What changed in this filing

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Item 9A. Controls and Procedures

2024-03-14 compared with 2023-03-14 · 1404 added, 1844 removed, 282 unchanged (92% of the section changed)

4 unchanged sentences

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

in Rules 13a-15I and 15d-15(e) under the Securities 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, 2023 that our disclosure controls and procedures were effective at a reasonable assurance

Report on Internal Control over Financial Reporting

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;

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or

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

Because of its inherent limitations,

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

Also, projections of any evaluation of effectiveness

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

compliance with the policies or procedures may deteriorate.

A material weakness is defined

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

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

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

Under the supervision and with

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

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

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,

to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally

accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management

and directors;

(iii) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could

have a material effect on our financial statements.

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.

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.

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, 2023.

US LLP , an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting

as of December 31, 2023.

That report is included in Part IV of this report.

Inherent Limitations on the Effectiveness

Management does not expect that our disclosure

controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system,

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

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

must be considered relative to their costs.

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

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

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

These inherent limitations include the realities

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

Controls can also

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

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no

assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Projections of any evaluation

of controls effectiveness to future periods are subject to risks.

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

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

Changes in Internal Control

over Financial Reporting

There has been no change in our internal control

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

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

Limitations on the Effectiveness of Controls

does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all

errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance

that the objectives of the control systems are met.

Further, the design of a control system must reflect the fact that there are resource

constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in a cost-effective

control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error

or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a

simple error or mistake.

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

or by management override of the controls.

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

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

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

Over time, controls may become

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

in Internal Control over Financial Reporting

has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)

during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal

control over financial reporting.

Other Information.

the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act

of 1934, as amended) informed us of the adoption or termination of a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement

(as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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.

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

in the Proxy Statement, is hereby incorporated by reference.

Executive Compensation.

The information under the caption “Executive

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

information under the caption “Executive Compensation and Related Information,” appearing in the Proxy Statement, is hereby

incorporated by reference.

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

The information under the captions “Security

Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” appearing in the

Proxy Statement, is hereby incorporated by reference.

information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation

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

Certain Relationships and Related Transactions, and Director Independence.

The information under the captions

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

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

information under the captions “Certain Relationships and Related Transactions” and “Information about our Board of

Directors, Board Committees and Related Matters—Director Independence” appearing in the Proxy Statement, is hereby incorporated

by reference.

Principal Accountant Fees and Services.

The information under the caption “Audit

Matters—Principal Accountant Fees and Services,” appearing in the Proxy Statement, is hereby incorporated by reference.

information under the caption “Audit Matters—Principal Accountant Fees and Services,” appearing in the Proxy Statement,

is hereby incorporated by reference.

Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements

Reference is made to the financial

statements listed on and attached following the Index to Consolidated Financial Statements contained on page F-1 of this report.

(a)(2) Financial Statement Schedules

(a)(3) Exhibits

Reference is made to the exhibits

listed on the Index to Exhibits.

Financial Statements

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.

Financial Statement Schedules

is made to the exhibits listed on the Index to Exhibits.

Form 10-K Summary.

7 unchanged sentences

Notes to Consolidated Financial Statements F-11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Alto

Ingredients, Inc.

and 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

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

We are a public

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

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

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

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

Our audits included performing procedures to assess the risks of material

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

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from

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

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

or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken

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

or on the accounts or disclosures to which it relates.

Evaluation of indicators of long-lived asset impairment

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

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

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

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

December 31, 2022.

We identified the evaluation of impairment indicators for long-lived

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

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

This required a high

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

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

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

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

impairment and tested the operating effectiveness of the controls

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

o Agreeing current period operating profits or losses for all

identifiable asset groups to respective trial balances

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

period operating loss to historical operating profits or losses

o Prepared an independent expectation of the underlying fair

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

o Comparing the sales price per nameplate production gallons

to the carrying value of the asset groups

o Evaluating publicly available information related to sales

of comparable production facilities

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

in the matter of the use of the asset groups

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and the Board of Directors of Alto Ingredients, Inc.

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, 2023 and 2022, 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, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023

and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 13,

2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

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.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

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

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.

Audit Matters

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.

of indicators of long-lived asset impairment

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, 2023.

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 and evaluated impairment indicators.

audit procedures related to the assessment of long-lived assets for possible indications of impairment included the following, among

● 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:

- Agreeing current period operating profits or losses for all identifiable

asset groups to respective trial balances

asset groups in a current period loss, compared the current period operating loss to historical operating profits or losses

an independent expectation of the underlying fair value for one identified asset group that had both current period and historical operating

publicly available information related to sales of comparable production facilities

the sales price per nameplate production gallons to the carrying value of the asset group

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

manner of or the use of the asset group

/s/ RSM US LLP

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

Rochester, Minnesota

March 14, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

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

Opinion on the Internal Control Over Financial Reporting

We have audited Alto Ingredients, Inc’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

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

designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements

for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting

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

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

(2) provide reasonable assurance that transactions are recorded

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

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

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

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

Because of its inherent limitations, internal control over financial

reporting may not prevent or detect misstatements.

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

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

procedures may deteriorate.

We have served as the Company’s

auditor since 2015.

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Stockholders and the Board of Directors of Alto Ingredients, Inc.

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, 2023, 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, 2023, based on

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

of the Treadway Commission in 2013.

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, 2023 and 2022, 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, 2023, and the related notes to the consolidated financial

statements of the Company and our report dated March 13, 2024 expressed an unqualified opinion.

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

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.

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.

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.

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

ALTO INGREDIENTS, INC.

INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and par value)

Current Assets:

Cash and cash equivalents

Restricted cash

and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 85 and $ 105 , respectively

Derivative instruments

Other current assets

Total current assets

Property and equipment, net

Other Assets:

Right of use operating lease assets, net

Notes receivable, noncurrent

Intangible assets, net

Total other assets

The accompanying notes are an

integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

current assets

and equipment, net

of use operating lease assets, net

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

INGREDIENTS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except shares and par value)

LIABILITIES AND STOCKHOLDERS’ EQUITY

AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable – trade

Accrued liabilities

Current portion – operating leases

Derivative instruments

Other current liabilities

Total current liabilities

Long-term debt, net

Operating leases, net of current portion

Other liabilities

Total Liabilities

Commitments and contingencies (Notes 1, 9, 10, 11 and 16)

Stockholders’ Equity:

portion – operating leases

current liabilities

leases, net of current portion

and contingencies (Notes 1, 9, 10, 11 and 15)

Stockholders’

Preferred stock, $ 0.001 par value;

11 unchanged sentences

896 shares issued and outstanding as of December 31, 2023 and 2022

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

The accompanying notes are an

integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

paid-in capital

other comprehensive income

stockholders’ equity

Liabilities and Stockholders’ Equity

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

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

4 unchanged sentences

Selling, general and administrative expenses

Gain on litigation settlement

Gain (loss) on sale (disposal) of assets

4 unchanged sentences

Interest expense, net

Fair value adjustments

Other income, net

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

Provision (benefit) for income taxes

Income (loss) before provision for income taxes

Provision for income taxes

Consolidated net income (loss)

Net loss attributed to noncontrolling interests

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

Preferred stock dividends

5 unchanged sentences

Weighted-average shares outstanding, diluted

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

ALTO INGREDIENTS, INC.

