise Prices

Weighted Average Remaining Contractual Life

Number Exercisable

The options outstanding

at December 31, 2019 and 2018 had no intrinsic value.

The aggregate intrinsic value of the options

outstanding was $262,000 and $0 as of December 31, 2020 and 2019, respectively.

Restricted Stock

The Company granted to certain employees and directors shares of restricted stock under its 2006 and 2016 Stock

Incentive Plans.

A summary of unvested restricted stock activity is as follows (shares in thousands):

1 unchanged sentence

Unvested at December 31, 2020

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the common stock at

vesting aggregated $599,000 and $1,629,000for the years ended December 31, 2019 and 2018, respectively.

Stock-based compensation

expense related to employee and non-employee restricted stock and option grants recognized in selling, general and administrative

expenses, were as follows (in thousands):

Years Ended December 31,

The fair value of the common stock at vesting

aggregated $1,639,000 and $599,000 for the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense

related to employee and non-employee restricted stock and option grants recognized in the accompanying consolidated statements

of operations, was as follows (in thousands):

Ended December 31,

Non-employees

Total stock-based compensation

Employee grants typically have a three

year vesting schedule, while the non-employee grants have a one year vesting schedule.

Total stock-based compensation expense

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee grants typically have a two or

three-year vesting schedule, while non-employee grants have a one-year vesting schedule.

At December 31, 2020, the total compensation

expense related to unvested awards which had not been recognized was $2,042,000 and the associated weighted-average period over

which the compensation expense attributable to those unvested awards will be recognized was approximately 0.78 years.

expense related to unvested awards which had not been recognized was $865,000 and the associated weighted-average period over which

the compensation expense attributable to those unvested awards will be recognized was approximately 1.37 years.

COMMITMENTS AND CONTINGENCIES.

Commitments –

following is a description of significant commitments at December 31, 2019:

The following

is a description of significant commitments at December 31, 2020:

Sales Commitments –

had open ethanol indexed-price contracts for 204,563,000 gallons of ethanol as of December 31, 2019 and open fixed-price ethanol

sales contracts totaling $104,014,000 as of December 31, 2019.

The Company had open fixed-price co-product sales contracts totaling

$30,116,000 as of December 31, 2019 and open indexed-price co-product sales contracts for 238,000 tons as of December 31, 2019.

had open fuel-grade ethanol indexed-price contracts for 84,722,000 gallons as of December 31, 2020 and open fixed-price fuel-grade

ethanol and specialty alcohol sales contracts totaling $257,310,000 as of December 31, 2020.

The Company had open fixed-price essential

ingredient contracts totaling $16,722,000 as of December 31, 2020 and open indexed-price essential ingredient sales contracts for

161,000 tons as of December 31, 2020.

These sales contracts are scheduled to be completed throughout 2021.

Purchase Commitments –

December 31, 2019, the Company had indexed-price purchase contracts to purchase 6,317,000 gallons of ethanol and fixed-price purchase

contracts to purchase $3,893,000 of ethanol from its suppliers.

The Company had fixed-price purchase contracts to purchase $21,861,000

of corn from its suppliers.

December 31, 2020, the Company had indexed-price purchase contracts to purchase 5,814,000 gallons of fuel-grade ethanol and fixed-price

purchase contracts to purchase $4,043,000 of fuel-grade ethanol from its suppliers.

The Company had fixed-price purchase contracts

to purchase $22,809,000 of corn from its suppliers.

These purchase commitments are scheduled to be satisfied throughout 2021.

Assessment Financing –

September 2016, the Company signed an agreement to finance and construct a 5 megawatt solar project at its Madera facility.

amount financed is for up to $10.0 million, to be amortized over twenty years as part of the facility’s property tax assessments.

As of December 31, 2019 and 2018, the Company had outstanding $9,342,000, in the accompanying consolidated balance sheets attributable

to this financing.

The Company expects to pay approximately $0.9 million per year in connection with its property tax payments,

September 2016, the Company signed an agreement to finance and construct a 5-megawatt solar project at its Madera, California production

The amount financed is for up to $10.0 million, to be amortized over twenty years as part of the facility’s property

tax assessments.

