What changed in this filing

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Item 9A. Controls and Procedures

2026-03-13 compared with 2025-03-13 · 1272 added, 1185 removed, 719 unchanged (77% of the section changed)

Controls and Procedures.

We conducted an evaluation under the supervision

and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness

of the design and operation of our disclosure controls and procedures.

The term “disclosure controls and procedures,” as defined

in Rules 13a-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, 2024 that our disclosure controls and procedures were effective at a reasonable assurance

We conducted an evaluation

under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,

of the effectiveness of the design and operation of our disclosure controls and procedures.

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) under the Securities 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, 2025 that our disclosure controls and procedures

were effective at a reasonable assurance level.

Management’s Report on Internal Control

over Financial Reporting

Our management is responsible for establishing

and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

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

and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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, 2024.

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, 2024.

That report is included

in Part IV of this report.

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

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 Auditing Standard (AS) 2201 as 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.

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.

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, 2025.

RSM US LLP, an independent

registered public accounting firm, has issued an audit report on our internal control over financial reporting as of December 31, 2025.

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.

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

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

of the control systems are met.

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

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

Because of the inherent limitations in a cost-effective control

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

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

These inherent limitations

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

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

of the controls.

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

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

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.

There has been no change

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

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

financial reporting.

Other Information.

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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 , modification 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).

adoption , modification 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.

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(a)(1) Financial Statements

Reference is made to the financial statements listed

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

Reference is made to the financial statements

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

(a)(2) Financial Statement Schedules

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Stockholders and the Board of Directors

of Alto Ingredients, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Alto

Ingredients, Inc.

and its subsidiaries (the Company) as of December 31, 2024 and 2023, 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, 2024,

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, 2024 and 2023, and the results

of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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, 2025, 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 audit 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

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.

Long-lived asset impairment

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

the impairment of long-lived assets when events or changes in circumstances indicate that the fair value of assets could be less than

their carrying 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 group, the Company will then determine the fair value of the asset group.

When the estimated

fair value of the asset group is less than its carrying value, the Company recognizes an impairment expense equal to the difference between

the asset group’s carrying value and estimated fair value.

The Company’s assessment resulted in an asset impairment of $24,790,000

for the year ended December 31, 2024.

We identified the evaluation of the fair value of asset groups, where

fair value was required to be determined as part of the impairment analysis, as a critical audit matter because of the significant estimates

management makes when determining fair value.

This required a high degree of auditor judgment when performing audit procedures to evaluate

whether management appropriately determined fair value.

Our audit procedures related to the evaluation of fair value, where

fair value was required to be determined as part of the impairment analysis, included the following, among others:

● We obtained an understanding of management’s process

and the internal controls over management’s determination of fair value and tested the operating effectiveness of the controls

obtained management’s determination of fair value and evaluated management’s

determination by:

it to publicly available information related to sales of comparable asset groups sold by

the Company and others in the industry

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

/s/ RSM US LLP

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

Rochester, Minnesota

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

on the Financial Statements

have audited the accompanying consolidated balance sheets of Alto Ingredients, Inc.

and its subsidiaries (the Company) as of December

31, 2025 and 2024, 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, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in

the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

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, 2025, 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, 2026, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial

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.

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.

Transferable Tax Credits

described in Note 1 to the financial statements, the Company generates and recognizes tax credits associated with Section 45Z of the

Internal Revenue Code for domestic clean fuel production.

In accordance with IAS 20, the tax incentives are recognized when there is

reasonable assurance the Company will comply with the provisions of the incentive and that the incentive will be received.

recognized $7,500,000, net of estimated selling costs, as Transferable Tax Credits within the balance sheet and statement of operations

as of and for the year ended December 31, 2025.

identified the accounting for the transferable tax credits as a critical audit matter because of the significant judgments management

makes when determining how to account for the transferable tax credits given the significant unusual nature of the credits, as well as

when determining eligibility for and estimating the fair value of the tax credits.

This required a high degree of auditor judgment when

performing audit procedures to evaluate whether management appropriately accounted for the tax credits, determined eligibility and estimated

audit procedures related to the accounting for the transferable tax credits included the following, among others:

obtained an understanding of management’s process and internal controls over management’s

determination of eligibility, valuation of, and accounting for tax credits and tested the

operating effectiveness of the controls.

obtained evidence of the facilities’ approved registrations as clean transportation

fuel producers.

compared production and sales volumes to internal production records and sales invoices.

agreed the emissions rates to certifications provided by a qualified third-party certifier

or, when certifications were not available, agreed inputs into the 45ZCF-GREET model to internal

records and third-party invoices and validated mathematical accuracy.

compared inputs used in the calculation to third party agreements related to the fair value

of tax credits.

have served as the Company’s auditor since 2015.

March 13, 2026

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Stockholders and the Board of Directors

of Alto Ingredients, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited Alto Ingredients, Inc.’s (the Company) internal

control over financial reporting as of December 31, 2024, 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, 2024, based on criteria established in

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

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, 2024 and 2023, 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, 2024, and the related notes to the consolidated financial statements of the Company and our report

dated March 13, 2025, 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.

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

on the Internal Control Over Financial Reporting

have audited Alto Ingredients, Inc.’s (the Company) internal control over financial reporting as of December 31, 2025, 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, 2025, 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 of Alto Ingredients, Inc.

and its subsidiaries (the Company) as of December 31, 2025 and 2024, 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, 2025, and the related notes to the consolidated financial statements of the Company and our report dated March 13,

2026, 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

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

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance

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

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with

authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection

of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial

1 unchanged sentence

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 13, 2025

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.

ALTO INGREDIENTS, INC.

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Accounts receivable, net of allowance for credit losses of $ 76 and $ 23 , respectively

Transferable tax credits, net

Derivative instruments

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Accrued liabilities

Current portion – long-term debt

Current portion – operating leases

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Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Acquisition-related expenses

Gain (loss) on sale or disposal of assets

Acquisition-related recoveries (expenses)

Gain (loss) on sale of assets

Asset impairments

Loss from operations

Income (loss) from operations

Transferable tax credits, net

Excess insurance proceeds

Income from cash grant

1 unchanged sentence

Other income, net

Loss before provision for income taxes

Provision for income taxes

Consolidated net loss

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

Provision (benefit) for income taxes

Consolidated net income (loss)

Preferred stock dividends

Loss attributable to common stockholders

Loss per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

Income (loss) attributable to common stockholders

Income (loss) per share, basic

Income (loss) per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

The accompanying notes are an integral part of

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Years Ended December 31,

Consolidated net loss

Consolidated net income (loss)

Other comprehensive income – net gain arising during the period on defined benefit pension plans

Total comprehensive loss

Total comprehensive income (loss)

The accompanying notes are an integral part of

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(in thousands)

Common Stock and

Preferred Stock

Non-Voting Common

Common Stock and

Comprehensive

Income (Loss)

Balances, December 31, 2022

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

Shares issued for Eagle

Shares issued to Orion

Stock repurchases

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

Stock repurchases

Pension plan adjustment

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

Shares vested for Eagle Alcohol

Pension plan adjustment

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(in thousands)

Years Ended December 31,

For the Years Ended December 31,

Operating Activities:

Consolidated net loss

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

Consolidated net income (loss)

Adjustments to reconcile consolidated net income (loss) to

cash provided by (used in) operating activities:

Depreciation and amortization of intangibles

Asset impairments

(Gain) loss on sale or disposal of assets

Transferable tax credits, net, generated

(Gain) loss on sale of assets

Inventory valuation

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Stock-based compensation

Bad debt (recovery) expense

Changes in operating assets and liabilities:

Credit loss expense (recovery)

Changes in operating assets and liabilities, net of business acquisition:

Accounts receivable

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Accounts payable and accrued expenses

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Investing Activities:

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Proceeds from sale of assets

Purchase of Eagle Alcohol, net of cash acquired

Proceeds from principal payments on notes receivable

Purchase of Kodiak Carbonic, net of cash acquired

Excess insurance proceeds

Net cash used in investing activities

Financing Activities:

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

Net proceeds from term loan

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

Principal payments on term debt

Stock repurchases

1 unchanged sentence

Preferred stock dividend payments

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

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Cash, cash equivalents and restricted cash at end of period

Reconciliation of total cash, cash

equivalents and restricted cash:

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December 31,

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

5 unchanged sentences

Income tax refunds (payments)

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

The accompanying notes are an integral part of

these consolidated financial statements.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES .

4 unchanged sentences

(“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 2, on January 14, 2022, the Company acquired Eagle

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

On that date, Eagle Alcohol became a wholly-owned

subsidiary of the Company.

Eagle Alcohol specializes in break bulk distribution of specialty alcohols.

As discussed in Note 16, On January 1, 2025, the Company’s wholly-owned

subsidiary, Alto Carbonic, LLC (“Alto Carbonic”), acquired Kodiak Carbonic, LLC, a beverage-grade liquid CO 2 processor

for $ 7.6 million.

Alto Carbonic is co-located at the Company’s Columbia ethanol facility.

The Company plans to report the results

of Alto Carbonic in the Company’s Western Production segment beginning January 1, 2025.

The Company produces and distributes renewable fuels,

essential ingredients and specialty alcohols.

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

in Oregon and Idaho and Eagle Alcohol Company LLC, a Missouri limited liability company (“Eagle Alcohol”).

As discussed in Note 2, on January 1, 2025, the

Company’s wholly-owned subsidiary, Alto Carbonic, LLC (“Alto Carbonic”), acquired Kodiak Carbonic, LLC, a beverage-grade

liquid CO 2 processor, for $ 7.6 million.

Alto Carbonic’s facility is co-located at the Company’s Columbia ethanol

plant in Boardman, Oregon.

The Company began reporting the results of Alto Carbonic in the Company’s Western Production segment

on January 1, 2025.

The Company produces and distributes specialty alcohols, renewable

fuels and essential ingredients.

The Company also markets fuel-grade ethanol produced by third parties.

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 1.4 million tons of essential ingredients, such as dried yeast,

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

addition, the Company markets and distributes fuel-grade ethanol produced by third parties.

The Company’s production

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

The Company’s two production facilities in Boardman, Oregon

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

The Company has a combined alcohol production capacity of 330 million

gallons per year and produces, on an annualized basis, over 1.2 million tons of essential ingredients.

The Company’s Eagle Alcohol

business specializes in break bulk distribution of specialty alcohols.

The Company focuses on Health, Home & Beauty ;

Food & Beverage ;

Industry & Agriculture;

1 unchanged sentence

and Renewable Fuels markets.

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

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 protein meal, corn protein 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, other than its Magic Valley

plant, were operating for all periods presented subject to scheduled and unscheduled downtimes to address facility repair and maintenance.

In January 2024, the Company temporarily hot-idled its Magic Valley facility to minimize losses from negative regional crush margins and

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

corn oil and high protein system at the facility.

The Company restarted its Magic Valley facility in July 2024 and by October 2024, the

facility consistently achieved average ethanol production rates at full capacity, the protein content yield from the plant reached 50 %

or greater, and the Company was able to expand its corn oil yields.

Increases in regional corn basis and declining market prices for protein

and corn oil resulted in overall margin compression, outweighing the economic benefits of these plant improvements.

As a consequence,

the Company cold-idled its Magic Valley facility on December 31, 2024 to minimize financial losses.

The Company continues to provide terminal

services at the plant and intends to resume operations at the facility when the economic environment in the region sustainably improves.

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.

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, inks, vehicle fluids and fertilizers.

Products for Essential Ingredients markets include gas and liquid CO 2 ,

dried yeast, corn protein meal, corn protein feed, corn germ, and distillers grains and liquid feed used in commercial animal feed and

Products for Renewable Fuels markets include 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

Segments – A segment is a component of an enterprise whose operating

results are regularly reviewed by the enterprise’s chief operating decision maker (“CODM”) to make decisions about resources

to be allocated to the segment and assess its performance, and for which discrete financial information is available.

The Company determines

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

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

The Company has adopted

the guidance issued under ASU 2023-07, Segment Reporting (Topic 280) , which enhances disclosures about the Company’s segments.

The Company’s CODM is the Company’s executive committee, which is led by the Company’s Chief Executive Officer (“CEO”)

and includes its Chief Financial Officer, Chief Operating Officer, Chief Commercial Officer and Chief Legal Officer (“Executive

The Company manages and assesses the performance of its reportable segments by its gross profit (loss).

As part of the

Executive Committee’s review of segment-level performance, each member of the Executive Committee reviews the gross profit of the

Company’s reportable segments and provides expertise and analysis from their respective areas which drive the evaluation of the

performance of the Company’s reportable segments and allocation of resources to those segments.

Even though the CEO has the authority

to override the other members for strategic or other reasons, key decisions are made jointly by the Executive Committee.

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 and, beginning in 2025, its liquid CO 2 plant on an aggregated basis (“Western production”).

Cash and Cash Equivalents – The Company considers

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

The Company maintains its accounts

at several financial institutions.

These cash balances regularly exceed amounts insured by the Federal Deposit Insurance Corporation;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s production facilities, other

than its Magic Valley plant located in Burley, Idaho, were operating for all periods presented subject to scheduled and unscheduled downtimes

to address facility repair and maintenance.

In January 2024, the Company temporarily hot-idled its Magic Valley facility to minimize losses

from negative regional crush margins and to expedite the installation of additional equipment to achieve the intended production rate,

quality and consistency from the Company’s corn oil and high protein system at the facility.

The Company restarted its Magic Valley

facility in July 2024 and by October 2024, the facility consistently achieved average ethanol production rates at full capacity, the protein

content yield from the plant reached 50 % or greater, and the Company was able to expand its corn oil yields.

Increases in regional corn

basis and declining market prices for protein and corn oil resulted in overall margin compression, outweighing the economic benefits of

these plant improvements.

As a consequence, the Company cold-idled its Magic Valley facility on December 31, 2024, and through all of

2025, to minimize financial losses.

The Company continues to provide ethanol terminaling services at the

Basis of Presentation – The

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

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

All significant intercompany accounts and transactions

have been eliminated in consolidation.

Segments – A segment is

a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, the operating

results of which are regularly reviewed by the enterprise’s chief operating decision maker (“CODM”) to make

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

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

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

to determine segments.

The Company has adopted the guidance issued under ASU 2023-07, Segment Reporting (Topic 280):

to Reportable Segment Disclosures , which enhances disclosures about the Company’s segments.

The Company’s CODM is

the Company’s executive committee, which is led by the Company’s Chief Executive Officer (“CEO”) and

includes its Chief Financial Officer, Chief Operating Officer, Chief Commercial Officer and Chief Legal Officer (“Executive

The CODM manages and assesses the performance of its reportable segments by its gross profit (loss).

the Executive Committee’s review of segment-level performance, each member of the Executive Committee reviews the gross profit

of the Company’s reportable segments and provides expertise and analysis from their respective areas which drive the

evaluation of the performance of the Company’s reportable segments and allocation of resources to those segments.

the CEO has the authority to override the other members for strategic or other reasons, key decisions are made jointly by the

Executive Committee.

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 and, beginning in 2025, its liquid CO 2 plant on an aggregated basis (“Western

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.

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 renewable diesel 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, 2024 and 2023, 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.

The Company regularly reviews accounts

receivable and based on assessments of current customer creditworthiness, estimates the portion, if any, of the customer balance that

will not be collected.

Of the accounts receivable balance, approximately $ 44,750 ,000 and $ 51,315 ,000

at December 31, 2024 and 2023, respectively, were used as collateral under Kinergy’s operating line of credit.

The allowance for

credit losses was $ 23 ,000 and $ 85 ,000 as of December 31, 2024 and 2023, respectively.

The Company recorded a bad debt recovery of $ 50 ,000,

bad debt expense of $ 427 ,000 and a bad debt recovery of $ 217 ,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

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

Concentration Risks – Credit risk represents the

accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted.

Concentrations

of credit risk, whether on- or off-balance sheet, that arise from financial instruments exist for groups of customers or counterparties

when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected

by changes in economic or other conditions described below.

