What changed in this filing

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Item 9A. Controls and Procedures

2022-03-15 compared with 2021-03-26 · 1474 added, 1706 removed, 531 unchanged (86% of the section changed)

3 unchanged sentences

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

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, 2021 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.

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

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

(i) pertain to the maintenance of records

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions

of our assets;

(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;

(i) pertain to the maintenance of records that,

in reasonable detail, accurately and fairly reflect the transactions and dispositions of

(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

limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation

of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

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

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

of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s

internal controls.

Under the supervision

and with the participation of our management, including our principal executive officer and principal financial officer, we conducted

an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal

Control —

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 limitations,

internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness

to future periods are subject to the risk that controls may become inadequate because of changes in conditions, 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 of deficiencies,

in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s

annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

Under the supervision and with

the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation

of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation under the framework set forth in Internal Control —

Integrated Framework (2013), our management

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

Based on our evaluation

under the framework set forth in Internal Control — Integrated Framework (2013), our management concluded that our internal

control over financial reporting was effective as of December 31, 2021.

RSM US LLP, an independent

registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31,

That report is included in Part IV of this report.

Inherent Limitations on the Effectiveness

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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

realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake.

Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management

override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of

future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future

Projections of any evaluation of controls effectiveness to future periods are subject to risks.

Over time, controls

may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal

Control over Financial Reporting

There has been no change in our internal

control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently

completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over

financial reporting.

A control system,

no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls

must be considered relative to their costs.

Because of the inherent limitations in a cost-effective control system, no evaluation of

internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that

all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities

that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake.

Controls can also

be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be

no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Projections of any evaluation

of controls effectiveness to future periods are subject to risks.

Over time, controls may become inadequate because of changes in conditions

or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control

over Financial Reporting

There has been no change in our internal control

over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal

quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

Directors, Executive Officers and Corporate Governance.

The information under

the captions “Information about our Board of Directors, Board Committees and Related Matters”

appearing in the Proxy

Statement, is hereby incorporated by reference.

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate

The information under the captions

“Information about our Board of Directors, Board Committees and Related Matters” appearing in the Proxy Statement, is hereby

incorporated by reference.

Executive Compensation.

The information under the caption “Executive

Compensation and Related Information,”

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

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

the captions “Certain Relationships and Related Transactions”

and “Information about our Board of Directors,

Board Committees and Related Matters—Director Independence”

appearing in the Proxy Statement, is hereby incorporated

by reference.

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 “Executive

Compensation and Related Information,” appearing in the Proxy Statement, is hereby incorporated by reference.

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,” appearing in the

Proxy Statement, is hereby incorporated by reference.

Certain Relationships and Related Transactions,

and Director Independence.

The information under the captions

“Certain Relationships and Related Transactions” and “Information about our Board of Directors, Board Committees and

Related Matters—Director Independence” appearing in the Proxy Statement, is hereby incorporated by reference.

Principal Accountant 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 and 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.

Reference is made to the exhibits

listed on the Index to Exhibits.

Form 10-K Summary.

to Consolidated Financial Statements

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, 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, 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

To the Stockholders and the Board of Directors of

Alto Ingredients, Inc.

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4

Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-6

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 F-7

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 F-8

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-9

Notes to Consolidated Financial Statements F-10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Stockholders and the Board of Directors

Ingredients, Inc.

Opinion on the Financial Statements

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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.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations,

comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of

its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles

generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company

Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31,

2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission in 2013, and our report dated March 14, 2022, expressed an unqualified opinion on the effectiveness of the

Company's internal control over financial reporting.

Basis for 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.

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.

We are a public

accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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.

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.

Critical Audit Matters

Critical audit matters are matters arising from the current period

audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to

accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex

We determined that there are no critical audit matters.

/s/ RSM US LLP

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

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

Rochester, Minnesota

March 14, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Stockholders and the Board of Directors

Alto Ingredients,

Opinion on the Internal Control Over Financial Reporting

We have audited Alto Ingredients, Inc.

and subsidiaries’ (the

Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the

Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria

established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission in 2013.

We have also audited, in accordance with the standards of the Public

Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2021 and 2020, the related

consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in

the period ended December 31, 2021, and the related notes to the consolidated financial statements of the Company and our report dated

March 14, 2022, expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective

internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in

the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion

on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with

the 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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over

financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal

control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial

A company's internal control over financial reporting is a process

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.

A company's internal control over financial reporting

includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly

reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded

as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts

and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's

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

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject

to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or

procedures may deteriorate.

/s/ RSM US LLP

Rochester, Minnesota

March 14, 2022

ALTO INGREDIENTS, INC.

3 unchanged sentences

Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 378 and $ 260 , respectively

Prepaid inventory

Derivative assets

6 unchanged sentences

Notes receivable

Assets held-for-sale

Intangible asset

Total other assets

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

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

(in thousands, except shares and par value)

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable –

Accounts payable – trade

Accrued liabilities

Current portion –

operating leases

Current portion –

long-term debt, net

Current portion – operating leases

Current portion – long-term debt, net

Derivative liabilities

7 unchanged sentences

Commitments and contingencies (Notes 1, 7, 8, 9 and 14)

Stockholders’

Stockholders’ Equity:

Preferred stock, $ 0.001 par value;

14 unchanged sentences

Accumulated deficit

Total Alto Ingredients, Inc.

stockholders’

Noncontrolling interests

Total stockholders’

Total Liabilities and Stockholders’

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

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

9 unchanged sentences

Income (loss) from operations

Income from loan forgiveness

Interest expense, net

2 unchanged sentences

Other income, net

Loss before benefit for income taxes

Benefit for income taxes

Consolidated net loss

Income (loss) before provision (benefit) for income taxes

Provision (benefit) for income taxes

Consolidated net income (loss)

Net loss attributed to noncontrolling interests

Net loss attributed to Alto Ingredients, Inc.

Net income (loss) attributed to Alto Ingredients, Inc.

Preferred stock dividends

Loss available to common stockholders

Loss per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

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

Income allocated to participating securities

Income (loss) available to common stockholders

Income (loss) per share, basic

Income (loss) per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Years Ended December 31,

Consolidated net loss

Other comprehensive income (expense) –

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

Total comprehensive loss

Consolidated net income (loss)

$ ( 101,282 )

Other comprehensive income (expense) – net gain (loss) arising during the period on defined benefit pension plans

Total comprehensive income (loss)

Comprehensive loss attributed to noncontrolling interests

Comprehensive loss attributed to Alto Ingredients, Inc.

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

Comprehensive income (loss) attributed to Alto Ingredients, Inc.

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Preferred Stock

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

and Non-Voting

Other Comprehensive

December 31, 2018

$ ( 630,000 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Common stock issuances ATM

Common stock issuances senior notes

Common stock issuances senior

Pension plan adjustment

Preferred stock dividends

Balances, December

Stock-based compensation expense –

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

December 31, 2019

$ ( 720,214 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Common stock issuances

4 unchanged sentences

Preferred stock dividends

Balances, December

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

December 31, 2020

$ ( 736,598 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Common stock issuances

Pension plan adjustment

Preferred stock dividends

December 31, 2021

$ ( 691,781 )

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

(in thousands)

For the Years Ended

For the Years Ended December 31,

Operating Activities:

Consolidated net loss

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

Depreciation and amortization of intangibles

Consolidated net income (loss)

$ ( 101,282 )

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

Depreciation expense

Asset impairments

Income from loan forgiveness

Fair value adjustments

2 unchanged sentences

Inventory valuation

Gain on derivative instruments

Gains on derivative instruments

Amortization of deferred financing costs

5 unchanged sentences

Accounts receivable

Prepaid expenses and other assets

Prepaid inventory

Other current assets

Operating leases

4 unchanged sentences

Investing Activities:

Proceeds from sale of Stockton

Proceeds from sale of Madera

Proceeds from sale of interests in PAL

6 unchanged sentences

Proceeds from CARES Act loans

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

Payments on plant borrowings

4 unchanged sentences

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

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

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash

Supplemental Information:

Interest paid

Income tax refunds

Interest paid (net of capitalized interest)

Capitalized interest

Income tax (payments) refunds

Noncash financing and investing activities:

3 unchanged sentences

Accrued preferred stock dividends

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

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

1 unchanged sentence

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 specialty alcohols and essential ingredients.

