What changed in this filing

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Item 9A. Controls and Procedures

2023-03-14 compared with 2022-03-15 · 696 added, 575 removed, 1430 unchanged (47% of the section changed)

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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.

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,

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.

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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

(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.

(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;

(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,

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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.

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

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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.

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

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Other Information.

Disclosure Regarding Foreign Jurisdictions

that Prevent Inspections.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate

Directors, Executive Officers and Corporate Governance.

The information under the captions

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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.

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

The information under the captions “Security

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Proxy Statement, is hereby incorporated by reference.

Certain Relationships and Related Transactions,

and Director Independence.

Certain Relationships and Related Transactions, and Director Independence.

The information under the captions

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Stockholders and the Board of Directors

Ingredients, Inc.

To the Stockholders and the Board of Directors of Alto Ingredients,

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets

of Alto Ingredients, Inc.

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

We have audited the accompanying consolidated balance sheets of Alto

Ingredients, Inc.

and its subsidiaries (the Company) as of December 31, 2022 and 2021, 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, 2022, and

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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

present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its

operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles

generally accepted in the United States of America.

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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.

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 and that:

(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 critical audit matters 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.

Evaluation of indicators of long-lived asset impairment

As described in Note 1 to the financial statements, the Company assesses

the impairment of long-lived assets, including property and equipment, when events or changes in circumstances indicate that the fair

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

The Company’s assessment did not result in an impairment for the year ended

December 31, 2022.

We identified the evaluation of impairment indicators for long-lived

assets as a critical audit matter because of the significant assumptions management makes when determining whether events or changes in

circumstances have occurred indicating that the carrying amounts of property and equipment may not be recoverable.

This required a high

degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators.

Our audit procedures related to the assessment of long-lived assets

for possible indications of impairment included the following, among others:

● We obtained an understanding of management’s process and internal controls over management’s evaluation of potential indicators of

impairment and tested the operating effectiveness of the controls

● We obtained management’s analysis of potential indicators of impairment and evaluated management’s analysis by:

o Agreeing current period operating profits or losses for all

identifiable asset groups to respective trial balances

o For asset groups in a current period loss, compared the current

period operating loss to historical operating profits or losses

o Prepared an independent expectation of the underlying fair

value for two identified asset groups that had both current period and historical operating losses by:

o Comparing the sales price per nameplate production gallons

to the carrying value of the asset groups

o Evaluating publicly available information related to sales

of comparable production facilities

Reading board of directors meeting minutes, press releases, and publicly available information for indications of significant changes

in the matter of the use of the asset groups

/s/ RSM US LLP

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Stockholders and the Board of Directors

Alto Ingredients,

To the Stockholders and the Board of Directors of 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 audited Alto Ingredients, Inc’s (the Company) internal

control over financial reporting as of December 31, 2022, 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, 2022, 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

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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.

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

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Restricted cash

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

Derivative assets

Assets held-for-sale

Accounts receivable, net of allowance for credit losses of $ 105 and $ 378 , respectively

Derivative instruments

Other current assets

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Right of use operating lease assets, net

Notes receivable

Notes receivable, noncurrent

Intangible assets, net

Total other assets

The 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.

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Current portion – operating leases

Current portion – long-term debt, net

Derivative liabilities

Liabilities held-for-sale

Derivative instruments

Other current liabilities

Total current liabilities

Long-term debt, net of current portion

Long-term debt, net

Operating leases, net of current portion

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Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Accumulated deficit

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Total Liabilities and Stockholders’ Equity

The 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.

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Gain on litigation settlement

Gain on sale of assets

Gain (loss) on sale (disposal) of assets

Asset impairments

Income (loss) from operations

Income from cash grant

Income from loan forgiveness

Interest expense, net

Loss on debt extinguishment

Fair value adjustments

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Weighted-average shares outstanding, diluted

The 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.