As of December 31, 2020 and 2019, the Company had outstanding $9,108,000 and $9,342,000, respectively, in the

accompanying consolidated balance sheets attributable to this financing, reflected in liabilities held-for-sale.

To the extent

the Company retains this financing, it expects to pay approximately $0.9 million per year in connection with its property tax payments,

which includes an interest component based upon a 5.6% interest rate on the outstanding balance of the assessment .

2 unchanged sentences

Litigation –

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

business transactions, employee-related matters, 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 financial impact on the Company’s operating results.

PACIFIC ETHANOL, INC.

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

transactions, employee-related matters, 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 financial

impact on the Company’s operating results.

The Company has evaluated its pending cases

and has not recorded a litigation contingency liability with respect to the cases.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has evaluated the above cases

as well as other pending cases.

The Company currently has not recorded a litigation contingency liability with respect to these

FAIR VALUE MEASUREMENTS.

2 unchanged sentences

● Level 1 –

inputs –

unadjusted quoted prices in active markets for identical assets and liabilities;

Observable inputs –

unadjusted quoted prices in active markets for identical

assets and liabilities;

● Level 2 –

inputs other than quoted prices included in Level 1 that are observable for the asset

or liability through corroboration with market data;

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

for the asset or liability through corroboration with market data;

● Level 3 –

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.

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

1 unchanged sentence

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.

Warrants –

Company’s warrants issued December 22, 2019, were valued using the Black-Scholes Valuation Model.

assumptions used and related fair value for the warrants as of December 31, 2019 were as follows:

Original Issuance

Exercise Price

Risk Free Interest Rate

Warrants Outstanding

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.

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 December

31, 2020 and 2019 of $48,548,000 and $70,400,000, respectively.

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.

Warrants issued to Senior Noteholders

The Company’s warrants issued December 22, 2019, were valued using the Black-Scholes Valuation Model and adjusted

for quarterly.

On August 5, 2020, these warrants were exercised in full and prior to exercise, the Company adjusted their fair value using

the following assumptions (fair value dollars in thousands):

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The assumptions used and related fair value

for these warrants as of December 31, 2019 were as follows (fair value dollars in thousands):

Warrants issued in Equity

Offering –

The Company issued pre-funded warrants and other warrants with exercise prices of $0.001 and

$9.757, respectively.

The Company valued these warrants upon issuance using the Binomial valuation methodology.

16, 2020, the pre-funded warrants were exercised, and as a result, were revalued immediately prior to their exercise.

other warrants were amended on November 24, 2020, resulting in equity accounting, and accordingly were revalued immediately

prior to their amendment.

The assumptions used were as follows (fair value dollars in thousands):

The fair values of the warrants are based

on unobservable inputs and are designated as Level 3 inputs.

Long-Lived Assets Held-for-Sale –

The Company recorded its long-lived assets associated with Pacific Aurora at fair value at December 31, 2019 of $70,400,000.

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.

The changes in the Company’s fair value of its Level 3 inputs

with respect to its warrants were as follows (in thousands):

Balance, December 31, 2019

Issuance of warrants in October offering

Exercise of warrants/reclass to equity

Adjustments to fair value for the period

Balance, December 31, 2020

Other Derivative Instruments

2 unchanged sentences

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

PACIFIC ETHANOL, INC.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Long-lived assets held-for-sale

Defined benefit plan assets(1) (pooled separate

Defined benefit plan assets(1) (pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

Derivative financial instruments

The following table summarizes recurring

fair value measurements by level at December 31, 2018 (in thousands):

and nonrecurring fair value measurements by level at December 31, 2019 (in thousands):

Derivative financial instruments

Defined benefit plan assets(1) (pooled separate

Long-lived assets held-for-sale

Defined benefit plan assets(1) (pooled separate accounts):

Small/Mid U.S.

2 unchanged sentences

Derivative financial instruments

(1) See Note 10 for

accounting discussion.

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

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

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

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

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

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

category includes investments in funds comprised of equity securities of foreign companies

(1) See Note 10 for accounting discussion.

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

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

used to value the fund.

(3) This category includes investments in funds comprised of equity securities of small- and medium-sized

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

investments is used to value the fund.

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

including emerging markets.

The funds are valued using the net asset value method in

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

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,

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.

PACIFIC ETHANOL, INC.

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

the underlying investments is used to value the fund.