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

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Years Ended December 31,

Consolidated net income (loss)

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

Total comprehensive income (loss)

Comprehensive loss attributed to noncontrolling interests

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

The accompanying notes are an

integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands)

Preferred Stock

and Non-Voting

Ended December 31,

net income (loss)

comprehensive income – net gain arising during the period on defined

benefit pension plans

comprehensive income (loss)

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

INGREDIENTS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Non-Voting Common

Comprehensive

Balances, December 31, 2019

December 31, 2020

$ ( 736,598 )

Stock-based compensation

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

Common stock issuances

Warrant exercises

Common stock issuances ATM

Sale of interests in PAL

Pension plan adjustment

Preferred stock dividends

Balances, December 31, 2020

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

stock issuances

plan adjustment

stock dividends

December 31, 2021

$ ( 691,781 )

Stock-based compensation

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

Common stock issuances

Pension plan adjustment

Preferred stock dividends

Balances, December 31, 2021

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

issued for Eagle

issued to Orion

plan adjustment

stock dividends

December 31, 2022

$ ( 734,643 )

Stock-based compensation

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

Shares issued for Eagle

Shares issued to Orion

Stock repurchases

Pension plan adjustment

Preferred stock dividends

Balances, December 31, 2022

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

plan adjustment

stock dividends

December 31, 2023

$ ( 763,913 )

The accompanying notes are an

integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

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

INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December 31,

the Years Ended December 31,

Operating Activities:

Consolidated net income (loss)

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

Depreciation and amortization of intangibles

net income (loss)

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

Depreciation and amortization

of intangibles

Asset impairments

Income from loan forgiveness

Fair value adjustments

(Gain) loss on (sale) disposal of assets

(Gain) loss on (sale)

disposal of assets

Inventory valuation

Gains on derivative instruments

Amortization of deferred financing costs

Amortization of debt discounts (premiums)

Losses (gains) on derivative

Amortization of deferred

financing costs

Amortization of debt

discounts (premiums)

Noncash compensation

Bad debt expense (recovery)

Interest expense added to senior notes

Changes in operating assets and liabilities:

in operating assets and liabilities:

Accounts receivable

3 unchanged sentences

Liabilities held-for-sale

Accounts payable and accrued expenses

Net cash provided by operating activities

Investing Activities:

Proceeds from principal payments on notes receivable

Purchase of Eagle Alcohol, net of cash acquired

payable and accrued expenses

cash provided by operating activities

Additions to property

and equipment

Deferred purchase price

payments for Eagle Alcohol

Purchase of Eagle Alcohol,

net of cash acquired

Proceeds from principal

payments on notes receivable

Proceeds from sale of Stockton

Proceeds from sale of Madera

Proceeds from sale of interests in PAL

Proceeds from Magic Valley asset sale

Additions to property and equipment

Net cash provided by (used in) investing activities

Financing Activities:

from sale of Madera

cash (used in) provided by investing activities

Net proceeds from (payments

on) Kinergy’s line of credit

Net proceeds from term loan

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

Debt issuance costs

Preferred stock dividend payments

Stock repurchases

Proceeds from issuances of common stock and warrants

Proceeds from warrant exercises

Proceeds from CARES Act loans

Preferred stock dividend

Debt issuance costs

Proceeds from issuances

of common stock and warrants

Payments on plant borrowings

Payments on senior notes

Net cash provided by (used in) financing activities

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

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Reconciliation of total cash,

cash equivalents and restricted cash:

on senior notes

cash provided by (used in) financing activities

Net increase (decrease)

in cash, cash equivalents and restricted cash

cash equivalents and restricted cash at beginning of period

cash equivalents and restricted cash at end of period

Reconciliation of total cash, cash equivalents

and restricted cash:

and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted cash

Total cash, cash equivalents

and restricted cash

Supplemental Information:

Interest paid (net of capitalized interest)

Capitalized interest

Income tax payments (refunds)

Noncash financing and investing activities:

Accrued preferred stock dividends

The accompanying notes are an

integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

paid (net of capitalized interest)

The accompanying

notes are an integral part of these consolidated financial statements.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

AND SIGNIFICANT ACCOUNTING POLICIES.

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 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.

date, Eagle Alcohol became a wholly-owned subsidiary of the Company.

Eagle Alcohol specializes in break bulk distribution of specialty

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.

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

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

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.

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.

The Company produces and distributes renewable fuel, essential ingredients and specialty alcohols.

The Company also

produces and markets fuel-grade ethanol.

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

The Company’s two production facilities in Oregon and Idaho are located in close proximity to both feed and fuel-grade

ethanol customers.

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 five

Health, Home & Beauty ;

Food & Beverage ;

Industry & Agriculture;

Essential Ingredients ;

and Renewable Fuels .

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

and cleaners.

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

as corn germ used for corn oils.

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

germ, and distillers grains and liquid feed used in commercial animal feed and pet foods.

Renewable Fuels includes fuel-grade ethanol

and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 Industry & Agriculture markets include alcohols and other

products for paint applications and fertilizers.

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.

Products for Renewable Fuels

markets include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel and biodiesel fuels.

The Company’s production

facilities were operating for all of 2022, subject to scheduled and unscheduled downtimes to address facility repair and maintenance.

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 corn oil and high protein system, bringing the facility back online in

In January 2024, the Company again temporarily hot-idled the facility to minimize losses from negative regional crush margins

and to expedite the installation of additional equipment needed to achieve the Company’s intended production rate, quality and consistency

from the corn oil and high protein system.

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

4 unchanged sentences

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.

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.

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

The carrying amount of accounts receivable is

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

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

the customer balance that will not be collected.

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

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

The allowance for

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

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

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

The Company does not

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 reports financial and operating performance in three reportable segments (1) Pekin production, which includes the entire campus

in Pekin, Illinois (“Pekin Campus”), (2) 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, and (3)

Western production, which includes the Company’s two western production facilities on an aggregated basis (“Western production”).

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.

Cash – The Company’s restricted cash comprises cash collateral balances held in derivative brokerage 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

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

31, 2023 and 2022, as described below.

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.

the accounts receivable balance, approximately $ 51,315,000 and $ 55,667,000 at December 31, 2023 and 2022, respectively, were used as

collateral under Kinergy’s operating line of credit.

The allowance for credit losses was $ 85,000 and $ 105,000 as of December 31,

2023 and 2022, respectively.