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Consolidated net income (loss)

$ ( 101,282 )

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

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

The 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.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands)

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and Non-Voting

Other Comprehensive

December 31, 2018

Comprehensive

Balances, December 31, 2019

$ ( 720,214 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Restricted stock issued to employees and directors, net of cancellations and tax

Common stock issuances

Warrant exercises

Common stock issuances ATM

Common stock issuances senior

Sale of interests in PAL

Pension plan adjustment

Preferred stock dividends

December 31, 2019

Balances, December 31, 2020

$ ( 736,598 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Restricted stock issued to employees and directors, net of cancellations and tax

Common stock issuances

Warrant exercises

Common stock issuances ATM

Sale of interests in PAL

Pension plan adjustment

Preferred stock dividends

December 31, 2020

Balances, December 31, 2021

$ ( 691,781 )

Stock-based compensation

Restricted stock issued to

employees and directors, net of cancellations and tax

Common stock issuances

Restricted stock issued to employees and directors, net of cancellations and tax

Shares issued for Eagle

Shares issued to Orion

Stock repurchases

Pension plan adjustment

Preferred stock dividends

December 31, 2021

Balances, December 31, 2022

$ ( 734,643 )

The 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.

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Consolidated net income (loss)

$ ( 101,282 )

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

Depreciation expense

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

Depreciation and amortization of intangibles

Asset impairments

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Fair value adjustments

Gain on sale of assets

Loss on debt extinguishment

(Gain) loss on (sale) disposal of assets

Inventory valuation

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Noncash compensation

Bad debt expense

Bad debt expense (recovery)

Interest expense added to senior notes

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Accounts payable and accrued expenses

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing Activities:

Proceeds from principal payments on notes receivable

Purchase of Eagle Alcohol, net of cash acquired

Proceeds from sale of Stockton

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Financing Activities:

Net proceeds from term loan

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

Debt issuance costs

Preferred stock dividend payments

Stock repurchases

Proceeds from issuances of common stock and warrants

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Proceeds from CARES Act loans

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

Payments on plant borrowings

Payments on senior notes

Preferred stock dividend payments

Proceeds from CoGen contract amendment

Debt issuance costs

Net cash provided by (used in) financing activities

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Cash, cash equivalents and restricted cash at end of period

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

Reconciliation of total cash,

cash equivalents and restricted cash:

and cash equivalents

Restricted cash

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Noncash financing and investing activities:

Initial right of use assets and liabilities recorded under ASC 842

Issuance of common stock for senior note amendment

Issuance of warrants for senior note amendment

Accrued preferred stock dividends

The 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.

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

As discussed in Note 2, 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 Company.

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

garner a premium price to bulk alcohols.

Eagle Alcohol delivers products to customers in the beverage, food, industrial and related-process

industries via its own dedicated trucking fleet and common carrier.

Beginning January 14, 2022, Eagle Alcohol is a wholly-owned subsidiary

of the Company.

On December 15, 2016, the Company and Aurora Cooperative

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The Company is a leading producer

and marketer of specialty alcohols and essential ingredients.

and distributor 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 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.

production facilities in Pekin, Illinois are located in the heart of the Corn Belt.

The Company’s two production facilities in Oregon

and Idaho are located in close proximity to both feed and fuel-grade ethanol customers.

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

production capacity of 350 million gallons per year and produces, on an annualized basis, over 1.6 million tons of essential ingredients,

such as dried yeast, corn gluten meal, corn gluten feed, corn germ, and distillers grains and liquid feed used in commercial animal feed

and pet foods.

In addition, the Company markets and distributes fuel-grade ethanol produced

by third parties.

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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.

Products for Essential Ingredients markets include dried yeast, corn gluten meal, corn gluten feed, corn

germ, and distillers grains and liquid feed 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 and biodiesel fuels.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

For all of 2022, all of the

Company’s production facilities were operating.

On January 1, 2023, the Company temporarily hot-idled its Magic Valley

production facility due to extreme natural gas prices, other unfavorable market conditions and to facilitate the installation of

its new high protein systems.

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

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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”).

and merchant trading for Company-produced specialty alcohols, fuel-grade ethanol and essential ingredients, and sales of fuel-grade ethanol

sourced from third parties, (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 –

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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

Accounts Receivable and Allowance for Credit

Losses – Trade accounts receivable are presented at original invoice amount, net of the allowance for credit losses.

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

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number of customers, the Company had significant concentrations of credit risk from sales as of December 31, 2022 and 2021, 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.

The carrying amount of accounts receivable is

reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected.

regularly reviews accounts receivable and based on assessments of current customer creditworthiness, estimates the portion, if any, of

the customer balance that will not be collected.

Of the accounts receivable balance, approximately $ 55,667,000 and $ 63,929,000

at December 31, 2022 and 2021, respectively, were used as collateral under Kinergy’s operating line of credit.

The allowance for

credit losses was $ 105,000 and $ 378,000 as of December 31, 2022 and 2021, respectively.