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

and foreign investment-grade fixed

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

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Restricted Net Assets –

At December 31, 2019, the Company had approximately $180,900,000 of net assets at its subsidiaries that were not available

to be transferred to Pacific Ethanol in the form of dividends, distributions, loans or advances due to restrictions contained

in the credit facilities of these subsidiaries.

Parent company financial statements for

the periods covered in this report are set forth below.

At December 31,

2020, the Company had approximately $262,200,000 of net assets at its subsidiaries that were not available to be transferred to

Alto Ingredients in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities

of these subsidiaries.

Parent company financial statements for the periods covered

in this report are set forth below.

Current Assets:

7 unchanged sentences

Right of use lease assets

Pacific Ethanol West plant receivable

Alto West LLC receivable

Total other assets

1 unchanged sentence

Accounts payable and accrued liabilities

Accrued PE Op Co.

Accrued Alto Op Co.

Current portion of long-term debt

2 unchanged sentences

Long-term debt, net

Deferred tax liabilities

Other liabilities

6 unchanged sentences

Accumulated deficit

Total Pacific Ethanol, Inc.

Total Alto Ingredients, Inc.

stockholders’

Total Liabilities and Stockholders’

PACIFIC ETHANOL, INC.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,

Management fees from subsidiaries

Selling, general and administrative

Selling, general and administrative expenses

Loss from operations

Fair value adjustments

Loss on debt extinguishment

2 unchanged sentences

Other expense, net

Loss before provision (benefit) for income taxes

Loss before benefit for income taxes

Benefit for income taxes

Loss before equity in earnings of subsidiaries

Equity in losses of subsidiaries

Equity in income (losses) of subsidiaries

Consolidated net loss

PACIFIC ETHANOL, INC.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December

For the Years Ended

Operating Activities:

Adjustments to reconcile net loss to cash provided

by (used in) operating activities:

Equity in losses of subsidiaries

Dividends from subsidiaries

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

Equity in (income) losses of subsidiaries

Fair value adjustments

Loss on debt extinguishment

Deferred income taxes

Amortization of debt discounts

Changes in operating assets and liabilities:

Accounts receivables

Accounts payable and accrued expenses

1 unchanged sentence

Accounts payable with subsidiaries

Net cash provided by (used

in) operating activities

Net cash provided by (used in) operating activities

Investing Activities:

1 unchanged sentence

Investments in subsidiaries

Net cash used in investing

Net cash used in investing activities

Financing Activities:

Proceeds from issuance of common stock

Proceeds from warrant exercises

Proceeds from CARES Act loans

Proceeds from West receivable

Debt issuances costs

Payments on senior notes

Preferred stock dividend

Net cash provided by (used

in) financing activities

Preferred stock dividend payments

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents

at beginning of period

Cash and cash equivalents

at end of period

PACIFIC ETHANOL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERLY FINANCIAL DATA (UNAUDITED).

The Company’s quarterly results

of operations for the years ended December 31, 2019 and 2018 are as follows (in thousands).

December 31, 2019:

Gross profit (loss)

Loss from operations

Net loss attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Net loss available to common stockholders

Basic and diluted loss per common share

December 31, 2018 :

Gross profit (loss)

Loss from operations

Net loss attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Net loss available to common stockholders

Basic and diluted loss per common share

SUBSEQUENT EVENT.

In the first quarter

of 2020, last year’s novel strain of coronavirus (COVID-19), has resulted in businesses suspending or substantially curtailing

global operations and travel, quarantines, and an overall substantial slowdown of economic activity.

Transportation fuels in particular,

including ethanol, have experienced significant price declines and reduced demand.

A further downturn in global economic growth,

or recessionary conditions in major geographic regions, will lead to reduced demand for ethanol and negatively affect the market

prices of our products, further materially and adversely affecting our business, results of operations and liquidity.

to this, the Company has reduced production at its facilities by more than 60%.