Financial instruments that subject the Company to credit risk consist of cash

balances maintained in excess of federal depository insurance limits and accounts receivable which have no collateral or security.

Company has not experienced any significant losses in such accounts.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 renewable diesel and biodiesel customers, in each case generally without requiring collateral.

to a limited number of customers, the Company had significant concentrations of credit risk from sales as of December 31, 2025 and 2024,

as described below.

The carrying amount of accounts receivable is

reduced by an allowance for credit losses that reflects the Company’s best estimate of the amounts that will not be collected.

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

any, of the customer balance that will not be collected.

Of the accounts receivable balance, approximately

$ 41,379 ,000 and $ 44,750 ,000 at December 31, 2025 and 2024, respectively, were used as collateral under Kinergy’s operating line

The allowance for credit losses was $ 76 ,000 and $ 23 ,000 as of December 31, 2025 and 2024, respectively.

The Company recorded

credit losses of $ 53 ,000, credit recoveries of $ 50 ,000 and credit losses of $ 427 ,000 for the years ended December 31, 2025, 2024 and 2023,

respectively.

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

Concentration Risks – Credit

risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted.

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

counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly

affected by changes in economic or other conditions described below.

Financial instruments that subject the Company to credit risk consist

of cash balances maintained in excess of federal depository insurance limits and accounts receivable which have no collateral or security.

The Company has not experienced any significant losses in such accounts.

The Company sells specialty alcohols to consumer

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

The Company sold to one customer 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

$ 5,187 ,000 and $ 4,302 ,000, representing 9 % and 7 % of total accounts receivable, as of December 31, 2024 and 2023, 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,

Ended December 31,

As of December 31, 2024, 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 $ 2,050,000 and $ 2,201,000 as

of December 31, 2024 and 2023, respectively.

Of the inventory balance, approximately $ 35,495 ,000 and $ 41,041 ,000 at December 31, 2024

and 2023, respectively, were used as collateral under Kinergy’s operating line of credit.

Inventory balances consisted of the following

(in thousands):

The Company had accounts receivable due from this

customer totaling $ 1,548 ,000 and $ 2,735 ,000, representing 3 % and 5 % of total accounts receivable, as of December 31, 2025 and 2024, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company purchases corn, its largest cost component

in producing alcohols, from its suppliers.

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

corn purchases, as follows:

Years Ended December 31,

As of December 31, 2025, approximately 51 % 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 $ 1,007 ,000

and $ 2,050 ,000 as of December 31, 2025 and 2024, respectively.

Of the inventory balance, approximately $ 45,603 ,000 and $ 35,495 ,000 at

December 31, 2025 and 2024, respectively, were used as collateral under Kinergy’s operating line of credit.

Inventory balances consisted

of the following (in thousands):

Finished goods

Work in progress

Raw materials

Property and Equipment – Property and equipment

are stated at cost.

Work in progress

Property and Equipment – Property

and equipment are stated at cost.

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

2 unchanged sentences

Other equipment, vehicles and furniture

The cost of normal maintenance and repairs is charged to operations

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

useful life of the asset.

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

or amortization are removed from the accounts, and any resulting gains or losses are reflected in current operations.

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 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Intangible 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.

Leases – 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases – The Company

accounts for leases under ASC Topic 842, Leases (“ASC 842”), whereby lessees are required to recognize the

following for all leases (other than short-term leases for which the Company has elected the recognition exemption) at the

commencement date:

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

as the present value of the lease payments;

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.

9 unchanged sentences

and normal sales.

Revenue Recognition – The Company recognizes revenue

under ASC Section 606, Revenue from Contracts with Customers (“ASC 606”).

The provisions of ASC 606 include a five-step

process by which an entity will determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting

the payment to which an entity expects to be entitled in exchange for those goods or services.

ASC 606 requires the Company to apply the

following steps:

Revenue Recognition – The

Company recognizes revenue under ASC Section 606, Revenue from Contracts with Customers (“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.

606 requires the Company to apply the following steps:

(1) identify the contract with the customer;

(2) identify the performance obligations in the contract;

(3) determine

the transaction price;

(2) identify the performance obligations

in the contract;

(3) determine the transaction price;

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

and (5) recognize revenue when,

or as, the Company satisfies the performance obligation.

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, for the year ended December 31, 2022, 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

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, 2024 and 2023.

The Company’s balances of accounts receivable, net of allowance for credit losses, were $ 58,217 ,000,

$ 58,729 ,000 and $ 68,655 ,000, as of December 31, 2024, 2023 and 2022, respectively.

The Company has five production facilities from which it produces and

sells essential ingredients to its customers through Alto Nutrients.

Alto Nutrients enters into sales contracts with essential ingredient

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

The Company recognizes revenue from sales of alcohols and essential

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

the terms of the underlying contracts.

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

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

The Company allocates

the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognizes

the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance

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

The Company recognizes revenue primarily from

sales of alcohols and essential ingredients.

The Company has five production facilities from

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

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

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

Kinergy also acts as a principal

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

The Company’s balances of accounts receivable,

net of allowance for credit losses, were $ 55,069 ,000, $ 58,217 ,000 and $ 58,729 ,000, as of December 31, 2025, 2024 and 2023, respectively.

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

When the Company is the agent, the supplier controls the products before

they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide the product,

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

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

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

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

See the tables in Note 4 for the Company’s revenue by type of

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.

the costs are classified as a component of cost of goods sold in the accompanying consolidated statements of operations.

Selling Costs – Selling costs associated with the

Company’s product sales are classified as a component of selling, general and administrative expenses in the accompanying consolidated

statements of operations.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

Stock-Based Compensation –

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

of the award, determined on the date of grant.

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

services in exchange for the award.

The Company accounts for forfeitures as they occur.

The Company recognizes stock-based compensation expense as a component

of either cost of goods sold or selling, general and administrative expenses in the consolidated statements of operations.

Goodwill – 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.

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 year ended December 31, 2024 and 2022.

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

Goodwill – Goodwill represents

the excess of cost of an acquired entity over the net of the amounts assigned to net assets acquired and liabilities assumed.

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

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, 2025 and 2024.

Impairment of Long-Lived Assets

12 unchanged sentences

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

The Company’s assessment resulted in an asset impairment of $ 24,790,000 primarily from the cold-idling of the Company’s Magic

Valley facility due to increased regional corn basis and overall margin compression and the Company’s changes to its Eagle Alcohol

business, for the year ended December 31, 2024.

The Company’s assessment resulted in an asset impairment of $ 574,000 related to

amendments to certain of the Company’s lease agreements, for the year ended December 31, 2023.

The Company’s impairment analysis

performed during the year ended December 31, 2022 did not result in an impairment charge.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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 $ 1,016 ,000, $ 1,048 ,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s annual assessment resulted

in an asset impairment of $ 803 ,000 related to abandoned projects for the year ended December 31, 2025.

The Company’s annual assessment

resulted in an asset impairment of $ 24,790 ,000 primarily from the cold-idling of the Company’s Magic Valley facility due to increased

regional corn basis and overall margin compression and the Company’s changes to its Eagle Alcohol business for the year ended December

The Company’s annual assessment resulted in an asset impairment of $ 574 ,000 related to amendments to certain of the Company’s

lease agreements, for the year ended December 31, 2023.

Deferred Financing Costs –

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

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

of deferred financing costs, included in interest expense, net, in the accompanying consolidated statements of operations, was approximately

$ 1,013 ,000, $ 1,016 ,000 and $ 1,048 ,000 for the years ended December 31, 2025, 2024 and 2023, respectively.

Unamortized deferred financing costs were approximately

$ 3,684,000 and $ 4,700,000 as of December 31, 2024 and 2023, respectively, and are recorded as a reduction of long-term debt in the consolidated

balance sheets.

Provision for Income Taxes – Income taxes are accounted

for under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial

reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect

when the differences reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected

to be realized.

The Company accounts for uncertainty in income taxes using a two-step

approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position for recognition by determining

whether it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation

processes, if any.