The Company recorded a bad debt recovery of $ 217,000 ,

and bad debt expenses of $ 158,000 and $ 245,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company does not

have any off-balance sheet credit exposure related to its customers.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Of the accounts receivable balance, approximately

$ 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.

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

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories – Inventories

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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.

Inventory is net of valuation adjustments of $ 4,612,000

and $ 0 as of December 31, 2022 and 2021, respectively.

Of the inventory balance, approximately $ 43,484,000 and $ 38,640,000 at December

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Raw materials

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment – Property

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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.

Intangible Assets – The Company

amortizes intangible assets with definite lives using the straight-line method over their established lives of 10-12 years.

Additionally,

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 – The Company accounts

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See Note 10 for further information.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments and Hedging Activities

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes revenue primarily from

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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.

Finally, Kinergy has an exclusive sales agreement

with a third-party owned fuel-grade ethanol production facility under which it sells the facility’s 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.

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

The Company has five production facilities from

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corresponding performance obligations.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

When the Company is the agent, the supplier controls

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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.

See Note 5 for the Company’s revenue by

type of contracts.

Shipping and Handling Costs –

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accompanying consolidated statements of operations.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation –

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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 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

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.

Amortization of deferred financing costs, included in interest expense, net, in

the accompanying consolidated statements of operations, was approximately $ 177,000 , $ 778,000 and $ 1,394,000 for the years ended December

31, 2022, 2021 and 2020, 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 $ 5,034,000 and $ 40,000 as of December 31, 2022 and

2021, respectively, and are recorded as a reduction of long-term debt in the consolidated balance sheets.

Provision for Income Taxes –

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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.

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

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company files a consolidated federal income

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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

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Year Ended December 31, 2022

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

Year Ended December 31, 2021

Net income attributed to Alto Ingredients, Inc.

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Income available to common stockholders

Year Ended December 31, 2020

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2020

Shares Denominator

Per-Share Amount

Net loss attributed to Alto Ingredients, Inc.

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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.

There were an aggregate of 964,000 , 964,000 and

2,463,000 potentially dilutive shares from convertible securities outstanding for the years ended December 31, 2022, 2021 and 2020, respectively.

These convertible securities were not considered in calculating diluted loss per common share for the years ended December 31, 2022, 2021

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In addition, there were an aggregate of 3,188,000 , 8,900,500 and 5,031,000 weighted-average

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

antidilutive shares from outstanding out-of-the-money warrants for the years ended December 31, 2022, 2021 and 2020, respectively.

Financial Instruments – The

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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.

they were just recently issued.

Business Combinations –

Business acquisitions are accounted for in accordance with FASB ASC 805 “Business Combinations”.

FASB ASC 805 requires the

reporting entity to identify the acquirer, determine the acquisition date, recognize and measure the identifiable tangible and intangible

assets acquired and liabilities assumed and recognize and measure goodwill or a gain from the purchase.

Assets acquired and liabilities

assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill.

to fair value assessments are recorded to goodwill over the measurement period (not longer than twelve months).

Income from Cash Grant –

For the year ended December 31, 2022, the Company applied for and received $ 22,652,000 in cash from the USDA’s Biofuel Producer

The program was created as part of the CARES Act in 2020, which allocated $ 700,000,000 to support biofuel producers who experienced

market losses due to the pandemic.

The Company is not required to repay the grant.

Since these funds are provided to subsidize historical

losses of the Company, and are not required to be repaid, the Company accounted for the proceeds by analogy to International Accounting

Standards 20, Accounting for Government Grants and Disclosure of Government Assistance , and reported the amount as income from

cash grant in the accompanying consolidated statements of operations.

Employment-related Benefits –

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curve that includes bonds with maturities that match the expected timing of benefit payments under the plan.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share Repurchase Program –

On September 12, 2022, the Company announced a share repurchase program under which it may repurchase up to $ 50 million of its common

stock with an initial purchase authorization of $ 10 million.

The Company’s lender has further limited the Company’s purchase

authorization to $ 5 million.

Amounts in excess of the purchase authorization of $ 5 million will require additional lender consent and

amounts in excess of the initial purchase authorization of $ 10 million will require additional board and preferred stockholder authorization.

The share repurchase program does not have an expiration date, does not require the repurchase of any particular amount of shares, and

may be implemented, modified, suspended or discontinued in whole or in part at any time and without further notice.