Organization and Business

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

(“Alto Ingredients”), and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including

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

company (“Alto Nutrients”), Alto Op Co., a Delaware corporation (“Alto Op Co.”), Alto Pekin, LLC, a Delaware limited

liability company (“Alto Pekin”) and Alto ICP, LLC, a Delaware limited liability company (“ICP”), and the Company’s

production facilities in Oregon and Idaho.

As discussed in Note 2, on May 14, 2021, and November 4, 2021, the Company completed the sale

of its production facilities located in Madera and Stockton, California, respectively.

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.

the Company owned 73.93 % of Pacific Aurora and ACEC owned 26.07 % of Pacific Aurora.

As discussed 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

The Company is a leading 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 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:

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 two production facilities in 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 alcohol

production capacity of 350 million gallons per year and produces, on an annualized basis, nearly 1.2 million tons of essential ingredients

on a dry matter basis, such as dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial

animal feed and pet foods.

In addition, the Company sells alcohols acquired from other producers and markets fuel-grade ethanol produced

by third parties.

The Company focuses on four

Health, Home & Beauty ;

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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,

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.

and Renewable Fuels .

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

and cleaners.

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

as corn germ used for corn oils.

Products for Essential Ingredients markets include 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

As of December 31, 2021, all

of the Company’s production facilities were operating.

As market conditions change, the Company may increase, decrease or idle production

at one or more operating facilities or resume operations at any idled facility.

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 –

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

information is available.

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.

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

On January 14, 2022, the

Company acquired Eagle Alcohol Company LLC, a Missouri limited liability company (“Eagle Alcohol”).

Eagle Alcohol

specializes in break bulk distribution of specialty alcohols.

Eagle Alcohol purchases bulk alcohol from suppliers, including the

Then it stores, denatures, packages, and resells alcohol products in smaller sizes, including tank trucks, totes, and

drums, that garner a premium to bulk alcohols.

Eagle Alcohol delivers products to customers in the beverage, food, pharma, and

related-process industries via its own dedicated trucking fleet and common carrier.

Eagle Alcohol generated over $ 35 million in

revenues in 2021.

Eagle Alcohol is now a wholly-owned subsidiary of the Company.

See Note 16 for more details.

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.

Segments – A segment 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 information

is available.

The Company determines and discloses its segments in accordance with the Financial Accounting Standards Board’s (“FASB”)

Accounting Standards Codification (“ASC”) Section 280, Segment Reporting , which defines how to determine segments.

The Company 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”).

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

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.

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.

Restricted Cash – The Company’s

restricted cash comprises cash collateral balances held in derivative brokerage accounts.

Accounts Receivable and Allowance for Doubtful

Accounts – Trade accounts receivable are presented at original invoice amount, net of the allowance for doubtful accounts.

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 collateral.

Due to a limited

number of customers, the Company had significant concentrations of credit risk from sales as of December 31, 2021 and 2020, as described

The Company maintains an allowance for doubtful

accounts for balances that appear to have specific collection issues.

The collection process is based on the age of the invoice and requires

attempted contacts with the customer at specified intervals.

If, after a specified number of days, the Company has been unsuccessful in

its collection efforts, a bad debt allowance is recorded for the balance in question.

Delinquent accounts receivable are charged against

the allowance for doubtful accounts once uncollectibility has been determined.

The factors considered in reaching this determination are

the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer.

financial condition of a Company customer deteriorates, resulting in an impairment of ability to make payments, additional allowances

may be required.

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

receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined.

The factors considered

in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting

and negotiating with the customer.

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

ability to make payments, additional allowances may be required.

Of the accounts receivable balance, approximately

$35,839,000 and $63,736,000 at December 31, 2020 and 2019, respectively, were used as collateral under Kinergy’s operating

line of credit.

$ 63,929,000 and $ 35,839,000 at December 31, 2021 and 2020, respectively, were used as collateral under Kinergy’s operating line

The allowance for doubtful accounts was $ 378,000 and $ 260,000 as of December 31, 2021 and 2020, respectively.

Company recorded a bad debt expense of $245,000 and $27,000 for the years ended December 31, 2020 and 2019, respectively.

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

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.

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 recorded

a bad debt expense of $ 158,000 , $ 245,000 and $ 27,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company does

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

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.

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 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.

Years Ended December 31,

The Company had accounts receivable due from these

customers totaling $ 14,336,000 and $ 5,756,000 , representing 16 % and 13 % of total accounts receivable, as of December 31, 2021 and 2020,

respectively.

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:

Years Ended December 31,

As of December 31, 2021, approximately 47 % of

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

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

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

Inventories –

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.

balances consisted of the following (in thousands):

Inventories – Inventories

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

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

Inventory is net of valuation adjustments of $ 0 and

$ 1,033,000 as of December 31, 2021 and 2020, respectively.

Of the inventory balance, approximately $ 38,640,000 and $ 27,410,000 at December

31, 2021 and 2020, respectively, were used as collateral under Kinergy’s operating line of credit.

Inventory balances consisted

of the following (in thousands):

Finished goods

1 unchanged sentence

Raw materials

Carbon and RIN credits

Property and Equipment –

Property and equipment are stated at cost.

Depreciation is computed using the straight-line method over the following estimated

useful lives:

Property and Equipment – Property

and equipment are stated at cost.

Depreciation is computed using the straight-line method over the following estimated useful lives:

Facilities and plant equipment

10 – 25 years

Other equipment, vehicles and furniture

The cost of normal maintenance and repairs

is charged to operations as incurred.

The cost of normal maintenance and repairs 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.

Intangible Asset –

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

may have occurred.

If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is

recognized in an amount equal to that excess.

If the Company determines that an impairment charge is needed, the charge will be

recorded as an asset impairment in the consolidated statements of operations.

Leases –

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.

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 – The Company

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

If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an

amount equal to that excess.

If the Company determines that an impairment charge is needed, the charge will be recorded as an asset impairment

in the consolidated statements of operations.

The Company recorded a tradename valued at $ 2,678,000 in 2006 as part of its acquisition

of Kinergy, which is included in other noncurrent assets in the accompanying consolidated balance sheets.

The Company determined that

the Kinergy tradename has an indefinite life and, therefore, rather than being amortized, will be tested annually for impairment.

Company did not record any impairment of the Kinergy tradename for the years ended December 31, 2021, 2020 and 2019.

Leases – The Company 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 8 for further information.

1 unchanged sentence

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).

For derivatives designated as a cash flow hedge, the Company formally documents the hedge and assesses the effectiveness

with associated transactions.

The Company has designated and documented contracts for the physical delivery of commodity products

to and from counterparties as normal purchases and normal sales.

Revenue Recognition –

The Company recognizes revenue under ASC 606.

The provisions of ASC 606 include a five-step process by which an entity will determine

revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which an entity

expects to be entitled in exchange for those goods or services.

Derivative Instruments and Hedging Activities

– Derivative transactions, which can include exchange-traded futures contracts, options 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

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

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).

For derivatives designated

as a cash flow hedge, the Company formally documents the hedge and assesses the effectiveness with associated transactions.

has designated and documented contracts for the physical delivery of commodity products to and from counterparties as normal purchases

and normal sales.

Revenue Recognition – The

Company recognizes revenue under ASC 606.

The provisions of ASC 606 include a five-step process by which an entity will determine revenue

recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which an entity expects to

be entitled in exchange for those goods or services.

ASC 606 requires the Company to apply the following steps:

identify the contract with the customer;

(1) identify the contract

with the customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when, or as,

the Company satisfies the performance obligation.

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 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 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

controls the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling

the promise to provide the product, has inventory risk before the product has been transferred to a customer and has discretion

in establishing the price for the product.

When the Company is the principal, the Company controls the products before they are

transferred to the customer because the Company is primarily responsible for fulfilling the promise to provide the products, has

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

(3) determine the transaction price;

(4) allocate the transaction

price to the performance obligations in the contract;

and (5) recognize revenue when, or as, the Company satisfies the performance obligation.