The Company recorded a bad debt expense of $ 427 ,000, a bad debt recovery of $ 217 ,000 and a bad debt expense

of $ 158,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company does not have any off-balance sheet credit

exposure related to its customers.

INGREDIENTS, INC.

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,

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,

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):

Company sells specialty alcohols to consumer product companies and fuel-grade ethanol to gasoline refining and distribution companies.

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

Ended December 31,

Company had accounts receivable due from these customers totaling $ 4,302,000 and $ 10,469,000 , representing 7 % and 15 % of total accounts

receivable, as of December 31, 2023 and 2022, respectively.

Company purchases corn, its largest cost component in producing alcohols, from its suppliers.

The Company purchased corn from suppliers

representing 10% or more of the Company’s total corn purchases, as follows:

Ended December 31,

of December 31, 2023, approximately 44 % of the Company’s employees were covered by a collective bargaining agreement.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

– 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 $ 2,201,000 and $ 4,612,000 as of December 31, 2023 and 2022, respectively.

Of the inventory balance, approximately $ 41,041,000

and $ 43,484,000 at December 31, 2023 and 2022, respectively, were used as collateral under Kinergy’s operating line of credit.

Inventory balances consisted of the following (in thousands):

Finished goods

1 unchanged sentence

Raw materials

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:

and Equipment – Property and equipment are stated at cost.

Depreciation is computed using the straight-line method over the

following estimated useful lives:

Facilities and plant equipment

1 unchanged sentence

Other equipment, vehicles and furniture

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

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

If derivatives meet those criteria, and hedge accounting is elected, effective gains and losses are deferred in accumulated other

comprehensive income (loss) and later recorded together with the hedged item in consolidated income (loss).

For derivatives designated

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

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

and normal sales.

Revenue Recognition – The

Company recognizes revenue under ASC 606.

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

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

be entitled in exchange for those goods or services.

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.

Assets – The Company amortizes intangible assets with definite lives using the straight-line method over their estimated 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.

– The Company accounts for leases under ASC Section 842, Leases (“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

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 Mercantile Exchange, 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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Recognition – The Company recognizes revenue under ASC Section 606, Revenue from Contracts with Customers (“ASC

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;

(1) identify the contract with the customer;

identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction

price to the performance obligations in the contract;

(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.

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.

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

The Company has five production facilities from

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

Alto Nutrients enters into sales contracts

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

The Company recognizes revenue from sales of alcohols

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

depending on the terms of the underlying contracts.

In some instances, the Company enters into contracts with customers that contain multiple

performance obligations to deliver volumes of alcohols or essential ingredients over a contractual period of less than 12 months.

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

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

corresponding performance obligations.

When the Company is the agent, the supplier controls

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

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

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

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

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

See Note 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

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.

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.

Company recognizes revenue primarily from sales of alcohols and essential ingredients.

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

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

for the years ended December 31, 2022 and 2021, Kinergy had exclusive sales agreements with certain third-party owned fuel-grade ethanol

production facilities under which it sold the facilities’ fuel-grade ethanol for a fee plus the costs to deliver the ethanol to

Kinergy’s customers.

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

Revenue from these third-party agent sales was recorded

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

Kinergy has terminated these contracts,

and as a result, did not have any related sales for the year ended December 31, 2023.

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.

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.

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.

the tables in Note 5 for the Company’s revenue by type of contracts.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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

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.

amount is less than the carrying value of the asset, the Company will then determine the fair value of the asset group.

An impairment

loss would be recognized when the fair value is less than the related asset group’s net book value, and an impairment expense would

be recorded in the amount of the difference.

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

knowledge of its operations and the industries in which it operates.

These forecasts could be significantly affected by future changes

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

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

and for those that failed step 1, the Company performed a further fair value assessment, resulting in an impairment of $ 2.1 million for

the year ended December 31, 2020.

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

ended December 31, 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

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.

– Goodwill represents the excess of cost of an acquired entity over the net of the amounts assigned to net assets acquired

and liabilities assumed.

Annually, or more frequently, if indications of impairment arise, the Company performs a review for impairment.

This review includes the determination of each reporting unit’s fair value using market multiples and discounted cash flow modeling.

The estimates of future cash flows are judgments based on management’s experience and knowledge of the Company’s operations

and the industries in which the Company operates.

These estimates can be significantly affected by future changes in market conditions,

the economic environment, including inflation, and capital spending decisions of the Company’s customers.

Any assessed impairments

will be permanent and expensed in the period in which the impairment is determined.

If the Company determines through its assessment

process that any of its goodwill requires impairment charges, the charges will be recorded in asset impairment expenses in the consolidated

statements of operations.

The Company performed its annual review of impairment

of goodwill and recognized an asset impairment loss of $ 6.0 million for the year ended December 31, 2023.

No impairment losses for

goodwill were recognized for the years ended December 31, 2022 and 2021.

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

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

The Company’s assessment resulted in an asset impairment of $ 574,000 , $ 0 and $ 3,100,000 for the years ended December

31, 2023, 2022 and 2021, 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.

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company files a consolidated federal income

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

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 1,048,000 , $ 177,000 and $ 778,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

Unamortized deferred financing costs were approximately $ 4,700,000 and $ 5,034,000 as of December 31, 2023 and 2022, respectively, and

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

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.

Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions.

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.

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.

does not have any foreign operations.

(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

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

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

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

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

following tables compute basic and diluted income (loss) per share (in thousands, except per share data):

Ended December 31, 2023

Consolidated net loss

Preferred stock

Basic and diluted loss per share:

Loss available to common stockholders

Year Ended December 31, 2021

Net income attributed to Alto Ingredients, Inc.

Ended December 31, 2022

Consolidated net loss

Preferred stock

Basic and diluted loss per share:

Loss available to common stockholders

Ended December 31, 2021

Preferred stock dividends

Income allocated to participating securities

Basic income per share:

Income available to common stockholders

income per share:

available to common stockholders

Dilutive securities

Diluted income per share:

Income available to common stockholders

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2020

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

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.

income per share:

available to common stockholders

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

were an aggregate of 981,000 , 964,000 and 964,000 potentially dilutive shares from convertible securities outstanding for the years ended

December 31, 2023, 2022 and 2021, respectively.

These convertible securities were not considered in calculating diluted loss per common

share for the years ended December 31, 2023, 2022 and 2021 as their effect would be anti-dilutive.

In addition, there were an aggregate

of 3,188,000 and 8,900,500 weighted-average anti-dilutive shares from outstanding out-of-the-money warrants for the years ended December

31, 2022 and 2021, respectively.

Instruments – The carrying values of cash and cash equivalents, restricted cash, accounts receivable, derivative instruments,

accounts payable and accrued 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.

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

Income from Cash Grant –

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

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

market losses due to the pandemic.

The Company is not required to repay the grant.

Since these funds are provided to subsidize historical

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

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

cash grant in the accompanying consolidated statements of operations.

Employment-related Benefits –

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.

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.

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.

they were recently issued.