As repurchases are

made, the Company will retire the shares, resulting in a reduction of issued and outstanding shares.

For the year ended December 31, 2022,

the Company repurchased an aggregate of 351,000 shares for $ 1,325,000 in cash.

Estimates and Assumptions –

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates are required as part of

determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of property and equipment, long-lived

asset impairments, 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.

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 credit losses, net realizable value

of inventory, 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.

Subsequent Events – Management

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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

net income (loss), working capital or stockholders’ equity reported in the consolidated statements of operations and consolidated

balance sheets.

ACQUISITION OF EAGLE ALCOHOL.

On January 14, 2022, the Company purchased 100 %

of the membership interests of Eagle Alcohol.

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

of $ 1.3 million in cash.

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

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

Company’s 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.

With respect to these payments, the Company has accrued $ 3.5 million in other current

liabilities in the accompanying consolidated balance sheets as of December 31, 2022, with the expense included in selling, general and

administrative expenses in the accompanying consolidated statements of operations for the year then ended.

Eagle Alcohol specializes in break bulk distribution

of specialty alcohols.

Eagle Alcohol purchases bulk alcohol from suppliers and then stores, denatures, packages, and resells alcohol products

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

Eagle Alcohol delivers

products to customers in the beverage, food, industrial and related-process industries via its own dedicated trucking fleet and common

The acquisition has provided the Company further vertical integration and access to new markets in the specialty alcohol industry.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Eagle Alcohol’s unaudited standalone results

for the years ended December 31, 2022 and 2021 generated $ 29.2 million and $ 35.7 million in net sales and $ 1.0 million and $ 3.6 million

in net income, respectively.

The following table presents unaudited pro forma combined financial information assuming the acquisition

occurred on January 1, 2021 (dollars in thousands except per share amounts):

Years Ended December 31,

Revenues – pro forma

Net income (loss) available to common stockholders – pro forma

Diluted net income (loss) per share – pro forma

Diluted shares

The Company’s following allocation of purchase

price assumes, with the exception of property and equipment and intangibles, carrying values approximated fair value.

The Company did

not incur any material acquisition costs.

Estimates of uncollectible accounts receivable were not considered material due to the short-term

nature and customer collection history.

As a result, the final purchase price allocation is as follows (in thousands):

Cash and equivalents

Accounts receivable

Total current assets

Property and equipment

Right of use assets

Total tangible assets

Current liabilities

Right of use liability

Total liabiltiies

Net tangible assets acquired

Customer relationships

Total Purchase Price

Goodwill represents the value of the downstream

integration that the operations of Eagle Alcohol will add to the Company.

The Company expects the amortization of goodwill to be deductible

for tax purposes.

For the identifiable intangible assets, the Company has estimated 12 years for useful lives for customer relationships

and 10 years for tradename.

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.

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, which, after working capital adjustments, was reduced

to approximately $ 36.4 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

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The $7.0 million note accrues interest at an annual

rate of 4.50%.

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

beginning January 3, 2022.

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

and now mature on June 30, 2022.

million note accrued interest at an annual rate of 5.00 %.

Interest payments were due quarterly beginning July 1, 2020 and principal payments

of $0.4 million were due quarterly beginning July 1, 2021.

The $7.0 million note accrued interest at an annual rate of 4.50%.

payments were due quarterly beginning July 1, 2020 and principal payments of $0.4 million were due quarterly beginning January 3, 2022.

On February 23, 2022, these notes were amended and both notes matured on June 30, 2022.

Both notes were repaid in full 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,

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,

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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.

Upon the sale, the Company recognized a gain on sale of $ 3.2 million recorded in gain on

sale of assets in the accompanying consolidated statements of operations.

Stockton and Madera

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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

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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, 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,

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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.

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 of $ 17.9 million and $ 4.4

million, respectively.

ALTO INGREDIENTS,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company sold these assets in 2022.

For the years ended

December 31, 2022, 2021 and 2020 there were no sales from Canton.

For the years ended December 31, 2022, 2021 and 2020, pre-tax losses

attributed to Canton were less than $ 1.0 million for each year.

INTERCOMPANY AGREEMENTS.

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Affiliate Management Agreement –

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

The AMAs have an initial term of one year and

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.

The AMAs had an initial term of one year and have

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.

time by providing at least 90 days prior notice of termination.

Alto Ingredients recorded revenues

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

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 has successive one year renewal periods at the option of the production facility.