The Company recognizes revenue primarily from

sales of alcohols and essential ingredients.

The Company has five production facilities from

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

Kinergy enters into back-to-back sales contracts with its customers

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

The Company recognizes revenue from sales 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 alcohols or essential ingredients over a contractual period of less than 12 months.

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

See Note 4 for the Company’s revenue

by type of contracts.

When the Company is the agent, the supplier controls

the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide

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

When the Company is the principal, the Company controls the products before they are transferred to the customer because

the Company is primarily responsible for fulfilling the promise to provide the products, has inventory risk before the product has been

transferred to a customer and has discretion in establishing the price for the product.

See Note 4 for

the Company’s revenue by type of contracts.

Shipping and Handling Costs –

The Company accounts for shipping and handling costs relating to contracts with customers as costs to fulfill its promise

to transfer its products.

Accordingly, the costs are classified as a component of cost of goods sold in the accompanying consolidated

statements of operations.

Selling Costs –

costs associated with the Company’s product sales are classified as a component of selling, general and administrative expenses

in the accompanying consolidated statements of operations.

The Company accounts for shipping and handling costs relating to contracts with customers as costs to fulfill its promise to transfer

its products.

Accordingly, the costs are classified as a component of cost of goods sold in the accompanying consolidated statements of

Selling Costs – Selling costs

associated with the Company’s product sales are classified as a component of selling, general and administrative expenses 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.

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 either cost of goods sold or selling, general and administrative expenses in

the consolidated statements of operations.

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

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.

– 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.

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.

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.

The Company’s assessment of assets held-for-use did not result in an impairment for the years

ended December 31, 2021 and 2019.

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

based on differences between financial reporting and tax basis of assets and liabilities, and are measured using enacted tax rates

and laws that are expected to be in effect when the differences reverse.

Valuation allowances are established when necessary to

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

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 rate method.

of deferred financing costs was approximately $ 778,000 , $ 1,394,000 and $ 511,000 for the years ended December 31, 2021, 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 $ 40,000 and $ 759,000 as of December 31, 2021 and 2020, respectively, and are recorded

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

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

on completion of an examination by a taxing authority if certain other conditions are satisfied.

Should the Company incur interest

and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and other income

(expense), net, respectively.

Deferred tax assets and liabilities are classified as noncurrent in the Company’s consolidated

balance sheets.

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

Provision for Income Taxes –

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

on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that

are expected to be in effect when the differences reverse.

Valuation allowances are established when necessary to 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.

An uncertain tax position is considered effectively settled on completion of an examination

by a taxing authority if certain other conditions are satisfied.

Should the Company incur interest and penalties relating to tax uncertainties,

such amounts would be classified as a component of interest expense and other income (expense), net, respectively.

Deferred tax assets

and liabilities are classified as noncurrent in the Company’s consolidated 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.

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 the

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

and are considered in

the calculation of income (loss) available to common stockholders in computing basic income (loss) per share.

Common stock equivalents

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

The following tables compute basic and

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

Ended December 31, 2020

and are considered in the calculation

of income (loss) available to common stockholders in computing basic income (loss) per share.

Common stock equivalents to preferred stock

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

ALTO INGREDIENTS, 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, 2021

Net income attributed to Alto Ingredients, Inc.

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

Dilutive securities

Diluted income per share:

Income available to common stockholders

Year Ended December 31, 2020

Net loss attributed to Alto Ingredients, Inc.

2 unchanged sentences

Loss available to common stockholders

Ended December 31, 2019

Year Ended December 31, 2019

Shares Denominator

Per-Share Amount

Net loss attributed to Alto Ingredients, Inc.

2 unchanged sentences

Loss available to common stockholders

There were an aggregate of 964,000 , 2,463,000

and 635,000 potentially dilutive shares from convertible securities outstanding as of December 31, 2021, 2020 and 2019, respectively.

These convertible securities were not considered in calculating diluted loss per common share for the years ended December 31, 2021, 2020

and 2019 as their effect would be anti-dilutive.

In addition, there were an aggregate of 8,900,500 , 5,031,000 and 136,000 weighted-average

antidilutive shares from outstanding out-of-the-money warrants.

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 –

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

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

value of the Company’s senior secured notes are recorded at fair value and are considered Level 2 fair value measurements.

The Company believes the carrying value of its notes receivable are not considered materially different than fair value due to

their recent issuances, and other long-term debt instruments 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.

Financial Instruments – The

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

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

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

the interest rates on these instruments are variable.

Employment-related Benefits –

Employment-related benefits associated with pensions and postretirement health care are expensed based on actuarial analysis.

The recognition of expense is affected by estimates made by management, such as discount rates used to value certain liabilities,

investment rates of return on plan assets, increases in future wage amounts and future health care costs.

Discount rates are determined

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

The recognition

of expense is affected by estimates made by management, such as discount rates used to value certain liabilities, investment rates of

return on plan assets, increases in future wage amounts and future health care costs.

Discount rates are determined based on a spot yield

curve that includes bonds with maturities that match the expected timing of 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.

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 –

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.

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, 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

Uncertainty – The impact of

the coronavirus pandemic has negatively impacted the demand for fuel-grade ethanol.

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 pandemic 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

pandemic and actions taken to mitigate the pandemic or its impact, among others.

Subsequent Events – 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.

Reclassifications – 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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications –

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.

ASSET SALES AND HELD-FOR-SALE CLASSIFICATION.

Pacific Aurora

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%.

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.

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

Interest payments are due quarterly beginning July 1, 2020 and

4 unchanged sentences

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.

As discussed in Note 16, on February 23, 2022, these notes were amended

and now mature on June 30, 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 2019,

2019, Pacific Aurora contributed $39.6 million and $163.5 million in net sales, $8.4 million and $43.4 million in pre-tax loss,

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

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

Pacific Aurora contributed $ 39.6 million and $ 163.5 million in net sales, $ 8.4 million and $ 43.4 million in pre-tax loss, and $ 2.2 million

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

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 in cash.

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 on sale of

assets in the accompanying consolidated statements of operations.

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,

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, California.

As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020.

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

analysis of these potential sales resulted in an aggregate asset impairment of $ 1.2 million and $ 22.3 million in the Company’s Other

production segment for the years ended December 31, 2021 and 2020, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 14, 2021, the Company closed the sale of

its Madera facility for total consideration of $ 28.3 million, comprised of $ 19.5 million in cash and $ 8.8 million in assumption of liabilities,

resulting in a net loss on sale of less than $ 0.1 million, included in gain on sale of assets in the Company’s consolidated statements

of operations.

All of the cash proceeds were used to repay a significant portion of the Company’s term debt and accrued interest.

On November 5, 2021, the Company closed the sale

of its Stockton facility for gross proceeds of $ 24.0 million in cash, resulting in a net gain on sale of $ 4.6 million, recorded in gain

on sale of assets in the Company’s consolidated statements of operations.

With the net cash proceeds, the Company repaid its parent

notes payable and the Alto Pekin and ICP loans in full.

For the year ended December 31, 2021, net sales attributed to the results

of operations for Stockton and Madera were $ 2.6 million and $ 0 , respectively.

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.

For the 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.

the year ended December 31, 2021, pre-tax loss attributed to the results of operations for Stockton and Madera was $ 2.8 million and $ 2.0

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.

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.

The above pre-tax results include asset impairments associated

with Stockton and Madera recorded for the year ended December 31, 2021 of $ 0 and $ 1.2 million and for the year ended December 31, 2020

were $ 17.9 million and $ 4.4 million, respectively.

During 2021, the Company agreed to sell certain assets of the Company’s

property and equipment in Canton, Illinois.

As a result, the Company determined the related long-lived asset groups should be classified

as held-for-sale at December 31, 2021.

The analysis of the potential sale resulted in an asset impairment of $ 1.9 million in the Company’s

Other production segment for the year ended December 31, 2021.

As of December 31, 2021, the Company recorded $ 1.0 million in assets held-for-sale

associated with this transaction.