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

INDEX TO EXHIBITS

and Plan of Merger dated June 26, 2017 among Pacific Ethanol Central, LLC, ICP Merger Sub, LLC, Illinois Corn Processing,

LLC, Illinois Corn Processing Holdings Inc.

and MGPI Processing, Inc.

of Incorporation

of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stock

of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock

of Amendment to Certificate of Incorporation dated June 3, 2010

of Amendment to Certificate of Incorporation effective June 8, 2011

of Amendment to Certificate of Incorporation effective May 14, 2013

of Amendment to Certificate of Incorporation effective July 1, 2015

and Restated Bylaws

Description of Securities Registered

Pursuant to Section 12 of the Securities Exchange Act of 1934

Where Located

Certificate of Incorporation

Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stock

Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock

Certificate of Amendment to Certificate of Incorporation dated June 3, 2010

Certificate of Amendment to Certificate of Incorporation effective June 8, 2011

Certificate of Amendment to Certificate of Incorporation effective May 14, 2013

Certificate of Amendment to Certificate of Incorporation effective July 1, 2015

Certificate of Amendment to Certificate of Incorporation effective January 12, 2021

Second Amended and Restated Bylaws

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

2006 Stock Incentive Plan, as amended#

of Employee Restricted Stock Agreement under 2006 Stock Incentive Plan#

of Non-Employee Director Restricted Stock Agreement under 2006 Stock Incentive Plan#

2016 Stock Incentive Plan, as amended#

of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan#

of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan#

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Neil M.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Christopher W.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Michael D.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Paul P.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R.

Ethanol, Inc.

2019 Short-Term Incentive Plan Description#

of Indemnity Agreement between the Registrant and each of its Executive Officers and Directors#

Ethanol, Inc.

Form of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan#

Form of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan#

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Christopher W.

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T.

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R.

INDEX TO EXHIBITS

Where Located

Second Amended and Restated Employment Agreement dated July 26, 2018 between the Registrant and Michael D.

Form of Indemnity Agreement between the Registrant and each of its Executive Officers and Directors#

Policy for Recoupment of Incentive Compensation dated March 29, 2018#

of Clawback Policy Acknowledgement and Agreement#

Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Agreement dated May 22, 2008 among the Registrant, Neil M.

Form of Clawback Policy Acknowledgement and Agreement#

Registration Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Letter Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Letter Agreement dated May 22, 2008 among the Registrant, Neil M.

Koehler, Bill Jones, Paul P.

Koehler and Thomas D.

Secured Note Amendment Agreement dated as of December 22, 2019 among the Registrant and the noteholders named therein

of Amended and Restated Senior Secured Note for an aggregate principal amount of $65,649,177.91 issued on December 22, 2019

pursuant to the Senior Secured Note Amendment Agreement dated December 22, 2019 among the Registrant and the noteholders named

Amendment dated as of March 20, 2020 by and among Pacific Ethanol, Inc.

and the noteholders named therein

of Warrant to Purchase Common Stock for an aggregate of up to 5,500,000 shares issued on December 22, 2019 pursuant to the

Senior Secured Note Amendment Agreement dated December 22, 2019 among the Registrant and the noteholders named therein

Rights Agreement dated as of December 22, 2019 among the Registrant and the holders named therein

Agreement dated December 15, 2016 among Pacific Ethanol, Inc., Cortland Capital Market Services LLC and the holders of Pacific

Ethanol, Inc.’s Senior Secured Notes

Amendment to Security Agreement dated June 30, 2017 among Pacific Ethanol, Inc., Cortland Capital Market Services LLC and

the holders of Pacific Ethanol, Inc.’s Senior Secured Notes

Amendment to Security Agreement dated as of December 22, 2019 among the Registrant, the holders named therein and Cortland

Capital Market Services LLC

Amendment to Security Agreement effective as of March 20, 2020 by and among Pacific Ethanol, Inc., each of the holders and

new holders named therein, Cortland Products Corp.

as successor agent and Cortland Capital Market Services LLC as existing

collateral agent

Agreement dated December 15, 2016 among Pacific Ethanol Pekin, Inc., 1 st Farm Credit Services, PCA and CoBank,

1 to Credit Agreement dated March 1, 2017 among Pacific Ethanol Pekin, LLC, 1 st Farm Credit Services, PCA and

2 to Credit Agreement dated August 7, 2017 among Pacific Ethanol Pekin, LLC, 1 st Farm Credit Services, PCA

and CoBank, ACB

3 to Credit Agreement dated March 30, 2018 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger

to 1st Farm Credit Services, PCA, and CoBank, ACB

4 to Credit Agreement dated March 20, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger

to 1st Farm Credit Services, PCA, and CoBank, ACB

5 to Credit Agreement dated July 15, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger

to 1st Farm Credit Services, PCA, and CoBank, ACB

6 to Credit Agreement dated November 15, 2019 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank,

Amendment to Amendment No.