Kinergy recorded revenues of

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unloading and conveying corn into the facility’s storage and, in the case of whole corn delivered, processing and hammering the

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under these agreements, Alto

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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

Pacific Aurora recorded expenses of approximately $ 210,000 for the year ended December 31, 2020 associated with these agreements.

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

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.

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 has successive one year renewal periods at

the option of the production facility.

Alto Nutrients recorded revenues

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(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.

and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties (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 separately reportable

Income before provision for income taxes includes management fees charged

by Alto Ingredients to the segments.

The Pekin Campus production segment incurred $ 5,046,000 , $ 4,344,000 and $ 4,344,000 in management

fees for the years ended December 31, 2022, 2021 and 2020, respectively.

The marketing and distribution segment incurred $ 3,840,000 , $ 3,480,000

$ 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

and $ 3,480,000 in management fees for the years ended December 31, 2022, 2021 and 2020, respectively.

The Other production segment incurred

$ 2,400,000 , $ 1,950,000 and $ 3,893,000 in management fees for the years ended December 31, 2022, 2021 and 2020, respectively.

and other includes the results of Eagle Alcohol and 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

The preponderance of this activity occurs when the Company’s marketing and distribution segment markets alcohol produced

by the production segments for a marketing fee, as discussed in Note 4.

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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.

results since all revenues and corresponding costs are eliminated upon consolidation.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2022 and 2021,

capital expenditures incurred by the Pekin Campus segment were approximately $ 25.7 million and $ 14.3 million, and by the Other production

segment were approximately $ 12.3 million $ 2.1 million, respectively.

For the year ended December 31, 2020, capital expenditures were substantially

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

The following tables set forth certain financial

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Total Other production sales

Corporate and other

Intersegment eliminations

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Other production

Corporate and other

Intersegment eliminations

Cost of goods sold as reported

Income (loss) before provision (benefit)

for income taxes:

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

Pekin Campus production

1 unchanged sentence

Other production

Corporate activities

$ ( 101,302 )

Depreciation expense:

Corporate and other

Depreciation and amortization

Pekin Campus production

Other production

Corporate activities

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest expense:

Corporate and other

Interest expense, net of capitalized interest:

Pekin Campus production

1 unchanged sentence

Other production

Corporate activities

Corporate and other

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Company’s

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Other production

Corporate assets

Corporate and other

PROPERTY AND EQUIPMENT.

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$ 23,292,000 and $ 30,268,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company capitalized interest

of $ 720,000 , $ 628,000 and $ 224,000 for the years ended December 31, 2022, 2021 and 2020, respectively, related to its capital investment

INTANGIBLE ASSETS.

Intangible assets, including goodwill, consisted

of the following (in thousands):

December 31, 2022

December 31, 2021

Non-Amortizing:

Kinergy tradename

Customer relationships

Eagle tradename

Total goodwill and intangible assets

Goodwill – The Company’s

recorded goodwill of $ 5,970,000 in its Corporate and other segment resulted from the Company’s acquisition of Eagle Alcohol.

Kinergy Tradename – The Company

recorded tradename of $ 2,678,000 as part of the Company’s merger with Kinergy in 2006.

The Company determined that the tradename

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

The Company did not record

any impairment on its tradename for the years ended December 31, 2022, 2021 and 2020.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer Relationships – The

Company recorded customer relationships of $ 6,556,000 from the Company’s acquisition of Eagle Alcohol.

The Company has

established a useful life of twelve years for these customer relationships.

Eagle Tradename – The Company

recorded tradename of $ 420,000 from the Company’s acquisition of Eagle Alcohol.

The Company has established a useful

life of ten years for the tradename.

Amortization expense associated with intangible

assets totaled $ 567,000 for the year ended December 31, 2022.

The weighted-average unamortized life of the customer relationships

and tradename is 10.9 years.

The expected amortization expense relating to

amortizable intangible assets in each of the five years after December 31, 2022 are (in thousands):

Years Ended December 31,

The business and activities of the Company expose

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Commodity contracts

Derivative assets

Derivative liabilities

Derivative instruments

As of December 31, 2021

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Commodity contracts

Derivative assets

Derivative liabilities

Derivative instruments

The above amounts represent the gross balances

of the contracts;

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

positions individually, therefore, they are reported at gross.

however, the Company does have a right of offset with each of its derivative brokers, but the Company’s intent

is to close out positions individually, therefore the positions 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):

Realized Gains (Losses)

Realized Gains

For the Years Ended December 31,

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Kinergy line of credit

CARES Act loans

Parent notes payable

Less unamortized debt premium

Orion term loan

Less unamortized debt discount

Less unamortized debt financing costs

Less short-term portion

Less current portion

Long-term debt

1 unchanged sentence

– 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,

The line of credit matures on November

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

23 unchanged sentences

million in unused borrowing availability under the credit facility.