For the years ended December 31, 2021, 2020 and 2019 there were no sales from Canton.

For the years

ended December 31, 2021, 2020 and 2019, pre-tax losses attributed to Canton were less than $ 1.0 million for each year.

INTERCOMPANY AGREEMENTS.

The Company, directly or through one of

its subsidiaries, has entered into the following management and marketing 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.

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.

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

Ingredients agreed to provide operational, 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.

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,

The AMAs have an initial term of one year and

automatic successive one year renewal periods.

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.

Alto Ingredients recorded revenues

of approximately $ 9,774,000 , $ 11,724,000 and $ 12,682,000 related to the AMAs in place for the years ended December 31, 2021, 2020 and

2019, respectively.

These amounts have been eliminated upon consolidation.

Ethanol Marketing

Agreements –

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

Ethanol Marketing Agreements

– 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 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.

Each of the 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 $ 4,496,000 , $ 4,275,000 and $ 7,900,800 related to the marketing agreements for the years ended December 31, 2021, 2020 and

2019, respectively.

1 unchanged sentence

Corn Procurement and Handling Agreements

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,

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.

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 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

Under these agreements, 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 $ 2,694,000 , $ 2,595,000 and $ 4,288,000

related to the corn procurement and handling agreements for the years ended December 31, 2021, 2020 and 2019, respectively.

These amounts

have been eliminated upon consolidation.

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

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Essential Ingredients

Marketing Agreements – Alto Nutrients entered into separate marketing agreements with each of the Company’s

production facilities (except for the Company’s Magic Valley facility), 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 oil.

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 $ 2,871,000 , $ 2,778,000 and $ 6,029,000 related to the marketing agreements for the years ended December 31, 2021, 2020

and 2019, respectively.

These amounts have been eliminated upon consolidation.

1 unchanged sentence

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.

(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 so 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 , $ 4,344,000 and $ 4,014,000

in management fees for the years ended December 31, 2021, 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

The marketing and distribution segment incurred

$ 3,480,000 in management fees for each of the years ended December 31, 2021, 2020 and 2019, respectively.

The Other production segment

incurred $ 1,950,000 , $ 3,893,000 and $ 5,188,000 in management fees for the years ended December 31, 2021, 2020 and 2019, respectively.

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.

During the normal course of business, the

segments do business with each other.

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

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 Pekin Campus production segment.

During the normal course of business, the segments

do business with each other.

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

For the year ended December 31, 2021, capital

expenditures incurred by the Pekin Campus segment and the Other production segment were approximately $ 14.3 million and $ 2.1 million,

respectively.

For the years ended December 31, 2020 and 2019, capital expenditures were 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,

Marketing and distribution:

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Pekin Campus production, recorded as gross:

3 unchanged sentences

Total Pekin Campus sales

Marketing and distribution:

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Other Production, recorded as gross:

6 unchanged sentences

Cost of goods sold:

Marketing and distribution

Pekin Campus production

Marketing and distribution

Other production

1 unchanged sentence

Cost of goods sold as reported

Income (loss) before benefit for income taxes:

Marketing and distribution

Income (loss) before provision (benefit)

for income taxes:

Pekin Campus production

Marketing and distribution

Other production

Corporate activities

Depreciation:

$ ( 101,302 )

Depreciation expense:

Pekin Campus production

1 unchanged sentence

Corporate activities

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest expense:

Marketing and distribution

Pekin Campus production

Marketing and distribution

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):

and distribution

Total assets:

Pekin Campus production

Marketing and distribution

Other production

Corporate assets

PROPERTY AND EQUIPMENT.

4 unchanged sentences

Accumulated depreciation

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.

Depreciation expense was $ 23,292,000 ,

$ 30,268,000 and $ 47,909,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

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

life and, therefore, rather than being amortized, will be tested annually for impairment.

The Company did not record any impairment

of the Kinergy tradename for the years ended December 31, 2020 and 2019.

The business and activities of the Company

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

The Company monitors and manages

these financial exposures as an integral part of its risk management program.

This program recognizes the unpredictability of financial

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

Commodity Risk –

Cash Flow Hedges –

The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility

in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects

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

contracts specify a floating or index-based price.

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

exposure to the potentially adverse effects of price volatility.

These derivatives may be designated and documented as cash flow

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

prices against the Company’s purchase and sales prices.

Ineffectiveness, which is defined as the degree to which the derivative

does not offset the underlying exposure, is recognized immediately in cost of goods sold.

For the years ended December 31, 2020

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

Commodity Risk –

Non-Designated

Hedges –

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

of $ 628,000 , $ 224,000 and $ 563,000 for the years ended December 31, 2021, 2020 and 2019, respectively, related to its capital investment

The business and activities of the Company expose

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

The Company monitors and manages these financial

exposures as an integral part of its risk management program.

This program recognizes the unpredictability of financial markets and seeks

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

Commodity Risk – Cash

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

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

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

or index-based price.

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

effects of price volatility.

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

assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase

and sales prices.

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

recognized immediately in cost of goods sold.

For the years ended December 31, 2021, 2020 and 2019, the Company did not designate any

of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges

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

futures contracts or options for those commodities.

These derivatives are not designated for hedge accounting treatment.

The changes in

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

The Company recognized

net gains of $ 21,619,000 , $ 14,780,000 and $ 555,000 as the change in the fair value of these contracts for the years ended December 31,

2021, 2020 and 2019, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Designated Derivative Instruments

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

balances, are as follows (in thousands):

As of December 31, 2021

3 unchanged sentences

Cash collateral balance

Other current assets

Restricted cash

Commodity contracts

6 unchanged sentences

Cash collateral balance

Other current assets

Restricted cash

Commodity contracts

2 unchanged sentences

The above amounts represent the gross balances

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

The classification and amounts of the Company’s

of the contracts;

however, the Company does have a right of offset with each of its derivative brokers, but its intent is to close out

positions individually, therefore, they are reported at gross.

The classification and amounts of the Company’s

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

Gains (Losses)

the Years Ended December 31,

Realized Gains (Losses)

For the Years Ended December 31,

Type of Instrument

Statements of Operations

Statements of Operations Location

Commodity contracts

Cost of goods sold

the Years Ended December 31,

Unrealized Gains (Losses)

For the Years Ended December 31,

Type of Instrument

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 –

Long-term borrowings are summarized as follows

(in thousands):

Kinergy line of credit

CARES Act loans

Parent notes payable

Less unamortized debt premium

Less unamortized debt financing costs

Less short-term portion

Long-term debt

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

to certain concentration reserves.

The line of credit matures on August 2,

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

The credit facility is subject to certain other sublimits, including inventory loan limits.

Interest accrues under the line of credit at a rate equal to (i) the three-month London Interbank Offered Rate (“LIBOR”),

plus (ii) a specified applicable margin ranging between 1.50% and 2.00%.

The applicable margin was 2.00%, for a total rate of 2.24%

at December 31, 2020.

The credit facility’s monthly unused line fee is an annual rate equal to 0.25% to 0.375% depending

on the average daily principal balance during the immediately preceding month.

Payments that may be made by Kinergy to the Company

as reimbursement for management and other services provided by the Company to Kinergy are limited under the terms of the credit

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

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

Pekin Credit Facilities

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

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, 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.

Interest accrues under the line

of credit at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging between

1.75% and 2.25%.

The applicable margin was 2.00%, for a total rate of 2.05% at December 31, 2021.

The credit facility’s monthly

unused line fee is an annual rate equal to 0.25% to 0.375% depending on the average daily principal balance during the immediately preceding

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

to Kinergy are limited under the terms of the credit facility to $1,500,000 per fiscal quarter.

The credit facility also includes the

accounts receivable of Alto Nutrients as additional collateral.

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, 2021, Kinergy had $ 25.4

million in unused borrowing availability under the credit facility.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

Pekin Loans –

On December 15, 2016, Alto Pekin entered into a credit agreement with 1 st Farm Credit Services, PCA and CoBank, ACB, (“CoBank”).

Under the terms of the agreement, Alto Pekin borrowed from 1 st Farm Credit Services $ 64.0 million under a term loan facility

that was to mature on August 20, 2021 and up to $ 32.0 million under a revolving term loan facility that was to mature on February 1, 2022 .