Combinations – Business acquisitions are accounted for in accordance with ASC Section 805, Business Combinations .

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.

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

from Cash Grant – For the years ended December 31, 2023 and 2022, the Company received $ 2,812,000 and $ 22,652,000 , respectively,

in cash from the USDA’s Biofuel Producer Program.

The program was created as part of the CARES Act of 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 grants.

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

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.

Repurchase Program – On September 12, 2022, the Company announced a share repurchase program under which it may repurchase

up to $ 50,000,000 of its common stock with an initial purchase authorization of $ 10,000,000 .

The Company’s lender has further limited

the Company’s purchase authorization to $ 5,000,000 .

Amounts in excess of the purchase authorization of $ 5,000,000 will require

additional lender consent and amounts in excess of the initial purchase authorization of $ 10,000,000 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 years ended December 31, 2023 and 2022, the Company repurchased an aggregate of 1,685,000 shares and 351,000 shares for $ 3,674,000

and $ 1,325,000 in cash, respectively.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Common Stock – In 2015, the Company issued nonvoting common stock convertible at a holder’s election into voting common

As of December 31, 2023, 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, 2023, there were 896 shares of nonvoting common stock outstanding.

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,

goodwill impairment, 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.

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.

OF EAGLE ALCOHOL.

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 were 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 succeeding

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 accrued $ 2.8 million and $ 3.5 million in other current liabilities in the accompanying consolidated balance sheets as of

December 31, 2023 and 2022, respectively, with the expense included in selling, general and administrative expenses in the accompanying

consolidated statements of operations for the years then ended.

Eagle Alcohol specializes in break bulk distribution

5 unchanged sentences

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Eagle Alcohol’s unaudited standalone results

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

in net income, respectively.

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

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

Years Ended December 31,

Revenues – pro forma

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

Diluted net income (loss) per share – pro forma

Diluted shares

The Company’s following allocation of purchase

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

The Company did

not incur any material acquisition costs.

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

nature and customer collection history.

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

Cash and equivalents

Accounts receivable

Total current assets

Property and equipment

Right of use assets

Total tangible assets

Current liabilities

Right of use liability

Total liabiltiies

Net tangible assets acquired

Customer relationships

Total Purchase Price

Goodwill represents the value of the downstream

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

The Company expects the amortization of goodwill to be deductible

for tax purposes.

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

and 10 years for tradename.

ASSET SALES AND HELD-FOR-SALE CLASSIFICATION.

Pacific Aurora

On April 15, 2020, the Company closed the sale of its ownership interest

in Pacific Aurora and preliminarily received total consideration of $ 52.8 million, which, after working capital adjustments, was reduced

to approximately $ 36.4 million, resulting in cash proceeds of $ 19.9 million and the balance of $ 16.5 million in long-term ACEC promissory

notes, resulting in a net loss on sale of approximately $ 1.4 million, recorded as gain (loss) on sale of assets in the Company’s

consolidated statements of operations.

Approximately $ 14.5 million of the cash proceeds were used to repay a portion of the Company’s

In September 2020, the Company and ACEC agreed to certain post-closing adjustments to the purchase price, resulting in a decrease

of $ 0.9 million, and a corresponding reduction in the aggregate principal amount owed under the long-term ACEC promissory notes.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company received two promissory notes, as

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

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

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

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

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

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

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

Both notes were repaid in full on June 30, 2022.

In addition, upon the sale, the Company no longer

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

On November 30, 2020, the Company sold 134 acres,

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

retained the fuel-grade ethanol production facility and terminal on the remaining 25 acres and has entered into certain agreements with

the buyer for delivery of grain to the plant.

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

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.

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.

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

part of the Company’s allocation of purchase price for its acquisition of Eagle Alcohol, the Company recorded a customer relationships

intangible asset of $ 6.5 million, a trade name intangible asset of $ 0.4 million and goodwill of $ 6.0 million.

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.

The analysis of these potential sales resulted in an aggregate asset impairment of $ 1.2 million

in the Company’s Western production segment for the year ended December 31, 2021.

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 (loss)

on sale (disposal) 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.

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 (loss) on sale (disposal) of assets in the Company’s consolidated statements of

With the net cash proceeds, the Company repaid in full its senior secured notes and loans made to Alto Pekin and ICP.

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, 2021, pre-tax loss attributed to the results of operations for Stockton and Madera was

$ 2.8 million and $ 2.0 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.

ALTO INGREDIENTS,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2021, the Company agreed to sell certain

assets of the Company’s property and equipment in Canton, Illinois.

As a result, the Company determined the related long-lived asset

groups should be classified as held-for-sale at December 31, 2021.

The analysis of the potential sale resulted in an asset impairment

of $ 1.9 million in the Company’s Other production segment for the year ended December 31, 2021.

As of December 31, 2021, the Company

recorded $ 1.0 million in assets held-for-sale associated with this transaction.

recorded for the year ended December 31, 2021 of $ 0 and $ 1.2 million, respectively.

2021, the Company agreed to sell certain assets of the Company’s property and equipment in Canton, Illinois.

The analysis of the

potential sale resulted in an asset impairment of $ 1.9 million in the Company’s Western production segment for the year ended December

The Company sold these assets in 2022.

For the years ended

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

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

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

INTERCOMPANY AGREEMENTS.

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.

For the years ended December 31, 2022 and 2021, there were no sales from Canton.

the years ended December 31, 2022 and 2021, pre-tax losses attributed to Canton were less than $ 1.0 million for each year.

Company, directly or through one of its subsidiaries, has entered into the following management and marketing agreements:

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Ingredients recorded revenues of approximately $ 13,200,000 $ 12,403,000 and $ 9,774,000 related to the AMAs in place for the years ended

December 31, 2023, 2022 and 2021, 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.

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.

recorded revenues of approximately $ 5,431,000 , $ 5,746,000 and $ 4,496,000 related to the marketing agreements for the years ended December

31, 2023, 2022 and 2021, respectively.

These amounts have been eliminated upon consolidation.

1 unchanged sentence

– 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

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

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

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.

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.

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 $ 3,007,000 ,

$ 3,207,000 and $ 2,694,000 related to the corn procurement and handling agreements for the years ended December 31, 2023, 2022 and 2021,

respectively.

These amounts have been eliminated upon consolidation.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Each marketing agreement had an initial term of one year and has successive one year renewal periods

at the option of the production facility.

Nutrients recorded revenues of approximately $ 3,216,500 , $ 3,505,000 and $ 2,871,000 related to the marketing agreements for the years

ended December 31, 2023, 2022 and 2021, respectively.

These amounts have been eliminated upon consolidation.

1 unchanged sentence

performance in three segments:

(1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols

and essential ingredients on an aggregated basis, and sales of fuel-grade ethanol sourced from third parties (2) Pekin Campus production,

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

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

other production facilities on an aggregated basis, none of which are individually so significant to be considered a separately reportable

Income before provision for income taxes includes management fees charged

by Alto Ingredients to the segments.