The second step is to measure the tax benefit as the largest amount which is more than 50 % likely of being realized

upon ultimate settlement.

An uncertain tax position is considered effectively settled on completion of an examination by a taxing authority

if certain other conditions are satisfied.

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

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

Deferred tax assets and liabilities

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

The Company files a consolidated federal income tax return.

includes all wholly owned subsidiaries as well as the Company’s pro-rata share of taxable income from pass-through entities in which

the Company owns less than 100 %.

State tax returns are filed on a consolidated, combined or separate basis depending on the applicable

laws relating to the Company and its subsidiaries.

The Company does not have any foreign operations.

Loss Per Share – Basic 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 loss attributed to Alto Ingredients, Inc.

and are considered in the calculation of loss attributable to common stockholders in

computing basic 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 loss per share (in thousands,

except per share data):

Unamortized deferred financing

costs were approximately $ 2,671 ,000 and $ 3,684 ,000 as of December 31, 2025 and 2024, respectively, and are recorded as a reduction of

long-term debt in the consolidated balance sheets.

Provision or Benefit 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.

The Company files a consolidated federal

income tax return.

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

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

State tax returns are filed on a consolidated,

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

The Company does not have

any foreign operations.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income (Loss) Per Share –

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

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

and are considered in the calculation

of income (loss) attributable 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

income (loss) per share (in thousands, except per share data):

Year Ended December 31, 2025

Shares Denominator

Per-Share Amount

Consolidated net loss

Consolidated net income

Preferred stock dividends

Basic and diluted loss per share:

Loss attributable to common stockholders

Basic income per share:

Income attributable to common stockholders

Dilutive securities

Diluted income per share:

Income attributable to common stockholders

Year Ended December 31, 2024

Shares Denominator

Per-Share Amount

Consolidated net loss

2 unchanged sentences

Loss attributable to common stockholders

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2023

Shares Denominator

Per-Share Amount

Consolidated net loss

2 unchanged sentences

Loss attributable to common stockholders

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

There were an aggregate of 981,000 , 981,000 and 964,000 potentially

dilutive shares from convertible securities outstanding for the years ended December 31, 2024, 2023 and 2022, respectively.

These convertible

securities were not considered in calculating diluted loss per common share for the years ended December 31, 2024, 2023 and 2022 as their

There were an aggregate of 981,000 potentially

dilutive shares from convertible securities outstanding for the years ended December 31, 2025, 2024 and 2023.

These convertible securities

were not considered in calculating diluted income (loss) per common share for the years ended December 31, 2025, 2024 and 2023 as their

effect would be anti-dilutive.

In addition, there were an aggregate of 3,188,000 weighted-average anti-dilutive shares from outstanding

out-of-the-money warrants for the year ended December 31, 2022.

Financial 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.

Business 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.

Assets acquired and liabilities assumed are recorded at their

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

Adjustments to fair value assessments

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

Income from Cash Grant – For the 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

The Company did not receive any cash from this program for the year ended December 31, 2024.

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.

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.

Share 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.

No shares were repurchased during

the year ended December 31, 2024.

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, 2024, 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.

Financial 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.

Business 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.

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, 2023, the Company received $ 2,812 ,000 in cash from the USDA’s Biofuel Producer Program.

did not receive any cash from this program for the years ended December 31, 2025 and 2024.

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.

is not required to repay the grants.

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 (“IAS”) 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.

Transferable Tax Credits, net –

The Company generates and recognizes tax credits under Section 45Z of the Internal Revenue Code for domestic clean fuel production.

Company accounts for these tax credits under IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance .

In accordance with IAS 20, the tax credits are recognized when there is reasonable assurance the Company will comply with the applicable

provisions of the Internal Revenue Code and that the tax credits will be received.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2025, the Company’s

Pekin dry mill and Columbia facilities both qualified for these tax credits.

The Company recognized $ 7,500 ,000, net of estimated selling

costs, for these tax credits which the Company plans to sell to third parties, which are recognized as transferable tax credits, net,

in the accompanying balance sheets and statements of operations.

Excess Insurance Proceeds –

In April 2025, the Company’s Pekin Campus loading dock was damaged, in which it filed a claim with its insurer and received gross

proceeds of $ 10,000 ,000 in cash.

A portion of these proceeds related to costs incurred due to logistical challenges as management sought

to repair the dock.

Of these proceeds, the Company received reimbursement of $ 3,312 ,000, of which $ 1,466 ,000 is recorded in cost of goods

sold and $ 1,846 ,000 is recorded in other income, with the remaining proceeds of $ 6,688 ,000 recorded in income as excess insurance proceeds,

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.

Share 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 year ended December 31, 2023,

the Company repurchased an aggregate of 1,685,000 shares for $ 3,674 ,000 in cash.

No shares were repurchased during the years ended December

31, 2025 and 2024.

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,

31, 2024, there were 896 shares of nonvoting common stock outstanding.

2025, 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, 2025, there were 896 shares of nonvoting common stock outstanding.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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 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.

Recent Accounting Pronouncements – In November

2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures

(Subtopic 220-40) , which provides for more detailed information about the types of expenses aggregated in common expense captions

in the statement of operations.

ASU 2024-03 is effective for the Company for the year ended December 31, 2027, with early adoption permitted.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

Recent Accounting Pronouncements

– In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures

to enhance the transparency and usefulness of income tax disclosures.

ASU 2023-09 updates disclosure requirements for the reconciliation

of tax expense from continuing operations and modifies other income tax-related disclosures.

The Company adopted ASU 2023-09 as of December

31, 2025 on a prospective basis.

In November 2024, the FASB issued ASU 2024-03,

Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), which provides

clarity in assessing an entity’s performance and prospects for future cash flows by disclosure of more detailed information about

the types of expenses in commonly presented expense captions.

ASU 2024-03 is effective for the Company’s fiscal year ended December

Early adoption is permitted.

The Company is currently evaluating the impact of this ASU.

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.

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.

ACQUISITION OF KODIAK CARBONIC.

On January 1, 2025, Alto Carbonic purchased 100 %

of the equity interests in Kodiak Carbonic, LLC, a beverage-grade liquid CO 2 processor, for $ 7.6 million in cash.

Alto Carbonic’s

facility is located at the Company’s Columbia ethanol plant.

The acquisition has provided the Company further vertical integration

and access to new markets in the liquid CO 2 market out of its Columbia plant.

Alto Carbonic’s unaudited net sales and

net income for the year ended December 31, 2025 were $ 9.2 million and $ 5.9 million, respectively.

Kodiak Carbonic’s historical unaudited

net sales and net income were $ 5.5 million and $ 1.6 million, respectively, for the year ended December 31, 2024.

Kodiak Carbonic’s

historical unaudited net sales and net income were $ 5.1 million and $ 1.6 million, respectively, for the year ended December 31, 2023.

The following table presents the Company’s

unaudited pro forma combined financial information assuming the acquisition occurred on January 1, 2023 (dollars in thousands except per

share amounts):

Years Ended December 31,

Net sales – pro forma

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

Basic and diluted net income (loss) per share – pro forma

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The supplemental pro forma financial

information presented above is for illustrative purposes only, does not include the pro forma adjustments that would be required

under Regulation S-X of the Exchange Act for pro forma financial information, is not necessarily indicative of the financial

position or results of operations that would have been realized if the Kodiak Carbonic acquisition had been completed on January 1,

2023, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial

The pro forma adjustments are based upon currently available information and certain assumptions that the Company believes

are reasonable under the circumstances.

The purchase price allocation is as follows (in

Cash and equivalents

Accounts receivable

Total current assets

Property and equipment

Total tangible assets

Current liabilities

Total liabilities

Net tangible assets acquired

Customer relationships

Total Purchase Price

For the identifiable intangible assets, the Company

has estimated 9 years for useful lives for customer relationships.

For the year ended December 31, 2025, the Company recorded amortization

of these intangibles of $ 410 ,000.

The Company did not incur any material acquisition costs.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITION OF EAGLE ALCOHOL.

8 unchanged sentences

common stock under the terms of the purchase agreement.