These loans were secured by a first-priority security interest in all of Alto Pekin’s assets.

On November 5, 2021, the Company

repaid in full the outstanding balances on these loans.

ICP Loans — On September 15,

2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into a credit agreement.

Under the terms of the agreement,

ICP borrowed from Compeer $ 24.0 million under a term loan facility that was to mature on September 20, 2021 , and up to $ 18.0 million under

a revolving term loan facility that was to mature on September 1, 2022 .

These loans were secured by a first-priority security interest

in all of ICP’s assets.

On November 5, 2021, the Company repaid in full

the outstanding balances on these loans.

Parent Notes Payable – 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 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 were secured by a first-priority security interest in all of the Company’s equity interests in Alto Op Co.

On May 14, 2021, with proceeds from the Company’s

sale of its Madera, California facility, the Company repaid $ 19.3 million of principal on the Notes, resulting in an aggregate remaining

balance of $ 0.7 million.

On November 5, 2021, the Company repaid the remaining

outstanding balance on the Notes.

CARES Act Loans – On 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.

Under the terms of

the loans, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.

In June 2021, the SBA

approved Alto Pekin’s forgiveness application for the full amount of $ 3.9 million.

In September 2021, the SBA approved Alto Ingredients’

forgiveness application for the full amount of $ 6.0 million.

As a result, the Company recognized income from loan forgiveness of $ 9.9

million for the year ended December 31, 2021.

The SBA may audit the loan forgiveness applications and further examine eligibility for

forgiveness, including the facts and circumstances existing at the time the loans were made.

The Company can provide no assurances that

any loan forgiven will not require repayment following an audit by the SBA.

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):

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;

The Company’s long-term debt matures as follows (in thousands):

The Company leases 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 years ended December 31, 2021 and 2020,

the Company’s weighted-average discount rate was 6.00 %.

Operating lease expense is recognized on a straight-line basis over the

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

not to reassess the lease classification for any expired or existing leases;

not to reassess initial direct

costs for any existing leases;

not to reassess initial direct costs for any existing

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

is a lease or contains a lease at inception.

The Company’s leases have remaining lease terms of approximately 1 year to 55

years, which may include options to extend the lease when it is reasonably certain the Company will exercise those options.

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the remaining

maturities of the Company’s operating lease liabilities, assuming all land lease extensions are taken, as of December 31,

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 is a

lease or contains a lease at inception.

The Company’s leases have remaining lease terms of approximately 1 year to 54 years, which

includes options to extend the lease when it is reasonably certain the Company will exercise those options.

For the year ended December

31, 2021, the weighted-average remaining lease terms of equipment and land-related leases were 3.08 years and 22.82 years, respectively.

The Company does not have lease arrangements with residual value guarantees, sale-leaseback terms or material restrictive covenants.

Company does not have any material finance lease obligations nor sublease agreements.

Leases consist of the following:

Classification

Right of use operating lease assets, net

Operating - Current

Current portion, operating leases

Operating - Noncurrent

Operating leases, net of current portion

The Components of lease costs were as follows

(in thousands):

Years Ended December 31,

Fixed lease cost

Variable lease cost

Net lease cost

The following table summarizes the remaining maturities

of the Company’s operating lease liabilities, assuming all land lease extensions are taken, as of December 31, 2021 (in thousands):

Less Interest

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENSION PLANS.

Retirement Plan - The Company

sponsors a defined benefit pension plan (the “Retirement Plan”) that is noncontributory, and covers only “grandfathered”

Retirement Plan - The Company sponsors

a defined benefit pension plan (the “Retirement Plan”) that is noncontributory, and covers only “grandfathered”

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):

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, 2021 and 2020 is presented below (dollars in thousands):

Changes in plan assets:

9 unchanged sentences

Accumulated other comprehensive loss

Components of net periodic benefit costs are as follows:

Interest cost

Expected return on plan assets

Net periodic benefit cost

Loss recognized in other comprehensive expense

Assumptions used in computation of benefit obligations:

2 unchanged sentences

Rate of compensation increase

Years Ended December 31,

Components of net periodic benefit costs are as follows:

Interest cost

Amortization of net loss

Expected return on plan assets

Net periodic benefit cost

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company expects to make contributions

in the year ending December 31, 2021 of approximately $0.8 million.

Net periodic benefit cost for 2021 is estimated at approximately

$0.2 million.

The following table summarizes the expected

benefit payments for the Company’s Retirement Plan for each of the next five fiscal years and in the aggregate for the five

fiscal years thereafter (in thousands):

See Note 15 for discussion of the Retirement Plan’s fair

value disclosures.

Historical and future expected returns

of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class.

overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return,

and the associated risk premium.

A weighted average rate was developed based on those overall rates and the target asset allocation

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 Retirement Plan’s investment guidelines.

Postretirement Plan - The

Company also sponsors a health care plan and life insurance plan (the “Postretirement Plan”) that provides postretirement

medical benefits and life insurance to certain “grandfathered”

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.

The Company expects to make contributions in the year ending December

31, 2022 of approximately $ 0.85 million.

Net periodic benefit cost for 2022 is estimated at less than $ 0.1 million.

The following table summarizes the expected benefit

payments for the Company’s Retirement Plan for each of the next five fiscal years and in the aggregate for the five fiscal years

thereafter (in thousands):

See Note 16 for discussion of the Retirement Plan’s fair value

Historical and future expected returns of multiple

asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class.

The overall rate for each

asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium.

A weighted-average rate was developed based on those overall rates and the target asset allocation 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 periodically reviews the actual asset allocation in light of these

targets 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 Retirement Plan’s investment guidelines.

Postretirement Plan - The Company

also sponsors a health care plan and life insurance plan (the “Postretirement Plan”) that provides postretirement medical

benefits and life insurance to certain “grandfathered” unionized employees at its Alto Pekin production facilities.

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.

2 unchanged sentences

and 2020 is presented below (dollars in thousands):

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):

Ended December 31,

Amounts recognized in the plan for the year:

Participant contributions

Benefits paid

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 (income) loss

Discount rate used in computation of benefit obligations

Years Ended December 31,

Components of net periodic benefit costs are as follows:

Interest cost

Amortization of prior service costs

Amortization of prior service cost

Net periodic benefit cost

Gain recognized in other comprehensive income

Discount rate used in computation of benefit obligations

The Company does not expect to recognize

any amortization of net actuarial loss during the year ended December 31, 2021.

Amounts recognized in the plan for the year:

Participant contributions

Benefits paid

The Company does not expect to recognize any amortization

of net actuarial loss during the year ended December 31, 2021.

The following table summarizes the expected 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, 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 2023, adjusted to a rate of 4.50% in 2032.

Assumed health care cost trend

rates have a significant effect on the amounts reported for health care plans.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the expected

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, 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.

The Company recorded a provision (benefit)

for income taxes as follows (in thousands):

Ended December 31,

The Company recorded a provision (benefit) for

income taxes as follows (in thousands):

Years Ended December 31,

Current provision (benefit)

Deferred provision (benefit)

A reconciliation of the differences between

the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations

is as follows:

Ended December 31,

A reconciliation of the differences between the

United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is

Years Ended December 31,

Statutory rate

1 unchanged sentence

Change in valuation allowance

Income from loan forgiveness

Fair value adjustments

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are provided using

the asset and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases

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):

Deferred income taxes are provided using the asset

and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases 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):

Deferred tax assets:

6 unchanged sentences

Allowance for doubtful accounts and other assets

Property and equipment

Total deferred tax assets

4 unchanged sentences

Net deferred tax liabilities, included in other liabilities

A portion of the Company’s net operating

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.

These limitations also apply to certain depreciation deductions associated with assets on

hand at the time of the ownership change and otherwise allowable during the five-year period following the ownership change.

the five-year limitation period lapsed in 2019, these disallowed deductions are reflected in property and equipment in the schedule

above but continue to be subject to the annual limitation that applies to the pre-change net operating losses.

Due to the limitation

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.