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

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

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

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

The Other production segment incurred

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

and other includes the results of Eagle Alcohol and selling, general and administrative expenses, consisting primarily of corporate employee

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

During the normal course of business, the segments do business with

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

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

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.

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):

(1) Pekin Campus production, which includes the production and sale of alcohols and essential ingredients

produced at the Company’s Pekin, Illinois campus, (2) 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,

and (3) Western production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced the Company’s

two western production facilities on an aggregated basis, none of which are individually so significant to be considered a separately

reportable segment.

before provision for income taxes includes management fees charged by Alto Ingredients to the segments.

The Pekin Campus production segment

incurred $ 5,280,000 , $ 5,046,000 and $ 4,344,000 in management fees for the years ended December 31, 2023, 2022 and 2021, respectively.

The marketing and distribution segment incurred $ 3,960,000 , $ 3,840,000 and $ 3,480,000 in management fees for the years ended December

31, 2023, 2022 and 2021, respectively.

The Western production segment incurred $ 2,640,000 , $ 2,400,000 and $ 1,950,000 in management fees

for the years ended December 31, 2023, 2022 and 2021, 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.

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.

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

the years ended December 31, 2023, 2022 and 2021, capital expenditures incurred by the Pekin Campus segment were approximately $ 17.7

million, $ 25.7 million and $ 14.3 million, and capital expenditures incurred by the Western production segment were approximately $ 11.8

million, $ 12.3 million $ 2.1 million, respectively.

following tables set forth certain financial data for the Company’s operating segments (in thousands):

Years Ended December 31,

Pekin Campus production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Pekin Campus sales

ingredient sales

Pekin Campus sales

Marketing and distribution:

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Other Production, recorded as gross:

Alcohol sales

Essential ingredient sales

Intersegment sales

Total Other production sales

Corporate and other

marketing and distribution sales

Western Production, recorded as gross:

ingredient sales

Western production sales

Intersegment eliminations

Net sales as reported

Cost of goods sold:

sales as reported

of goods sold:

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

1 unchanged sentence

Cost of goods sold as reported

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

Pekin Campus production

Marketing and distribution

Other production

Corporate and other

Depreciation and amortization

Pekin Campus production

Other production

Corporate and other

Interest expense, net of capitalized interest:

Pekin Campus production

Marketing and distribution

Other production

Corporate and other

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

(loss) before provision for income taxes:

Campus production

and distribution

and amortization expense:

Campus production

expense, net of capitalized interest:

Campus production

and distribution

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

following table sets forth the Company’s total assets by operating segment (in thousands):

Pekin Campus production

Marketing and distribution

Other production

Western production

Corporate and other

PROPERTY AND EQUIPMENT.

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

AND EQUIPMENT.

and equipment consisted of the following (in thousands):

Facilities and plant equipment

2 unchanged sentences

Accumulated depreciation

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

INTANGIBLE ASSETS.

Intangible assets, including goodwill, consisted

of the following (in thousands):

December 31, 2022

December 31, 2021

expense was $ 22,492,000 , $ 24,528,000 and $ 23,292,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

Company capitalized interest of $ 2,454,000 , $ 720,000 and $ 628,000 for the years ended December 31, 2023, 2022 and 2021, respectively,

related to its capital investment activities.

Company’s property and equipment are substantially collateralized under the Company’s Term Loan.

assets, including goodwill, consisted of the following (in thousands):

Amortization/

Non-Amortizing:

1 unchanged sentence

Customer relationships

Eagle tradename

Total goodwill and intangible assets

Goodwill – The Company’s

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

Kinergy Tradename – The Company

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

The Company determined that the tradename

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

The Company did not record

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer Relationships – The

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

The Company has

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

Eagle Tradename – The Company

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

The Company has established a useful

life of ten years for the tradename.

Amortization expense associated with intangible

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

The weighted-average unamortized life of the customer relationships

and tradename is 10.9 years.

The expected amortization expense relating to

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

Years Ended December 31,

The business and activities of the Company expose

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.

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

Type of Instrument

Balance Sheet Location

Cash collateral balance

Alcohol tradename

goodwill and intangible assets

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

– As discussed in Note 2, the Company’s recorded goodwill of $ 5,970,000 in its Corporate and other segment resulted from

the Company’s acquisition of Eagle Alcohol.

As part of the Company’s annual goodwill testing, it impaired the full amount

of goodwill of $ 5,970,000 and recognized the amount in asset impairments in the consolidated statements of operations for the year ended

December 31, 2023.

The Company did not record any goodwill impairment for the years ended December 31, 2022 and 2021.

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

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, 2023, 2022 and 2021.

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

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

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

The Company has established a useful life of ten years for the tradename.

expense associated with intangible assets totaled $ 588,000 and $ 567,000 for the years ended December 31, 2023 and 2022.

The weighted-average

unamortized life of the customer relationships and tradename is 9.9 years.

expected amortization expense relating to amortizable intangible assets in each of the five years after December 31, 2023 are (in thousands):

Ended December 31,

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

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, 2023, 2022 and 2021, the Company did not designate

any of its derivatives as cash flow hedges.

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 losses of $ 8,031,000 and net gains of $ 19,263,000 and $ 21,619,000 as the change in

the fair value of these contracts for the years ended December 31, 2023, 2022 and 2021, respectively.

INGREDIENTS, INC.

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):

of December 31, 2023

of Instrument

Sheet Location

Cash collateral

Restricted cash

2 unchanged sentences

Derivative instruments

As of December 31, 2021

Type of Instrument

Balance Sheet Location

Cash collateral balance

Restricted cash

of December 31, 2022

of Instrument

Sheet Location

Cash collateral

Commodity contracts

1 unchanged sentence

Derivative instruments

The above amounts represent the gross balances

of the contracts;

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

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

For the Years Ended December 31,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term borrowings are summarized as follows

(in thousands):

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.

classification and amounts of the Company’s recognized gains (losses) for its derivatives not designated as hedging instruments

are as follows (in thousands):

the Years Ended December 31,

of Instrument

of Operations Location

of goods sold

the Years Ended December 31,

of Instrument

of Operations Location

of goods sold

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

borrowings are summarized as follows (in thousands):

Kinergy line of credit

4 unchanged sentences

Long-term debt

Kinergy Line of Credit

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

The line of credit matures on November

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

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%.

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 1.25 %, for a total rate of 6.74 %, at December 31, 2023.

The credit facility’s monthly

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

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

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

The credit facility also includes the

accounts receivable of Alto Nutrients as additional collateral.

Payments that may be made by Alto Nutrients to the Company as reimbursement

for management and other services provided by the Company to Alto Nutrients are limited under the terms of the credit facility to $500,000

per fiscal quarter.

If the monthly excess borrowing availability of

Kinergy and Alto Nutrients falls below certain thresholds, they are collectively required to maintain a fixed-charge coverage ratio (calculated

as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital

expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period)

of at least 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.