With respect to these payments, the Company accrued $ 7.7 million and $ 2.8 million

in other current liabilities in the accompanying consolidated balance sheets as of December 31, 2024 and 2023, respectively, with the

expense included in acquisition-related expenses in the accompanying consolidated statements of operations for the years then ended.

Eagle Alcohol specializes in break bulk distribution of specialty alcohols.

Eagle Alcohol delivers products to customers

in the beverage, food, industrial and related-process industries via its own dedicated trucking fleet and common carriers.

As part of the Company’s original 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

With respect to these payments, the Company accrued $ 0 and $ 7.7 million in other

current liabilities in the accompanying consolidated balance sheets as of December 31, 2025 and 2024, respectively, with the expense included

in acquisition-related expenses in the accompanying consolidated statements of operations for the years then ended.

As of December 31,

2025, the Company has no further payment obligations for its acquisition of Eagle Alcohol.

As part of the Company’s original 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.

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.

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

5 unchanged sentences

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.

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

2 unchanged sentences

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 $ 5,407,000 ,

$ 5,431,000 and $ 5,746,000 related to the marketing agreements for the years ended December 31, 2024, 2023 and 2022, respectively.

amounts have been eliminated upon consolidation.

Corn Procurement and Handling Agreements – Alto

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

the terms of the corn procurement and handling agreements, each facility appointed Alto Nutrients as its exclusive agent to solicit, negotiate,

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

Alto Nutrients

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

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

Under these agreements, Alto Nutrients receives a

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

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

of the individual facility.

Alto Nutrients recorded revenues of approximately $ 2,910,000 , $ 3,007,000 and $ 3,207,000 related to the corn

procurement and handling agreements for the years ended December 31, 2024, 2023 and 2022, respectively.

These amounts have been eliminated

upon consolidation.

– 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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Essential Ingredients Marketing Agreements

– Alto Nutrients entered into separate marketing agreements with each of the Company’s production facilities (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 protein 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 protein meal, dry corn protein 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

$ 2,516,000 , $ 3,216,500 and $ 3,505,000 related to the marketing agreements for the years ended December 31, 2024, 2023 and 2022, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kinergy recorded revenues of

approximately $ 4,747,500 , $ 5,407,000 and $ 5,431,000 related to the marketing agreements for the years ended December 31, 2025, 2024 and

2023, respectively.

These amounts have been eliminated upon consolidation.

Corn Procurement and Handling Agreements

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

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.

Under these agreements, Alto

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

services, payable monthly.

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

periods at the option of the individual facility.

Alto Nutrients recorded revenues of approximately $ 2,664,000 , $ 2,910,000 and $ 3,007,000

related to the corn procurement and handling agreements for the years ended December 31, 2025, 2024 and 2023, respectively.

These amounts

have been eliminated upon consolidation.

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 protein 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 protein meal, dry corn protein 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 $ 2,415,000 , $ 2,516,000 and $ 3,216,500 related to the marketing agreements for the years ended December 31, 2025, 2024

and 2023, respectively.

These amounts have been eliminated upon consolidation.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company reports its financial and operating

13 unchanged sentences

Even though the CEO has the authority to override the other members for strategic or other reasons, key

decisions are made jointly by the Executive Committee.

Included in income (loss) before provision for income taxes are management

fees charged by Alto Ingredients to each of the segments.

The Pekin Campus production segment incurred $ 7,200,000 , $ 5,280,000 and $ 5,046,000

in management fees for the years ended December 31, 2024, 2023 and 2022, respectively.

The marketing and distribution segment incurred

decisions are made by the Executive Committee .

Included in income (loss) before provision (benefit)

for income taxes are management fees charged by Alto Ingredients to each of the segments.

The Pekin Campus production segment incurred

$ 7,200,000 , $ 7,200,000 and $ 5,280,000 in management fees for the years ended December 31, 2025, 2024 and 2023, respectively.

production segment incurred $ 3,600,000 , $ 2,640,000 and $ 2,400,000 in management fees for the years ended December 31, 2024, 2023 and 2022,

The marketing

and distribution segment incurred $ 5,400,000 , $ 5,400,000 and $ 3,960,000 in management fees for the years ended December 31, 2025, 2024

and 2023, respectively.

The Western production segment incurred $ 2,220,000 , $ 3,600,000 and $ 2,640,000 in management fees for the years

ended December 31, 2025, 2024 and 2023, respectively.

Corporate and other includes the results of Eagle Alcohol and certain selling, general

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

related to a specific operating segment.

During the normal course of business, the segments

do business with each other.

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

alcohol produced by the production segments for a marketing fee.

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.

For the years ended December 31, 2025, 2024 and

2023, capital expenditures incurred by the Pekin Campus segment were approximately $ 4.6 million, $ 6.8 million and $ 17.7 million, and capital

expenditures incurred by the Western production segment were less than $ 0.1 million, and approximately $ 4.3 million and $ 11.8 million,

respectively.

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

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

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

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 3.

These intersegment activities are considered arms’-length

transactions.

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

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

For the years ended December 31, 2024, 2023 and 2022, capital expenditures

incurred by the Pekin Campus segment were approximately $ 6.8 million, $ 17.7 million and $ 25.7 million, and capital expenditures incurred

by the Western production segment were approximately $ 4.3 million, $ 11.8 million and $ 12.3 million, respectively.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

The following tables set forth certain financial data for the Company’s

operating segments (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth certain financial

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

Years Ended December 31,

6 unchanged sentences

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

21 unchanged sentences

Intersegment eliminations

Income (loss) before provision for income taxes:

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

Pekin Campus production

3 unchanged sentences

Asset impairments:

Pekin Campus production

Western production

Corporate and other

Depreciation and amortization expense:

Depreciation and amortization

Pekin Campus production

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the Company’s total assets by

operating segment (in thousands):

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

13 unchanged sentences

$ 2,517,000 and $ 2,454,000 for the years ended December 31, 2025, 2024 and 2023, respectively, related to its capital investment activities.

recorded an asset impairment of $ 19,000,000 for the year ended December 31, 2024.

The Company did not record any impairment on its property

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

The Company’s property and equipment are substantially

pledged as collateral under the Company’s Term Loan.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

The Company recorded property and equipment asset impairments of $ 803,000 and $ 19,000,000 for the years ended December 31, 2025 and 2024,

respectively.

The Company did not record any impairment on its property and equipment for the year ended December 31, 2023.

The Company’s property

and equipment are substantially pledged as collateral under the Company’s Term Loan.

INTANGIBLE ASSETS.

Intangible assets, including goodwill, consisted of the following (in

Intangible assets, including goodwill, consisted

of the following (in thousands):

December 31, 2025 December 31, 2024

6 unchanged sentences

Non-Amortizing:

Goodwill $ 5,970 $ ( 5,970 ) $ —

$ 5,970 $ ( 5,970 ) $ —

Kinergy tradename $ 2,678 $ —

$ 2,678 $ 2,678 $ —

Customer relationships 12 6,556 ( 5,021 ) 1,535 6,556 ( 1,074 ) 5,482

Alto Carbonic customer relationships 9 3,685 ( 410 ) 3,275 —

Eagle Alcohol customer relationships 12 6,556 ( 5,190 ) 1,366 6,556 ( 5,021 ) 1,535

Eagle Alcohol tradename 10 420 ( 165 ) 255 420 ( 124 ) 296

Total goodwill and intangible assets $ 15,624 $ ( 11,115 ) $ 4,509 $ 15,624 $ ( 7,126 ) $ 8,498

Goodwill – The Company 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, 2024 and 2022.

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, 2024, 2023 and 2022.

Customer Relationships – The Company recorded customer

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

As part of the Company’s impairment testing,

it impaired this intangible asset by $ 3,401,000 and recognized the amount in asset impairments in the consolidated statement of operations

for the year ended December 31, 2024.

The Company did not record any asset impairment on its customer relationships for the years ended

December 31, 2023 and 2022.

Eagle Alcohol Tradename – The Company recorded

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

The Company did not record any tradename impairment for the

years ended December 31, 2024, 2023 and 2022.