After reducing these net operating loss carryforwards for the amount which

will expire due to this limitation, the Company had remaining federal net operating loss carryforwards of approximately $227,817,000

and state net operating loss carryforwards of approximately $211,680,000 at December 31, 2020.

These net operating loss carryforwards

expire as follows (in thousands):

2021–2025

2026–2030

2031–2035

A portion of the Company’s net operating

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.

These limitations also apply to certain depreciation deductions associated with assets on hand at the time of

the ownership change and otherwise allowable during the five-year period following the ownership change.

As the five-year limitation period

lapsed in 2019, these disallowed deductions are reflected in property and equipment in the schedule above but continue to be subject to

the annual limitation that applies to the pre-change net operating losses.

Due to the limitation 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

After reducing these net operating loss carryforwards for the amount which will expire due to this limitation, the Company had

remaining federal net operating loss carryforwards of approximately $ 168,720,000 and state net operating loss carryforwards of approximately

$ 173,825,000 at December 31, 2021.

These net operating loss carryforwards expire as follows (in thousands):

2037 and after*

* Includes indefinite life federal

net operating losses of $77.5 million generated after 2017.

* Includes indefinite life federal net operating losses of $ 80.7

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

in any year, they may be carried forward to the next year until expiration.

These amounts may change if there are future additional

limitations on their utilization.

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

of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary

differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable

income and tax planning strategies in making this assessment.

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,

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.

Approximately $ 99,236,000 is available to utilize

against federal taxable income for 2022 .

To the extent amounts are not utilized in any

year, they may be carried forward to the next year until expiration.

These amounts may change if there are future additional limitations

on their utilization.

Federal capital loss of $107,699,000 may be carried

forward for 5 years and will expire in 2025.

State capital loss of $103,098,000 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 of deferred tax assets

is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in

making this assessment.

A valuation allowance was established in the amount

of $ 75,584,000 and $ 85,688,000 as of December 31, 2021 and 2020, 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, 2021, the Company

recorded a decrease in valuation allowance of $ 10,104,000 .

This was primarily related to utilization of net operating losses as the Company

generated taxable income for the year.

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 adjustments related

to derivatives in 2020.

For the year ended December 31, 2019, 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

The Company is subject

to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return

and tax returns in state jurisdictions below as “major”

These jurisdictions, along with the years still

open to audit under the applicable statutes of limitation, are as follows:

The Company is subject to income

tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns

in state jurisdictions below as “major” tax filings.

These jurisdictions, along with the years still open to audit under the

applicable statutes of limitation, are as follows:

South Carolina

4 unchanged sentences

PREFERRED STOCK.

The Company has 6,734,835 undesignated

shares of authorized and unissued preferred stock, which may be designated and issued in the future on the authority of the Company’s

Board of Directors.

The Company has 6,734,835 undesignated shares

of authorized and unissued preferred stock, which may be designated and issued in the future on the authority of the Company’s Board

of Directors.

As of December 31, 2021, the Company had the following designated classes of preferred stock:

Series A Preferred Stock –

The Company has authorized 1,684,375 shares of Series A Cumulative Redeemable Convertible Preferred Stock (“Series

A Preferred Stock”), with none outstanding at December 31, 2020 and 2019.

Shares of Series A Preferred Stock that are converted

into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock.

The Company has authorized 1,684,375 shares of Series A Cumulative Redeemable Convertible Preferred Stock (“Series A Preferred Stock”),

with none outstanding at December 31, 2021 and 2020.

Shares of Series A Preferred Stock that are converted 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

Stock would rank senior in liquidation and dividend preferences to the Company’s common stock.

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.

The holders of the Series A Preferred Stock would have conversion rights

initially equivalent to two shares of common stock for each share of Series A Preferred Stock, subject to customary antidilution

Certain specified issuances will not result in antidilution adjustments.

The shares of Series A Preferred Stock would

also be 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 A Preferred Stock of 25% or more.

Accrued but unpaid dividends on the Series A Preferred Stock are to be

paid in cash upon any conversion of the Series A Preferred Stock.

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,

unless holders of 66 2/3% of the Series A Preferred Stock vote affirmatively in favor of or otherwise consent to such transaction.

Upon any issuance, the Series A Preferred Stock

would rank senior in liquidation and dividend preferences to the Company’s common stock.

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.

The holders of the Series A Preferred Stock would have conversion rights initially equivalent to

two shares of common stock for each share of Series A Preferred Stock, subject to customary antidilution adjustments.

Certain specified

issuances will not result in antidilution adjustments.

The shares of Series A Preferred Stock would also be 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 A Preferred Stock of

25 % or more.

Accrued but unpaid dividends on the Series A Preferred Stock are to be paid in cash upon any conversion of the Series A Preferred

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, 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, 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

price per share of the Series B Preferred Stock;

however, subject to the provisions of the Letter Agreement described below, such

dividends may, at the option of the Company, be paid in additional shares of Series B Preferred Stock based initially on the liquidation

value of the Series B Preferred Stock.

In addition to the quarterly cumulative dividends, holders of the Series B Preferred Stock

are entitled to participate in any common stock dividends declared by the Company to its common stockholders.

The holders of Series

B Preferred Stock have a liquidation preference over the holders of the Company’s common stock initially equivalent to $19.50

per share of the Series B Preferred Stock plus any accrued and unpaid dividends on the Series B Preferred Stock.

A liquidation

will be deemed to occur upon the happening of customary events, including the transfer of all or substantially all of the capital

stock or assets of the Company or a merger, consolidation, share exchange, reorganization or other transaction or series of related

transaction, unless holders of 66 2/3% of the Series B Preferred Stock vote affirmatively in favor of or otherwise consent that

such transaction shall not be treated as a liquidation.

The Company believes that such liquidation events are within its control

and therefore has classified the Series B Preferred Stock in stockholders’

As of December 31, 2020,

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 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.

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, 2021 and 2020.

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 price per share of

the Series B Preferred Stock;

however, subject to the provisions of the Letter Agreement described below, such dividends may, at the option

of the Company, be paid in additional shares of Series B Preferred Stock based initially on the liquidation value of the Series B Preferred

In addition to the quarterly cumulative dividends, holders of the Series B Preferred Stock are entitled to participate in any common

stock dividends declared by the Company to its common stockholders.

The holders of Series B Preferred Stock have a liquidation preference

over the holders of the Company’s common stock initially equivalent to $ 19.50 per share of the Series B Preferred Stock plus any

accrued and unpaid dividends on the Series B Preferred Stock.

A liquidation will be deemed to occur upon the happening of customary events,

including the transfer of all or substantially all of the capital stock or assets of the Company or a merger, consolidation, share exchange,

reorganization or other transaction or series of related transaction, unless holders of 66 2/3% of the Series B Preferred Stock vote affirmatively

in favor of or otherwise consent that such transaction shall not be treated as a liquidation.

The Company believes that such liquidation

events are within its control and therefore has classified the Series B Preferred Stock in stockholders’ equity .

As of December 31, 2021, 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 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The holders of Series

B Preferred Stock vote together as a single class with the holders of the Company’s common stock on all actions to be taken

by the Company’s stockholders.

Each share of Series B Preferred Stock entitles the holder to approximately 0.03 votes per

share on all matters to be voted on by the stockholders of the Company.

Notwithstanding the foregoing, the holders of Series B

Preferred Stock are afforded numerous customary protective provisions with respect to certain actions that may only be approved

by holders of a majority of the shares of Series B Preferred Stock.

In 2008, the Company

entered into Letter Agreements with Lyles United LLC (“Lyles United”) and other purchasers under which the Company

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.

The holders of Series B Preferred

Stock vote together as a single class with the holders of the Company’s common stock on all actions to be taken by the Company’s

stockholders.

Each share of Series B Preferred Stock entitles the holder to approximately 0.03 votes per share on all matters to be voted

on by the stockholders of the Company.

Notwithstanding the foregoing, the holders of Series B Preferred Stock are afforded numerous customary

protective provisions with respect to certain actions that may only be approved by holders of a majority of the shares of Series B Preferred

In 2008, the Company entered

into Letter Agreements with Lyles United LLC (“Lyles United”) and other purchasers under which the Company 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.