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.

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.

Kinergy and Alto Nutrients may also make distributions to the Company of up to

75 % of their excess cash flow.

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).

obligations of Kinergy and Alto Nutrients under the credit facility are secured by first-priority security interests 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.

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.

As of December

31, 2023, Kinergy had $ 33.3 million in unused borrowing availability under the credit facility.

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.

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

The Company also agreed to issue to the Lenders upon its first funding request, an aggregate of 1,282,051 shares of the Company’s

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

On November 23, 2022, the Company received its

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

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

Term Loan was $ 60,000,000 .

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

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

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

Interest accrues on the unpaid principal amount

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

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

The Company must prepay amounts outstanding under

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

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

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

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

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

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

The terms and conditions of the Term Loan also

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

and conditions.

Registration Rights Agreement -

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

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

The related registration

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

Pekin Loans –

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.

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

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):

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

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

As of December 31, 2023 and 2022, the principal 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.

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company must prepay amounts outstanding under the Term Loan on a semi-annual basis beginning with the six-month period ended 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.

terms and conditions of the Term Loan also contain customary and other representations, warranties, covenants and obligations, including

events of default, and other terms and conditions.

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.

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

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 of 2020 (“CARES Act”), through the Paycheck Protection Program administered by the

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.

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

The Company can provide no assurance that any loan forgiven will not require repayment following an audit by the SBA.

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

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

For the years ended December 31, 2023 and 2022, the Company’s weighted-average discount rate was 7.50 %.

Operating lease

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

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

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.

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

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.

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 52 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, 2023, the weighted-average remaining lease terms of equipment and land-related leases

were 4.73 years and 15.41 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):

5 unchanged sentences

Operating leases, net of current portion

The Components of lease costs were as follows

(in thousands):

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Components of lease costs were as follows (in thousands) :

Years Ended December 31,

2 unchanged sentences

Net lease cost

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):

Less interest

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):

following table summarizes the remaining maturities of the Company’s operating lease liabilities, assuming all land lease extensions

are taken, as of December 31, 2023 (in thousands) :

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

The Company uses a December 31st measurement date for its Retirement Plan.

The Company’s funding policy is to make the minimum

annual contribution required by applicable regulations.

related to the Retirement Plan as of and for the years ended December 31, 2023 and 2022 is presented below (dollars in thousands):

Changes in plan assets:

9 unchanged sentences

Other liabilities

Accumulated other comprehensive (gain) loss

Accumulated other comprehensive loss

Assumptions used in computation of benefit obligations:

2 unchanged sentences

Rate of compensation increase

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,

Components of net periodic benefit costs are as follows:

Interest cost

Amortization of net loss

Expected return on plan assets

Net periodic (benefit) cost

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):

See Note 17 for discussion of the Retirement Plan’s fair value

Historical and future expected returns of multiple

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

The overall rate for each

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

A weighted-average rate was developed based on those overall rates and the target asset allocation of the Retirement Plan.

The Company’s pension committee is responsible

for overseeing the investment of pension plan assets.

The pension committee is responsible for determining and monitoring the appropriate

asset allocations and for selecting or replacing investment managers, trustees, and custodians.

The Retirement Plan’s current investment

target allocations are 50% equities and 50% debt.

The pension committee periodically reviews the actual asset allocation in light of these

targets and rebalances investments as necessary.

The pension committee also evaluates the performance of investment managers as compared

to the performance of specified benchmarks and peers and monitors the investment managers to ensure adherence to their stated investment

style and to the Retirement Plan’s investment guidelines.

Postretirement Plan - The Company

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

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

hired after December 31, 2000, are not eligible to participate in the Postretirement Plan.

The plan is contributory, with contributions

required at the same rate as active employees.

Benefit eligibility under the plan reduces at age 65 from a defined benefit to a defined

dollar cap based upon years of service.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information related to the Postretirement Plan as of December 31, 2022

and 2021 is presented below (dollars in thousands):

return on plan assets

periodic cost (benefit)

Company does not expect to make any contributions in the year ending December 31, 2024.

Net periodic benefit cost for 2024 is estimated

at less than $ 0.1 million.

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):

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

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.

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

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.

related to the Postretirement Plan as of December 31, 2023 and 2022 is presented below (dollars in thousands):

Amounts at the end of the year:

Accumulated/projected benefit obligation

Fair value of plan assets

Funded status, (underfunded)/overfunded

Amounts recognized in the consolidated balance sheets:

Accumulated/projected

benefit obligation

Fair value of plan

status, (underfunded)/overfunded

Amounts recognized in

the consolidated balance sheets:

Accrued liabilities

Other liabilities

Accumulated other comprehensive (income) loss

Discount rate used in computation of benefit obligations

Years Ended December 31,

Accumulated other comprehensive

Discount rate used in

computation of benefit obligations

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Ended December 31,

Components of net periodic benefit costs are as follows:

Interest cost

Amortization of prior service cost

Net periodic benefit cost

Amounts recognized in the plan for the year:

Participant contributions

Benefits paid

The Company does not expect to recognize any amortization

of net actuarial loss during the year ended December 31, 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):

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES.

The Company recorded a provision (benefit) for

income taxes as follows (in thousands):

Years Ended December 31,

Current provision (benefit)

Deferred provision (benefit)

A reconciliation of the differences between the

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

of prior service cost

periodic benefit cost

Amounts recognized

in the plan for the year:

contributions

Company does not expect to recognize any amortization of net actuarial loss during the year ended December 31, 2024.

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):

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 2025, adjusted to a

rate of 4.50 % in 2034.

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

Company recorded a provision for income taxes as follows (in thousands):

Ended December 31,

Current provision

Deferred provision

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,

5 unchanged sentences

Income from loan forgiveness

Fair value adjustments

Noncontrolling interest

Effective rate

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):

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

income taxes are provided using the asset and liability method to reflect temporary differences between the financial statement carrying

amounts and the tax bases of assets and liabilities using presently enacted tax rates and laws.

The components of deferred income taxes

included in the consolidated balance sheets were as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards

Net operating

loss carryforwards

Disallowed interest

R&D, Energy and AMT credits

R&D, Energy and

Pension liability

1 unchanged sentence

Stock-based compensation

Allowance for credit losses and other assets

Allowance for credit losses

and other assets

Total gross deferred tax assets

valuation allowance

Total deferred tax assets, net of valuation allowance

Total deferred tax assets, net of valuation

Deferred tax liabilities:

1 unchanged sentence

Total deferred tax liabilities

Net deferred tax liabilities, included in other liabilities

A portion of the Company’s net operating

loss carryforwards are subject to provisions of the tax law that limit the use of losses incurred by a corporation prior to the date certain

ownership changes occur.