Amortization expense associated with intangible assets totaled $ 588,000 ,

$ 588,000 and $ 567,000 for the years ended December 31, 2024, 2023 and 2022.

The weighted-average unamortized life of the customer

relationships and tradename is 8.7 years.

The expected amortization expense relating to amortizable intangible

assets in each of the five years after December 31, 2024 are (in thousands):

Total intangible assets $ 13,339 $ ( 5,765 ) $ 7,574 $ 9,654 $ ( 5,145 ) $ 4,509

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kinergy Tradename – The

Company recorded a 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.

did not record any impairment on its tradename for the years ended December 31, 2025, 2024 and 2023.

Alto Carbonic Customer

Relationships – The Company recorded customer relationships of $ 3,685,000 from the Company’s acquisition of

Kodiak Carbonic.

The Company did not record any asset impairment on its customer relationships for the year ended December 31,

Eagle Alcohol Customer

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

Eagle Alcohol.

As part of the Company’s impairment testing, it impaired this intangible asset by $ 3,401,000 and recognized the

amount in asset impairments in the consolidated statement of operations for the year ended December 31, 2024.

The Company did not

record any asset impairment on its customer relationships for the years ended December 31, 2025 and 2023.

Eagle Alcohol Tradename

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

The Company did not

record any tradename impairment for the years ended December 31, 2025, 2024 and 2023.

Amortization expense associated with intangible

assets totaled $ 621,000 , $ 588,000 and $ 588,000 for the years ended December 31, 2025, 2024 and 2023.

The weighted-average unamortized

life of the customer relationships and tradename is 7.9 years.

The expected amortization expense relating to

amortizable intangible assets in each of the five years after December 31, 2025 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, 2025, 2024 and 2023, the Company did not designate any

of its derivatives as cash flow hedges.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the years ended December 31, 2024, 2023 and 2022, 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.

– 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 $ 11,045,000 , net losses of $ 8,031,000 and net gains of $ 19,263,000 as the change in the fair value of these contracts for the years

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 $ 8,068,000 and $ 11,045,000 and net losses of $ 8,031,000 as the change in the fair value of these contracts for the years

ended December 31, 2025, 2024 and 2023, respectively.

Non-Designated Derivative Instruments – The classification

and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral balances, are as follows

(in thousands):

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, 2025

16 unchanged sentences

Derivative instruments

The above amounts represent the gross balances of the contracts;

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The classification and amounts of the Company’s recognized gains

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

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 (Losses)

Statements of

For the Years Ended December 31,

Type of Instrument

Statements of Operations Location

Operations Location

Commodity contracts

Cost of goods sold

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrealized Gains (Losses)

Statements of

For the Years Ended December 31,

Type of Instrument

Statements of Operations Location

Operations Location

Commodity contracts

Cost of goods sold

Long-term borrowings are summarized as follows (in thousands):

Long-term 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 .

Kinergy Line of Credit

– Kinergy has an operating line of credit for an aggregate amount of up to $ 85,000,000 .

The line of credit matures on November 7,

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

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

Interest accrues under the line of credit at a

rate equal to (i) the daily Secured Overnight Financing Rate, plus (ii) a specified applicable margin ranging between 1.25 % and 1.75 %.

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

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

Interest accrues under the line

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

1.25 % and 1.75 %.

The applicable margin was 1.50 %, for a total rate of 5.37 %, at December 31, 2025.

The credit facility’s monthly unused line fee

is an annual rate equal to 0.25 % to 0.375 % depending on the average daily principal balance during the immediately preceding month.

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.

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.

Kinergy and Alto Nutrients may also make distributions to the Company of up to 75 % of their excess cash flow.

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).

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).

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 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, 2024, Kinergy had $ 23.1 million in unused borrowing

availability under the credit facility.

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”),

The 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, 2025, Kinergy had $ 37.4

million in unused borrowing availability under the credit facility.

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

2 unchanged sentences

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 $ 25,000,000 more upon the satisfaction of certain additional 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, 2024, 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.

As of December 31, 2024, interest accrued on the unpaid principal amount

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

On January 1, 2025, the annual fixed rate of interest on the Term Loan increased to

10.75 % in connection with the Company’s amendment of various terms under the Term Loan.

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 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.

The 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.

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.

Maturities of Long-term Debt – The Company’s

long-term debt matures as follows (in thousands):

The Lenders agreed to advance to the Company up

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

The principal amount outstanding under the Term Loan was $ 55,000,000

and $ 60,000,000 as of December 31, 2025 and 2024, respectively.

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

As of December 31, 2025, interest accrued on the unpaid principal amount of the Term Loan at a fixed rate of 10.75 % per annum.

The 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

The 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.

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.

Maturities of Long-term Debt –

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2024 and 2023, the Company’s

weighted-average discount rate was approximately 7.78 %.

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

Upon the adoption of ASC 842, the Company elected the following practical

expedients allowable under the guidance:

not to reassess whether any expired or existing contracts are or contain leases;

not to reassess

the lease classification for any expired or existing leases;

not to reassess initial direct costs for any existing leases;

not to separately

identify lease and non-lease components;

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 an 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, 2025 and 2024,

the Company’s weighted-average discount rate was approximately 7.87 % and 7.78 %, respectively.

Operating lease expense is recognized

on a straight-line basis over the lease term.

Upon the adoption of ASC 842, the Company elected

the following practical expedients allowable under the guidance:

not to reassess whether any expired or existing contracts are or contain

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

not to reassess initial direct costs for any existing

not to separately identify lease and non-lease components;

and not to evaluate historical land easements.

Additionally, the Company elected the short-term

lease exemption policy, applying the requirements of ASC 842 to only long-term (greater than 1 year) leases.

The Company determines if an arrangement is a lease or contains a lease

at inception.

The Company’s leases have remaining lease terms of approximately 1 year to 51 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, 2024, the weighted-average

remaining lease terms of equipment and land-related leases were 4.14 years and 16.42 years, respectively.

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 50 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, 2025, the weighted-average remaining lease terms of equipment and land-related leases were 3.32 years and 17.56 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.

For the year ended December 31, 2024, the weighted-average remaining lease terms of equipment and land-related leases were 4.14 years

and 16.42 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):

Classification December 31,

Assets 2024 2023

Operating Right of use operating lease assets, net $ 20,553 $ 22,597

Operating - Current Current portion, operating leases $ 4,851 $ 4,333

Classification 2025 2024

Assets Operating Right of use operating lease assets, net $ 16,931 $ 20,553

Liabilities Operating - Current Current portion, operating leases $ 4,958 $ 4,851

Operating - Noncurrent Operating leases, net of current portion $ 13,012 $ 16,913

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

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Components of lease costs were as follows

(in thousands):

Years Ended December 31,

1 unchanged sentence

Variable lease cost

Net lease cost

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total lease cost

The following table summarizes the remaining maturities

of the Company’s operating lease liabilities, assuming all land lease extensions are taken, as of December 31, 2025 (in thousands):

Less interest

Less imputed interest

Total present value of lease liabilities

PENSION PLANS.

7 unchanged sentences

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, 2024 and 2023 is presented below (dollars in thousands):

The Company’s funding policy is to make the minimum annual contribution required

by applicable regulations.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information related to the Retirement Plan as

of and for the years ended December 31, 2025 and 2024 is presented below (dollars in thousands):

Changes in plan assets:

16 unchanged sentences

Interest cost

Amortization of net (gains) losses

Expected return on plan assets

Net periodic cost (benefit)

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company does not expect to make any contributions

4 unchanged sentences

thereafter (in thousands):

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

15 unchanged sentences

style and to the Retirement Plan’s investment guidelines.

Postretirement Plan - The Company also

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

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

Employees hired

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

The plan is contributory, with contributions required

at the same rate as active employees.

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

cap based upon years of service.

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.

Information related to the Postretirement Plan as of December 31, 2025

19 unchanged sentences

Benefits paid

The Company does not expect to recognize any amortization

of net actuarial loss during the year ended December 31, 2025.

The Company expects to recognize $ 27,000 for amortization

of net actuarial gain during the year ended December 31, 2026.