On or about December 19, 2019,

19, 2019, the Company and the holders of its Series B Preferred Stock entered into letter agreements under which the holders agreed

that until the earlier of (i) the Company’s repayment of its obligations in respect of its senior secured notes and thereafter

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 (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 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 and the holders of its Series B Preferred Stock entered into letter agreements under which the holders agreed that until the

earlier of (i) the Company’s repayment of its obligations in respect of its senior secured notes and thereafter 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 (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.

Cumulative dividends on the Series B Preferred Stock continued

to accrue during the Waiver Period and remained owing to the holders of the Series B Preferred Stock.

The letter agreement expired in

December 2021.

As a result, the Company paid all accrued and unpaid Series B Preferred Stock dividends and resumed quarterly dividend

payments on its Series B Preferred Stock on December 31, 2021.

Registration Rights Agreement

– In connection with the sale of its Series B Preferred Stock, the Company entered into a registration rights agreement with Lyles

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

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.

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.

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 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.

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.

ALTO INGREDIENTS, INC.

1 unchanged sentence

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

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’ equity and as such, the Company recorded them

as a liability at fair value.

These warrants were initially valued at $ 977,000 as of December 31, 2019.

Until they were exercised, the

Company revalued them at each reporting period.

In August 2020, these warrants were fully exercised for $ 1.00 per share.

See Note 15 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.

2020, these warrants were fully exercised.

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.

See Note 15 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 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, or April 28, 2022.

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 15 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.

of common stock, pre-funded warrants and warrants were 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):

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes warrant activity

for the years ended December 31, 2021, 2020 and 2019 (number of shares in thousands):

Exercise Price

Balance at December 31, 2018

6 unchanged sentences

Balance at December 31, 2020

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonvoting Common Stock –

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’

Balance at December 31, 2021

Nonvoting Common Stock – In

2015, the Company issued nonvoting common stock convertible at a holder’s election into voting common stock.

As of December 31,

2021, an aggregate of 3,539,236 shares of nonvoting common stock had been converted into an equal number of shares of the Company’s

voting common stock.

As of December 31, 2021, 896 shares of nonvoting common stock were outstanding.

At-the-Market Program –

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 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.

At-the-Market Program – 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 Stock Market, in block transactions,

or as otherwise agreed 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.

2 unchanged sentences

2006 Stock Incentive Plan –

The 2006 Stock Incentive Plan authorized the issuance of incentive stock options (“ISOs”) and non-qualified

stock options (“NQOs”), restricted stock, restricted stock units, stock appreciation rights, direct stock issuances

and other stock-based awards to the Company’s officers, directors or key employees or to consultants that do business with

the Company for up to an aggregate of 1,715,000 shares of common stock.

In June 2016, the 2006 Stock Incentive plan was terminated,

except to the extent of issued and outstanding unvested stock awards and options.

The 2006 Stock Incentive Plan authorized the issuance of incentive stock options (“ISOs”) and non-qualified stock options

(“NQOs”), restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based

awards to the Company’s officers, directors or key employees or to consultants that do business with the Company for up to an aggregate

of 1,715,000 shares of common stock.

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 –

On June 16, 2016, the Company’s shareholders approved the 2016 Stock Incentive Plan, which authorizes the issuance

of ISOs, NQOs, restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based

awards to the Company’s officers, directors or key employees or to consultants that do business with the Company initially

for up to an aggregate of 1,150,000 shares of common stock.

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 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.

On June 16, 2016, the Company’s shareholders approved the 2016 Stock Incentive Plan, which authorizes the issuance of ISOs, NQOs,

restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based awards to the Company’s

officers, directors or key employees or to consultants that do business with the Company initially for up to an aggregate of 1,150,000

shares of common stock.

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 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

Stock Options –

of the status of Company’s stock option plans as of December 31, 2020 and 2019 and of changes in options outstanding under

the Company’s plans during those years are as follows (number of shares in thousands):

Ended December 31,

Exercise Price

Stock Options – Summaries

of the status of Company’s stock option plans as of December 31, 2021 and 2020 and of changes in options outstanding under the Company’s

plans during those years are as follows (number of shares in thousands):

Years Ended December 31,

Outstanding at beginning of year

Options exercised

Options expired

Outstanding at end of year

2 unchanged sentences

2021 were as follows (number of shares in thousands):

The aggregate intrinsic value of the options

outstanding was $262,000 and $0 as of December 31, 2020 and 2019, respectively.

Options Outstanding

Options Exercisable

The aggregate intrinsic value of the options outstanding

was $ 79,000 , $ 262,000 and $ 0 as of December 31, 2021, 2020 and 2019, respectively.

Restricted Stock

2 unchanged sentences

Unvested at December 31, 2020

Unvested at December 31, 2021

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of the common stock at vesting

aggregated $ 8,810,000 , $ 1,639,000 and $ 599,000 for the years ended December 31, 2021, 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

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,

Years Ended December 31,

Non-employees

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 $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.

Employee grants typically have a two or three-year

vesting schedule, while non-employee grants have a one-year vesting schedule.

At December 31, 2021, the total compensation expense related

to unvested awards which had not been recognized was $ 3,036,000 and the associated weighted-average period over which the compensation

expense attributable to those unvested awards will be recognized was approximately 0.61 years.

COMMITMENTS AND CONTINGENCIES.

Commitments –

The following

Commitments – The following

is a description of significant commitments at December 31, 2021:

Sales Commitments –

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, 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, 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 .

Contingencies –

following is a description of significant contingencies at December 31, 2020:

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.

The Company has evaluated its pending cases

and has not recorded a litigation contingency liability with respect to the cases.

Sales Commitments – At December

31, 2021, the Company had entered into sales contracts with its major customers to sell certain quantities of alcohol and essential ingredients.

The Company had open alcohol indexed-price contracts for 155,326,000 gallons as of December 31, 2021 and open fixed-price alcohol sales

contracts totaling $ 205,701,000 as of December 31, 2021.

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

$ 18,758,000 and open indexed-price sales contracts of essential ingredients for 5,054,000 tons as of December 31, 2021.

These sales contracts

are scheduled for completion over the next twelve months.

Purchase Commitments – At

December 31, 2021, the Company had indexed-price purchase contracts to purchase 62,748,000 gallons of alcohol and fixed-price purchase

contracts to purchase $ 153,986,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 52,022,000

of corn from its suppliers as of December 31, 2021.

The Company had fixed-price purchase contracts for natural gas totaling $ 18,300,000

and indexed-price purchase contracts for natural gas totaling 3,900,000 MMBTU.

The Company also had future commitments for certain capital

projects totaling $ 19,400,000 .

These purchase commitments are scheduled to be satisfied through mid-2022.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingencies – The following

is a description of significant contingencies at December 31, 2021:

Litigation – The Company is

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

employee-related matters, and others.

When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss

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.

FAIR VALUE MEASUREMENTS.

The fair value hierarchy prioritizes the

inputs used in valuation techniques into three levels, as follows:

● Level 1 –

Observable inputs –

unadjusted quoted prices in active markets for identical

assets and liabilities;

● Level 2 –

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

for the asset or liability through corroboration with market data;

● Level 3 –

Unobservable inputs –

includes amounts derived from valuation models where

one or more significant inputs are unobservable.

For fair value measurements using significant unobservable inputs, a description

of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the

prior reporting period.

The fair value hierarchy prioritizes the inputs

used in valuation techniques into three levels, as follows:

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

and liabilities;

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

the asset or liability through corroboration with market data;

● Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or

more significant inputs are unobservable.

For fair value measurements using significant unobservable inputs, a description of the inputs

and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

Pooled separate accounts –

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

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

Each pooled separate account provides

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

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

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.

Long-Lived Assets Held-for-Sale

1 unchanged sentence

31, 2021 and 2020 of $ 1,000,000 and $ 58,295,000 , 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.

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):

– 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):

Original Issuance

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.

The changes in the Company’s fair value of its Level 3 inputs

with respect to its warrants were as follows (in thousands):

The assumptions used and related fair value for

these warrants as of December 31, 2019 were as follows (fair value dollars in thousands):

Original Issuance

Warrants issued in Equity Offering

– The Company issued pre-funded warrants and other warrants with exercise prices of $ 0.001 and $ 9.757 , respectively.

valued these warrants upon issuance using the Binomial valuation methodology.