On November 7, 2022, Kinergy and Alto Nutrients

entered into an Amendment No.

6 to its credit facility.

Under the Amendment, the parties agreed, among other things, to extend the maturity

date of the loans under the credit facility from 2023 to 2027.

The parties also agreed to amend the fixed-charge coverage ratio from not

less than 2.00 to 1.00 to not less than 1.10 to 1.00 and amended the amount of cash distributions that Kinergy or Alto Nutrients could

make to the Company from up to 50% of excess cash flow to up to 75% of excess cash flow.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Orion Term Loan – On November

7, 2022, the Company entered into a credit agreement with certain funds managed by Orion Infrastructure Capital (collectively, the “Lenders”),

and OIC Investment Agent, LLC, as administrative agent and collateral agent (“OIC”), under which the Lenders agreed to extend

a senior secured credit facility in the amount of up to $ 125,000,000 (the “Term Loan”).

The Term Loan is secured by a first

priority lien on certain assets of the Company and a second priority lien on certain assets of Kinergy and Alto Nutrients.

The Lenders agreed to advance to the Company up

to $ 100,000,000 , with up to an additional $ 25,000,000 upon the satisfaction of certain conditions.

The Company also agreed to issue to

the Lenders upon its first funding request, an aggregate of 1,282,051 shares of the Company’s common stock, and up to an additional

320,513 shares of the Company’s common stock upon additional funding or fundings.

On November 23, 2022, the Company received its

initial funding of $ 60,000,000 and issued 1,282,051 shares of common stock.

As of December 31, 2022, the amount outstanding under the

Term Loan was $ 60,000,000 .

The Company allocated $ 3,912,000 of the loan proceeds to additional paid-in capital for the common stock issued

based on the relative fair values of the debt and equity instruments and recorded a corresponding amount as a debt issuance discount that

will be amortized to interest expense over the term of the loan.

Interest accrues on the unpaid principal amount

of the Term Loan at a fixed rate of 10 % per annum.

The Term Loan matures on November 7, 2028, or earlier upon acceleration.

The Company must prepay amounts outstanding under

the Term Loan on a semi-annual basis beginning with the six-month period ending December 31, 2023 in an amount equal to a percentage of

the Company’s excess cash flow based on a specified leverage ratio, as follows:

(i) if the leverage ratio is greater than or equal

to 3.0x, then the mandatory prepayment amount will equal 100% of the Company’s excess cash flow, (ii) if the leverage ratio is less

than 3.0x and greater than or equal to 1.5x, then the mandatory prepayment amount will equal 50% of the Company’s excess cash flow

and (iii) if the leverage ratio is less than 1.5x, then the mandatory prepayment amount will equal 25% of the Company’s excess cash

The terms and conditions of the Term Loan also

contain customary representations, warranties, covenants and other obligations, including events of default, and other customary terms

and conditions.

Registration Rights Agreement -

On November 7, 2022, the Company entered into a registration rights agreement with the Lenders and agreed to register for resale with

the Securities and Exchange Commission the shares of common stock issued to the Lenders under the Term Loan.

The related registration

statement has been declared effective by the Securities and Exchange Commission.

Pekin Loans –

14 unchanged sentences

the outstanding balances on these loans.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Parent Notes Payable – On

26 unchanged sentences

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

The Company can provide no assurances that

The Company can provide no assurance that

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of Long-term Debt –

9 unchanged sentences

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon the adoption of ASC 842, the Company elected

15 unchanged sentences

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

Leases consist of the following:

Leases consist of the following (in thousands):

Classification

10 unchanged sentences

Net lease cost

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the remaining maturities

1 unchanged sentence

Less interest

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENSION PLANS.

13 unchanged sentences

Fair value of plan assets, beginning

Actual gains (losses)

Benefits paid

6 unchanged sentences

Other liabilities

Accumulated other comprehensive loss

Accumulated other comprehensive (gain) loss

Assumptions used in computation of benefit obligations:

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Rate of compensation increase

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,

4 unchanged sentences

Net periodic (benefit) cost

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Company expects to make contributions in the

year ending December 31, 2023 of approximately $ 1.0 million.

Net periodic benefit cost for 2023 is estimated at $ 0.2 million.

The following table summarizes the expected benefit

71 unchanged sentences

Change in valuation allowance

Stock-based compensation

Non-deductible items

Income from loan forgiveness

1 unchanged sentence

Noncontrolling interest

Non-deductible items

Effective rate

13 unchanged sentences

Stock-based compensation

Allowance for doubtful accounts and other assets

Total deferred tax assets

Allowance for credit losses and other assets

Total gross deferred tax assets

valuation allowance

Total deferred tax assets, net of valuation allowance

Deferred tax liabilities:

1 unchanged sentence

Total deferred tax liabilities

Valuation allowance

Net deferred tax liabilities, included in other liabilities

14 unchanged sentences

2038 and after*

* Includes indefinite life federal net operating losses of $ 80.7

million generated after 2017.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

* Includes indefinite life federal net operating losses of $ 108.1 million generated after 2017.

Approximately $ 130,058,000 is available to utilize

against federal taxable income for 2023.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

To the extent amounts are not utilized in any

21 unchanged sentences

For the year ended December 31, 2022, 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.

recorded an increase in valuation allowance of $ 12,365,000 .

This was primarily related to additional net operating losses accumulated

for the year.

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.

Unrecognized Tax Benefits

A reconciliation of the beginning balance and

the ending balance of gross unrecognized tax benefits, before interest and penalties, for the period presented is as follows (in thousands):

Unrecognized tax benefits at beginning of year

Increases related to current year tax positions

Decreases related to current year tax positions

Increases related to prior year tax positions

Decreases related to prior year tax positions

Decreases related to expiration of prior year tax positions

Decreases related to settlements of prior year tax positions

Unrecognized tax benefits at end of year

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded unrecognized

tax benefits for uncertain tax positions of approximately $ 739,000 as of December 31, 2022, of which $ 739,000 would impact the effective

tax rate, if recognized.

The Company recognizes interest

and penalties related to income tax matters as a component of interest expense and other income (expense), respectively.

As of December

31, 2022, the Company accrued penalties of $ 74,000 and interest of $ 23,000 related to uncertain tax positions.

The Company does not expect

the unrecognized tax benefits to change significantly over the next 12 months.

The Company is subject to income

8 unchanged sentences

to tax attributes carried forward to open years.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK.

8 unchanged sentences

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

41 unchanged sentences

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, the

11 unchanged sentences

cash upon any conversion of the Series B Preferred Stock.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The holders of Series B Preferred

13 unchanged sentences

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

or (iii) two years from the date of the letter agreement (collectively, the “Waiver Period”), the holders waived any rights

and remedies against the Company with respect to any unpaid dividends.

7 unchanged sentences

– 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 registration rights agreement is 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.

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 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.

ALTO INGREDIENTS, INC.

2 unchanged sentences

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.

Noteholders – On December 22, 2019, in connection with an extension of the Company’s senior secured 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.

were exercised, the Company revalued them at each reporting period.

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

See Note 17 for the Company’s fair value assumptions.

Warrants issued in Equity

10 unchanged sentences

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.

The warrants became exercisable after the six-month anniversary of the offering and expired unexercised

on 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 17 for the Company’s fair value assumptions.

3 unchanged sentences

million after deducting underwriting discounts and commissions and other estimated offering expenses.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes warrant activity

2 unchanged sentences

Balance at December 31, 2019

Warrants issued

Balance at December 31, 2019

Warrants exercised

4 unchanged sentences

Balance at December 31, 2021

Warrants expired

Balance at December 31, 2022

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nonvoting Common Stock – In

9 unchanged sentences

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.

2019, the Company sold 1,421,000 and 3,137,000 shares of common stock through its “at-the-market” equity distribution 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.

Company terminated its “at-the-market” program in October 2020.

STOCK-BASED COMPENSATION.

19 unchanged sentences

shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 7,400,000 shares.

On June 23, 2022, the Company’s shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock

Incentive Plan to 8,900,000 shares.

ALTO INGREDIENTS, INC.

4 unchanged sentences

Years Ended December 31,

Weighted Average Exercise Price

Weighted Average

Exercise Price

Outstanding at beginning of year

7 unchanged sentences

Options Exercisable

Range of Exercise Prices

Number Outstanding

The aggregate intrinsic value of the options outstanding

34 unchanged sentences

contracts to purchase $ 118,000 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

The Company had fixed-price purchase contracts to purchase $ 87,195,000 of

corn from its suppliers as of December 31, 2022.

The Company had indexed-price purchase contracts for natural gas totaling 2,475,000 MMBTU.

The Company also had future commitments for certain capital projects totaling $ 20,986,000 .

These purchase commitments are scheduled to

be satisfied through 2023.

Contingencies – The following

8 unchanged sentences

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.

While the Company can

provide 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

VALUE MEASUREMENTS.

The fair value hierarchy prioritizes the inputs

18 unchanged sentences

31, 2022 and 2021 of $ 0 and $ 1,000,000 , respectively.

The fair values of these assets are based on observable values for the

assets through corroboration with market data and are designated as Level 3 inputs.

Warrants issued to Senior Noteholders

– The Company’s warrants issued December 22, 2019, were valued using the Black-Scholes Valuation Model and adjusted for quarterly.

On August 5, 2020, these warrants were exercised in full and prior to exercise, the Company adjusted their fair value using the following

assumptions (fair value dollars in thousands):

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):

Original Issuance

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 in Equity Offering

7 unchanged sentences

dollars in thousands):

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of the warrants are based on unobservable

6 unchanged sentences

Adjustments to fair value for 2020

Balance, December 31, 2021

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance, December 31, 2021 and 2022

Other Derivative Instruments –

5 unchanged sentences

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1)

4 unchanged sentences

Derivative financial instruments

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes recurring and nonrecurring

7 unchanged sentences

Fixed Income(5)

Derivative financial instruments

(1) See Note 11 for accounting discussion.

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

securities of large U.S.

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

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

(3) This category includes investments in funds comprised of equity securities of small- and medium-sized

The funds are valued using the net asset value method in which an average of the market prices for the underlying investments

is used to value the fund.

(4) This category includes investments in funds comprised of equity securities of foreign companies, including

emerging markets.

The funds are valued using the net asset value method in which an average of the market prices for the underlying investments

is used to value 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

(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

Exhibit Number

Filed Herewith

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

2 unchanged sentences

Certificate of Incorporation

Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stock

Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stoc k

Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock

9 unchanged sentences

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

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

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

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Christopher W.

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T.

2 unchanged sentences

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

Consulting Agreement dated May 28, 2022 between the Registrant and Christopher W.

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

8 unchanged sentences

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

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

Amendment No.

11 unchanged sentences

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

Amendment No.

6 to Second Amended and Restated Credit Agreement dated November 7, 2022 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

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

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.

INDEX TO EXHIBITS

Where Located

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

Exhibit Number

Filed Herewith

Credit Agreement dated November 7, 2022 by and among the Registrant, the subsidiary guarantors signatory thereto, Orion Energy Credit Opportunities Fund III, L.P., Orion Energy Credit Opportunities Fund III GPFA PV, L.P., Orion Energy Credit Opportunities Fund III GPFA, L.P., Orion Energy Credit Opportunities Fund III PV, L.P., and OIC Investment Agent, LLC

Registration Rights Agreement dated November 7, 2022 by and among Alto Ingredients, Inc., Orion Energy Credit Opportunities Fund III, L.P., Orion Energy Credit Opportunities Fund III GPFA PV, L.P., Orion Energy Credit Opportunities Fund III GPFA, L.P.

and Orion Energy Credit Opportunities Fund III PV, L.P.

Subsidiaries of the Registrant

18 unchanged sentences

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 14 th day of March, 2022.

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 14th day of March, 2023.

ALTO INGREDIENTS, INC.

4 unchanged sentences

the capacities and on the dates indicated.

/s/ WILLIAM L.

of the Board and Director

/s/ MICHAEL D.

President, Chief Executive Officer

(Principal Executive Officer), Chief Operating Officer

Chief Financial Officer (Principal

Financial and Accounting Officer)

/s/ DOUGLAS L.

/s/ GILBERT E.

/s/ DIANNE S.

Chairman of the Board and Director

March 14, 2023

President, Chief Executive Officer (Principal

March 14, 2023

Executive Officer), Chief Operating Officer and Director

Chief Financial Officer (Principal Financial

March 14, 2023

and Accounting Officer)

March 14, 2023

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