The following table summarizes the expected benefit

1 unchanged sentence

thereafter (in thousands):

December 31 :

For purposes of determining the cost and obligation

4 unchanged sentences

INCOME TAXES.

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

Ended December 31,

Current provision

The Company recorded a provision (benefit) for

income taxes as follows (in thousands):

Years Ended December 31,

Current provision (benefit)

Deferred provision

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the differences between the United States statutory

federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is as follows:

Ended December 31,

July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S.

The OBBBA includes significant tax provisions,

such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifications to the international

tax framework and the restoration of favorable tax treatment for certain business provisions.

The legislation has multiple effective

dates, with certain provisions effective in 2025 and others becoming effective in subsequent years.

The OBBBA includes several provisions

that impact the timing and magnitude of certain tax deductions, including restoring 100 % bonus depreciation for qualifying property,

increasing the business interest limitation and the immediate expensing of domestic research and development costs.

The Company has applied

the provisions of OBBBA to its financial results and position following its effective date, and will continue to assess potential impacts

to its financial position, results of operations and cash flows as additional guidance is issued by the U.S.

Treasury Department, the

IRS and other standard-setting authorities.

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 for the year ended December 31, 2025 (dollars in thousands):

Statutory rate

1 unchanged sentence

Change in valuation allowance

Nontaxable or nondeductible items

Transferable tax credits, net

Stock-based compensation

Nondeductible items

Change in unrecognized tax benefits

Other adjustments

Capital loss expiration

Deferred true up adjustments

Effective rate

* State tax expense in Oregon and Illinois made up the majority (greater than 50%) of the tax effect in this category.

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 for

the years ended December 31, 2024 and 2023 is as follows:

Statutory rate

State income taxes, net of federal benefit

Change in valuation allowance

Stock-based compensation

Non-deductible items

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):

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):

Deferred tax assets:

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Net deferred tax liabilities, included in other liabilities

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A portion of the Company’s net operating loss carryforwards are

subject to provisions of the tax law that limit the use of losses incurred by a corporation prior to the date certain ownership changes

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

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

As the five-year limitation period lapsed in 2019,

these disallowed deductions are reflected in property and equipment in the schedule above but continue to be subject to the annual limitation

that applies to the pre-change net operating losses.

Due to the limitation on the use of net operating losses and depreciation deductions,

a significant portion of these carryforwards will expire regardless of whether the Company generates future taxable income.

After reducing

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

operating loss carryforwards of approximately $ 227,673,000 and state net operating loss carryforwards of approximately $ 276,424,000 at

December 31, 2024.

A portion of the Company’s net operating

loss carryforwards is 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 $ 222,046 ,000 and state net operating loss carryforwards of approximately

$ 256,045 ,000 at December 31, 2025.

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

2041 and after*

* Includes indefinite life federal net operating losses of $ 128.8

million generated after 2017.

Approximately $ 155,452,000 is available to utilize against federal

taxable income for 2025.

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.

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

A valuation allowance was established in the amount of $ 110,687,000

and $ 93,506,000 as of December 31, 2024 and 2023, 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.

* Includes indefinite life federal net operating losses of $ 128.8 million generated after 2017.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2024, the Company recorded an increase

in valuation allowance of $ 17,181,000 .

This was primarily related to additional net operating losses accumulated for the year.

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 .

Approximately $ 130,291,000 is available to utilize

against federal taxable income for 2026.

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 $ 82,606,000 and $ 110,687,000 as of December 31, 2025 and 2024, 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, 2025, the Company

recorded a decrease in valuation allowance of $ 28,081,000 .

This was primarily related to current year usage of net operating losses and

expiration of capital loss tax assets.

For the year ended December 31, 2024, the Company recorded an increase in valuation allowance of

$ 17,181,000 .

This was primarily related to additional net operating losses accumulated for the year.

For 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.

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):

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

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Unrecognized tax benefits at end of year

The Company recorded unrecognized tax benefits for

uncertain tax positions of approximately $ 739,000 as of December 31, 2024 and 2023, 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, net, respectively.

As of December 31, 2024, the Company accrued

penalties of $ 74,000 and interest of $ 134,000 related to uncertain tax positions.

The Company does not expect the unrecognized tax benefits

to change significantly over the next 12 months.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is subject to income tax in the United

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

below as “major” tax filings.

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

of limitation, are as follows:

The Company recorded unrecognized

tax benefits for uncertain tax positions of approximately $ 0 and $ 739,000 as of December 31, 2025 and 2024, of which $ 739,000 impacted

the effective tax rate as it was reversed.

The Company is subject to income

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

in state jurisdictions below as “major” tax filings.

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

applicable statutes of limitation, are as follows:

Jurisdiction Tax Years

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to open years.

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, 2024, 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, 2024 and 2023.

Shares of Series A Preferred Stock that are converted into shares of the Company’s common stock revert

to undesignated shares of authorized and unissued preferred stock.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Upon any issuance, the Series A Preferred Stock would rank senior

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

Holders of Series A Preferred Stock would be entitled to

quarterly cumulative dividends payable in arrears in cash in an amount equal to 5 % per annum of the purchase price per share of the Series

A Preferred Stock.

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

stock for each share of Series A Preferred Stock, subject to customary antidilution 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.

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

The holders of Series A Preferred Stock would have a liquidation preference

over the holders of the Company’s common stock equivalent to the purchase price per share of the Series A Preferred Stock plus

any accrued and unpaid dividends on the Series A Preferred Stock.

A liquidation would be deemed to occur upon the happening of customary

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

exchange, reorganization or other transaction or series of related transactions, unless holders of 66 2/3% of the Series A Preferred

Stock vote affirmatively in favor of or otherwise consent to such transaction.

Series B Preferred Stock – The Company has authorized

1,580,790 shares of Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”), with 926,942 shares outstanding

at December 31, 2024 and 2023.

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

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.

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 transactions (each, a “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.

Company believes that such liquidation events are within its control and therefore has classified the Series B Preferred Stock in stockholders’

As of December 31, 2024, 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

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

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.

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, 2025, 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, 2025 and 2024.

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, 2025 and 2024.

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 Agreements described below, such dividends may, at the

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

B Preferred Stock.

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

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

The holders of Series B Preferred Stock have a liquidation

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

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

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

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

exchange, reorganization or other transaction or series of related transactions (each, a “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

The holders of Series B Preferred Stock vote together

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

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

stockholders of the Company.

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

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

including, among other provisions, the right to approve any transaction that does not result in an internal rate of return of at least

25 % to the holders of the Series B Preferred Stock.

In 2008, the Company entered into Letter Agreements

with Lyles United LLC (“Lyles United”) and other purchasers under which the Company expressly waived its rights under the

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

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

As of December 31, 2025, 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.

The holders of Series B Preferred

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

stockholders.

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

on by the stockholders of the Company.

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

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

Stock, including, among other provisions, the right to approve any transaction that does not result in an internal rate of return of at

least 25 % to the holders of the Series B Preferred Stock.

In 2008, the Company entered

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

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

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

Registration Rights Agreement

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

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

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

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.

– 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 % of the stock issued, including common stock into which such Series B Preferred Stock has been converted.

The registration

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

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

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

(collectively, the “Registrable Securities”).

The Company is required to keep such registration statement effective until

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

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

The holders are entitled to two demand registrations on

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

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

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

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

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

These rights entitle the holders

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

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

to exceed $ 25,000 per registration.

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

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

ALTO INGREDIENTS, INC.

1 unchanged sentence

STOCK-BASED COMPENSATION.

On 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 June 16, 2016, the Company’s shareholders

approved its 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

4 unchanged sentences

under the 2016 Stock Incentive Plan to 11,400,000 shares.

On June 20, 2024, the Company’s shareholders approved an increase to

the aggregate number of shares authorized under the 2016 Stock Incentive Plan to 15,200,000 shares.

On June 20, 2024, the Company’s shareholders approved an increase to the

aggregate number of shares authorized under the 2016 Stock Incentive Plan to 15,200,000 shares.

