Alto Ingredients, Inc. 10-K

Item 9A. Controls and Procedures. We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2022 that our disclosure controls and procedures were effective at a reasonable assurance level. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. - 43 - A material weakness is defined by the Public Company Accounting Oversight Board’s Audit Standards AS 2201 as being a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2022. RSM US LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2022. That report is included in Part IV of this report. Inherent Limitations on the Effectiveness of Controls Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. - 44 - PART III Item 10. Directors, Executive Officers and Corporate Governance. The information under the captions “Information about our Board of Directors, Board Committees and Related Matters” appearing in the Proxy Statement, is hereby incorporated by reference. Item 11. Executive Compensation. The information under the caption “Executive Compensation and Related Information,” appearing in the Proxy Statement, is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” appearing in the Proxy Statement, is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information under the captions “Certain Relationships and Related Transactions” and “Information about our Board of Directors, Board Committees and Related Matters—Director Independence” appearing in the Proxy Statement, is hereby incorporated by reference. Item 14. Principal Accountant Fees and Services. The information under the caption “Audit Matters—Principal Accountant Fees and Services,” appearing in the Proxy Statement, is hereby incorporated by reference. - 45 - PART IV Item 15. Exhibits and Financial Statement Schedules. (a)(1) Financial Statements Reference is made to the financial statements listed on and attached following the Index to Consolidated Financial Statements contained on page F-1 of this report. (a)(2) Financial Statement Schedules None. (a)(3) Exhibits Reference is made to the exhibits listed on the Index to Exhibits. Item 16. Form 10-K Summary. None. - 46 - Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm (PCAOB ID: 49 ) F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-5 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 F-7 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 2020 F-8 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 F-9 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 F-10 Notes to Consolidated Financial Statements F-11 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Alto Ingredients, Inc. Opinion on the Financial Statements 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 the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters 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. F- 2 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 We have served as the Company’s auditor since 2015. Rochester, Minnesota March 14, 2023 F- 3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Alto Ingredients, Inc. Opinion on the Internal Control Over Financial Reporting 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 Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets 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 the related notes to the consolidated financial statements of the Company and our report dated March 14, 2023, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Rochester, Minnesota March 14, 2023 F- 4 ALTO INGREDIENTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except shares and par value) December 31, ASSETS 2022 2021 Current Assets: Cash and cash equivalents $ 36,456 $ 50,612 Restricted cash 13,069 11,513 Accounts receivable, net of allowance for credit losses of $ 105 and $ 378 , respectively 68,655 86,888 Inventories 66,628 54,373 Derivative instruments 4,973 15,839 Other current assets 9,340 10,301 Total current assets 199,121 229,526 Property and equipment, net 239,069 222,550 Other Assets: Right of use operating lease assets, net 18,937 13,413 Notes receivable, noncurrent — 11,641 Intangible assets, net 9,087 2,678 Goodwill 5,970 — Other assets 6,137 5,145 Total other assets 40,131 32,877 Total Assets $ 478,321 $ 484,953 The accompanying notes are an integral part of these consolidated financial statements. F- 5 ALTO INGREDIENTS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) (in thousands, except shares and par value) December 31, 2022 2021 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable – trade $ 28,115 $ 23,251 Accrued liabilities 26,556 21,307 Current portion – operating leases 3,849 3,909 Derivative instruments 6,732 13,582 Other current liabilities 12,765 7,553 Total current liabilities 78,017 69,602 Long-term debt, net 68,356 50,361 Operating leases, net of current portion 15,062 9,382 Other liabilities 8,797 10,394 Total Liabilities 170,232 139,739 Commitments and contingencies (Notes 1, 9, 10, 11 and 16) Stockholders’ Equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized: Series A: 1,684,375 shares authorized; no shares issued and outstanding as of December 31, 2022 and 2021 — — Series B: 1,580,790 shares authorized; 926,942 shares issued and outstanding as of December 31, 2022 and 2021; liquidation preference of $ 18,075 as of December 31, 2022 1 1 Common stock, $ 0.001 par value; 300,000,000 shares authorized; 75,154,495 and 72,777,694 shares issued and outstanding as of December 31, 2022 and 2021, respectively 75 73 Non-voting common stock, $ 0.001 par value; 3,553,000 shares authorized; 896 shares issued and outstanding as of December 31, 2022 and 2021 — — Additional paid-in capital 1,040,834 1,037,205 Accumulated other comprehensive income (loss) 1,822 ( 284 ) Accumulated deficit ( 734,643 ) ( 691,781 ) Total stockholders’ equity 308,089 345,214 Total Liabilities and Stockholders’ Equity $ 478,321 $ 484,953 The accompanying notes are an integral part of these consolidated financial statements. F- 6 ALTO INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2022 2021 2020 Net sales $ 1,335,621 $ 1,207,892 $ 897,023 Cost of goods sold 1,363,171 1,140,108 844,164 Gross profit (loss) ( 27,550 ) 67,784 52,859 Selling, general and administrative expenses ( 31,579 ) ( 29,185 ) ( 31,980 ) Gain on litigation settlement — — 11,750 Gain (loss) on sale (disposal) of assets ( 2,230 ) 4,571 1,580 Asset impairments — ( 3,100 ) ( 24,356 ) Income (loss) from operations ( 61,359 ) 40,070 9,853 Income from cash grant 22,652 — — Income from loan forgiveness — 9,860 — Interest expense, net ( 1,827 ) ( 3,587 ) ( 17,943 ) Fair value adjustments — — ( 9,959 ) Other income, net 862 1,208 750 Income (loss) before provision (benefit) for income taxes ( 39,672 ) 47,551 ( 17,299 ) Provision (benefit) for income taxes 1,925 1,469 ( 17 ) Consolidated net income (loss) ( 41,597 ) 46,082 ( 17,282 ) Net loss attributed to noncontrolling interests — — 2,166 Net income (loss) attributed to Alto Ingredients, Inc. $ ( 41,597 ) $ 46,082 $ ( 15,116 ) Preferred stock dividends $ ( 1,265 ) $ ( 1,265 ) $ ( 1,268 ) Income allocated to participating securities $ — $ ( 600 ) $ — Income (loss) available to common stockholders $ ( 42,862 ) $ 44,217 $ ( 16,384 ) Income (loss) per share, basic $ ( 0.60 ) $ 0.62 $ ( 0.28 ) Income (loss) per share, diluted $ ( 0.60 ) $ 0.61 $ ( 0.28 ) Weighted-average shares outstanding, basic 71,944 71,098 58,609 Weighted-average shares outstanding, diluted 71,944 72,219 58,609 The accompanying notes are an integral part of these consolidated financial statements. F- 7 ALTO INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended December 31, 2022 2021 2020 Consolidated net income (loss) $ ( 41,597 ) $ 46,082 $ ( 17,282 ) Other comprehensive income (expense) – net gain (loss) arising during the period on defined benefit pension plans 2,106 3,594 ( 1,508 ) Total comprehensive income (loss) ( 39,491 ) 49,676 ( 18,790 ) Comprehensive loss attributed to noncontrolling interests — — 2,166 Comprehensive income (loss) attributed to Alto Ingredients, Inc. $ ( 39,491 ) $ 49,676 $ ( 16,624 ) The accompanying notes are an integral part of these consolidated financial statements. F- 8 ALTO INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Preferred Stock Common Stock and Non-Voting Common Additional Paid-In Accumulated Accum. Other Comprehensive Non- Controlling Shares Amount Shares Amount Capital Deficit Loss Interests Total Balances, December 31, 2019 927 $ 1 55,508 $ 56 $ 942,307 $ ( 720,214 ) $ ( 2,370 ) $ 7,265 $ 227,045 Stock-based compensation — — — — 2,679 — — — 2,679 Restricted stock issued to employees and directors, net of cancellations and tax — — 1,137 1 ( 602 ) — — — ( 601 ) Common stock issuances — — 5,075 5 70,528 — — — 70,533 Warrant exercises — — 9,346 9 16,431 — — — 16,440 Common stock issuances ATM — — 1,421 1 5,295 — — — 5,296 Sale of interests in PAL — — — — — — — ( 5,099 ) ( 5,099 ) Pension plan adjustment — — — — — — ( 1,508 ) — ( 1,508 ) Preferred stock dividends — — — — — ( 1,268 ) — — ( 1,268 ) Net loss — — — — — ( 15,116 ) — ( 2,166 ) ( 17,282 ) Balances, December 31, 2020 927 $ 1 72,487 $ 72 $ 1,036,638 $ ( 736,598 ) $ ( 3,878 ) $ — $ 296,235 Stock-based compensation — — — — 2,883 — — — 2,883 Restricted stock issued to employees and directors, net of cancellations and tax — — 167 1 ( 2,778 ) — — — ( 2,777 ) Common stock issuances — — 124 — 462 — — — 462 Pension plan adjustment — — — — — — 3,594 — 3,594 Preferred stock dividends — — — — — ( 1,265 ) — — ( 1,265 ) Net income — — — — — 46,082 — — 46,082 Balances, December 31, 2021 927 $ 1 72,778 $ 73 $ 1,037,205 $ ( 691,781 ) $ ( 284 ) $ — $ 345,214 Stock-based compensation — — — — 3,333 — — — 3,333 Restricted stock issued to employees and directors, net of cancellations and tax — — 496 — ( 2,291 ) — — — ( 2,291 ) Shares issued for Eagle — — 949 1 — — — — 1 Shares issued to Orion — — 1,282 1 3,912 — — — 3,913 Stock repurchases — — ( 351 ) — ( 1,325 ) — — — ( 1,325 ) Pension plan adjustment — — — — — — 2,106 — 2,106 Preferred stock dividends — — — — — ( 1,265 ) — — ( 1,265 ) Net loss — — — — — ( 41,597 ) — — ( 41,597 ) Balances, December 31, 2022 927 $ 1 75,154 $ 75 $ 1,040,834 $ ( 734,643 ) $ 1,822 $ — $ 308,089 The accompanying notes are an integral part of these consolidated financial statements. F- 9 ALTO INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Years Ended December 31, 2022 2021 2020 Operating Activities: Consolidated net income (loss) $ ( 41,597 ) $ 46,082 $ ( 17,282 ) Adjustments to reconcile consolidated net income (loss) to cash provided by operating activities: Depreciation and amortization of intangibles 25,095 23,292 30,268 Asset impairments — 3,100 24,356 Income from loan forgiveness — ( 9,860 ) — Fair value adjustments — — 9,959 (Gain) loss on (sale) disposal of assets 2,230 ( 4,571 ) ( 1,580 ) Inventory valuation 4,612 — ( 257 ) Gains on derivative instruments ( 19,263 ) ( 21,619 ) ( 14,780 ) Amortization of deferred financing costs 177 778 1,394 Amortization of debt discounts (premiums) 126 ( 230 ) ( 230 ) Noncash compensation 3,333 2,883 2,679 Bad debt expense (recovery) ( 217 ) 158 245 Interest expense added to senior notes — — 133 Changes in operating assets and liabilities: Accounts receivable 23,967 ( 43,554 ) 30,571 Inventories ( 15,479 ) ( 16,448 ) 19,090 Other current assets 7,690 38,989 1,507 Operating leases ( 5,128 ) ( 4,216 ) ( 4,751 ) Assets held-for-sale — ( 3,483 ) 1,012 Liabilities held-for-sale — 2,305 9,110 Accounts payable and accrued expenses 20,503 13,215 ( 19,763 ) Net cash provided by operating activities $ 6,049 $ 26,821 $ 71,681 Investing Activities: Proceeds from principal payments on notes receivable $ 14,766 $ — $ — Purchase