6 to Credit Agreement and Other Loan Documents dated as of December 15, 2019 by and among Pacific

Ethanol Pekin, LLC, Compeer Financial, PCA, and CoBank, ACB

7 to Credit Agreement and Waiver dated December 20, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and

8 to Credit Agreement dated as of March 20, 2020 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank,

Amended and Restated Revolving Term Note dated December 20, 2019 by Pacific Ethanol Pekin, LLC in favor of Compeer Financial,

Amended and Restated Term Note dated December 20, 2019 by Pacific Ethanol Pekin, LLC in favor of Compeer Financial, PCA

Agreement dated December 15, 2016 between Pacific Ethanol Pekin, Inc.

and CoBank, ACB

to Security Agreement dated December 20, 2019 by and between Pacific Ethanol Pekin, LLC and CoBank, ACB for the benefit of

Compeer Financial, PCA

to Illinois Future Advance Real Estate Mortgage dated December 20, 2019 by and between Pacific Ethanol Pekin, LLC and Compeer

Financial, PCA

and Contribution Agreement by Pacific Ethanol Pekin, LLC dated March 20, 2019 in favor of Compeer Financial, PCA and CoBank,

by Pacific Ethanol Pekin, LLC dated December 20, 2019 in favor of Compeer Financial, PCA and CoBank, ACB

and Restated Guaranty and Contribution Agreement dated December 20, 2019 by Pacific Ethanol Central, LLC for the benefit of

Compeer Financial, PCA and CoBank, ACB

Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and CoBank, ACB

Agreement dated March 20, 2019 by and among Pacific Ethanol Pekin, LLC, Compeer Financial PCA and CoBank ACB

Amendment to Security Agreement dated December 20, 2019 by and between Pacific Ethanol Central, LLC and CoBank, ACB for the

benefit of Compeer Financial, PCA

Capital Maintenance Agreement dated December 15, 2016 between Pacific Ethanol, Inc.

Senior Secured Note Amendment Agreement dated as of December 22, 2019 among the Registrant and the noteholders named therein

Form of Amended and Restated Senior Secured Note for an aggregate original principal amount of $65,649,177.91 issued on December 22, 2019 pursuant to the Senior Secured Note Amendment Agreement dated December 22, 2019 among the Registrant and the noteholders named therein

Note Amendment dated as of March 20, 2020 by and among the Registrant and the noteholders named therein

Note Amendment dated as of May 26, 2020 by and among the Registrant and the noteholders named therein

Security Agreement dated December 15, 2016 among the Registrant, Capital Market Services LLC and the holders of the Registrant’s Senior Secured Notes

INDEX TO EXHIBITS

Where Located

First Amendment to Security Agreement dated June 30, 2017 among the Registrant, Cortland Capital Market Services LLC and the holders of the Registrant’s Senior Secured Notes

Second Amendment to Security Agreement dated as of December 22, 2019 among the Registrant, the holders named therein and Cortland Capital Market Services LLC

Third Amendment to Security Agreement effective as of March 20, 2020 by and among the Registrant, each of the holders and new holders named therein, Cortland Products Corp.

as successor agent and Cortland Capital Market Services LLC as existing collateral agent

Security Agreement dated May 5, 2020 by Pacific Ethanol Pekin, LLC in favor of Cortland Products Corp.

Credit Agreement dated December 15, 2016 among Pacific Ethanol Pekin, Inc., 1 st Farm Credit Services, PCA and CoBank, ACB

Amendment No.

1 to Credit Agreement dated March 1, 2017 among Pacific Ethanol Pekin, LLC, 1 st Farm Credit Services, PCA and CoBank, ACB

Amendment No.

2 to Credit Agreement dated August 7, 2017 among Pacific Ethanol Pekin, LLC, 1 st Farm Credit Services, PCA and CoBank, ACB

Amendment No.

3 to Credit Agreement dated March 30, 2018 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger to 1st Farm Credit Services, PCA, and CoBank, ACB

Amendment No.

4 to Credit Agreement dated March 20, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger to 1st Farm Credit Services, PCA, and CoBank, ACB

Amendment No.

5 to Credit Agreement dated July 15, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, as successor by merger to 1st Farm Credit Services, PCA, and CoBank, ACB

INDEX TO EXHIBITS

Where Located

Amendment No.

6 to Credit Agreement dated November 15, 2019 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB

First Amendment to Amendment No.

6 to Credit Agreement and Other Loan Documents dated as of December 15, 2019 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA, and CoBank, ACB

Amendment No.

7 to Credit Agreement and Waiver dated December 20, 2019 among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB

Amendment No.

8 to Credit Agreement dated as of March 20, 2020 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB

Amendment No.

9 to Credit Agreement and Waiver dated as of December 18, 2020 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB

Fourth Amended and Restated Revolving Term Note dated December 18, 2020 by Pacific Ethanol Pekin, LLC in favor of Compeer Financial, PCA

Fourth Amended and Restated Term Note dated December 20, 2019 by Pacific Ethanol Pekin, LLC in favor of Compeer Financial, PCA

Security Agreement dated December 15, 2016 between Pacific Ethanol Pekin, Inc.

and CoBank, ACB

Agreement dated March 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and CoBank, ACB

Amendment to Pledge Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and CoBank,

Agreement dated March 20, 2020 by and between Pacific Ethanol Central, LLC and Cortland Products Corp.

Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and Cortland Products

Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and Cortland Products

Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and Cortland Products Corp.

Agreement dated March 20, 2020 by and among Pacific Ethanol West, LLC, PE Op Co.

Amendment to Security Agreement dated December 20, 2019 by and between Pacific Ethanol Pekin, LLC and CoBank, ACB for the benefit of Compeer Financial, PCA

Amendment to Illinois Future Advance Real Estate Mortgage dated December 20, 2019 by and between Pacific Ethanol Pekin, LLC and Compeer Financial, PCA

INDEX TO EXHIBITS

Where Located

Guaranty and Contribution Agreement by Pacific Ethanol Pekin, LLC dated March 20, 2019 in favor of Compeer Financial, PCA and CoBank, ACB

Guaranty by Pacific Ethanol Pekin, LLC dated December 20, 2019 in favor of Compeer Financial, PCA and CoBank, ACB

First Amendment to Guaranty dated as of December 18, 2020 by Pacific Ethanol Pekin, LLC in favor of Compeer Financial, PCA and CoBank, ACB

Amended and Restated Guaranty and Contribution Agreement dated December 20, 2019 by Pacific Ethanol Central, LLC for the benefit of Compeer Financial, PCA and CoBank, ACB

Pledge Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and CoBank, ACB

Security Agreement dated March 20, 2019 by and among Pacific Ethanol Pekin, LLC, Compeer Financial PCA and CoBank ACB

First Amendment to Security Agreement dated December 20, 2019 by and between Pacific Ethanol Central, LLC and CoBank, ACB for the benefit of Compeer Financial, PCA

Second Amendment to Security Agreement dated as of December 18, 2020 by and between Pacific Ethanol Central, LLC and CoBank, ACB

Working Capital Maintenance Agreement dated December 15, 2016 between the Registrant and CoBank, ACB

Pledge Agreement dated March 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and CoBank, ACB

First Amendment to Pledge Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and CoBank, ACB

INDEX TO EXHIBITS

Where Located

Security Agreement dated March 20, 2020 by and between Pacific Ethanol Central, LLC and Cortland Products Corp.

Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and Cortland Products Corp.

Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and Cortland Products Corp.

Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and Cortland Products Corp.

Security Agreement dated March 20, 2020 by and among Pacific Ethanol West, LLC, PE Op Co.

and Cortland Products Corp.

Amended and Restated Credit Agreement dated August 2, 2017 among Kinergy Marketing LLC, Pacific Ag.

Products, LLC, Wells Fargo

Bank, National Association, and the parties thereto from time to time as lenders

Second Amended and Restated Credit Agreement dated August 2, 2017 among Kinergy Marketing LLC, Pacific Ag.

Products, LLC, Wells Fargo Bank, National Association, and the parties thereto from time to time as lenders

Amendment No.

1 to Second Amended and Restated Credit Agreement dated March 27, 2019 by and among Kinergy Marketing LLC, Pacific Ag.

Products, LLC and Wells Fargo Bank, National Association

Amendment No.

2 to Second Amended and Restated Credit Agreement dated July 31, 2019 by and among Kinergy Marketing LLC, Pacific Ag.

3 unchanged sentences

Products, LLC, the parties thereto from time to time as lenders and Wells Fargo Bank, National Association

Amended and Restated Guarantee dated August 2, 2017 by Pacific Ethanol, Inc.

in favor of Wells Fargo Bank, National Association,

for and on behalf of the lenders

Agreement dated September 15, 2017 between Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB

1 to Credit Agreement and Waiver dated December 20, 2019 among Illinois Corn Processing, LLC, Compeer Financial, PCA and

1 to Credit Agreement dated as of March 20, 2020 by and among Illinois Corn Processing, LLC, Compeer Financial, PCA and

and Restated Term Note dated December 20, 2019 by Illinois Corn Processing, LLC in favor of Compeer Financial, PCA

and Restated Revolving Term Note dated December 20, 2019 by Illinois Corn Processing, LLC in favor of Compeer Financial, PCA

Future Advance Real Estate Mortgage dated September 15, 2017 by Illinois Corn Processing, LLC in favor of CoBank, ACB

to Illinois Future Advance Real Estate Mortgage dated December 20, 2019 by and between Illinois Corn Processing, LLC and Compeer

Financial, PCA

Agreement dated September 15, 2017 by Illinois Corn Processing, LLC in favor of CoBank, ACB

Amendment to Security Agreement dated December 20, 2019 by and between Illinois Corn Processing, LLC and CoBank, ACB for the

benefit of Compeer Financial, PCA

by Illinois Corn Processing, LLC dated December 20, 2019 in favor of Compeer Financial, PCA and CoBank, ACB

Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and CoBank, ACB

Agreement dated March 20, 2020 by Illinois Corn Processing, LLC in favor of Cortland Products Corp.

Agreement effective as of March 20, 2020 by and between Pacific Ethanol, Inc.

and CoBank, ACB

Intercreditor

Agreement dated as of March 20, 2020 by and among Cortland Products Corp., CoBank, ACB, Pacific Ethanol, Inc.

and the grantors

named therein

Intercreditor

Agreement dated as of March 20, 2020 between the Pekin Lenders and the ICP Lenders named therein

Market Issuance Sales Agreement dated as of September 19, 2019, by and between the Company and H.C.

Wainwright & Co.,

of the Registrant

of Independent Registered Public Accounting Firm

Certification

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

Certification

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

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

INDEX TO EXHIBITS

Where Located

Second Amended and Restated Guarantee dated August 2, 2017 by the Registrant in favor of Wells Fargo Bank, National Association, for and on behalf of the lenders

Credit Agreement dated September 15, 2017 between Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB

Amendment No.

1 to Credit Agreement and Waiver dated December 20, 2019 among Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB

Amendment No.

2 to Credit Agreement dated as of March 20, 2020 by and among Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB

Amendment No.

3 to Credit Agreement and Waiver dated as of December 18, 2020 by and among Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB

Amended and Restated Term Note dated December 20, 2019 by Illinois Corn Processing, LLC in favor of Compeer Financial, PCA

Second Amended and Restated Revolving Term Note dated December 18, 2020 by Illinois Corn Processing, LLC in favor of Compeer Financial, PCA

Illinois Future Advance Real Estate Mortgage dated September 15, 2017 by Illinois Corn Processing, LLC in favor of CoBank, ACB

Amendment to Illinois Future Advance Real Estate Mortgage dated December 20, 2019 by and between Illinois Corn Processing, LLC and Compeer Financial, PCA

Security Agreement dated September 15, 2017 by Illinois Corn Processing, LLC in favor of CoBank, ACB

INDEX TO EXHIBITS

Where Located

First Amendment to Security Agreement dated December 20, 2019 by and between Illinois Corn Processing, LLC and CoBank, ACB for the benefit of Compeer Financial, PCA

Guaranty by Illinois Corn Processing, LLC dated December 20, 2019 in favor of Compeer Financial, PCA and CoBank, ACB

First Amendment to Guaranty dated as of December 18, 2020 by Illinois Corn Processing, LLC in favor of Compeer Financial, PCA and CoBank, ACB

Pledge Agreement dated December 20, 2019 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and CoBank, ACB

Security Agreement dated March 20, 2020 by Illinois Corn Processing, LLC in favor of Cortland Products Corp.