Restricted Stock – A summary

of unvested restricted stock activity is as follows (shares in thousands):

Grant Date Fair Value

Unvested at December 31, 2023

1 unchanged sentence

Unvested at December 31, 2025

The fair value of the common stock at vesting aggregated $ 3,142,000 ,

$ 929,000 and $ 6,900,000 for the years ended December 31, 2024, 2023 and 2022, 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):

The fair value of the common stock at vesting

aggregated $ 1,536,000 , $ 3,142,000 and $ 929,000 for the years ended December 31, 2025, 2024 and 2023, 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,

1 unchanged sentence

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, 2024, the total compensation expense related to unvested

awards which had not been recognized was $ 3,678,000 and the associated weighted-average period over which the compensation expense attributable

to those unvested awards will be recognized was approximately 0.67 years.

Employee grants typically have a two or three-year

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

At December 31, 2025, the total compensation expense related

to unvested awards which had not been recognized was $ 3,968,000 and the associated weighted-average period over which the compensation

expense attributable to those unvested awards will be recognized was approximately 0.79 years.

ALTO INGREDIENTS, INC.

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COMMITMENTS AND CONTINGENCIES.

Commitments – The following is a description of

significant commitments at December 31, 2024:

Sales Commitments – At December 31, 2024, the

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

Company had open alcohol indexed-price contracts for 74,375,000 gallons as of December 31, 2024 and open fixed-price alcohol sales

Commitments – The following

is a description of significant commitments at December 31, 2025:

Sales Commitments – At December

31, 2025, 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 90,270,100 gallons as of December 31, 2025 and open fixed-price alcohol sales

contracts totaling $ 218,045,300 as of December 31, 2025.

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

$ 5,952,000 and open indexed-price sales contracts of essential ingredients for 47,000 tons as of December 31, 2024.

$ 6,123,200 and open indexed-price sales contracts for essential ingredients for 7,800 tons as of December 31, 2025.

These sales contracts

are scheduled for completion over the next twelve months.

Purchase Commitments – At December 31, 2024, the

Company had indexed-price purchase contracts to purchase 23,028,000 gallons of alcohol and fixed-price purchase contracts to purchase

$ 220,000 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 34,731,000 of corn from its suppliers

as of December 31, 2024.

Purchase Commitments – At

December 31, 2025, the Company had indexed-price purchase contracts to purchase 20,796,700 gallons of alcohol and fixed-price purchase

contracts to purchase $ 2,900 of alcohol from its suppliers.

The Company had fixed-price purchase contracts to purchase $ 26,245,600 of

corn from its suppliers as of December 31, 2025.

The Company had indexed-price purchase contracts for 3,140,000 MMBTU of natural gas.

The Company had future

commitments for certain capital projects totaling $ 9,059,000 .

The Company also had a future commitment for $ 7,250,000 for the purchase

of Kodiak Carbonic, LLC.

These purchase commitments are scheduled to be satisfied through 2025.

Contingencies – The following is a description

of significant contingencies at December 31, 2024:

Litigation – The Company is subject to various

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

matters, and others.

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

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

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

FAIR VALUE MEASUREMENTS.

The 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

The Company had future commitments for certain capital projects totaling $ 17,530,000 .

These purchase commitments are scheduled to be satisfied

over the next twelve months.

Contingencies – The following

is a description of significant contingencies at December 31, 2025:

Litigation – The Company

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

business transactions, environmental matters, employee-related matters, and others.

When the Company is aware of a claim or

potential claim, it assesses the likelihood of any loss or exposure.

If it is probable that a loss will result and the amount of the

loss can be reasonably estimated, the Company will record a liability for the loss.

If the loss is not probable or the amount of the

loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible,

and the amount involved could be material.

While the Company can provide no assurances, the Company does not expect that any of its

pending legal proceedings will have a material financial impact on the Company’s operating results.

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.

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Derivative Instruments – The Company’s 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.

Long-Lived Assets – Long-lived assets consist

of the Company’s estimated fair value associated with its Magic Valley facility.

Derivative Instruments – The

Company’s 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.

Tax Credits – Transferable tax credits consist of the Company’s estimated net proceeds from the sale of credits.

The fair value is based on estimates of, among others, actual gallons qualified for sale, gross tax credit per gallon, sales

discount, broker fees and insurance costs and are designated as Level 3 inputs.

See Note 1 for additional information.

value of the long-lived assets are based on present value of estimated future cash flows and are designated as Level 3 inputs.

The following table summarizes recurring and nonrecurring fair value

measurements by level at December 31, 2024 (in thousands):

financial instruments

Long-lived assets –

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

Long-Lived Assets – Long-lived

assets consist of the Company’s estimated fair value associated with its Magic Valley facility.

See Note 1 for additional information.

The fair value of the long-lived assets are based on present value of estimated future cash flows and are designated as Level 3 inputs.

The following table summarizes recurring fair

value measurements by level at December 31, 2025 (in thousands):

Derivative financial instruments

Transferable tax credits

Defined benefit plan assets(1)

(pooled separate accounts):

Small/Mid U.S.

1 unchanged sentence

Fixed Income(5)

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, 2023 (in thousands):

Derivative financial instruments

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

The following table summarizes recurring fair

value measurements by level at December 31, 2024 (in thousands):

Derivative financial instruments

Defined benefit plan assets(1)

(pooled separate accounts):

Small/Mid U.S.

2 unchanged sentences

Derivative financial instruments

ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes nonrecurring fair

value measurements by level at December 31, 2024 (in thousands):

Long-lived assets – Magic Valley

(1) See Note 11 for accounting discussion.

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

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

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

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

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

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

is used to value the fund.

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

emerging markets.

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

is used to value the fund.

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

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

treasury securities, mortgage-backed securities, and other asset-backed securities.

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

SUBSEQUENT EVENTS.

On January 1, 2025, the Company’s wholly-owned subsidiary, Alto

Carbonic, LLC, acquired 100 % of the equity interests in Kodiak Carbonic, LLC, a beverage-grade liquid CO 2 processor for $ 7.6

million in cash.

The transaction also involved an improved, long-term sales contract with a third party for the sale of beverage-grade

liquid CO 2 , which will improve the financial results of the production facility.

Alto Carbonic’s facility is co-located

at the Columbia ethanol facility.

Based on its preliminary assessment, the Company expects to record at fair value $ 3.9 million in property

and equipment and $ 3.7 million of intangible assets related to the long-term sales contract.

The Company does not expect to record any

goodwill with the transaction and plans to report the results of Alto Carbonic in the Company’s Western Production segment.

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

16 unchanged sentences

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

INDEX TO EXHIBITS

Where Located

21 unchanged sentences

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

INDEX TO EXHIBITS

Where Located

5 unchanged sentences

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

Amendment No.

7 to Second Amended and Restated Credit Agreement dated June 25, 2025 by and among Kinergy Marketing LLC, Alto Nutrients, LLC and Wells Fargo Bank, National Association

Amendment No.

8 to Second Amended and Restated Credit Agreement dated February 5, 2026 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

5 unchanged sentences

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

CO2 Transportation and Sequestration Agreement dated November 4, 2024 between Alto Pekin, LLC and Vault Dragon CCS Holdings LP

INDEX TO EXHIBITS

Where Located

16 unchanged sentences

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

(*) Certain of the agreements filed as exhibits contain representations and

warranties made by the parties thereto.

The assertions embodied in such representations and

warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate

Accordingly, investors should not rely on the representations and warranties as characterizations

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

Pursuant to the requirements of Section 13 or

15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,

thereunto duly authorized on this 13th day of March, 2025.

(#) 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 13th day of March, 2026.

ALTO INGREDIENTS, INC.

3 unchanged sentences

on the dates indicated.

/s/ DOUGLAS L.

Chairman of the Board and Director

/s/ GILBERT E.

Chair of the Board and Director

March 13, 2026

/s/ DIANNE S.

Vice-Chair of the Board and Director

March 13, 2026

President, Chief Executive Officer

5 unchanged sentences

(Principal Financial and Accounting Officer)

/s/ MICHAEL D.

March 13, 2026

/s/ GILBERT E.

March 13, 2026

/s/ DIANNE S.

March 13, 2025

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