of Eagle Alcohol, net of cash acquired ( 14,685 ) — — Proceeds from sale of Stockton — 24,000 — Proceeds from sale of Madera — 19,500 — Proceeds from sale of interests in PAL — — 19,896 Proceeds from Magic Valley asset sale — — 10,000 Additions to property and equipment ( 37,744 ) ( 16,384 ) ( 6,580 ) Net cash provided by (used in) investing activities $ ( 37,663 ) $ 27,116 $ 23,316 Financing Activities: Net proceeds from term loan $ 59,100 $ — $ — Net proceeds from (payments on) Kinergy’s line of credit ( 32,325 ) 17,889 ( 45,826 ) Debt issuance costs ( 5,171 ) — — Preferred stock dividend payments ( 1,265 ) ( 2,853 ) — Stock repurchases ( 1,325 ) — — Proceeds from issuances of common stock and warrants — 462 75,829 Proceeds from warrant exercises — — 5,500 Proceeds from CARES Act loans — — 9,860 Payments on plant borrowings — ( 29,964 ) ( 71,536 ) Payments on senior notes — ( 25,533 ) ( 40,249 ) Net cash provided by (used in) financing activities $ 19,014 $ ( 39,999 ) $ ( 66,422 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 12,600 ) 13,938 28,575 Cash, cash equivalents and restricted cash at beginning of period 62,125 48,187 19,612 Cash, cash equivalents and restricted cash at end of period $ 49,525 $ 62,125 $ 48,187 Reconciliation of total cash, cash equivalents and restricted cash: Cash and cash equivalents $ 36,456 $ 50,612 $ 47,667 Restricted cash 13,069 11,513 520 Total cash, cash equivalents and restricted cash $ 49,525 $ 62,125 $ 48,187 Supplemental Information: Interest paid (net of capitalized interest) $ 2,208 $ 3,489 $ 17,469 Capitalized interest $ 720 $ 628 $ 224 Income tax payments (refunds) $ 2,262 $ 448 $ ( 641 ) Noncash financing and investing activities: Accrued preferred stock dividends $ — $ — $ 1,268 The accompanying notes are an integral part of these consolidated financial statements. F- 10 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES . Organization and Business – The consolidated financial statements include, for all periods presented, the accounts of Alto Ingredients, Inc., a Delaware corporation (“Alto Ingredients”), and its direct and indirect wholly-owned subsidiaries (collectively, the “Company”), including Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Alto Nutrients, LLC, a California limited liability company (“Alto Nutrients”), Alto Op Co., a Delaware corporation (“Alto Op Co.”), Alto Pekin, LLC, a Delaware limited liability company (“Alto Pekin”) and Alto ICP, LLC, a Delaware limited liability company (“ICP”), and the Company’s production facilities in Oregon and Idaho. As discussed in Note 3, on May 14, 2021 and November 4, 2021, the Company completed the sale 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 Elevator Company, a Nebraska cooperative corporation (“ACEC”), closed a transaction under a contribution agreement under which the Company contributed its Aurora, Nebraska ethanol production facilities and ACEC contributed its Aurora grain elevator and related grain handling assets to Pacific Aurora, LLC (“Pacific Aurora”) in exchange for equity interests in Pacific Aurora. As a result, the Company owned 73.93 % of Pacific Aurora and ACEC owned 26.07 % of Pacific Aurora. As discussed further in Note 3, the Company sold its interest in Pacific Aurora on April 15, 2020. Therefore, from December 15, 2016, through April 15, 2020, the Company consolidated 100 % of the results of Pacific Aurora and recorded ACEC’s 26.07 % equity interest as noncontrolling interests in the accompanying financial statements. The Company is a leading producer and 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. 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, 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. The Company focuses on four key markets: Health, Home & Beauty ; Food & Beverage ; Essential Ingredients ; and Renewable Fuels . Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include 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. F- 11 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Segments – A segment is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Company determines and discloses its segments in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Section 280, Segment Reporting , which defines how to determine segments. The Company reports financial and operating performance in three reportable segments (1) marketing and distribution, which includes marketing and merchant trading for Company-produced specialty alcohols, fuel-grade ethanol and essential ingredients, and 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 – The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its accounts at several financial institutions. These cash balances regularly exceed amounts insured by the Federal Deposit Insurance Corporation; however, the Company does not believe it is exposed to any significant credit risk on these balances. Restricted Cash – The Company’s restricted cash comprises cash collateral balances held in derivative brokerage accounts. Accounts Receivable and Allowance for Credit Losses – Trade accounts receivable are presented at original invoice amount, net of the allowance for credit losses. The Company sells specialty alcohols to large consumer product companies, sells fuel-grade ethanol to gasoline refining and distribution companies, sells essential ingredients to animal feed customers, including distillers grains and other feed co-products to dairy operators and animal feedlots and corn oil to poultry and biodiesel customers, in each case generally without requiring collateral. Due to a limited number of customers, the Company had significant concentrations of credit risk from sales as of December 31, 2022 and 2021, as described below. 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. The Company 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. F- 12 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration Risks – Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions described below. Financial instruments that subject the Company to credit risk consist of cash balances maintained in excess of federal depository insurance limits and accounts receivable which have no collateral or security. The Company has not experienced any significant losses in such accounts. The Company sells specialty alcohols to consumer product companies and fuel-grade ethanol to gasoline refining and distribution companies. The Company sold to customers representing 10 % or more of the Company’s total net sales, as follows. Years Ended December 31, 2022 2021 2020 Customer A 10 % 13 % 3 % Customer B 10 % 9 % 9 % The Company had accounts receivable due from these customers totaling $ 10,469,000 and $ 14,302,000 , representing 15 % and 16 % of total accounts receivable, as of December 31, 2022 and 2021, respectively. The Company purchases corn, its largest cost component in producing alcohols, from its suppliers. The Company purchased corn from suppliers representing 10 % or more of the Company’s total corn purchases, as follows: Years Ended December 31, 2022 2021 2020 Supplier A 12 % 14 % 16 % Supplier B 15 % 2 % — % As of December 31, 2022, approximately 44 % of the Company’s employees were covered by a collective bargaining agreement. Inventories – Inventories consisted primarily of bulk ethanol, specialty alcohols, corn, essential ingredients and unleaded fuel, and are valued at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Inventory is net of valuation adjustments of $ 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 31, 2022 and 2021, respectively, were used as collateral under Kinergy’s operating line of credit. Inventory balances consisted of the following (in thousands): December 31, 2022 2021 Finished goods $ 47,736 $ 35,509 Work in progress 6,396 6,909 Raw materials 11,197 10,837 Other 1,299 1,118 Total $ 66,628 $ 54,373 F- 13 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment – Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 40 years Facilities and plant equipment 10 – 25 years Other equipment, vehicles and furniture 5 – 10 years The cost of normal maintenance and repairs is charged to operations as incurred. Significant capital expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of property and equipment sold, or otherwise disposed of, and the related accumulated depreciation or amortization are removed from the accounts, and any resulting gains or losses are reflected in current operations. Intangible 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 for leases under ASC 842, whereby, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted cash flow basis; and (2) a “right of use” asset, which is an asset that represents the lessee’s right to use the specified asset for the lease term. See Note 10 for further information. Derivative Instruments and Hedging Activities – Derivative transactions, which can include exchange-traded futures contracts, options and futures positions on the New York Mercantile Exchange or the Chicago Board of Trade, are recorded on the balance sheet as assets and liabilities based on the derivative’s fair value. Changes in the fair value of derivative contracts are recognized currently in income unless specific hedge accounting criteria are met. If derivatives meet those criteria, and hedge accounting is elected, effective gains and losses are deferred in accumulated other comprehensive income (loss) and later recorded together with the hedged item in consolidated income (loss). For derivatives designated as a cash flow hedge, the Company formally documents the hedge and assesses the effectiveness with associated transactions. The Company has designated and documented contracts for the physical delivery of commodity products to and from counterparties as normal purchases and normal sales. Revenue Recognition – The Company recognizes revenue under ASC 606. The provisions of ASC 606 include a five-step process by which an entity will determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which an entity expects to be entitled in exchange for those goods or services. ASC 606 requires the Company to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies the performance obligation. F- 14 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recognizes revenue primarily from sales of alcohols and essential ingredients. The Company has five production facilities from which it produces and sells alcohols to its customers through Kinergy. Kinergy enters into back-to-back sales contracts with its customers under exclusive intercompany sales agreements with each of the Company’s five production facilities. Kinergy also acts as a principal when it purchases third party fuel-grade ethanol which it resells to its customers. Finally, Kinergy has 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. The Company has five production facilities from which it produces and sells essential ingredients to its customers through Alto Nutrients. Alto Nutrients enters into sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each of the Company’s five production facilities. The Company recognizes revenue from sales of alcohols and essential ingredients at the point in time when the customer obtains control of the products, which typically occurs upon delivery depending on the terms of the underlying contracts. In some instances, the Company enters into contracts with customers that contain multiple performance obligations to deliver volumes of alcohols or essential ingredients over a contractual period of less than 12 months. The Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognizes the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance obligations. When