Security Agreement effective as of March 20, 2020 by and between the Registrant and CoBank, ACB

Intercreditor Agreement dated as of March 20, 2020 by and among Cortland Products Corp., CoBank, ACB, the Registrant and the grantors named therein

Intercreditor Agreement dated as of March 20, 2020 between the Pekin Lenders and the ICP Lenders named therein

First Amendment to Intercreditor Agreement dated as of December 18, 2020 by and among the Pekin Lenders and the ICP Lenders named therein

Secured Promissory Note (Negotiable) dated April 15, 2020 in the amount of $8,580,000 by Pacific Aurora, LLC in favor of Pacific Ethanol Central, LLC

Secured Promissory Note (Non-Negotiable) dated April 15, 2020 in the amount of $7,920,000 by Pacific Aurora, LLC in favor of Pacific Ethanol Central, LLC

INDEX TO EXHIBITS

Where Located

Assignment of Notes and Deeds of Trust dated April 15, 2020 by Pacific Aurora, LLC and Pacific Ethanol Central, LLC in favor of CoBank, ACB

First Amendment to Assignment of Notes and Deeds of Trust dated as of December 18, 2020 by and between Pacific Ethanol Central, LLC and CoBank, ACB

Promissory Note dated April 29, 2020 in the amount of $5,973,138 by the Registrant in favor of Bank of America, NA

Promissory Note dated April 29, 2020 in the amount of $3,886,729 by the Registrant in favor of Bank of America, NA

Series A Warrant to Purchase Common Stock dated October 28, 2020 for 8,900,493 shares by and between the Registrant and CVI Investments, Inc.

Registration Rights Agreement dated October 28, 2020 by and between the Registrant and CVI Investments, Inc.

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Certification 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

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

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation

Inline XBRL Taxonomy Extension Definition

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase

Inline XBRL Taxonomy Extension Presentation

(#) A contract, compensatory

plan or arrangement to which a director or executive officer is a party or in which one

or more directors or executive officers are eligible to participate.

(*) Certain of the

agreements filed as exhibits contain representations and warranties made by the parties

The assertions embodied in such representations and warranties are not necessarily

assertions of fact, but a mechanism for the parties to allocate risk.

Accordingly, investors

should not rely on the representations and warranties as characterizations of the actual

state of facts or for any other purpose at the time they were made or otherwise.

Inline XBRL Taxonomy Extension Presentation Linkbase

(#) A contract, compensatory plan or arrangement to which a director or executive officer is a party or in which one or more directors

or executive officers are eligible to participate.

(*) Certain of the agreements filed as exhibits contain representations and warranties made by the parties thereto.

The assertions

embodied in such representations and warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate

Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of

facts or for any other purpose at the time they were made or otherwise.

Pursuant to the requirements

of Section 13 or 15(d) 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 on this 30 th day of March, 2020.

PACIFIC ETHANOL, INC.

President and Chief Executive

of Section 13 or 15(d) 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 on this 26 th day of March, 2021.

ALTO INGREDIENTS, INC.

/s/ MICHAEL D.

President and Chief Executive Officer

Pursuant to the requirements

1 unchanged sentence

and in the capacities and on the dates indicated.

/s/ WILLIAM L.

Chairman of the Board and Director

March 26, 2021

/s/ MICHAEL D.

President, Chief Executive Officer

(Principal Executive Officer) and Director

March 30, 2020

Chief Financial Officer (Principal

Financial and Accounting Officer)

(Principal Executive Officer), Chief Operating

Officer and Director

March 26, 2021

Chief Operating Officer and Director

Chief Financial Officer

(Principal Financial and Accounting Officer)

March 26, 2021

1 unchanged sentence

March 26, 2021

/s/ DOUGLAS L.

March 26, 2021

/s/ GILBERT E.

March 26, 2021

/s/ DIANNE S.

March 26, 2021

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

What changed 10-K

Item 9A. Controls and Procedures