On November 16, 2020, the pre-funded warrants were exercised,

and as a result, were revalued immediately prior to their exercise.

Further, the 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.

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 2020 offering

Exercise of warrants/reclass to equity

Adjustments to fair value for the period

Exercise of warrants/reclass to equity in 2020

Adjustments to fair value for 2020

Balance, December 31, 2021

Other Derivative Instruments

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

The fair values of the commodity positions

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes recurring

and nonrecurring fair value measurements by level at December 31, 2020 (in thousands):

Other Derivative Instruments –

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

The fair values of the commodity positions are based

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

The following table summarizes recurring and nonrecurring

fair value measurements by level at December 31, 2021 (in thousands):

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1) (pooled separate accounts):

Defined benefit plan assets(1)

(pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

The following table summarizes recurring

and nonrecurring fair value measurements by level at December 31, 2019 (in thousands):

Derivative financial instruments

The following table summarizes recurring and nonrecurring

fair value measurements by level at December 31, 2020 (in thousands):

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1) (pooled separate accounts):

Defined benefit plan assets(1)

(pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

Derivative financial instruments

(1) See Note 9 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.

(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.

(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

PARENT COMPANY FINANCIALS.

Restricted Net Assets –

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:

Cash and cash equivalents

Receivables from subsidiaries

Other current assets

Total current assets

Property and equipment, net

Other Assets:

Investments in subsidiaries

Right of use lease assets

Alto West LLC receivable

Total other assets

Current Liabilities:

Accounts payable and accrued liabilities

Accrued Alto Op Co.

Current portion of long-term debt

Other current liabilities

Total current liabilities

Long-term debt, net

Other liabilities

Total Liabilities

Stockholders’

Preferred stock

Common and non-voting common stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Alto Ingredients, Inc.

stockholders’

Total Liabilities and Stockholders’

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management fees from subsidiaries

Selling, general and administrative expenses

Loss from operations

Fair value adjustments

Loss on debt extinguishment

Interest income

Interest expense

Other expense, net

Loss before benefit for income taxes

Benefit for income taxes

Loss before equity in earnings of subsidiaries

Equity in income (losses) of subsidiaries

Consolidated net loss

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended

Operating Activities:

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

Amortization of debt discounts

Changes in operating assets and liabilities:

Accounts payable and accrued expenses

Accounts receivable with subsidiaries

Accounts payable with subsidiaries

Net cash provided by (used in) operating activities

Investing Activities:

Additions to property and equipment

Investments in subsidiaries

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 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

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

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

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

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

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

securities of foreign companies including emerging markets.

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

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

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

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

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.

SUBSEQUENT EVENTS.

Acquisition of Eagle Alcohol

– On January 14, 2022, Alto Ingredients, Inc.

purchased 100 %

of the membership interests of Eagle Alcohol.

The purchase price was $ 14.0 million in cash plus an estimated net working capital adjustment

of $ 1.3 million in cash.

The selling members of Eagle Alcohol are eligible to receive up to an additional $ 14.0 million of contingent

consideration, payable through a combination of $ 9.0 million in cash over the next three years and an aggregate of $ 5.0 million in the

Company’s common stock on the fourth and fifth year anniversaries of the closing date, subject to the satisfaction of certain conditions,

including continued employment with the Company.

Eagle Alcohol specializes in break bulk distribution of specialty alcohols.

Eagle Alcohol purchases bulk alcohol from suppliers, including the Company.

Then it stores, denatures, packages, and resells alcohol products

in smaller sizes, including tank trucks, totes, and drums, that garner a premium to bulk alcohols.

Eagle Alcohol delivers products to

customers in the beverage, food, pharma, and related-process industries via its own dedicated trucking fleet and common carrier.

The acquisition

will provide the Company further vertical integration and reach new markets in the specialty alcohol industry.

Eagle Alcohol’s unaudited

results for 2021 generated $ 35.7 million in net sales and $ 3.6 million in pre-tax income.

Assuming the acquisition had closed on January

1, 2021, the combined consolidated financials of the Company, on a pro forma unaudited basis, excluding any intangible amortization,

would have resulted in net sales of $ 1,243.6 million, pre-tax income of $ 51.2 million, and diluted earnings per share of $ 0.66 .

The allocation of the estimated purchase price

has not been completed.

Preliminarily, the Company estimates acquired tangible assets of approximately $ 8.6 million, acquired intangible

assets, including any goodwill, of approximately $ 12.8 million and liabilities of approximately $ 6.1 million.

The Company expects to recognize certain identifiable intangible assets

with respect to customers and tradename, which is ongoing and an estimate cannot be provided.

In addition, a final valuation may include

either an asset or liability associated with any material out-of-market contract positions.

The actual determination of the purchase price allocation on the closing

date will be based on the final net tangible and intangible assets of Eagle Alcohol as of January 14, 2022, based on completion of the

valuation of the fair value of such net assets.

The Company anticipates that the ultimate purchase price allocation of balance sheet amounts

such as current assets and liabilities, property and equipment, intangible assets and long-term assets and liabilities will differ from

the preliminary assessment noted above, including any income tax impact.

Any changes to the initial estimates of the fair value of the

acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated

to goodwill if net assets acquired are less than the purchase price.

If net assets acquired exceed the purchase price, the residual amount

will result in a bargain purchase gain.

Amendments to Notes Receivable –

On February 23, 2022, the Company settled certain post-closing indemnification

claims with ACEC, amending the Company’s notes receivable with ACEC.

These amendments reduced the overall principal balance by $ 1.6

million and accelerated the maturity dates of the notes to June 30, 2022.

INDEX TO EXHIBITS

Where Located

Asset Purchase Agreement dated April 23, 2021 by and among the Registrant, Pacific Ethanol Madera LLC and Seaboard Energy California, LLC

First Amendment to Asset Purchase Agreement dated July 30, 2021 by and among the Registrant, Pacific Ethanol Madera LLC and Seaboard Energy California, LLC

Asset Purchase Agreement dated November 5, 2021 by and among the Registrant, Pacific Ethanol Stockton LLC and Pelican Acquisition LLC

Certificate of Incorporation

11 unchanged sentences

Form of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan#

Where Located

Form of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan#

2 unchanged sentences

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.

Employment Agreement dated February 1, 2022 between the Registrant and Auste M.

Form of Indemnity Agreement between the Registrant and each of its Executive Officers and Directors#

6 unchanged sentences

Koehler and Thomas D.

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

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.

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

Where Located

Amendment No.

7 unchanged sentences

Products, LLC, the parties thereto from time to time as lenders and Wells Fargo Bank, National Association

INDEX TO EXHIBITS

Where Located

Waiver, Consent and Amendment No.

4 to Second Amended and Restated Credit Agreement dated March 8, 2021 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association

Waiver, Consent, and Amendment No.

5 to Second Amended and Restated Credit Agreement dated June 10, 2021 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association

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.

Where Located

Registration Rights Agreement dated October 28, 2020 by and between the Registrant and CVI Investments, Inc.

11 unchanged sentences

Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

(#) A contract, compensatory plan or arrangement to which a director or executive officer is a party or in which one or more directors

1 unchanged sentence

(*) 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.

The assertions embodied

in such representations and warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate risk.

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 26 th day of March, 2021.

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 14 th day of March, 2022.

ALTO INGREDIENTS, INC.

2 unchanged sentences

Pursuant to the requirements

of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant

and in the capacities and on the dates indicated.

of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in

the capacities and on the dates indicated.

/s/ WILLIAM L.

Chairman of the Board and Director

March 26, 2021

of the Board and Director

/s/ MICHAEL D.

President, Chief Executive Officer

(Principal Executive Officer), Chief Operating

Officer and Director

March 26, 2021

Chief Financial Officer

(Principal Financial and Accounting Officer)

March 26, 2021

(Principal Executive Officer), Chief Operating Officer

Chief Financial Officer (Principal

Financial and Accounting Officer)

/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