the Company is the agent, the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide the product, has inventory risk before the product has been transferred to a customer and has discretion in establishing the price for the product. When the Company is the principal, the Company controls the products before they are transferred to the customer because the Company is primarily responsible for fulfilling the promise to provide the products, has inventory risk before the product has been transferred to a customer and has discretion in establishing the price for the product. See Note 5 for the Company’s revenue by type of contracts. Shipping and Handling Costs – The Company accounts for shipping and handling costs relating to contracts with customers as costs to fulfill its promise to transfer its products. Accordingly, the costs are classified as a component of cost of goods sold in the accompanying consolidated statements of operations. Selling Costs – Selling costs associated with the Company’s product sales are classified as a component of selling, general and administrative expenses in the accompanying consolidated statements of operations. F- 15 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation – The Company accounts for the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award, determined on the date of grant. The expense is recognized over the period during which an employee is required to provide services in exchange for the award. The Company accounts for forfeitures as they occur. The Company recognizes stock-based compensation expense as a component of either cost of goods sold or selling, general and administrative expenses in the consolidated statements of operations. Impairment of Long-Lived Assets – The Company assesses the impairment of long-lived assets, including property and equipment, internally developed software and purchased intangibles subject to amortization, when events or changes in circumstances indicate that the fair value of assets could be less than their net book value. In such event, the Company assesses long-lived assets for impairment by first determining the forecasted, undiscounted cash flows the asset group is expected to generate plus the net proceeds expected from the sale of the asset group. If this amount is less than the carrying value of the asset, the Company will then determine the fair value of the asset group. An impairment loss would be recognized when the fair value is less than the related asset group’s net book value, and an impairment expense would be recorded in the amount of the difference. Forecasts of future cash flows are judgments based on the Company’s experience and knowledge of its operations and the industries in which it operates. These forecasts could be significantly affected by future changes in market conditions, the economic environment, including inflation, and purchasing decisions of the Company’s customers. The Company performed an undiscounted cash flow analysis for its long-lived assets held-for-use, exclusive of the Company’s assets held-for-sale, and for those that failed step 1, the Company performed a further fair value assessment, resulting in an impairment of $ 2.1 million for the year ended December 31, 2020. The Company’s assessment of assets held-for-use did not result in an impairment for the years ended December 31, 2022 and 2021. 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. 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 – Income taxes are accounted for under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50 % likely of being realized upon ultimate settlement. An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority if certain other conditions are satisfied. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense, net, and other income (expense), net, respectively. Deferred tax assets and liabilities are classified as noncurrent in the Company’s consolidated balance sheets. F- 16 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company files a consolidated federal income tax return. This return includes all wholly owned subsidiaries as well as the Company’s pro-rata share of taxable income from pass-through entities in which the Company owns less than 100 %. State tax returns are filed on a consolidated, combined or separate basis depending on the applicable laws relating to the Company and its subsidiaries. Income (Loss) Per Share – Basic income (loss) per share is computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Preferred dividends are deducted from net income (loss) attributed to Alto Ingredients, Inc. and are considered in the calculation of income (loss) available to common stockholders in computing basic income (loss) per share. Common stock equivalents to preferred stock are considered participating securities and are also included in this calculation when dilutive. The following tables compute basic and diluted earnings per share (in thousands, except per share data): Year Ended December 31, 2022 Loss Numerator Shares Denominator Per-Share Amount Net loss attributed to Alto Ingredients, Inc. $ ( 41,597 ) Less: Preferred stock dividends ( 1,265 ) Basic and diluted loss per share: Loss available to common stockholders $ ( 42,862 ) 71,944 $ ( 0.60 ) Year Ended December 31, 2021 Income Numerator Shares Denominator Per-Share Amount Net income attributed to Alto Ingredients, Inc. $ 46,082 Less: Preferred stock dividends ( 1,265 ) Less: Income allocated to participating securities ( 600 ) Basic income per share: Income available to common stockholders $ 44,217 71,098 $ 0.62 Add: Dilutive securities — 1,121 Diluted income per share: Income available to common stockholders $ 44,217 72,219 $ 0.61 F- 17 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2020 Loss Numerator Shares Denominator Per-Share Amount Net loss attributed to Alto Ingredients, Inc. $ ( 15,116 ) Less: Preferred stock dividends ( 1,268 ) Basic and diluted loss per share: Loss available to common stockholders $ ( 16,384 ) 58,609 $ ( 0.28 ) 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 and 2020 as their effect would be anti-dilutive. 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 for the years ended December 31, 2022, 2021 and 2020, respectively. Financial Instruments – The carrying values of cash and cash equivalents, restricted cash, accounts receivable, notes receivable, derivative assets, accounts payable, accrued liabilities and derivative liabilities are reasonable estimates of their fair values because of the short maturity of these items. The Company believes the carrying value of its long-term debt instruments are not considered materially different than fair value because 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. Adjustments 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 Program. 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 – Employment-related benefits associated with pensions and postretirement health care are expensed based on actuarial analysis. The recognition of expense is affected by estimates made by management, such as discount rates used to value certain liabilities, investment rates of return on plan assets, increases in future wage amounts and future health care costs. Discount rates are determined based on a spot yield curve that includes bonds with maturities that match the expected timing of benefit payments under the plan. F- 18 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 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 evaluates, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued for either disclosure or adjustment to the consolidated financial results. Reclassifications – Certain prior year amounts have been reclassified to conform to the current presentation. Such reclassifications had no effect on the consolidated net income (loss), working capital or stockholders’ equity reported in the consolidated statements of operations and consolidated balance sheets. 2. 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 carrier. The acquisition has provided the Company further vertical integration and access to new markets in the specialty alcohol industry. F- 19 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, 2022 2021 Revenues – pro forma $ 1,336,148 $ 1,232,265 Net income (loss) available to common stockholders – pro forma $ ( 42,929 ) $ 45,263 Diluted net income (loss) per share – pro forma $ ( 0.59 ) $ 0.63 Diluted shares 72,893 72,047 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 $ 705 Accounts receivable 5,517 Inventories 1,388 Other assets 29 Total current assets 7,639 Property and equipment 1,067 Right of use assets 2,749 Total tangible assets $ 11,455 Current liabilities $ 6,262 Right of use liability 2,749 Total liabiltiies $ 9,011 Net tangible assets acquired $ 2,444 Customer relationships 6,556 Tradename 420 Goodwill 5,970 Total Purchase Price $ 15,390 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. 3. ASSET SALES AND HELD-FOR-SALE CLASSIFICATION. Pacific Aurora 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 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. F- 20 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. The $ 8.6 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%. Interest 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. Magic Valley On November 30, 2020, the Company sold 134 acres, the related rail loop and grain handling assets at its Magic Valley facility located in Burley, Idaho for $10.0 million in cash. The Company retained the fuel-grade ethanol production facility and terminal on the remaining 25 acres and has entered into certain agreements with the buyer for delivery of grain to the plant. Upon the sale, the Company recognized a gain on sale of $ 3.2 million recorded in gain on sale of assets in the accompanying consolidated statements of operations. Stockton and Madera In October 2020, the Company’s Board of Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California. As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020. The analysis of these potential sales resulted in an aggregate asset impairment of $ 1.2 million and $ 22.3 million in the Company’s Other production segment for the years ended December 31, 2021 and 2020, respectively. On May 14, 2021, the Company closed the sale of its Madera facility for total consideration of $ 28.3 million, comprised of $ 19.5 million in cash and $ 8.8 million in assumption of liabilities, resulting in a net loss on sale of less than $ 0.1 million, included in gain on sale of assets in the Company’s consolidated statements of operations. All of the cash proceeds were used to repay a significant portion of the Company’s term debt and accrued interest. On November 5, 2021, the Company closed the sale of its Stockton facility for gross proceeds of $ 24.0 million in cash, resulting in a net gain on sale of $ 4.6 million, recorded in gain on sale of assets in the Company’s consolidated statements of operations. With the net cash proceeds, the Company repaid its parent notes payable and the Alto Pekin and ICP loans in full. See Note 9. 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, pre-tax loss attributed to the results of operations for Stockton and Madera was $ 2.8 million and $ 2.0 million, respectively. For the year ended December 31, 2020, pre-tax loss attributed to the results of operations for Stockton and Madera was $ 6.5 million and $ 6.1 million, respectively. 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. F- 21 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Canton 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. 4. INTERCOMPANY AGREEMENTS. The Company, directly or through one of its subsidiaries, has entered into the following management and marketing agreements: Affiliate Management Agreement – Alto Ingredients entered into an Affiliate Management Agreement (“AMA”) with its operating subsidiaries under which Alto Ingredients agreed to provide operational, 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 termination. Alto Ingredients recorded revenues of approximately $ 12,403,000 , $ 9,774,000 and $ 11,724,000 related to the AMAs in place for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts have been eliminated upon consolidation. Ethanol Marketing Agreements – Kinergy entered into separate marketing agreements with each of the Company’s production facilities which granted 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 approximately $ 5,746,000 , $ 4,496,000 and $ 4,275,000 related to the marketing agreements for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts have been eliminated upon consolidation. Corn Procurement and Handling Agreements – Alto Nutrients entered into separate corn procurement and handling agreements with each of the Company’s production facilities, with the exception of the Pacific Aurora facilities. Under the terms of the corn procurement and handling agreements, each facility appointed Alto Nutrients as its exclusive agent to solicit, negotiate, enter into and administer, on its behalf, corn supply arrangements to procure the corn necessary to operate the facility. Alto Nutrients also provides grain handling services including, but not limited to, receiving, unloading and conveying corn into the facility’s storage and, in the case of whole corn delivered, processing and hammering the whole corn. F- 22 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under these agreements, Alto Nutrients receives a fee of $ 0.03 per bushel of corn delivered to each production facility as consideration for its procurement and handling services, payable monthly. Each corn procurement and handling agreement had an initial term of one year and successive one year renewal periods at the option of the individual facility. Alto Nutrients recorded revenues of approximately $ 3,207,000 , $ 2,694,000 and $ 2,595,000 related to the corn procurement and handling agreements for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts have been eliminated upon consolidation. Through April 15, 2020, each Pacific Aurora production facility operated under a grain procurement agreement with ACEC. Under this agreement, ACEC received a fee of $ 0.03 per bushel of corn delivered to each facility as consideration for ACEC’s procurement and handling services, payable monthly. The grain procurement agreement had an initial term of one year and successive one year renewal periods at the option of the individual facility. Pacific Aurora recorded expenses of approximately $ 210,000 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 has successive one year renewal periods at the option of the production facility. Alto Nutrients recorded revenues of approximately $ 3,505,000 , $ 2,871,000 and $ 2,778,000 related to the marketing agreements for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts have been eliminated upon consolidation. 5. SEGMENTS. The Company reports its financial and operating performance in three segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols and essential ingredients on an aggregated basis, and 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 segment. 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 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. Corporate 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 each other. 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. These intersegment activities are considered arms’-length transactions. Consequently, although these transactions impact segment performance, they do not impact the Company’s consolidated results since all revenues and corresponding costs are eliminated upon consolidation. F- 23 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 data for the Company’s operating segments (in thousands): Years Ended December 31, 2022 2021 2020 Net Sales Pekin Campus production, recorded as gross: Alcohol sales $ 521,273 $ 498,195 $ 330,432 Essential ingredient sales 225,871 189,535 130,270 Intersegment sales 1,212 1,193 645 Total Pekin Campus sales 748,356 688,923 461,347 Marketing and distribution: Alcohol sales, gross $ 227,626 $ 379,422 $ 256,209 Alcohol sales, net 1,225 1,753 1,529 Intersegment sales 12,459 10,061 9,648 Total marketing and distribution sales 241,310 391,236 267,386 Other Production, recorded as gross: Alcohol sales $ 253,605 $ 107,931 $ 137,703 Essential ingredient sales 90,209 31,056 40,880 Intersegment sales 22 964 1,309 Total Other production sales 343,836 139,951 179,892 Corporate and other 15,812 — — Intersegment eliminations ( 13,693 ) ( 12,218 ) ( 11,602 ) Net sales as reported $ 1,335,621 $ 1,207,892 $ 897,023 Cost of goods sold: Pekin Campus production $ 772,755 $ 638,371 $ 389,125 Marketing and distribution 229,288 371,371 253,465 Other production 353,775 136,401 206,412 Corporate and other 12,167 — — Intersegment eliminations ( 4,814 ) ( 6,035 ) ( 4,838 ) Cost of goods sold as reported $ 1,363,171 $ 1,140,108 $ 844,164 Income (loss) before provision (benefit) for income taxes: Pekin Campus production $ ( 27,378 ) $ 41,622 $ 53,898 Marketing and distribution 3,749 11,756 4,889 Other production ( 6,997 ) ( 3,762 ) ( 54,677 ) Corporate and other ( 8,926 ) ( 2,065 ) ( 21,409 ) $ ( 39,552 ) $ 47,551 $ ( 17,299 ) Depreciation and amortization expense: Pekin Campus production $ 19,136 $ 17,352 $ 17,450 Other production 5,085 5,890 12,691 Corporate and other 874 50 127 $ 25,095 $ 23,292 $ 30,268 Interest expense, net of capitalized interest: Pekin Campus production $ ( 381 ) $ 756 $ 6,038 Marketing and distribution 1,658 963 1,574 Other production ( 339 ) 167 334 Corporate and other 889 1,701 9,997 $ 1,827 $ 3,587 $ 17,943 F- 24 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the Company’s total assets by operating segment (in thousands): December 31, 2022 December 31, 2021 Total assets: Pekin Campus production $ 257,089 266,197 Marketing and distribution 114,755 130,302 Other production 51,886 57,046 Corporate and other 54,591 31,408 $ 478,321 $ 484,953 6. PROPERTY AND EQUIPMENT. Property and equipment consisted of the following (in thousands): December 31, 2022 2021 Facilities and plant equipment $ 386,932 $ 364,039 Land 3,687 4,072 Other equipment, vehicles and furniture 9,876 7,656 Construction in progress 37,538 22,505 438,033 398,272 Accumulated depreciation ( 198,964 ) ( 175,722 ) $ 239,069 $ 222,550 Depreciation expense was $ 24,528,000 , $ 23,292,000 and $ 30,268,000 for the years ended December 31, 2022, 2021 and 2020, respectively. 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 activities. 7. INTANGIBLE ASSETS. Intangible assets, including goodwill, consisted of the following (in thousands): Useful December 31, 2022 December 31, 2021 Life (Years) Gross Accumulated Amortization Net Book Value Gross Accumulated Amortization Net Book Value Non-Amortizing: Goodwill $ 5,970 $ — $ 5,970 $ — $ — $ — Kinergy tradename 2,678 — 2,678 2,678 — 2,678 Amortizing: Customer relationships 12 6,556 ( 527 ) 6,029 — — — Eagle tradename 10 420 ( 40 ) 380 — — — Total goodwill and intangible assets $ 15,624 $ ( 567 ) $ 15,057 $ 2,678 $ — $ 2,678 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. See Note 2. 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. F- 25 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. See Note 2. 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. See Note 2. 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, Amount 2023 $ 588 2024 588 2025 588 2026 588 2027 588 Thereafter 3,469 Total $ 6,409 8. DERIVATIVES. The business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages these financial exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results. Commodity Risk – Cash Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price volatility on alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating or index-based price. In addition, the Company hedges anticipated sales of alcohol to minimize its exposure to the potentially adverse effects of price volatility. These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and sales prices. Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold. For the years ended December 31, 2022, 2021 and 2020, the Company did not designate any of its derivatives as cash flow hedges. Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn and alcohols by entering into exchange-traded futures contracts or options for those commodities. These derivatives are not designated for hedge accounting treatment. The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. The Company recognized net gains of $ 19,263,000 , $ 21,619,000 and $ 14,780,000 as the change in the fair value of these contracts for the years ended December 31, 2022, 2021 and 2020, respectively. F- 26 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-Designated Derivative Instruments – The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral balances, are as follows (in thousands): As of December 31, 2022 Assets Liabilities Type of Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value Cash collateral balance Restricted cash $ 13,069 Commodity contracts Derivative instruments $ 4,973 Derivative instruments $ 6,732 As of December 31, 2021 Assets Liabilities Type of Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value Cash collateral balance Restricted cash $ 11,513 Commodity contracts Derivative instruments $ 15,839 Derivative instruments $ 13,582 The above amounts represent the gross balances of the contracts; however, the Company does have a right of offset with each of its derivative brokers, but 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 For the Years Ended December 31, Type of Instrument Statements of Operations Location 2022 2021 2020 Commodity contracts Cost of goods sold $ 23,280 $ 32,618 $ 2,102 $ 23,280 $ 32,618 $ 2,102 Unrealized Gains (Losses) For the Years Ended December 31, Type of Instrument Statements of Operations Location 2022 2021 2020 Commodity contracts Cost of goods sold $ ( 4,017 ) $ ( 10,999 ) $ 12,678 $ ( 4,017 ) $ ( 10,999 ) $ 12,678 F- 27 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. DEBT. Long-term borrowings are summarized as follows (in thousands): December 31, 2022 December 31, 2021 Kinergy line of credit $ 18,076 $ 50,401 Orion term loan 60,000 — 78,076 50,401 Less unamortized debt discount ( 4,686 ) — Less unamortized debt financing costs ( 5,034 ) ( 40 ) Less current portion — — Long-term debt $ 68,356 $ 50,361 Kinergy Line of Credit – Kinergy has an operating line of credit for an aggregate amount of up to $100,000,000. The line of credit matures on November 7, 2027 . The credit facility is based on Kinergy’s eligible accounts receivable and inventory levels, subject to certain concentration reserves. The credit facility is subject to certain other sublimits, including inventory loan limits. Interest accrues under the line of credit at a rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging between 1.25% and 1.75%. The applicable margin was 1.50%, for a total rate of 5.90% at December 31, 2022. The credit facility’s monthly unused line fee is an annual rate equal to 0.25% to 0.375% depending on the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to the Company as reimbursement for management and other services provided by the Company to Kinergy are limited under the terms of the credit facility to $1,500,000 per fiscal quarter. The credit facility also includes the accounts receivable of Alto Nutrients as additional collateral. Payments that may be made by Alto Nutrients to the Company as reimbursement for management and other services provided by the Company to Alto Nutrients are limited under the terms of the credit facility to $500,000 per fiscal quarter. If the monthly excess borrowing availability of Kinergy and Alto Nutrients falls below certain thresholds, they are collectively required to maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 1.1 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The obligations of Kinergy and Alto Nutrients under the credit facility are secured by a first-priority security interest in all of their assets in favor of the lender. Alto Ingredients has guaranteed all of Kinergy’s obligations under the line of credit. As of December 31, 2022, Kinergy had $ 57.9 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. F- 28 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 flow. 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 – On December 15, 2016, Alto Pekin entered into a credit agreement with 1 st Farm Credit Services, PCA and CoBank, ACB, (“CoBank”). Under the terms of the agreement, Alto Pekin borrowed from 1 st Farm Credit Services $ 64.0 million under a term loan facility that was to mature on August 20, 2021 and up to $32.0 million under a revolving term loan facility that was to mature on February 1, 2022. These loans were secured by a first-priority security interest in all of Alto Pekin’s assets. On November 5, 2021, the Company repaid in full the outstanding balances on these loans. ICP Loans — On September 15, 2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into a credit agreement. Under the terms of the agreement, ICP borrowed from Compeer $ 24.0 million under a term loan facility that was to mature on September 20, 2021, and up to $ 18.0 million under a revolving term loan facility that was to mature on September 1, 2022. These loans were secured by a first-priority security interest in all of ICP’s assets. On November 5, 2021, the Company repaid in full the outstanding balances on these loans. F- 29 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Parent Notes Payable – On December 12, 2016, the Company entered into a Note Purchase Agreement with five accredited investors and sold $ 55.0 million in aggregate principal amount of senior secured notes to the investors in a private offering for aggregate gross proceeds of 97 % of the principal amount of the notes sold. On June 26, 2017, the Company entered into a second Note Purchase Agreement with five accredited investors and sold an additional $ 13.9 million in aggregate principal amount of senior secured notes to the investors in a private offering for aggregate gross proceeds of 97 % of the principal amount of the notes sold (and collectively with the notes previously sold, the “Notes”). The Notes were secured by a first-priority security interest in all of the Company’s equity interests in Alto Op Co. On May 14, 2021, with proceeds from the Company’s sale of its Madera, California facility, the Company repaid $ 19.3 million of principal on the Notes, resulting in an aggregate remaining balance of $ 0.7 million. On November 5, 2021, the Company repaid the remaining outstanding balance on the Notes. CARES Act Loans – On May 4, 2020, Alto Ingredients and Alto Pekin, received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), through the Paycheck Protection Program administered by the U.S. Small Business Administration (“SBA”). Alto Ingredients received $ 6.0 million and Alto Pekin received $ 3.9 million in loan proceeds. Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act. In June 2021, the SBA approved Alto Pekin’s forgiveness application for the full amount of $ 3.9 million. In September 2021, the SBA approved Alto Ingredients’ forgiveness application for the full amount of $ 6.0 million. As a result, the Company recognized income from loan forgiveness of $ 9.9 million for the year ended December 31, 2021. The SBA may audit the loan forgiveness applications and further examine eligibility for forgiveness, including the facts and circumstances existing at the time the loans were made. The Company can provide no assurance that any loan forgiven will not require repayment following an audit by the SBA. Maturities of Long-term Debt – The Company’s long-term debt matures as follows (in thousands): December 31: 2027 $ 18,076 2028 60,000 $ 78,076 10. LEASES. The Company leases equipment and land for certain of its facilities. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the years ended December 31, 2022 and 2021, the Company’s weighted-average discount rate was 6.00 %. Operating lease expense is recognized on a straight-line basis over the lease term. F- 30 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Upon the adoption of ASC 842, the Company elected the following practical expedients allowable under the guidance: not to reassess whether any expired or existing contracts are or contain leases; not to reassess the lease classification for any expired or existing leases; not to reassess initial direct costs for any existing leases; not to separately identify lease and non-lease components; and not to evaluate historical land easements. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to only long-term (greater than 1 year) leases. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of approximately 1 year to 53 years, which includes options to extend the lease when it is reasonably certain the Company will exercise those options. For the year ended December 31, 2022, the weighted-average remaining lease terms of equipment and land-related leases were 5.09 years and 16.75 years, respectively. The Company does not have lease arrangements with residual value guarantees, sale-leaseback terms or material restrictive covenants. The Company does not have any material finance lease obligations nor sublease agreements. Leases consist of the following (in thousands): December 31, Classification 2022 2021 Assets Operating Right of use operating lease assets, net $ 18,937 $ 13,413 Liabilites Operating-Current Current portion, operating leases $ 3,849 $ 3,909 Operating-Noncurrent Operating leases, net of current portion $ 15,062 $ 9,382 The Components of lease costs were as follows (in thousands): Years Ended December 31, 2022 2021 2020 Fixed lease cost $ 5,224 $ 4,500 $ 5,732 Variable lease cost 124 238 212 Net lease cost $ 5,348 $ 4,738 $ 5,944 F- 31 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the remaining maturities of the Company’s operating lease liabilities, assuming all land lease extensions are taken, as of December 31, 2022 (in thousands): Year Ended: Equipment Land Related 2023 $ 4,112 $ 787 2024 2,869 821 2025 2,416 985 2026 1,838 998 2027 1,334 1,011 2028-76 2,613 5,564 Less interest ( 2,572 ) ( 3,865 ) $ 12,610 $ 6,301 11. PENSION PLANS. Retirement Plan - The Company sponsors a defined benefit pension plan (the “Retirement Plan”) that is noncontributory, and covers only “grandfathered” unionized employees at its Alto Pekin production facilities. Benefits are based on a prescribed formula based upon the employee’s years of service. Employees hired after November 1, 2010, are not eligible to participate in the Retirement Plan. The Company uses a December 31 st measurement date for its Retirement Plan. The Company’s funding policy is to make the minimum annual contribution required by applicable regulations. Information related to the Retirement Plan as of and for the years ended December 31, 2022 and 2021 is presented below (dollars in thousands): 2022 2021 Changes in plan assets: Fair value of plan assets, beginning $ 19,987 $ 17,588 Actual gains (losses) ( 3,315 ) 2,399 Benefits paid ( 784 ) ( 763 ) Company contributions 800 763 Participant contributions — — Fair value of plan assets, ending $ 16,688 $ 19,987 Less: projected accumulated benefit obligation $ 17,956 $ 23,828 Funded status, (underfunded)/overfunded $ ( 1,268 ) $ ( 3,841 ) Amounts recognized in the consolidated balance sheets: Other liabilities $ ( 1,268 ) $ ( 3,841 ) Accumulated other comprehensive (gain) loss $ ( 1,166 ) $ 574 Assumptions used in computation of benefit obligations: Discount rate 5.15 % 2.80 % Expected long-term return on plan assets 6.50 % 5.75 % Rate of compensation increase — — F- 32 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022 2021 2020 Components of net periodic benefit costs are as follows: Service cost $ 404 $ 436 $ 405 Interest cost 655 605 690 Amortization of net loss — 98 — Expected return on plan assets ( 1,090 ) ( 952 ) ( 903 ) Net periodic (benefit) cost $ ( 31 ) $ 187 $ 192 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 payments for the Company’s Retirement Plan for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands): December 31: 2023 $ 950 2024 980 2025 1,040 2026 1,050 2027 1,070 2028-32 6,030 $ 11,120 See Note 17 for discussion of the Retirement Plan’s fair value disclosures. Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted-average rate was developed based on those overall rates and the target asset allocation of the Retirement Plan. The Company’s pension committee is responsible for overseeing the investment of pension plan assets. The pension committee is responsible for determining and monitoring the appropriate asset allocations and for selecting or replacing investment managers, trustees, and custodians. The Retirement Plan’s current investment target allocations are 50% equities and 50% debt. The pension committee periodically reviews the actual asset allocation in light of these targets and rebalances investments as necessary. The pension committee also evaluates the performance of investment managers as compared to the performance of specified benchmarks and peers and monitors the investment managers to ensure adherence to their stated investment style and to the Retirement Plan’s investment guidelines. Postretirement Plan - The Company also sponsors a health care plan and life insurance plan (the “Postretirement Plan”) that provides postretirement medical benefits and life insurance to certain “grandfathered” unionized employees at its Alto Pekin production facilities. Employees hired after December 31, 2000, are not eligible to participate in the Postretirement Plan. The plan is contributory, with contributions required at the same rate as active employees. Benefit eligibility under the plan reduces at age 65 from a defined benefit to a defined dollar cap based upon years of service. F- 33 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information related to the Postretirement Plan as of December 31, 2022 and 2021 is presented below (dollars in thousands): 2022 2021 Amounts at the end of the year: Accumulated/projected benefit obligation $ 3,907 $ 4,313 Fair value of plan assets — — Funded status, (underfunded)/overfunded $ ( 3,907 ) $ ( 4,313 ) Amounts recognized in the consolidated balance sheets: Accrued liabilities $ ( 310 ) $ ( 210 ) Other liabilities $ ( 3,597 ) $ ( 4,103 ) Accumulated other comprehensive (income) loss $ ( 656 ) $ ( 290 ) Discount rate used in computation of benefit obligations 4.95 % 2.50 % Years Ended December 31, 2022 2021 2020 Components of net periodic benefit costs are as follows: Service cost $ 26 $ 42 $ 54 Interest cost 105 105 151 Amortization of prior service cost — 25 30 Net periodic benefit cost $ 131 $ 172 $ 235 Amounts recognized in the plan for the year: Participant contributions $ 43 $ 32 $ 26 Benefits paid $ 215 $ 217 $ 200 The Company does not expect to recognize any amortization of net actuarial loss during the year ended December 31, 2022. The following table summarizes the expected benefit payments for the Company’s Postretirement Plan for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter (in thousands): December 31: 2023 $ 310 2024 340 2025 350 2026 410 2027 420 2028-2032 1,760 $ 3,590 For purposes of determining the cost and obligation for pre-Medicare postretirement medical benefits, a 7.50% annual rate of increase in the per capita cost of covered benefits (i.e., health care trend rate) was assumed for the Postretirement Plan in 2024, adjusted to a rate of 4.50% in 2033 . Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. F- 34 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. INCOME TAXES. The Company recorded a provision (benefit) for income taxes as follows (in thousands): Years Ended December 31, 2022 2021 2020 Current provision (benefit) $ 1,925 $ 1,469 $ — Deferred provision (benefit) — — ( 17 ) Total $ 1,925 $ 1,469 $ ( 17 ) A reconciliation of the differences between the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is as follows: Years Ended December 31, 2022 2021 2020 Statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 5.8 6.0 5.7 Change in valuation allowance ( 33.9 ) ( 18.8 ) ( 9.4 ) Stock-based compensation 3.1 — — Non-deductible items ( 1.6 ) 0.4 ( 0.4 ) Income from loan forgiveness — ( 5.5 ) — Fair value adjustments — — ( 12.7 ) Noncontrolling interest — — ( 3.4 ) Other 0.6 ( 0.1 ) ( 0.8 ) Effective rate ( 5.0 )% 3.0 % ( 0.0 )% F- 35 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes are provided using the asset and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the consolidated balance sheets were as follows (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 58,131 $ 46,159 Capital loss 26,043 28,640 Disallowed interest 2,395 1,059 R&D, Energy and AMT credits 3,742 3,742 Pension liability 1,354 2,189 Railcar contracts 786 618 Stock-based compensation 634 479 Derivatives 460 — Allowance for credit losses and other assets 311 367 Intangibles 89 — Other 3,208 2,646 Total gross deferred tax assets 97,153 85,899 Less: valuation allowance ( 87,949 ) ( 75,584 ) Total deferred tax assets, net of valuation allowance 9,204 10,315 Deferred tax liabilities: Property and equipment ( 9,125 ) ( 8,896 ) Intangibles — ( 749 ) Derivatives — ( 606 ) Other ( 315 ) ( 300 ) Total deferred tax liabilities ( 9,440 ) ( 10,551 ) Net deferred tax liabilities, included in other liabilities $ ( 236 ) $ ( 236 ) A portion of the Company’s net operating loss carryforwards are subject to provisions of the tax law that limit the use of losses incurred by a corporation prior to the date certain ownership changes occur. These limitations also apply to certain depreciation deductions associated with assets on hand at the time of the ownership change and otherwise allowable during the five-year period following the ownership change. As the five-year limitation period lapsed in 2019, these disallowed deductions are reflected in property and equipment in the schedule above but continue to be subject to the annual limitation that applies to the pre-change net operating losses. Due to the limitation on the use of net operating losses and depreciation deductions, a significant portion of these carryforwards will expire regardless of whether the Company generates future taxable income. After reducing these net operating loss carryforwards for the amount which will expire due to this limitation, the Company had remaining federal net operating loss carryforwards of approximately $ 207,102,000 and state net operating loss carryforwards of approximately $ 233,170,000 at December 31, 2022. These net operating loss carryforwards expire as follows (in thousands): Tax Years Federal State 2023–2027 $ — $ 47,896 2028–2032 15,245 72,150 2033–2037 83,771 33,449 2038 and after* 108,086 79,675 Total NOLs $ 207,102 $ 233,170 * 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. F- 36 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS To the extent amounts are not utilized in any year, they may be carried forward to the next year until expiration. These amounts may change if there are future additional limitations on their utilization. Federal capital loss of $100,487,000 may be carried forward for 5 years and will expire in 2025. State capital loss of $95,469,000 may be carried forward for 5 years for most of the states in which the Company files returns and will expire in 2025. In assessing whether the deferred tax assets are realizable, a more likely than not standard is applied. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance was established in the amount of $ 87,949,000 and $ 75,584,000 as of December 31, 2022 and 2021, respectively, based on the Company’s assessment of the future realizability of certain deferred tax assets. The valuation allowance on deferred tax assets is related to future deductible temporary differences and net operating loss carryforwards for which the Company has concluded it is more likely than not that these items will not be realized in the ordinary course of operations. For the year ended December 31, 2022, the Company 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): December 31, 2022 2021 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 739 — 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 $ 739 $ — F- 37 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 tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still open to audit under the applicable statutes of limitation, are as follows: Jurisdiction Tax Years Federal 2019 – 2021 Alabama 2019 – 2021 Arizona 2018 – 2021 Arkansas 2019 – 2021 California 2018 – 2021 Colorado 2018 – 2021 Connecticut 2019 – 2021 Georgia 2019 – 2021 Idaho 2019 – 2021 Illinois 2019 – 2021 Indiana 2019 – 2021 Iowa 2019 – 2021 Kansas 2019 – 2021 Louisiana 2019 – 2021 Michigan 2019 – 2021 Minnesota 2019 – 2021 Mississippi 2019 – 2021 Missouri 2019 – 2021 Nebraska 2019 – 2021 New Mexico 2019 – 2021 Oklahoma 2019 – 2021 Oregon 2019 – 2021 Pennsylvania 2019 – 2021 Rhode Island 2019 – 2021 South Carolina 2019 – 2021 Tennessee 2019 – 2021 Texas 2018 – 2021 However, because the Company had net operating losses and credits carried forward in several of the jurisdictions, including the United States federal and California jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years. F- 38 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. PREFERRED STOCK. The Company has 6,734,835 undesignated shares of authorized and unissued preferred stock, which may be designated and issued in the future on the authority of the Company’s Board of Directors. As of December 31, 2022, the Company had the following designated classes of preferred stock: Series A Preferred Stock – The Company has authorized 1,684,375 shares of Series A Cumulative Redeemable Convertible Preferred Stock (“Series A Preferred Stock”), with none outstanding at December 31, 2022 and 2021. Shares of Series A Preferred Stock that are converted into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock. Upon any issuance, the Series A Preferred Stock would rank senior in liquidation and dividend preferences to the Company’s common stock. Holders of Series A Preferred Stock would be entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 5 % per annum of the purchase price per share of the Series A Preferred Stock. The holders of the Series A Preferred Stock would have conversion rights initially equivalent to two shares of common stock for each share of Series A Preferred Stock, subject to customary antidilution adjustments. Certain specified issuances will not result in antidilution adjustments. The shares of Series A Preferred Stock would also be subject to forced conversion upon the occurrence of a transaction that would result in an internal rate of return to the holders of the Series A Preferred Stock of 25 % or more. Accrued but unpaid dividends on the Series A Preferred Stock are to be paid in cash upon any conversion of the Series A Preferred Stock. The holders of Series A Preferred Stock would have a liquidation preference over the holders of the Company’s common stock equivalent to the purchase price per share of the Series A Preferred Stock plus any accrued and unpaid dividends on the Series A Preferred Stock. A liquidation would be deemed to occur upon the happening of customary events, including transfer of all or substantially all of the Company’s capital stock or assets or a merger, consolidation, share exchange, reorganization or other transaction or series of related transactions, unless holders of 66 2/3% of the Series A Preferred Stock vote affirmatively in favor of or otherwise consent to such transaction. Series B Preferred Stock – The Company has authorized 1,580,790 shares of Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”), with 926,942 shares outstanding at December 31, 2022 and 2021. Shares of Series B Preferred Stock that are converted into shares of the Company’s common stock revert to undesignated shares of authorized and unissued preferred stock. The Series B Preferred Stock ranks senior in liquidation and dividend preferences to the Company’s common stock. Holders of Series B Preferred Stock are entitled to quarterly cumulative dividends payable in arrears in cash in an amount equal to 7.00 % per annum of the purchase price per share of the Series B Preferred Stock; however, subject to the provisions of the Letter Agreement described below, such dividends may, at the option of the Company, be paid in additional shares of Series B Preferred Stock based initially on the liquidation value of the Series B Preferred Stock. In addition to the quarterly cumulative dividends, holders of the Series B Preferred Stock are entitled to participate in any common stock dividends declared by the Company to its common stockholders. The holders of Series B Preferred Stock have a liquidation preference over the holders of the Company’s common stock initially equivalent to $ 19.50 per share of the Series B Preferred Stock plus any accrued and unpaid dividends on the Series B Preferred Stock. A liquidation will be deemed to occur upon the happening of customary events, including the transfer of all or substantially all of the capital stock or assets of the Company or a merger, consolidation, share exchange, reorganization or other transaction or series of related transaction, unless holders of 66 2/3% of the Series B Preferred Stock vote affirmatively in favor of or otherwise consent that such transaction shall not be treated as a liquidation. The Company believes that such liquidation events are within its control and therefore has classified the Series B Preferred Stock in stockholders’ equity . F- 39 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2022, the Series B Preferred Stock was convertible into 964,230 shares of the Company’s common stock. The conversion ratio is subject to customary antidilution adjustments. In addition, antidilution adjustments are to occur in the event that the Company issues equity securities, including derivative securities convertible into equity securities (on an as-converted or as-exercised basis), at a price less than the conversion price then in effect. The shares of Series B Preferred Stock are also subject to forced conversion upon the occurrence of a transaction that would result in an internal rate of return to the holders of the Series B Preferred Stock of 25 % or more. The forced conversion is to be based upon the conversion ratio as last adjusted. Accrued but unpaid dividends on the Series B Preferred Stock are to be paid in cash upon any conversion of