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

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

As the five-year limitation period

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

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

Due to the limitation on the use of net operating losses and

depreciation deductions, a significant portion of these carryforwards will expire regardless of whether the Company generates future taxable

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

remaining federal net operating loss carryforwards of approximately $ 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):

Net deferred tax liabilities,

included in other liabilities

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 $ 207,481,000

and state net operating loss carryforwards of approximately $ 227,772,000 at December 31, 2023.

These net operating loss carryforwards

expire as follows (in thousands):

2039 and after*

* Includes indefinite life federal net operating losses of $ 108.5 million generated after 2017.

Approximately $ 130,058,000 is available to utilize

against federal taxable income for 2023.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

To the extent amounts are not utilized in any

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):

Unrecognized tax benefits at beginning of year

Approximately

$ 135,260,000 is available to utilize against federal taxable income for 2024.

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.

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.

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

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.

valuation allowance was established in the amount of $ 93,506,000 and $ 87,949,000 as of December 31, 2023 and 2022, 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.

the year ended December 31, 2023, the Company recorded an increase in valuation allowance of $ 5,557,000 .

This was primarily related to

additional net operating losses accumulated for the year.

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

reconciliation of the beginning balance and the ending balance of gross unrecognized tax benefits, before interest and penalties, for

the period presented is as follows (in thousands):

Unrecognized tax benefits at beginning

Increases related to current year tax positions

2 unchanged sentences

Decreases related to prior year tax positions

Decreases related to expiration of prior year tax positions

Decreases related to settlements of prior year tax positions

Unrecognized tax benefits at end of year

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded unrecognized

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

tax rate, if recognized.

The Company recognizes interest

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

As of December

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

The Company does not expect

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

The Company is subject to income

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:

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

Company recorded unrecognized tax benefits for uncertain tax positions of approximately $ 739,000 as of December 31, 2023, of which $ 739,000

would impact the effective tax rate, if recognized.

Company recognizes interest and penalties related to income tax matters as a component of interest expense and other income, net, respectively.

As of December 31, 2023, the Company accrued penalties of $ 74,000 and interest of $ 75,000 related to uncertain tax positions.

does not expect the unrecognized tax benefits to change significantly over the next 12 months.

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

tax return and tax returns in state jurisdictions below as “major” tax filings.

These jurisdictions, along with the years

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

South Carolina

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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 .

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

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2023, the Company had the following designated classes

of preferred stock:

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, 2023 and 2022.

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.

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.

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.

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.

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.

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, 2023 and 2022.

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.

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

stockholders.

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

on by the stockholders of the Company.

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

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

In 2008, the Company entered

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

its rights under the Certificate of Designations relating to the Series B Preferred Stock to make dividend payments in additional shares

of Series B Preferred Stock in lieu of cash dividend payments without the prior written consent of Lyles United and the other purchasers.

On or about December 19, 2019,

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

The registration rights agreement is effective until the holders of the Series B Preferred Stock, and their affiliates, as a group,

own less than 10 % for each of the series issued, including common stock into which such Series B Preferred Stock has been converted.

registration rights agreement provides that holders of a majority of the Series B Preferred Stock, including common stock into which such

Series B Preferred Stock has been converted, may demand and cause the Company to register on their behalf the shares of common stock issued,

issuable or that may be issuable upon conversion of the Preferred Stock and as payment of dividends thereon, and upon exercise of the

related warrants (collectively, the “Registrable Securities”).

The Company is required to keep such registration statement

effective until such time as all of the Registrable Securities are sold or until such holders may avail themselves of Rule 144 for sales

of Registrable Securities without registration under the Securities Act of 1933, as amended.

The holders are entitled to two demand registrations

on Form S-1 and unlimited demand registrations on Form S-3;

provided, however, that the Company is not obligated to effect more than one

demand registration on Form S-3 in any calendar year.

In addition to the demand registration rights afforded the holders under the registration

rights agreement, the holders are entitled to unlimited “piggyback” registration rights.

These rights entitle the holders

who so elect to be included in registration statements to be filed by the Company with respect to other registrations of equity securities.

The Company is responsible for all costs of registration, plus reasonable fees of one legal counsel for the holders, which fees are not

to exceed $ 25,000 per registration.

The registration rights agreement includes customary representations and warranties on the part of

both the Company and the holders and other customary terms and conditions.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMON STOCK AND WARRANTS.

Warrants issued to Senior

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

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

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

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

Warrants issued in Equity

Offering – On October 28, 2020, the Company closed an underwritten public offering of 5,075,000 shares of its common stock

at a public offering price of $ 8.42 per share and 5-year pre-funded warrants to purchase 3,825,493 shares of common stock at a public

offering price of $ 8.42 per pre-funded warrant.

The Company had determined that the warrants issued in this transaction did not meet the

conditions for classification in stockholders’ equity and as such, the Company recorded them as a liability at fair value.

2020, these warrants were fully exercised.

For the period they were outstanding in 2020, the Company revalued them at each reporting period.

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):

Exercise Price

Balance at December 31, 2019

Warrants exercised

Pre-funded warrants issued

Pre-funded warrants exercised

Series A warrants issued

Balance at December 31, 2020

Balance at December 31, 2021

Warrants expired

Balance at December 31, 2022

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.

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

STOCK-BASED COMPENSATION.

The Company has two equity incentive compensation

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

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 .

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2023, the Series B Preferred Stock was convertible into 980,712 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.

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.

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.

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.

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.

COMPENSATION.

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

options and non-qualified stock options, 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 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

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.

On June 22, 2023, the Company’s

shareholders approved an increase to the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 11,400,000 shares.

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

Incentive Plan to 8,900,000 shares.

ALTO INGREDIENTS, INC.

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,

Weighted Average Exercise Price

Weighted Average

Exercise Price

Outstanding at beginning of year

Options exercised

Options expired

Outstanding at end of year

Options exercisable at end of year

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

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):

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

Stock – A summary of unvested restricted stock activity is as follows (shares in thousands):

Unvested at December 31,

1 unchanged sentence

Unvested at December 31, 2023

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,

fair value of the common stock at vesting aggregated $ 929,000 , $ 6,900,000 and $ 8,810,000 for the years ended December 31, 2023, 2022

and 2021, respectively.

Stock-based compensation expense related to employee and non-employee restricted stock and option grants recognized

in the accompanying consolidated statements of operations, was as follows (in thousands):

Ended December 31,

Non-employees

Total stock-based compensation expense

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.

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.

stock-based compensation expense

grants typically have a two or three-year vesting schedule, while non-employee grants have a one-year vesting schedule.

At December 31,

2023, the total compensation expense related to unvested awards which had not been recognized was $ 8,281,000 and the associated weighted-average

period over which the compensation expense attributable to those unvested awards will be recognized was approximately 0.67 years.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

AND CONTINGENCIES.

– The following is a description of significant commitments at December 31, 2023:

Commitments – At December 31, 2023, 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 102,874,000 gallons as of December 31,

2023 and open fixed-price alcohol sales contracts totaling $ 285,802,000 as of December 31, 2023.