the Series B Preferred Stock. The holders of Series B Preferred Stock vote together as a single class with the holders of the Company’s common stock on all actions to be taken by the Company’s stockholders. Each share of Series B Preferred Stock entitles the holder to approximately 0.03 votes per share on all matters to be voted on by the stockholders of the Company. Notwithstanding the foregoing, the holders of Series B Preferred Stock are afforded numerous customary protective provisions with respect to certain actions that may only be approved by holders of a majority of the shares of Series B Preferred Stock. In 2008, the Company entered into Letter Agreements with Lyles United LLC (“Lyles United”) and other purchasers under which the Company expressly waived its rights under the Certificate of Designations relating to the Series B Preferred Stock to make dividend payments in additional shares of Series B Preferred Stock in lieu of cash dividend payments without the prior written consent of Lyles United and the other purchasers. On or about December 19, 2019, the Company and the holders of its Series B Preferred Stock entered into letter agreements under which the holders agreed that until the earlier of (i) the Company’s repayment of its obligations in respect of its senior secured notes and thereafter until the next scheduled quarterly installment of Series B Preferred Stock dividends, or (ii) the occurrence of a specified event of default under the letter agreement, or (iii) two years from the date of the letter agreement (collectively, the “Waiver Period”), the holders waived any rights and remedies against the Company with respect to any unpaid dividends. Cumulative dividends on the Series B Preferred Stock continued to accrue during the Waiver Period and remained owing to the holders of the Series B Preferred Stock. The letter agreement expired in December 2021. As a result, the Company paid all accrued and unpaid Series B Preferred Stock dividends and resumed quarterly dividend payments on its Series B Preferred Stock on December 31, 2021. Registration Rights Agreement – In connection with the sale of its Series B Preferred Stock, the Company entered into a registration rights agreement with Lyles United. 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. The registration rights agreement provides that holders of a majority of the Series B Preferred Stock, including common stock into which such Series B Preferred Stock has been converted, may demand and cause the Company to register on their behalf the shares of common stock issued, issuable or that may be issuable upon conversion of the Preferred Stock and as payment of dividends thereon, and upon exercise of the related warrants (collectively, the “Registrable Securities”). The Company is required to keep such registration statement effective until such time as all of the Registrable Securities are sold or until such holders may avail themselves of Rule 144 for sales of Registrable Securities without registration under the Securities Act of 1933, as amended. The holders are entitled to two demand registrations on Form S-1 and unlimited demand registrations on Form S-3; provided, however, that the Company is not obligated to effect more than one demand registration on Form S-3 in any calendar year. In addition to the demand registration rights afforded the holders under the registration rights agreement, the holders are entitled to unlimited “piggyback” registration rights. These rights entitle the holders who so elect to be included in registration statements to be filed by the Company with respect to other registrations of equity 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. F- 40 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. COMMON STOCK AND WARRANTS. Warrants issued to Senior 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 17 for the Company’s fair value assumptions. Warrants issued in Equity Offering – On October 28, 2020, the Company closed an underwritten public offering of 5,075,000 shares of its common stock at a public offering price of $ 8.42 per share and 5-year pre-funded warrants to purchase 3,825,493 shares of common stock at a public offering price of $ 8.42 per pre-funded warrant. The Company had determined that the warrants issued in this transaction did not meet the conditions for classification in stockholders’ equity and as such, the Company recorded them as a liability at fair value. In November 2020, these warrants were fully exercised. For the period they were outstanding in 2020, the Company revalued them at each reporting period. See Note 17 for the Company’s fair value assumptions. In addition, in a concurrent private placement, the Company also issued to the investor, for a nominal price, warrants to purchase an additional 8,900,493 shares of common stock at an exercise price of $ 9.757 per share. The warrants became exercisable after the six-month anniversary of the offering and 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. The aggregate gross proceeds from the offerings of common stock, pre-funded warrants and warrants were approximately $ 75.0 million. The net offering proceeds were approximately $ 70.5 million after deducting underwriting discounts and commissions and other estimated offering expenses. The following table summarizes warrant activity for the years ended December 31, 2022, 2021 and 2020 (number of shares in thousands): Number of Shares Price per Share Weighted Average Exercise Price Balance at December 31, 2019 5,500 $ 1.00 $ 1.00 Warrants exercised ( 5,500 ) $ 1.00 $ 1.00 Pre-funded warrants issued 3,825 $ 0.00 $ 0.00 Pre-funded warrants exercised ( 3,825 ) $ 0.00 $ 0.00 Series A warrants issued 8,900 $ 9.76 $ 9.76 Balance at December 31, 2020 8,900 $ 9.76 $ 9.76 Balance at December 31, 2021 8,900 $ 9.76 $ 9.76 Warrants expired ( 8,900 ) $ 9.76 $ 9.76 Balance at December 31, 2022 — $ — $ — F- 41 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nonvoting Common Stock – In 2015, the Company issued nonvoting common stock convertible at a holder’s election into voting common stock. As of December 31, 2022, an aggregate of 3,539,236 shares of nonvoting common stock had been converted into an equal number of shares of the Company’s voting common stock. As of December 31, 2022, 896 shares of nonvoting common stock were outstanding. At-the-Market Program – In October 2018, the Company established an “at-the-market” equity distribution program under which it could offer and sell shares of common stock to, or through, sales agents by means of ordinary brokers’ transactions on The Nasdaq Stock Market, in block transactions, or as otherwise agreed between the Company and its sales agent at prices deemed appropriate. For the years ended December 31, 2020 and 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. The Company terminated its “at-the-market” program in October 2020. 15. STOCK-BASED COMPENSATION. The Company has two equity incentive compensation plans: a 2006 Stock Incentive Plan and a 2016 Stock Incentive Plan. 2006 Stock Incentive Plan – The 2006 Stock Incentive Plan authorized the issuance of incentive stock options (“ISOs”) and non-qualified stock options (“NQOs”), restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based awards to the Company’s officers, directors or key employees or to consultants that do business with the Company for up to an aggregate of 1,715,000 shares of common stock. In June 2016, the 2006 Stock Incentive plan was terminated, except to the extent of issued and outstanding unvested stock awards and options. 2016 Stock Incentive Plan – On June 16, 2016, the Company’s shareholders approved the 2016 Stock Incentive Plan, which authorizes the issuance of ISOs, NQOs, restricted stock, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based awards to the Company’s officers, directors or key employees or to consultants that do business with the Company initially for up to an aggregate of 1,150,000 shares of common stock. On June 14, 2018, the Company’s shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 3,650,000 shares. On November 7, 2019, the Company’s shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 5,650,000 shares. On November 18, 2020, the Company’s shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 7,400,000 shares. On June 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. F- 42 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Options – Summaries of the status of Company’s stock option plans as of December 31, 2022 and 2021 and of changes in options outstanding under the Company’s plans during those years are as follows (number of shares in thousands): Years Ended December 31, 2022 2021 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Outstanding at beginning of year 74 $ 3.74 207 $ 4.16 Options exercised — — ( 124 ) 3.74 Options expired — — ( 9 ) 12.90 Outstanding at end of year 74 $ 3.74 74 $ 3.74 Options exercisable at end of year 74 $ 3.74 74 $ 3.74 Stock options outstanding as of December 31, 2022 were as follows (number of shares in thousands): Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted- Average Remaining Contractual Life (yrs.) Weighted- Average Exercise Price Number Exercisable Weighted- Average Exercise Price $ 3.74 74 0.46 $ 3.74 74 $ 3.74 The aggregate intrinsic value of the options outstanding was $( 63,000 ), $ 79,000 and $ 262,000 as of December 31, 2022, 2021 and 2020, respectively. Restricted Stock – A summary of unvested restricted stock activity is as follows (shares in thousands): Number of Shares Weighted- Average Grant Date Fair Value Per Share Unvested at December 31, 2020 2,260 $ 1.34 Issued 750 $ 5.76 Vested ( 1,525 ) $ 1.64 Canceled ( 98 ) $ 2.77 Unvested at December 31, 2021 1,387 $ 3.30 Issued 872 $ 6.21 Vested ( 1,051 ) $ 2.66 Canceled ( 39 ) $ 6.23 Unvested at December 31, 2022 1,169 $ 5.95 F- 43 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of the common stock at vesting aggregated $ 6,900,000 , $ 8,810,000 and $ 1,639,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Stock-based compensation expense related to employee and non-employee restricted stock and option grants recognized in the accompanying consolidated statements of operations, was as follows (in thousands): Years Ended December 31, 2022 2021 2020 Employees $ 2,689 $ 1,758 $ 2,025 Non-employees 644 1,125 654 Total stock-based compensation expense $ 3,333 $ 2,883 $ 2,679 Employee grants typically have a two or three-year vesting schedule, while non-employee grants have a one-year vesting schedule. At December 31, 2022, the total compensation expense related to unvested awards which had not been recognized was $ 4,863,000 and the associated weighted-average period over which the compensation expense attributable to those unvested awards will be recognized was approximately 0.55 years. 16. COMMITMENTS AND CONTINGENCIES. Commitments – The following is a description of significant commitments at December 31, 2022: Sales Commitments – At December 31, 2022, the Company had entered into sales contracts with its major customers to sell certain quantities of alcohol and essential ingredients. The Company had open alcohol indexed-price contracts for 91,290,000 gallons as of December 31, 2022 and open fixed-price alcohol sales contracts totaling $ 116,036,000 as of December 31, 2022. The Company had open fixed-price sales contracts for essential ingredients totaling $ 15,902,000 and open indexed-price sales contracts of essential ingredients for 142,000 tons as of December 31, 2022. These sales contracts are scheduled for completion over the next twelve months. Purchase Commitments – At December 31, 2022, the Company had indexed-price purchase contracts to purchase 26,848,000 gallons of alcohol and fixed-price purchase contracts to purchase $ 118,000 of alcohol from its suppliers. 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 is a description of significant contingencies at December 31, 2022: Litigation – The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible, and the amount involved could be material. While 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. F- 44 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. FAIR VALUE MEASUREMENTS. The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows: ● Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities; ● Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and ● Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period. Pooled separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds. The net asset value is used as a practical expedient to determine fair value for these accounts. Each pooled separate account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement, therefore these funds are classified within Level 2 of the valuation hierarchy. Long-Lived Assets Held-for-Sale – The Company recorded its long-lived assets associated with its property and equipment held-for-sale at fair value at December 31, 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 in Equity Offering – The Company issued pre-funded warrants and other warrants with exercise prices of $ 0.001 and $ 9.757 , respectively. The Company valued these warrants upon issuance using the Binomial valuation methodology. On November 16, 2020, the pre-funded warrants were exercised, and as a result, were revalued immediately prior to their exercise. Further, the other warrants were amended on November 24, 2020, resulting in equity accounting, and accordingly were revalued immediately prior to their amendment. The assumptions used were as follows (fair value dollars in thousands): Warrant Type Valuation Date Exercise Price Volatility Risk Free Interest Rate Term (years) Fair Value Pre-funded 10/28/2020 $ 0.01 97.0 % 0.34 % 5.00 $ 23,638 Other 10/28/2020 $ 9.76 134.0 % 0.14 % 1.50 $ 27,048 Pre-funded 11/16/2020 $ 0.01 97.0 % 0.40 % 4.95 $ 21,916 Other 11/24/2020 $ 9.76 135.0 % 0.13 % 1.45 $ 31,231 F- 45 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of the warrants are based on unobservable inputs and are designated as Level 3 inputs. The changes in the Company’s fair value of its Level 3 inputs with respect to its warrants were as follows (in thousands): Warrants to Senior Note holders Pre-funded Warrants Other Warrants Balance, December 31, 2019 $ 977 $ — $ — Issuance of warrants in October 2020 offering — 23,638 27,048 Exercise of warrants/reclass to equity in 2020 ( 8,474 ) ( 21,917 ) ( 31,231 ) Adjustments to fair value for 2020 7,497 ( 1,721 ) 4,183 Balance, December 31, 2021 and 2022 $ — $ — $ — Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs. The following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2022 (in thousands): Benefit Plan Fair Percentage Value Level 1 Level 2 Level 3 Allocation Assets: Derivative financial instruments $ 4,973 $ 4,973 $ — $ — Defined benefit plan assets(1) (pooled separate accounts): Large U.S. Equity(2) 4,586 — 4,586 — 28 % Small/Mid U.S. Equity(3) 2,986 — 2,986 — 18 % International Equity(4) 2,406 — 2,406 — 14 % Fixed Income(5) 6,710 — 6,710 — 40 % $ 21,661 $ 4,973 $ 16,688 $ — Liabilities: Derivative financial instruments $ 6,732 $ 6,732 $ — $ — F- 46 ALTO INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2021 (in thousands): Benefit Plan Fair Percentage Value Level 1 Level 2 Level 3 Allocation Assets: Derivative financial instruments $ 15,839 $ 15,839 $ — $ — Long-lived assets held-for-sale 1,000 — — 1,000 Defined benefit plan assets(1) (pooled separate accounts): Large U.S. Equity(2) 5,612 — 5,612 — 28 % Small/Mid U.S. Equity(3) 3,684 — 3,684 — 18 % International Equity(4) 2,909 — 2,909 — 15 % Fixed Income(5) 7,782 — 7,782 — 39 % $ 36,826 $ 15,839 $ 19,987 $ 1,000 Liabilities: Derivative financial instruments $ 13,582 $ 13,582 $ — $ — (1) See Note 11 for accounting discussion. (2) This category includes investments in funds comprised of equity securities of large U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund. (3) This category includes investments in funds comprised of equity securities of small- and medium-sized U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund. (4) 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. F- 47 INDEX TO EXHIBITS Where Located Exhibit Number Description* Form File Number Exhibit Number Filing Date Filed Herewith 2.1 Asset Purchase Agreement dated April 23, 2021 by and among the Registrant, Pacific Ethanol Madera LLC and Seaboard Energy California, LLC 10-Q 000-21467 10.1 08/10/2021 2.2 First Amendment to Asset Purchase Agreement dated July 30, 2021 by and among the Registrant, Pacific Ethanol Madera LLC and Seaboard Energy California, LLC 10-Q 000-21467 10.2 08/10/2021 2.3 Asset Purchase Agreement dated November 5, 2021 by and among the Registrant, Pacific Ethanol Stockton LLC and Pelican Acquisition LLC 10-K 000-21467 2.3 03/15/2022 3.1 Certificate of Incorporation 10-Q 000-21467 3.1 11/06/2015 3.2 Certificate of Designations, Powers, Preferences and Rights of the Series A Cumulative Redeemable Convertible Preferred Stoc k 10-Q 000-21467 3.2 11/06/2015 3.3 Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock 10-Q 000-21467 3.3 11/06/2015 3.4 Certificate of Amendment to Certificate of Incorporation dated June 3, 2010 10-Q 000-21467 3.4 11/06/2015 3.5 Certificate of Amendment to Certificate of Incorporation effective June 8, 2011 10-Q 000-21467 3.5 11/06/2015 3.6 Certificate of Amendment to Certificate of Incorporation effective May 14, 2013 10-Q 000-21467 3.6 11/06/2015 3.7 Certificate of Amendment to Certificate of Incorporation effective July 1, 2015 10-Q 000-21467 3.7 11/06/2015 3.8 Certificate of Amendment to Certificate of Incorporation effective January 12, 2021 8-K 000-21467 3.1 01/13/2021 3.9 Second Amended and Restated Bylaws 8-K 000-21467 3.2 01/13/2021 4.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 10-K 000-21467 4.1 03/30/2020 10.1 2006 Stock Incentive Plan, as amended# S-8 333-196876 4.1 06/18/2014 10.2 2016 Stock Incentive Plan, as amended# S-8 333-266035 4.11 07/06/2022 10.3 Form of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan# 10-K 000-21467 10.5 03/15/2018 - 47 - INDEX TO EXHIBITS Where Located Exhibit Number Description* Form File Number Exhibit Number Filing Date Filed Herewith 10.4 Form of Non-Employee Director Restricted Stock Agreement under 2016 Stock Incentive Plan# 10-K 000-21467 10.6 03/15/2017 10.5 Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and Bryon T. McGregor# 10-K 000-21467 10.9 03/15/2017 10.6 Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R. Sneed# 10-K 000-21467 10.12 03/15/2017 10.7 Second Amended and Restated Employment Agreement dated July 26, 2018 between the Registrant and Michael D. Kandris# 8-K 000-21467 10.1 08/07/2020 10.8 Employment Agreement dated February 1, 2022 between the Registrant and Auste M. Graham# 10-K 000-21467 10.9 03/15/2022 10.9 Consulting Agreement dated May 28, 2022 between the Registrant and Christopher W. Wright 8-K 000-21467 10.1 06/01/2022 10.10 Form of Indemnity Agreement between the Registrant and each of its Executive Officers and Directors# 10-K 000-21467 10.46 03/31/2010 10.11 Policy for Recoupment of Incentive Compensation dated March 29, 2018# 10-K 000-21467 10.17 03/18/2019 10.12 Form of Clawback Policy Acknowledgement and Agreement# 10-K 000-21467 10.18 03/18/2019 10.13 Registration Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC 8-K 000-21467 10.4 03/27/2008 10.14 Letter Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC 8-K 000-21467 10.5 03/27/2008 10.15 Letter Agreement dated May 22, 2008 among the Registrant, Neil M. Koehler, Bill Jones, Paul P. Koehler and Thomas D. Koehler# 8-K 000-21467 10.3 05/23/2008 10.16 Second Amended and Restated Credit Agreement dated August 2, 2017 among Kinergy Marketing LLC, Pacific Ag. Products, LLC, Wells Fargo Bank, National Association, and the parties thereto from time to time as lenders 8-K 000-21467 10.1 08/08/2017 - 48 - INDEX TO EXHIBITS Where Located Exhibit Number Description* Form File Number Exhibit Number Filing Date Filed Herewith 10.17 Amendment No. 1 to Second Amended and Restated Credit Agreement dated March 27, 2019 by and among Kinergy Marketing LLC, Pacific Ag. Products, LLC and Wells Fargo Bank, National Association 10-Q 000-21467 10.7 05/03/2019 10.18 Amendment No. 2 to Second Amended and Restated Credit Agreement dated July 31, 2019 by and among Kinergy Marketing LLC, Pacific Ag. Products, LLC, the parties thereto from time to time as lenders and Wells Fargo Bank, National Association 8-K 000-21467 10.1 08/06/2019 10.19 Amendment No. 3 to Second Amended and Restated Credit Agreement dated November 19, 2019 by and among Kinergy Marketing LLC, Pacific Ag. Products, LLC, the parties thereto from time to time as lenders and Wells Fargo Bank, National Association 10-K 000-21467 10.61 03/30/2020 10.20 Waiver, Consent and Amendment No. 4 to Second Amended and Restated Credit Agreement dated March 8, 2021 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association 10-K 000-21467 10.20 03/15/2022 10.21 Waiver, Consent, and Amendment No. 5 to Second Amended and Restated Credit Agreement dated June 10, 2021 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association 10-K 000-21467 10.21 03/15/2022 10.22 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 8-K 000-21467 10.2 11/14/2022 10.23 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 8-K 000-21467 10.2 08/08/2017 - 49 - INDEX TO EXHIBITS Where Located Exhibit Number Description* Form File Number Exhibit Number Filing Date Filed Herewith 10.24 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 8-K 000-21467 10.1 11/14/2022 10.25 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. 8-K 000-21467 10.3 11/14/2022 21.1 Subsidiaries of the Registrant X 23.1 Consent of Independent Registered Public Accounting Firm X 31.1 Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase X 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) X (#) A contract, compensatory plan or arrangement to which a director or executive officer is a party or in which one or more directors or executive officers are eligible to participate. (*) Certain of the agreements filed as exhibits contain representations and warranties made by the parties thereto. The assertions embodied in such representations and warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate risk. Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of facts or for any other purpose at the time they were made or otherwise. - 50 - SIGNATURES 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. /s/ MICHAEL D. KANDRIS Michel D. Kandris President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ WILLIAM L. JONES Chairman of the Board and Director March 14, 2023 William L. Jones /s/ MICHAEL D. KANDRIS President, Chief Executive Officer (Principal March 14, 2023 Michael D. Kandris Executive Officer), Chief Operating Officer and Director /s/ BRYON T. MCGREGOR Chief Financial Officer (Principal Financial March 14, 2023 Bryon T. McGregor and Accounting Officer) /s/ TERRY L. STONE Director March 14, 2023 Terry L. Stone /s/ DOUGLAS L. KIETA Director March 14, 2023 Douglas L. Kieta /s/ GILBERT E. NATHAN Director March 14, 2023 Gilbert E. Nathan /s/ DIANNE S. NURY Director March 14, 2023 Dianne S. Nury /s/ MARIA G. GRAY Director March 14, 2023 Maria G. Gray - 51 -