The Company had open fixed-price sales

contracts for essential ingredients totaling $ 6,374,000 and open indexed-price sales contracts of essential ingredients for 85,000 tons

as of December 31, 2023.

These sales contracts are scheduled for completion over the next twelve months.

Commitments – At December 31, 2023, the Company had indexed-price purchase contracts to purchase 26,332,000 gallons of alcohol

and fixed-price purchase contracts to purchase $ 1,705,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts

to purchase $ 30,100,000 of corn from its suppliers as of December 31, 2023.

The Company had fixed-price purchase contracts for natural

gas totaling $ 4,663,000 .

The Company also had future commitments for certain capital projects totaling $ 15,629,000 .

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

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These purchase commitments

are scheduled to be satisfied through 2024.

Contingencies

– The following is a description of significant contingencies at December 31, 2023:

– 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

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.

VALUE MEASUREMENTS.

The fair value hierarchy prioritizes the inputs

used in valuation techniques into three levels, as follows:

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

and liabilities;

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

the asset or liability through corroboration with market data;

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

more significant inputs are unobservable.

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

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

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.

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):

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):

Balance, December 31, 2019

Issuance of warrants in October 2020 offering

Exercise of warrants/reclass to equity in 2020

Adjustments to fair value for 2020

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):

Derivative financial instruments

Defined benefit plan assets(1)

(pooled separate accounts):

fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:

1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;

2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration

with market data;

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.

INGREDIENTS, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2023 (in thousands):

financial instruments

Defined benefit plan

assets(1) (pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

Derivative financial instruments

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):

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1)

(pooled separate accounts):

financial instruments

following table summarizes recurring and nonrecurring fair value measurements by level at December 31, 2022 (in thousands):

financial instruments

Defined benefit plan

assets(1) (pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

Derivative financial instruments

financial instruments

(1) See Note 11 for accounting discussion.

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

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

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

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

is used to value the fund.

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

emerging markets.

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

is used to value the fund.

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.

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.

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

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

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

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

Certificate of Incorporation

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

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

Certificate of Amendment to Certificate of Incorporation dated June 3, 2010

Certificate of Amendment to Certificate of Incorporation effective June 8, 2011

Certificate of Amendment to Certificate of Incorporation effective May 14, 2013

Certificate of Amendment to Certificate of Incorporation effective July 1, 2015

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.

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

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

California, LLC

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

of Incorporation

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

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

of Amendment to Certificate of Incorporation dated June 3, 2010

of Amendment to Certificate of Incorporation effective June 8, 2011

of Amendment to Certificate of Incorporation effective May 14, 2013

of Amendment to Certificate of Incorporation effective July 1, 2015

Certificate of Amendment to Certificate of Incorporation effective January 12, 2021

Second Amended and Restated Bylaws

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

2006 Stock Incentive Plan, as amended#

Amended and Restated Bylaws

of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

2016 Stock Incentive Plan, as amended#

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

of Employee Restricted Stock Agreement under 2016 Stock Incentive Plan#

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

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

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

Amended and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R.

Second Amended and Restated Employment Agreement dated July 26, 2018 between the Registrant and Michael D.

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

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

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

Policy for Recoupment of Incentive Compensation dated March 29, 2018#

Form of Clawback Policy Acknowledgement and Agreement#

Registration Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Letter Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Letter Agreement dated May 22, 2008 among the Registrant, Neil M.

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

Amended and Restated Executive Employment Agreement dated September 17, 2023 between the Registrant and Bryon T.

and Restated Executive Employment Agreement dated November 7, 2016 between the Registrant and James R.

Amended and Restated Employment Agreement dated September 18, 2023 between the Registrant and Michael D.

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

Amended and Restated Employment Agreement dated September 17, 2023 between the Registrant and Robert R.

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

for Recoupment of Incentive Compensation dated March 29, 2018#

of Clawback Policy Acknowledgement and Agreement#

Rights Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Agreement dated March 27, 2008 between the Registrant and Lyles United, LLC

Agreement dated May 22, 2008 among the Registrant, Neil M.

Koehler, Bill Jones, Paul P.

Koehler and Thomas D.

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

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

Amendment No.

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

1 to Second Amended and Restated Credit Agreement dated March 27, 2019 by and among Kinergy Marketing LLC, Pacific Ag.

Products, LLC and Wells Fargo Bank, National Association

Amendment No.

LLC and Wells Fargo Bank, National Association

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

Amendment No.

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

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

Waiver, Consent and Amendment No.

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

Waiver, Consent, and Amendment No.

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

Amendment No.

6 to Second Amended and Restated Credit Agreement dated November 7, 2022 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association

Second Amended and Restated Guarantee dated August 2, 2017 by the Registrant in favor of Wells Fargo Bank, National Association, for and on behalf of the lenders

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

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

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

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

INDEX TO EXHIBITS

Where Located

Exhibit Number

Filed Herewith

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

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

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

Subsidiaries of the Registrant

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

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

First Amendment to Credit Agreement dated November 6, 2023 between the Registrant and OIC Investment Agent, LLC

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.

of the Registrant

Consent of Independent Registered Public Accounting Firm

3 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema

Inline XBRL Taxonomy Extension Calculation Linkbase

Inline XBRL Taxonomy Extension Definition Linkbase

Inline XBRL Taxonomy Extension Label Linkbase

Inline XBRL Taxonomy Extension Presentation Linkbase

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

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

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.

investors should not rely on the representations and warranties as characterizations of the actual state of facts or for any other purpose

at the time they were made or otherwise.

Pursuant to the requirements of Section 13 or 15(d) of the Securities

Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized

on this 14th day of March, 2023.

Alto Ingredients, Inc.

/s/ MICHAEL D.

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.

Dodd-Frank Clawback Policy

Instance Document

Taxonomy Extension Schema

Taxonomy Extension Calculation Linkbase

Taxonomy Extension Definition Linkbase

Taxonomy Extension Label Linkbase

Taxonomy Extension Presentation Linkbase

Cover Page Interactive

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

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.

of the agreements filed as exhibits contain representations and warranties made by the parties

The assertions embodied in such representations and warranties are not necessarily

assertions of fact, but a mechanism for the parties to allocate risk.

Accordingly, investors

should not rely on the representations and warranties as characterizations of the actual

state of facts or for any other purpose at the time they were made or otherwise.

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 13th day of March, 2024.

INGREDIENTS, INC.

President and Chief Executive

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.

Chairman of the Board and Director

March 13, 2024

President, Chief Executive Officer (Principal

March 14, 2023

Executive Officer), Chief Operating Officer and Director

Chief Financial Officer (Principal Financial

President and Chief Executive

March 13, 2024

and Accounting Officer)

(Principal Executive Officer)

Chief Financial Officer

March 13, 2024

(Principal Financial and Accounting

Acting Chief Operating Officer

March 13, 2024

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures