What changed in this filing

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Item 1. Financial Statements

2020-08-13 compared with 2020-05-14 · 1203 added, 1069 removed, 187 unchanged (92% of the section changed)

ETHANOL, INC.

FINANCIAL STATEMENTS.

PACIFIC ETHANOL,

CONSOLIDATED BALANCE SHEETS

(in thousands)

and cash equivalents

receivable, net (net of allowance for doubtful accounts of $58 and $39, respectively)

held-for-sale

Current Assets:

current assets

and equipment, net

of use operating lease assets, net

held-for-sale

derived from the audited financial statements for the year ended December 31, 2019.

Cash and cash equivalents

Accounts receivable, net (net of allowance for doubtful

accounts of $16 and $39, respectively)

Prepaid inventory

Assets held-for-sale

Derivative instruments

Other current assets

Total current assets

Property and equipment,

Other Assets:

Right of use operating lease assets, net

Notes receivable

Assets held-for-sale

Intangible assets

Total other assets

derived from the audited consolidated financial statements for the year ended December 31,

accompanying notes to consolidated financial statements.

ETHANOL, INC.

PACIFIC ETHANOL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

AND STOCKHOLDERS’

payable –

portion –

LIABILITIES AND STOCKHOLDERS’

Current Liabilities:

Accounts payable –

Accrued liabilities

Current portion –

operating leases

portion –

Current portion –

long-term debt

held-for-sale

current liabilities

debt, net of current portion

leases, net of current portion

and Contingencies (Note 6)

Liabilities held-for-sale

Derivative instruments

Other current liabilities

Total current liabilities

Long-term debt, net of current portion

Operating leases, net of current portion

Other liabilities

Commitments and Contingencies (Note 6)

Stockholders’

Ethanol, Inc.

Pacific Ethanol, Inc.

Stockholders’

stock, $0.001 par value;

10,000 shares authorized;

Preferred stock, $0.001 par value;

10,000 shares authorized;

no shares issued and outstanding as

of March 31, 2020 and December 31, 2019;

1,684 shares authorized;

927 shares issued and outstanding as of March

31, 2020 and December 31, 2019;

liquidation preference of $18,710 as of March 31, 2020

stock, $0.001 par value;

no shares issued and outstanding as of June 30, 2020 and December 31, 2019;

1,581 shares authorized;

55,890 and 55,508 shares issued and outstanding as of March 31, 2020 and

December 31, 2019, respectively

927 shares issued and outstanding as of June 30, 2020 and December 31, 2019;

preference of $19,025 as of June 30, 2020

Common stock, $0.001 par value;

300,000 shares authorized;

1 share issued and outstanding as of March 31, 2020 and December 31,

paid-in capital

other comprehensive loss

Pacific Ethanol, Inc.

Stockholders’

Noncontrolling

and 55,508 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Non-voting common stock, $0.001 par value;

3,553 shares authorized;

1 share issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Pacific Ethanol, Inc.

Stockholders’

Liabilities and Stockholders’

derived from the audited financial statements for the year ended December 31, 2019.

Noncontrolling interests

Total Stockholders’

Total Liabilities

and Stockholders’

derived from the audited consolidated financial statements for the year ended December 31,

accompanying notes to consolidated financial statements.

ETHANOL, INC.

PACIFIC ETHANOL,

CONSOLIDATED STATEMENTS OF OPERATIONS

in thousands, except per share data)

of goods sold

general and administrative expenses

from operations

value adjustments

before benefit for income taxes

for income taxes

loss attributed to noncontrolling interests

loss attributed to Pacific Ethanol, Inc.

stock dividends

loss available to common stockholders

loss per share, basic and diluted

Weighted-average

shares outstanding, basic and diluted

(unaudited, in thousands, except per

Three Months Ended

Six Months Ended

Cost of goods sold

Selling, general and administrative expenses

Income (loss) from operations

Interest expense, net

Fair value adjustments

Other income (expense), net

Income (loss) before benefit for income taxes

Benefit for income taxes

Consolidated net income (loss)

Net loss attributed to noncontrolling interests

Net income (loss) attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Net income (loss) available to common stockholders

Net income (loss) per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

accompanying notes to consolidated financial statements.

ETHANOL, INC.

PACIFIC ETHANOL,

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

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

(accretion) of debt discount (premium)

of deferred financing fees

Six Months Ended

Operating Activities:

Consolidated net loss

Adjustments to reconcile consolidated net loss to

net cash provided by (used in) operating activities:

Depreciation and amortization of intangibles

Amortization of deferred financing fees

Fair value adjustments

added to debt

on derivatives

in operating assets and liabilities:

expenses and other assets

held-for-sale

payable and accrued liabilities

cash provided by (used in) operating activities

to property and equipment

cash used in investing activities

proceeds (payments) from Kinergy’s line of credit

from issuance of common stock

payments on borrowings

stock dividends paid

cash provided by (used in) financing activities

increase (decrease) in cash and cash equivalents

and cash equivalents at beginning of period

and cash equivalents at end of period

Interest added to debt

Non-cash compensation

(Gain) loss on derivative instruments

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Prepaid inventory

Operating leases

Assets held-for-sale

Liabilities held-for-sale

Accounts payable and accrued

Net cash provided by (used

in) operating activities

Investing Activities:

Proceeds from PAL Sale

Additions to property and

Net cash provided by (used

in) investing activities

Financing Activities:

Net (payments on) proceeds from Kinergy’s

line of credit

Proceeds from issuance of common stock

Proceeds from borrowings

Principal payments on borrowings

Preferred stock dividends

right of use assets and liabilities recorded under ASC 842

Net cash (used in) provided

by financing activities

Net change in cash and cash equivalents

Cash and cash equivalents

at beginning of period

Cash and cash equivalents

at end of period

Supplemental Information:

Interest paid

Accrued preferred stock dividends

Initial right of use assets

and liabilities recorded under ASC 842

accompanying notes to consolidated financial statements.

ETHANOL, INC.

PACIFIC ETHANOL,

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

1 unchanged sentence

Other Comprehensive

Non-Controlling

Income (Loss)

January 1, 2020

4 unchanged sentences

March 31, 2020

compensation expense –

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

stock dividends

of interests in PAL

income (loss)

June 30, 2020

Other Comprehensive

Non-Controlling

Income (Loss)

January 1, 2019

4 unchanged sentences

March 31, 2019

compensation expense –

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

stock dividends

June 30, 2019

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL, INC.

PACIFIC ETHANOL,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION.

Organization and

Business –

AND BASIS OF PRESENTATION.

and Business –

The consolidated financial statements include, for all periods presented, the accounts of Pacific

Ethanol, Inc., a Delaware corporation (“Pacific Ethanol”), and its direct and indirect subsidiaries

(collectively, the “Company”), including its subsidiaries, Kinergy Marketing LLC, an Oregon limited liability

company (“Kinergy”), Pacific Ag.

Products, LLC, a California limited liability company (“PAP”), PE Op

Co., a Delaware corporation (“PE Op Co.”) and all nine of the Company’s ethanol production facilities as of

March 31, 2020.

As discussed in Note 2, on April 15, 2020, the Company completed its sale of its ownership interests in

Pacific Aurora, LLC (“Pacific Aurora”), thereby divesting two of the Company’s ethanol production facilities.

Ethanol, Inc., a Delaware corporation (“Pacific Ethanol”), and its direct and indirect subsidiaries (collectively,

the “Company”), including its subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”),

Products, LLC, a California limited liability company (“PAP”), PE Op Co., a Delaware corporation (“PE

Op Co.”) and all nine of the Company’s ethanol production facilities through April 15, 2020.

As discussed in Note 2,

on April 15, 2020, the Company completed the sale of its ownership interests in Pacific Aurora, LLC (“Pacific Aurora”),

thereby divesting the Company’s two ethanol production facilities located in Nebraska.

The Company is a leading

producer and marketer of low-carbon renewable fuels in the United States.

The Company’s four ethanol plants in California,

Oregon and Idaho (together with their respective holding companies, the “Pacific Ethanol West Plants”) are located

in close proximity to both feed and ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing.

The Company’s ethanol plants in Illinois and Nebraska (together with their respective holding companies, the “Pacific

Ethanol Central Plants”) are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production

and allow for access to many additional domestic markets.

In addition, the Company’s ability to load unit trains from these

facilities in the Midwest allows for greater access to international markets.

On April 15, 2020, the Company sold its interests

in the Nebraska facilities.

producer and marketer of high quality alcohol products and low-carbon renewable fuels in the United States.

The Company’s

plants in Illinois and Nebraska (together with their respective holding companies, the “Pacific Ethanol Central Plants”)

are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many

additional domestic markets.

In addition, the Company’s ability to load unit trains from these facilities in the Midwest

allows for greater access to international markets.

The Company’s four ethanol plants in California, Oregon and Idaho (together

with their respective holding companies, the “Pacific Ethanol West Plants”) are located in close proximity to both

feed and ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing.

Following the Company’s

sale of its interest in Pacific Aurora, the Company has a combined production capacity of 450 million gallons per year, markets,

on an annualized basis, nearly 1.0 billion gallons of ethanol and specialty alcohols, based on historical volumes, and produces,

on an annualized basis, nearly 3.0 million tons of co-products on a dry matter basis, such as wet and dry distillers grains, wet

and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, dried yeast and CO 2 , based on

historical volumes.

As of March 31, 2020,

the Company was operating at approximately 40% of production capacity.

As market conditions change, the Company may increase, decrease

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

on an annualized basis, nearly 1.0 billion gallons combined of high quality alcohol and ethanol, based on historical volumes,

and produces, on an annualized basis, nearly 3.0 million tons of co-products on a dry matter basis, such as wet and dry distillers

grains, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, dried yeast and CO 2 ,

based on historical volumes.

As of June 30, 2020,

the Company was operating at approximately 50% of its 450 million gallon annual production capacity.

As market conditions change,

the Company may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Basis of Presentation –

Financial Statements –

The accompanying unaudited consolidated financial statements and related notes have been prepared

in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions

to Form 10-Q and Rule 10-01 of Regulation S-X.

Results for interim periods should not be considered indicative of results

for a full year.

These interim consolidated financial statements should be read in conjunction with the consolidated financial

statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The accounting policies used in preparing these consolidated financial statements are the same as those described in Note 1 to

the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement

of the results for interim periods have been included.

All significant intercompany accounts and transactions have been eliminated

in consolidation.

The accompanying unaudited consolidated financial statements and related notes have been

prepared in accordance with accounting principles generally accepted in the United States for interim financial information and

the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Results for interim periods should not be considered

indicative of results for a full year.

These interim consolidated financial statements should be read in conjunction with the

consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2019.

The accounting policies used in preparing these consolidated financial statements are the same as those

described in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2019.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered

necessary for a fair statement of the results for interim periods have been included.

All significant intercompany accounts and

transactions have been eliminated in consolidation.

Liquidity –

2 unchanged sentences

the realization of assets and the satisfaction of liabilities in the normal course of business.

As a result of ethanol industry

conditions that have negatively affected the Company’s business, the Company does not currently have sufficient liquidity

to meet its anticipated working capital, debt service and other liquidity needs in the near-term.

The Company has reduced production

at its facilities by more than 60% subsequent to quarter-end in an effort to conserve capital in response to a substantial reduction

in demand due to stay-at-home orders issued in response to the coronavirus pandemic.

The Company has obtained additional liquidity

from the completion of the sale of its interest in Pacific Aurora and through government loan programs.

The Company has also

taken and expects to take additional steps to preserve liquidity.

However, despite these efforts, the Company does not believe

that it has sufficient working capital to continue operations for the next twelve months, unless it successfully restructures

its debt, sells additional assets, experiences a significant improvement in demand and margins for its products and/or obtains

other sources of liquidity.

In addition, if demand and margins do not promptly and sustainably improve, the Company may be forced

to further curtail or cease production at its operating facilities.

As a result of these factors, there exists substantial doubt

as to the Company’s ability to continue as a going concern.

The Company, as previously agreed with

its lenders, has presented and continues to negotiate a comprehensive plan to restructure its assets and liabilities.

has appointed a chief restructuring officer to facilitate the development of such a plan and to assist in the Company’s present

strategic initiatives.

The Company expects the negotiated plan will include additional assets sales, soliciting new investments

in the Company or its assets, further debt payment deferrals and reductions, cutting overhead expenses and other cash preserving

The Company intends that the plan will provide the means to maintain sufficient liquidity for the next twelve months.

Receivable and Allowance for Doubtful Accounts –

Trade accounts receivable are presented at face value, net of the

allowance for doubtful accounts.

The Company sells ethanol to gasoline refining and distribution companies, sells distillers grains

and other feed co-products to dairy operators and animal feedlots and sells corn oil to poultry and biodiesel customers generally

without requiring collateral.

Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues.

The collection

process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals.

a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for

the balance in question.

Delinquent accounts receivable are charged against the allowance for doubtful accounts once uncollectibility

has been determined.

The factors considered in reaching this determination are the apparent financial condition of the customer

and the Company’s success in contacting and negotiating with the customer.

If the financial condition of the Company’s

customers were to deteriorate, resulting in an impairment of ability to make payments, additional allowances may be required.

During the three months ended June

30, 2020, the Company continued to experience significant adverse conditions in the ethanol fuel market as demand and pricing were

at record lows due to reduced domestic transportation and resulting lower gasoline demand.

In response, the Company reduced production

at its facilities by more than 50% in an effort to conserve capital as a result of the substantial reduction in fuel ethanol demand

due to stay-at-home orders issued in response to the coronavirus pandemic.

The Company, however, has not only continued producing

and selling its high quality alcohol, but also converted a portion of its fuel-grade ethanol production to higher quality alcohol

to respond to increased demand from the sanitizer and disinfectant markets.

These sales of high quality alcohol were at a mix of

fixed and spot pricing, both of which resulted in positive net income and cash flows from operations during the quarter.

expects robust demand for its high quality alcohol to continue for at least the next twelve months as the Company continues to

enter fixed-price contracts and hedge corn input costs, locking in profit margins on sales of high quality alcohol.

At June 30, 2020, the Company had $29.8 million

in cash and $10.0 million available under Kinergy’s operating line of credit.

During the first half of 2020, the Company

generated $45.7 million in cash from its operations and realized $19.9 million in net cash proceeds from the sale of its interest

in Pacific Aurora.

These positive cash flows have allowed the Company to make net payments totaling $52.3 million on its debt.

Further, subsequent to June 30, 2020, the Company made an additional $9.2 million in payments on its term debt.

The Company, as previously agreed with its lenders, has presented

and continues to negotiate a comprehensive plan to restructure its assets and liabilities.

The Company has appointed a chief restructuring

officer to facilitate the development of such a plan and to assist in the Company’s current strategic initiatives.

Company expects the negotiated plan may include additional assets sales, soliciting new investments in its assets, further debt

payments and further reductions to overhead expenses.

The Company believes that as of the date of

this report, it is in compliance with all debt covenants contained in its credit facilities, except the Company’s obligation

to obtain lender approval of a comprehensive plan to restructure its assets and liabilities with respect to its Pekin and ICP lenders.

The Company has appointed a chief restructuring officer to facilitate the development of such a plan and has presented and continues

to negotiate the plan with its lenders.

As a result, the Company is not in compliance with its obligations to its lenders, which

could result in their acceleration of the Company’s debt.

Although the Company does not expect such an outcome, especially

in light of its financial performance and debt prepayments during the second quarter and thereafter, the Company does not have

sufficient liquidity or capital resources to immediately repay its debt if accelerated.

Even though the Company doesn’t believe

acceleration is probable, it has classified its related debt as current on the Company’s consolidated balance sheets.

the above noted projected cash flows from operations and debt repayments, the Company believes it has alleviated substantial doubt

about its ability to continue as a going concern.

Therefore, the Company believes it has sufficient liquidity to meet its anticipated

working capital, debt service and other liquidity needs for the next twelve months.

Accounts Receivable and Allowance for

Doubtful Accounts –

Trade accounts receivable are presented at face value, net of the allowance for doubtful accounts.

The Company sells ethanol to gasoline refining and distribution companies, sells distillers grains and other feed co-products

to dairy operators and animal feedlots and sells corn oil to poultry and biodiesel customers generally without requiring collateral.

The Company maintains an allowance for doubtful

accounts for balances that appear to have specific collection issues.

The collection process is based on the age of the invoice

and requires attempted contacts with the customer at specified intervals.

If, after a specified number of days, the Company has

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

Delinquent accounts

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

The factors considered

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

and negotiating with the customer.

If the financial condition of the Company’s customers were to deteriorate, resulting

in an impairment of ability to make payments, additional allowances may be required.

Of the accounts receivable balance, approximately

$41,237,000 and $63,736,000 at March 31, 2020 and December 31, 2019, respectively, were used as collateral under Kinergy’s

$40,772,000 and $63,736,000 at June 30, 2020 and December 31, 2019, respectively, were used as collateral under Kinergy’s

operating line of credit.

The allowance for doubtful accounts was $58,000 and $39,000 as of March 31, 2020 and December 31, 2019,

respectively.

The Company recorded a bad debt expense of $19,000 and $26,000 for the three months ended March 31, 2020 and 2019,

The allowance for doubtful accounts was $16,000 and $39,000 as of June 30, 2020 and December 31,

2019, respectively.

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

The Company recorded a bad debt recovery of $18,000 and a bad debt expense of $1,000 for the three months

ended June 30, 2020 and 2019, respectively.

The Company recorded a bad debt expense of $1,000 and $27,000 for the six months ended

June 30, 2020 and 2019, respectively.

Financial Instruments –

1 unchanged sentence

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

value of the Company’s senior secured notes were recorded at fair value at December 31, 2019 and are considered Level 2 fair

value measurements.

The Company believes their carrying value approximates fair value at March 31, 2020.

The Company believes the

carrying value of its other long-term debt and assessment financing is not considered materially different than fair value because

the interest rates on these instruments are variable, and are considered Level 2 fair value measurements.

Estimates and Assumptions

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

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

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

estimates are required as part of determining the allowance for doubtful accounts, net realizable value of inventory, estimated

lives of property and equipment, long-lived asset impairments, 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

value of the Company’s senior secured notes were recorded at fair value at December 31, 2019 and are considered Level 2

fair value measurements.

The Company believes their carrying value approximates fair value at June 30, 2020.

The Company believes

the carrying value of its notes receivable are not considered materially different than fair value due to their recent issuances,

and other long-term debt instruments are not considered materially different than fair value because the interest rates on these

instruments are variable, and are considered Level 2 fair value measurements.

Estimates and Assumptions –

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

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

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

Significant estimates

are required as part of determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of

property and equipment, long-lived asset impairments, 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.

1 unchanged sentence

from management’s estimates and assumptions.

PACIFIC AURORA.

On December 19, 2019, Pacific Ethanol Central,

2 unchanged sentences

that as of December 31, 2019, the long-lived assets of Pacific Aurora should be classified as held-for-sale.

The Company has the following assets and

liabilities of Pacific Aurora that will be derecognized upon sale of PE Central’s interest in Pacific Aurora and as to which

the Company will no longer consolidate any portion of Pacific Aurora (in thousands):

Other current assets

Property and equipment

Assets Held-for-Sale

Accounts payable and

accrued expenses

Other current liabilities

noncurrent liabilities

Total Liabilities Held-for-Sale

In addition to the above accounts, upon

the sale, the Company will no longer have noncontrolling interests on its balance sheet and no longer record income (loss) of noncontrolling

interests for the future periods.

For the three months ended March 31, 2020

and 2019, Pacific Aurora contributed $39.6 million and $36.5 million in net sales, $7.9 million and $4.9 million in pre-tax loss,

and $2.1 million and $1.3 million in net loss attributed to noncontrolling interests, respectively.

On April 15, 2020, the Company closed the

sale of its ownership interest in Pacific Aurora and preliminarily received total consideration of $52.8 million, subject to certain

working capital adjustments, resulting in cash proceeds of $20.2 million and the balance of $16.5 million in long-term ACEC promissory

Approximately $14.5 million of the cash proceeds were used to pay principal on the Company’s term debt.

Company reports its financial and operating performance in two segments:

(1) ethanol production, which includes the production

and sale of ethanol, specialty alcohols and co-products, with all of the Company’s production facilities aggregated, and

(2) marketing and distribution, which includes marketing and merchant trading for Company-produced ethanol, specialty alcohols

and co-products and third-party ethanol.

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

Production, recorded

Ethanol/alcohol

production sales

and distribution:

Ethanol/alcohol

marketing and distribution sales

sales as reported

of goods sold:

sale of its ownership interest in Pacific Aurora and preliminarily received total consideration of $52.8 million, subject to working

capital adjustments of approximately $35.3 million, resulting in cash proceeds of $19.9 million and the balance of $16.5 million

in long-term ACEC promissory notes, resulting in a net loss on sale of approximately $1.4 million, recorded as other income (expense)

in the Company’s consolidated statements of operations.

Approximately $14.5 million of the cash proceeds were used to repay

a portion of the Company’s term debt.

The Company received two promissory notes

in the amounts of $8.6 million and $7.9 million as part consideration for the sale, both maturing on April 15, 2025.

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

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

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

The $7.9 million note accrues interest at an annual rate of

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

January 3, 2022.

In addition, upon the sale, the Company no

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

For the three months ended June 30,

2020 and 2019, Pacific Aurora contributed less than $0.1 million and $45.4 million in net sales, $0.5 million and $2.5 million

in pre-tax loss, and $0.1 million and $0.6 million in net loss attributed to noncontrolling interests, respectively.

months ended June 30, 2020 and 2019, Pacific Aurora contributed $39.6 million and $81.9 million in net sales, $8.4 million

and $7.4 million in pre-tax loss, and $2.2 million and $1.9 million in net loss attributed to noncontrolling interests, respectively.

The Company reports its financial and operating

performance in two segments:

(1) ethanol production, which includes the production and sale of high quality alcohol, ethanol and

co-products, with all of the Company’s production facilities aggregated, and (2) marketing and distribution, which includes

marketing and merchant trading for Company-produced high quality alcohol, ethanol and co-products and third-party ethanol.

The following tables set forth certain financial

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

Three Months Ended

Six Months Ended

Production, recorded as gross:

Ethanol/alcohol sales

Co-product sales

Intersegment sales

Total production sales

Marketing and distribution:

of goods sold, as reported

(loss) before benefit for income taxes:

Ethanol/alcohol sales, gross

Ethanol/alcohol sales, net

Intersegment sales

Total marketing and distribution sales

Intersegment eliminations

Net sales as reported

Cost of goods sold:

Marketing and distribution

and amortization:

Intersegment eliminations

Cost of goods sold as reported

Income (loss) before benefit

for income taxes:

Marketing and distribution

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

Corporate activities

Depreciation and amortization:

Corporate activities

Interest expense:

Marketing and distribution

Inventories consisted primarily of bulk

ethanol, specialty alcohols, corn, co-products, low-carbon and Renewable Identification Number (“RIN”) credits and

unleaded fuel, and are valued at the lower-of-cost-or-net realizable value, with cost determined on a first-in, first-out basis.

Inventory is net of a $5,514,000 and $1,290,000 valuation adjustment as of March 31, 2020 and December 31, 2019, respectively.

Inventory balances consisted of the following (in thousands):

Corporate activities

The following table sets forth the Company’s

total assets by operating segment (in thousands):

Total assets:

Marketing and distribution

Corporate assets

Inventories consisted primarily of bulk high

quality alcohol, ethanol, corn, co-products, low-carbon and Renewable Identification Number (“RIN”) credits and unleaded

fuel, and are valued at the lower-of-cost-or-net realizable value, with cost determined on a first-in, first-out basis.

is net of a $0 and $1,290,000 valuation adjustment as of June 30, 2020 and December 31, 2019, respectively.

Inventory balances

consisted of the following (in thousands):

Finished goods

Work in progress

Raw materials

Low-carbon and RIN

borrowings are summarized as follows (in thousands):

line of credit

revolving loan

notes payable

unamortized debt premium

unamortized debt financing costs

short-term portion

PE Pekin Credit

Facilities –

On March 20, 2020, Pacific Ethanol Pekin, LLC (“PE Pekin”) and its lender agreed to defer

$1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020.

On that same date, the Company

granted to the lender a security interest in all of the Company’s equity interests in PE Op Co., which indirectly owns the

Company’s plants located on the West Coast.

The Company and certain subsidiaries also entered into intercreditor agreements

with the PE Pekin and Illinois Corn Processing, LLC (“ICP”) lenders, and the agent for the Company’s senior secured

noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On April 15, 2020, as part and upon

the closing of the Company’s sale of its interests in Pacific Aurora, the Company made approximately $11.6 million in principal

payments on the PE Pekin term debt.

ICP Credit Facilities –

On March 20, 2020, ICP and its lender agreed to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate

interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020.

On that same date, the Company granted to the lender

a security interest in all of the Company’s equity interests in PE Op Co.

The Company and certain of its subsidiaries also

entered into intercreditor agreements with the PE Pekin and ICP lenders, and the agent for the Company’s senior secured noteholders,

Low-carbon and RIN credits

Long-term borrowings are summarized as follows

(in thousands):

Kinergy line of credit

Pekin term loan

Pekin revolving loan

ICP term loan

ICP revolving loan

CARES Act loans

Parent notes payable

Less unamortized debt premium

Less unamortized debt financing costs

Less short-term portion

Long-term debt

PE Pekin Credit Facilities

On March 20, 2020, Pacific Ethanol Pekin, LLC (“PE Pekin”) and its lender agreed to defer $1.0 million

in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020.

On that same date, the Company granted

to the lender a security interest in all of the Company’s equity interests in PE Op Co., which indirectly owns the Company’s

plants located on the West Coast.

The Company and certain subsidiaries also entered into intercreditor agreements with the PE

Pekin and Illinois Corn Processing, LLC (“ICP”) lenders, and the agent for the Company’s senior secured noteholders,

to address issues of priority and the allocation of proceeds from asset sales.

On April 15, 2020, as part and upon the closing

of the Company’s sale of its interests in Pacific Aurora, the Company made approximately $2.9 million in principal payments

on the ICP term debt.

In July 2020, the Company reached a confidential

settlement of an outstanding dispute resulting in a gain and cash proceeds of approximately $11.8 million.

The Company used a

portion of these funds to make approximately $7.4 million in additional principal payments on PE Pekin’s term debt.

ICP Credit Facilities –

On March 20, 2020, ICP and its lender agreed to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in

aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020.

On that same date, the Company granted to

the lender a security interest in all of the Company’s equity interests in PE Op Co.

The Company and certain of its subsidiaries

also entered into intercreditor agreements with the PE Pekin and ICP lenders, and the agent for the Company’s senior secured

noteholders, to address issues of priority and the allocation of proceeds from asset sales.

The Company used a portion of the

proceeds from the settlement noted above, in July 2020, to make approximately $1.8 million in additional principal payments on

ICP’s term debt.

CARES Act Loans –

May 4, 2020, Pacific Ethanol, Inc.

and PE Pekin received loan proceeds from Bank of America, NA under the recently enacted

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), through the Paycheck Protection Program

administered by the U.S.

and PE Pekin received loan proceeds from Bank of America, NA under the recently enacted Coronavirus

Aid, Relief, and Economic Security Act (“CARES Act”), through the Paycheck Protection Program administered by the

Small Business Administration.

Pacific Ethanol, Inc.

received $6.0 million and PE Pekin received

$3.9 million in loan proceeds.

received $6.0 million and PE Pekin received $3.9 million in loan proceeds.

The loans mature in two years and bear interest at a rate of 1.00% per annum.

Under the terms

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

Company can provide no assurance that it will be able to obtain forgiveness of all or any portion of the loans.

Under the terms of the loans, certain amounts may

be forgiven if they are used for qualifying expenses as described in the CARES Act, but the Company can provide no assurance that

it will be able to obtain forgiveness of all or any portion of the loans.

Restrictions –

March 31, 2020, there were approximately $174.9 million of net assets at the Company’s subsidiaries that were not available

to be transferred to Pacific Ethanol, Inc.

30, 2020, there were approximately $204.4 million of net assets at the Company’s subsidiaries that were not available to

be transferred to Pacific Ethanol, Inc.

in the form of dividends, loans or advances due to restrictions contained in the credit

facilities of the Company’s subsidiaries.

AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES.

Sales Commitments –

At March 31, 2020, the Company had entered into sales contracts with its major customers to sell certain quantities of ethanol

and co-products.

The Company had open ethanol indexed-price contracts for 174,527,000 gallons of ethanol as of March 31, 2020 and

open fixed-price ethanol sales contracts totaling $90,554,000 as of March 31, 2020.

The Company had open fixed-price co-product

sales contracts totaling $16,607,000 and open indexed-price co-product sales contracts for 220,000 tons as of March 31, 2020.

sales contracts are scheduled to be completed throughout 2020.

Commitments –

At March 31, 2020, the Company had indexed-price purchase contracts to purchase 23,295,000 gallons

of ethanol and fixed-price purchase contracts to purchase $9,089,000 of ethanol from its suppliers.

The Company had fixed-price

purchase contracts to purchase $11,541,000 of corn from its suppliers as of March 31, 2020.

These purchase commitments are scheduled

to be satisfied throughout 2020.

June 30, 2020, the Company had entered into sales contracts with its major customers to sell certain quantities of ethanol and

The Company had open ethanol indexed-price contracts for 5,169,000 gallons of ethanol as of June 30, 2020 and open

fixed-price ethanol and high quality alcohol sales contracts totaling $226,845,000 as of June 30, 2020.

The Company had open fixed-price

co-product sales contracts totaling $9,320,000 and open indexed-price co-product sales contracts for 179,000 tons as of June 30,

These sales contracts are scheduled to be completed throughout 2020 and 2021.

Purchase Commitments –

At June 30, 2020, the Company had indexed-price purchase contracts to purchase 35,476,000 gallons of ethanol and fixed-price purchase

contracts to purchase $7,766,000 of ethanol from its suppliers.

The Company had fixed-price purchase contracts to purchase $7,669,000

of corn from its suppliers as of June 30, 2020.

These purchase commitments are scheduled to be satisfied throughout 2020.

2020, the Company entered into derivative contracts to hedge its corn costs for its fixed sales contracts.

Litigation –

General –

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, environmental regulations, and others.

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

If it is probable

that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss.

If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood

of a potential loss is reasonably possible and the amount involved could be material.

While there can be no assurances, the Company

does not expect that any of its pending legal proceedings will have a material impact on the Company’s financial condition

or results of operations.

Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a health care and life insurance plan

(the “Postretirement Plan”).

The Company assumed the Retirement Plan and the Postretirement Plan as part of its acquisition

of PE Central on July 1, 2015.

Retirement Plan is noncontributory, and covers only “grandfathered”

unionized employees at the Company’s Pekin,

Illinois facility who fulfill minimum age and service requirements.

Benefits are based on a prescribed formula based upon the

employee’s years of service.

The Retirement Plan, which is part of a collective bargaining agreement, covers only union

employees hired prior to November 1, 2010.

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

The Company’s funding policy is to make the minimum

annual contribution required by applicable regulations.

As of December 31, 2019, the Retirement Plan’s accumulated projected

benefit obligation was $21.6 million, with a fair value of plan assets of $15.7 million.

The underfunded amount of $5.9 million

is recorded on the Company’s consolidated balance sheet in other liabilities.

For the three months ended March 31, 2020,

the Retirement Plan’s net periodic expense was $48,000, comprised of $173,000 in interest cost and $101,000 in service cost,

partially offset by $226,000 of expected return on plan assets.

For the three months ended March 31, 2019, the Retirement Plan’s

net periodic expense was $94,000, comprised of $190,000 in interest cost and $94,000 in service cost, partially offset by $190,000

of expected return on plan assets.

Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered”

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

The Postretirement

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.

As of December 31, 2019, the Postretirement

Plan’s accumulated projected benefit obligation was $5.3 million and is recorded on the Company’s consolidated balance

sheet in other liabilities.

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

For the three months ended March 31, 2020, the Postretirement Plan’s net periodic expense was $59,000, comprised

of $38,000 of interest cost, $14,000 of service cost and $7,000 of amortization expense.

For the three months ended March 31,

2019, the Postretirement Plan’s net periodic expense was $102,000, comprised of $55,000 of interest cost, $17,000 of service

cost and $30,000 of amortization expense.

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, environmental regulations, and others.

When the Company is aware

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

If it is probable that a loss will result and

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

If the loss is not probable

or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss

is reasonably possible and the amount involved could be material.

While there can be no assurances, the Company does not expect

that any of its pending legal proceedings will have a material impact on the Company’s financial condition or results of

PENSION AND RETIREMENT BENEFIT PLANS.

The Company sponsors a

defined benefit pension plan (the “Retirement Plan”) and a health care and life insurance plan (the “Postretirement

Plan”).

The Company assumed the Retirement Plan and the Postretirement Plan as part of its acquisition of PE Central on

July 1, 2015.

The Retirement Plan is

noncontributory, and covers only “grandfathered”

unionized employees at the Company’s Pekin, Illinois facility

who fulfill minimum age and service requirements.

Benefits are based on a prescribed formula based upon the employee’s years

The Retirement Plan, which is part of a collective bargaining agreement, covers only union employees hired prior to

November 1, 2010.

The Company uses a December

31 measurement date for its Retirement Plan.

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

by applicable regulations.

As of December 31, 2019, the Retirement Plan’s accumulated projected benefit obligation

was $21.6 million, with a fair value of plan assets of $15.7 million.

The underfunded amount of $5.9 million is recorded on the

Company’s consolidated balance sheet in other liabilities.

The Postretirement Plan

provides postretirement medical benefits and life insurance to certain “grandfathered”

unionized employees.

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

The Postretirement 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.

As of December 31, 2019, the Postretirement Plan’s

accumulated projected benefit obligation was $5.3 million and is recorded on the Company’s consolidated balance sheet in

other liabilities.

The Company’s funding policy is to make the minimum annual contribution required by applicable regulations.

VALUE MEASUREMENTS.

1 unchanged sentence

Observable inputs –

unadjusted quoted prices in active markets for identical assets and liabilities;

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

corroboration with market data;

unadjusted quoted prices in active markets for identical

assets and liabilities;

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

for the asset or liability through corroboration with market data;

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.

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.

separate accounts –

5 unchanged sentences

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

assumptions used and related fair value for the warrants as of March 31, 2020 were as follows:

assumptions used and related fair value for the warrants as of June 30, 2020 were as follows:

Original Issuance

Exercise Price

Risk Free Interest Rate

Warrants Outstanding

assumptions used and related fair value for the warrants as of December 31, 2019 were as follows:

Original Issuance

Exercise Price

Risk Free Interest Rate

Warrants Outstanding

fair values of the warrants are based on unobservable inputs and are designated as Level 3 inputs.

2 unchanged sentences

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

The following table summarizes recurring

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

Long-lived assets held-for-sale

following table summarizes recurring and nonrecurring fair value measurements by level at June 30, 2020 (in thousands):

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

financial instruments

assets held-for-sale

benefit plan assets(1) (pooled

separate accounts):

International

Derivative financial instruments

Long-lived assets held-for-sale

Defined benefit plan assets(1)

(pooled separate accounts):

Small/Mid U.S.

International Equity(4)

Fixed Income(5)

financial instruments

Included in derivative instruments in the consolidated

balance sheets.

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.

Derivative financial instruments

in derivative instruments in the consolidated balance sheets.

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.

category includes investments in funds comprised of equity securities of small- and medium-sized

12 unchanged sentences

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

Months Ended March 31, 2020

loss attributed to Pacific Ethanol, Inc.

Three Months Ended June 30, 2020

Net income attributed to Pacific Ethanol, Inc.

Preferred stock dividends

and diluted loss per share:

Basic and diluted loss per share:

Income available to common stockholders

Three Months Ended June 30, 2019

Net loss attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

Months Ended March 31, 2019

loss attributed to Pacific Ethanol, Inc.

Six Months Ended June 30, 2020

Net loss attributed to Pacific Ethanol, Inc.

Preferred stock dividends

and diluted loss per share:

Basic and diluted loss per share:

Loss available to common stockholders

There were an aggregate of 635,000 potentially

dilutive weighted-average shares from convertible securities outstanding for the three months ended March 31, 2020 and 2019.

convertible securities were not considered in calculating diluted net loss per share for the three months ended March 31, 2020

and 2019, as their effect would have been anti-dilutive.

Six Months Ended June 30, 2019

Net loss attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

were an aggregate of 635,000 potentially dilutive weighted-average shares from convertible securities outstanding for the three

and six months ended June 30, 2020 and 2019.

These convertible securities were not considered in calculating diluted net

income (loss) per share for the periods presented, as their effect would have been anti-dilutive.

COMPANY FINANCIALS.

Net Assets –

At March 31, 2020, the Company had approximately $174,900,000 of net assets at its subsidiaries that

were not available to be transferred to Pacific Ethanol in the form of dividends, distributions, loans or advances due to restrictions

contained in the credit facilities of these subsidiaries.

At June 30, 2020, the Company had approximately $204,432,000 of net assets at its subsidiaries

that were not available to be transferred to Pacific Ethanol in the form of dividends, distributions, loans or advances due to

restrictions contained in the credit facilities of these subsidiaries.

company financial statements for the periods covered in this report are set forth below (in thousands):

Current Assets:

and cash equivalents

from subsidiaries

current assets

and equipment, net

in subsidiaries

Ethanol West plant receivable

of use operating lease assets, net

payable and accrued liabilities

portion of long-term debt

current liabilities

Cash and cash equivalents

Receivables from subsidiaries

Other current assets

Total current assets

Property and equipment,

Other Assets:

Investments in subsidiaries

Pacific Ethanol West plant receivable

Right of use operating lease assets, net

Total other assets

Current Liabilities:

debt, net of current portion

Accounts payable and accrued liabilities

Accrued PE Op Co.

Current portion of long-term debt

Other current liabilities

Total current liabilities

Long-term debt, net of current portion

Other liabilities

Stockholders’

and non-voting common stock

paid-in capital

other comprehensive loss

Pacific Ethanol, Inc.

Preferred stock

Common and non-voting common stock

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

Total Pacific Ethanol, Inc.

stockholders’

Liabilities and Stockholders’

fees from subsidiaries

general and administrative expenses

from operations

value adjustments

before benefit for income taxes

for income taxes

before equity in losses of subsidiaries

in losses of subsidiaries

For the Three Months

Total Liabilities

and Stockholders’

Three Months Ended

Six Months Ended

Management fees from subsidiaries

Selling, general and administrative expenses

Income (loss) from operations

Fair value adjustments

Interest income

Interest expense

Other expense

Loss before benefit for income taxes

Benefit for income taxes

Loss before benefit for income taxes

Equity in income (losses) of subsidiaries

Consolidated net income (loss)

For the Six Months Ended

Operating Activities:

to reconcile net loss to cash used in operating activities:

in losses of subsidiaries

Adjustments to reconcile net loss to cash used in operating activities:

Equity in losses of subsidiaries

Fair value adjustments

(accretion) of debt discount (premium)

in operating assets and liabilities:

from subsidiaries

payable and accrued expenses

payable with subsidiaries

cash used in operating activities

Amortization of debt (premiums) discounts

Changes in operating assets and liabilities:

Accounts receivable

Accounts payable and accrued expenses

Accounts payable with subsidiaries

Net cash used in operating activities

Investing Activities:

to property and equipment

cash used in investing activities

Additions to property and equipment

Net cash used in investing activities

Financing Activities:

from issuances of common stock

from plant receivable

on senior notes

stock dividend payments

cash provided by (used in) financing activities

increase (decrease) in cash and cash equivalents

and cash equivalents at beginning of period

and cash equivalents at end of period

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion

and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements

included elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated financial statements

contain forward-looking statements, which generally include the plans and objectives of management for future operations, including

plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate

and profits we might earn if we are successful in implementing our business and growth strategies.

The forward-looking statements

and associated risks may include, relate to or be qualified by other important factors, including:

● fluctuations in the market price of ethanol and its

● fluctuations in the costs of key production input commodities

such as corn and natural gas;

● the projected growth or contraction in the ethanol

and co-product markets in which we operate;

● our strategies for expanding, maintaining or contracting

our presence in these markets;

● anticipated trends in our financial condition and results

of operations;

● our ability to distinguish ourselves from our current

and future competitors.

You are cautioned not

to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a

document incorporated by reference, as of the date of that document.

We do not undertake to update, revise or correct any forward-looking

statements, except as required by law.

Any of the factors described

immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk

Factors”

section below could cause our financial results, including our net income or loss or growth in net income or loss

to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate

substantially.

Recent Developments

On February 28, 2020, we entered into a

membership interest purchase agreement with Aurora Cooperative Elevator Company, or ACEC, to sell our 73.93% ownership interest

in Pacific Aurora, LLC, or Pacific Aurora, to ACEC for total consideration of $52.8 million, subject to certain working capital

adjustments, payable in cash and $16.5 million in ACEC promissory notes.

ACEC owned the 26.07% balance of ownership interests

in Pacific Aurora.

On April 15, 2020, we closed the sale of

our ownership interest in Pacific Aurora and received total consideration of $52.8 million, subject to certain working capital

adjustments, resulting in cash proceeds of $20.2 million and the balance of $16.5 million in ACEC promissory notes.

Approximately

$14.5 million of the net cash proceeds was used to repay principal on our term debt.

We are a leading producer and marketer

of low-carbon renewable fuels in the United States.

We operate seven strategically-located

production facilities.

Four of our plants are in the Western states of California, Oregon and Idaho, and three of our plants are

located in the Midwestern state of Illinois.

We are the seventh largest producer of ethanol in the United States based on annualized

Our plants have a combined production capacity of 450 million gallons per year.

We market all the ethanol, specialty

alcohols and co-products produced at our plants as well as ethanol produced by third parties.

In 2019, we marketed nearly 1.0

billion gallons of ethanol and nearly 3.0 million tons of co-products on a dry matter basis.

Our business consists of two operating

Proceeds from issuances of common stock

Proceeds from plant receivables

Proceeds from long-term debt

Payments on senior notes

Preferred stock dividend payments

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated

financial statements included elsewhere in this report.

This report and our consolidated financial statements and notes to consolidated

financial statements contain forward-looking statements, which generally include the plans and objectives of management for future

operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues

we might generate and profits we might earn if we are successful in implementing our business and growth strategies.

The forward-looking

statements and associated risks may include, relate to or be qualified by other important factors, including:

fluctuations in the market prices of our products;

in the costs of key production input commodities such as corn and natural gas;

● the projected growth or contraction in the markets in which we operate;

strategies for expanding, maintaining or contracting our presence in these markets;

trends in our financial condition and results of operations;

ability to distinguish ourselves from our current and future competitors.

are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or

in the case of a document incorporated by reference, as of the date of that document.

We do not undertake to update, revise or

correct any forward-looking statements, except as required by law.

of the factors described immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission

or in the “Risk Factors”

section below could cause our financial results, including our net income or loss or growth

in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our

common stock to fluctuate substantially.

are a leading producer and marketer of high quality alcohol products and low-carbon renewable fuels in the United States.

We operate seven strategically-located production

Three of our plants are located in the Midwestern state of Illinois and four of our plants are in the Western states

of California, Oregon and Idaho.

We are the seventh largest ethanol producer in the United States based on annualized production

Our plants have a combined high quality alcohol and fuel ethanol production capacity of 450 million gallons per year.

We market all the high quality alcohol, ethanol and co-products produced at our plants as well as ethanol produced by third parties.

In 2019, we marketed nearly 1.0 billion gallons combined of high quality alcohol and ethanol, and nearly 3.0 million tons of co-products

on a dry matter basis.

Our business consists of two operating segments:

a production segment and a marketing segment.

Our mission is to be a leading producer

and marketer of low-carbon renewable fuels, high-value animal feed and high-quality alcohol products in the United States.

intend to accomplish this goal in part by investing in our ethanol production and distribution infrastructure, lowering the carbon

intensity of our ethanol, extending our marketing business into new regional and international markets, and implementing new technologies

to promote higher production yields and greater efficiencies.

Production Segment

We produce ethanol, specialty alcohols

and co-products at our production facilities described below.

Our plants located on the West Coast are near their respective fuel

and feed customers, offering significant timing, transportation cost and logistical advantages.

Our plants located in the Midwest

are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional

domestic markets.

In addition, our ability to load unit trains and barges from our Pekin, Illinois plants, allows for greater

access to international markets.

Currently, we are operating at approximately

50% of production capacity.

As market conditions change, we may increase, decrease or idle production at one or more operating

facilities or resume operations at any idled facility.

mission is to be a leading producer and marketer of high quality alcohol products, low-carbon renewable fuels and high-value animal

feed in the United States.

We intend to accomplish this goal in part by investing in our production and distribution infrastructure,

lowering the carbon intensity of our products, extending our marketing business into new regional and international markets, and

implementing new technologies to promote higher production yields and greater efficiencies.

produce high quality alcohol, ethanol and co-products at our production facilities described below.

Our plants located in the

Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many

additional domestic markets.

In addition, our ability to load unit trains and barges from our Pekin, Illinois plants, allows for

greater access to international markets.

Our plants located on the West Coast are near their respective fuel and feed customers,

offering significant timing, transportation cost and logistical advantages.

we are operating at approximately 52% of production capacity.

As market conditions change, we may increase, decrease or idle production

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

Facility Name

Facility Location

Annual Capacity

We produce ethanol co-products at our production

facilities such as wet distillers grains, or WDG, dried distillers grains with solubles, or DDGS, wet and dry corn gluten feed,

condensed distillers solubles, corn gluten meal, corn germ, corn oil, dried yeast and CO 2 .

Marketing Segment

We market ethanol, specialty alcohols and

co-products produced by our facilities and market ethanol produced by third parties.

We have extensive customer relationships

throughout the Western and Midwestern United States.

Our ethanol customers are integrated oil companies and gasoline marketers

who blend ethanol into gasoline.

Our customers depend on us to provide a reliable supply of ethanol, and manage the logistics

and timing of delivery with very little effort on their part.

Our customers collectively require ethanol volumes in excess of

the supplies we produce at our production facilities.

We secure additional ethanol supplies from third-party plants in California

and other third-party suppliers in the Midwest where a majority of ethanol producers are located.

We arrange for transportation,

storage and delivery of ethanol purchased by our customers through our agreements with third-party service providers in the Western

United States as well as in the Midwest from a variety of sources.

We market our distillers grains and other

feed co-products to dairies and feedlots, in many cases located near our ethanol plants.

These customers use our feed co-products

for livestock as a substitute for corn and other sources of starch and protein.

We sell our corn oil to poultry and biodiesel

We do not market co-products from other ethanol producers.

Estimated Annual Capacity

Operating Status

* We anticipate restarting our Pekin dry mill in September

2020, which was idled due to river closures.

produce high quality alcohol and ethanol co-products at our production facilities such as wet distillers grains, or WDG, dried

distillers grains with solubles, or DDGS, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn

germ, corn oil, dried yeast and CO 2 .

We market high quality alcohol products, low-carbon

ethanol, high protein feed and co-products produced by our facilities.

We also market fuel ethanol produced by third parties.

We have extensive and long-standing customer

relationships, both domestic and international, for our high quality alcohol products.

These customers include producers and distributors

of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers

of personal health/consumer health and personal care hygiene products, and global trading firms.

Our fuel ethanol customers are located throughout

the Western and Midwestern United States and consist of integrated oil companies and gasoline marketers who blend ethanol into

Our customers depend on us to provide a reliable supply of fuel ethanol, and manage the logistics and timing of delivery

with very little effort on their part.

Our customers collectively require ethanol volumes in excess of the supplies we produce

at our Western production facilities.

We secure additional ethanol supplies from third-party plants in California and other third-party

suppliers in the Midwest where a majority of ethanol producers are located.

We arrange for transportation, storage and delivery

of ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as

well as in the Midwest from a variety of sources.

market our distillers grains and other feed co-products to dairies and feedlots, in many cases located near our plants.

customers use our feed co-products for livestock as a substitute for corn and other sources of starch and protein.

corn oil to poultry and biodiesel customers.

We do not market co-products from other producers.

See “Note 3 –

Segments”

to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business

Current Initiatives and Outlook

In the first quarter of 2020, we experienced

an acute negative margin environment resulting from continued excess ethanol supplies compounded by plummeting demand from the

impact of the coronavirus pandemic.

The effects of the pandemic, including stay-at-home orders, significantly reduced ethanol demand

by up to 50% or more in the markets we serve.

Declining demand impacted the market price of ethanol, pushing prices to historically

Although corn prices also declined, they moved less on a percentage basis, and did not fully mitigate the effects of

lower ethanol prices, resulting in industry-wide negative production margins.

As a result, the ethanol industry as a whole

reduced production to an unprecedented 50% of capacity.

Over 75 production facilities were fully idled and many others reduced

production to minimum levels.

We initially reduced production levels and overall plant utilization to 40% of capacity, while seeking

to balance our customer commitments with our need to minimize negative operating cash flow.

Overall, we are currently producing

at approximately 50% of total capacity, having gradually increased production based on higher demand and improving margins.

early May, demand has improved by more than 20% and industry ethanol inventories have declined.

Our ICP production facility in Pekin, Illinois

continues to produce and sell record amounts of high-quality alcohol, a key ingredient in the production of sanitizers and disinfectants,

validating one of our strategic objectives in acquiring the facility to diversify our products.

In addition, we have benefitted

from higher demand and prices for our high-protein animal feed products as a result of lower industry supplies due to reduced production

of ethanol and co-products.

We are encouraged by the performance of our Pekin operations, which we expect will make a materially

positive contribution to our results for the second quarter.

United States ethanol exports were strong

in the first quarter with over 500 million gallons exported, representing a 30% increase over the comparable period in 2019.

exports have slowed thus far in the second quarter due to reduced demand caused by the coronavirus pandemic, we expect exports

to rebound as countries reopen their economies.

China is the first country to emerge from the most significant effects of the coronavirus

pandemic, and we are optimistic that China may step in as a significant buyer of United States ethanol as part of China’s

phase-one trade deal with the United States.

The Environmental Protection Agency, or

EPA, has elected not to appeal a 10th Circuit federal court decision limiting small refinery exemptions from the national Renewable

Fuel Standard, or RFS.

While the court decision is geographically limited, subject to the appeals process, we expect the EPA to

apply the decision nationally and substantially limit small refinery exemptions going forward.

If applied nationally, we estimate

that fewer small refinery exemptions would restore over 1.0 billion gallons of annual demand for renewable fuels once the industry

recovers from the coronavirus pandemic.

our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

Initiatives and Outlook

In the second quarter, we experienced an excellent

margin environment for our high quality alcohol, reflecting the benefits of our diversification strategy, expanded production and

robust demand for our products used in sanitizers and disinfectants due to the ongoing coronavirus pandemic.

To meet increased

demand, we focused on debottlenecking production and other process improvements to generate additional production capacity for

high quality alcohol of 25 million gallons per year at our Pekin campus.

In addition, we continue to modify and refurbish existing

equipment to further increase production capacity of USP-grade alcohol by an additional 30 million gallons per year by the end

As we move into 2021, our Pekin campus will have total production capacity for high quality alcohol of 140 million gallons

per year, the majority of which will meet or exceed USP specifications.

Our high quality alcohol products consistently

achieve significantly better margins than fuel ethanol.

Moreover, high-quality alcohol is typically sold at fixed prices and volumes

with longer-term commitments than fuel ethanol, allowing us to lock in our input costs over the contract term and better secure

favorable margins.

The majority of our high quality alcohol production is contracted through 2020, and we are building a strong

book of sales for 2021 as we add new customers and renew existing contracts.

The market for high quality alcohol requires

that manufacturers have specialized equipment and systems, and also strong quality controls, experience and operational capabilities

to produce alcohol products that meet customers’

precise and unique specifications.

The coronavirus pandemic significantly

increased demand for sanitizers and disinfectants, which quickly outstripped available supplies.

In response, the federal government

temporarily loosened quality-control requirements, which had the unintended consequence of allowing questionable third-party products

into the marketplace.

We expect that quality-control requirements will be retightened, highlighting a competitive advantage we

hold over various third-party producers.

Our Pekin campus has produced industrial, chemical

and beverage grade alcohol for over 100 years.

We have new as well as many long-standing relationships with key domestic and international

customers who benefit from our quality products, service and logistics advantages, including our ability to ship products via truck,

rail or barge.

Given our quality control capabilities, we intend to continue to meet or exceed our stringent customer and regulatory

We also continue to enjoy strong demand for

our high protein meal and dried yeast products, which our Pekin facilities have manufactured for over 20 years.

For example, we

offer a high quality yeast used in pet and human food and a high protein corn meal used in poultry, pet food and aquaculture.

the slowdown in our production of fuel ethanol co-products as a result of the coronavirus pandemic, we have been able to consistently

maintain production of these high value products at our Pekin campus, resulting in strong co-product returns.

With regard to our fuel grade ethanol operations,

we continued to experience a poor margin environment in the second quarter resulting from low demand from the impact of the coronavirus

Industry-wide ethanol production had declined by more than 50% at the beginning of the second quarter.

Most of our fuel

ethanol commitments for the quarter were met through our third party marketing business.

Although we have seen some resurgence in both

production and demand, the current market environment for fuel ethanol remains volatile and uncertain, with overall demand off

by more than 10% from a year ago.

In addition, fuel ethanol production crush margins remain variable and unpredictable over the

Given these market conditions, we do not intend to restart our idled fuel ethanol plants in the Western states until

we can better secure positive forward operating margins for the facilities.

We anticipate that reopening may also entail either

repurposing certain facilities or restarting with high value complementary or differentiated products.

We are considering all options

for maximizing or monetizing the value of our fuel ethanol plants, and we are in discussions with various parties in this regard.

We continue to pursue a number of strategic

2 unchanged sentences

business performance.

Our most significant challenge in meeting these objectives would be a sustained adverse margin environment.

See “-Liquidity and Capital Resources”.

We remain focused on implementing initiatives

and investing in our assets to reduce costs, both at the operating and corporate levels;

further diversifying our sales through

additional high-protein animal feed and high-quality alcohol products;

improving our production yields and other operating efficiencies;

and reducing the carbon intensity of the ethanol we produce.

Overall, we remain confident in the compelling cost, octane, carbon

and health benefits of ethanol, and its long-term demand as a valuable transportation fuel.

Critical Accounting Policies

The preparation of our

financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States

of America, requires us to make judgments and estimates that may have a significant impact upon the portrayal of our financial

condition and results of operations.

We believe that of our significant accounting policies, the following require estimates and

assumptions that require complex, subjective judgments by management that can materially impact the portrayal of our financial

condition and results of operations:

We remain focused on implementing initiatives and investing in our

assets to further diversify our sales through additional products and revenue streams, improve our production yields and other

operating efficiencies, and reduce costs, both at the operating and corporate levels.

Accounting Policies

preparation of our financial statements, which have been prepared in accordance with accounting principles generally accepted

in the United States of America, requires us to make judgments and estimates that may have a significant impact upon the portrayal

of our financial condition and results of operations.

We believe that of our significant accounting policies, the following require

estimates and assumptions that require complex, subjective judgments by management that can materially impact the portrayal of

our financial condition and results of operations:

revenue recognition;

impairment of long-lived assets and held-for-sale classification;

of allowance for deferred taxes and derivative instruments.

These significant accounting principles are more fully described in

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies”

valuation of allowance for deferred taxes and derivative instruments.

These significant accounting principles are more fully described

in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting

Policies”

in our Annual Report on Form 10-K for the year ended December 31, 2019.

Results of Operations

The following selected

financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial

statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial

Condition and Results of Operations”

of Operations

following selected financial information should be read in conjunction with our consolidated financial statements and notes to

our consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion

and Analysis of Financial Condition and Results of Operations”

contained in this report.

Certain performance

metrics that we believe are important indicators of our results of operations include:

performance metrics that we believe are important indicators of our results of operations include:

Production gallons sold (in millions)

Third party gallons sold (in

Third party gallons sold (in millions)

Total gallons sold (in millions)

2 unchanged sentences

Average sales price per gallon

Corn cost per bushel—CBOT equivalent

Corn cost per bushel –

CBOT equivalent

Average basis (1)

Delivered cost of corn

Total co-product tons sold (in thousands)

revenues as % of delivered cost of corn (2)

Co-product revenues as % of delivered cost of corn (2)

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

(1) Corn basis represents the difference

between the immediate cash price of delivered corn and the future price of corn for Chicago

(2) Co-product revenues as a percentage of

delivered cost of corn shows our yield based on sales of co-products, including WDG and

corn oil, generated from ethanol we produced.

Cost of Goods Sold and Gross Profit (Loss)

The following table

presents our net sales, cost of goods sold and gross profit (loss) in dollars and gross profit (loss) as a percentage of net sales

(in thousands, except percentages):

basis represents the difference between the immediate cash price of delivered corn and the future price of corn for Chicago

revenues as a percentage of delivered cost of corn shows our yield based on sales of co-products, including WDG and corn oil,

generated from ethanol we produced.

Sales, Cost of Goods Sold and Gross Profit (Loss)

following table presents our net sales, cost of goods sold and gross profit in dollars and gross profit as a percentage of net

sales (in thousands, except percentages):

Months Ended June 30,

Cost of goods sold

Percentage of net sales

The decrease in our

net sales for the three months ended March 31, 2020 as compared to the same period in 2019 was due to both a decrease in our total

ethanol gallons sold and a decrease in our average ethanol sales price per gallon.

We sold fewer third party

gallons and co-products for the three months ended March 31, 2020 as compared to the same period in 2019, but sold more production

gallons on a period-over-period comparison.

Our production capacity utilization nevertheless declined to an average 77% for the

three months ended March 31, 2020 compared to 82% for the same period in 2019.

For the three months ended March 31, 2020, we focused

on selling our own production gallons and did not source third party gallons in typical volumes due to reduced demand from the

effects of the coronavirus pandemic on the transportation fuels sector.

On a consolidated basis,

our average sales price per gallon decreased 1.3% to $1.51 for the three months ended March 31, 2020 compared to our average sales

price per gallon of $1.53 for the same period in 2019.

The average Chicago Board of Trade, or CBOT, ethanol price per gallon,

decreased 6.1% to $1.24 for the three months ended March 31, 2020 compared to an average CBOT sales price per gallon of $1.32

for the same period in 2019.

Production Segment

Net sales of ethanol

from our production segment increased by $7.3 million, or 4%, to $186.7 million for the three months ended March 31, 2020 as compared

to $179.4 million for the same period in 2019.

Our total volume of production ethanol gallons sold increased by 5.6 million gallons,

or 5%, to 122.5 million gallons for the three months ended March 31, 2020 as compared to 116.9 million gallons for the same period

Our production segment’s average sales price per gallon declined 1% to $1.52 for the three months ended March 31,

2020 compared to our production segment’s average sales price per gallon of $1.53 for the same period in 2019.

At our production

segment’s average sales price per gallon of $1.52 for the three months ended March 31, 2020, we generated $8.5 million in

additional net sales from our production segment from the 5.6 million additional gallons of produced ethanol sold in the three

months ended March 31, 2020 as compared to the same period in 2019.

The decline of $0.01 in our production segment’s average

sales price per gallon for the three months ended March 31, 2020 as compared to the same period in 2019 reduced our net sales

of ethanol from our production segment by $1.2 million.

Net sales of co-products

remained flat at $68.8 million for the three months ended March 31, 2020 and 2019.

Our total volume of co-products sold declined

by 12.2 thousand tons, or 2%, to 671.9 thousand tons for the three months ended March 31, 2020 from 684.1 thousand tons for the

same period in 2019 and our average sales price per ton increased to $102.40 per ton for the three months ended March 31, 2020

from $100.58 per ton for the same period in 2019.

At our average sales price per ton of $102.40 for the three months ended March

31, 2020, we generated $1.2 million less in net sales from the 12.2 thousand ton decline in co-products sold in the three months

ended March 31, 2020 as compared to the same period in 2019.

The increase in our average sales price per ton of $1.82, or 2%,

for the three months ended March 31, 2020 as compared to the same period in 2019 increased our net sales of co-products by $1.2

Marketing Segment

Net sales of ethanol from our marketing

segment, excluding intersegment sales, decreased by $51.7 million, or 48%, to $55.9 million for the three months ended March 31,

The decline in our net sales

for the three and six months ended June 30, 2020 as compared to the same periods in 2019 was primarily due to a significant decline

in our ethanol production gallons sold.

We sold fewer ethanol production

gallons and co-products for the three and six months ended June 30, 2020 as compared to the same periods in 2019.

These declines

are primarily due to significantly reduced transportation fuel demand from the effects of stay-at-home orders as a result of the

coronavirus pandemic.

As a result, we reduced our production capacity utilization to 40% on a consolidated basis in the second

Demand for our high quality alcohol, however, increased significantly in the sanitizer and disinfectant markets.

markets have historically, and even more so in the second quarter, provided a premium price over fuel ethanol markets.

Our third-party

gallons sold declined in the quarter, but less than the decline in overall ethanol demand, as most of our fuel ethanol commitments

for the quarter were met through our third party marketing business.

Months Ended June 30, 2020 and 2019

a consolidated basis, our average sales price per gallon declined 1.2% to $1.59 for the three months ended June 30, 2020 compared

to $1.61 for the same period in 2019.

The average Chicago Board of Trade, or CBOT, ethanol price per gallon, declined 23.4% to

$1.08 for the three months ended June 30, 2020 compared to $1.41 for the same period in 2019.

Net sales of alcohol and

ethanol from our production segment declined by $89.1 million, or 46%, to $105.3 million for the three months ended June 30, 2020

as compared to $194.4 million for the same period in 2019.

Our total volume of ethanol gallons sold by our marketing segment

declined by 26.9 million gallons, or 13%, to 184.9 million gallons for the three months ended March 31, 2020 as compared to 211.8

million gallons for the same period in 2019.

Our marketing segment’s average sales

price per gallon remained flat at $1.64 for the three months ended March 31, 2020 and 2019.

At our marketing segment’s average

sales price per gallon of $1.64 for the three months ended March 31, 2020, we generated $51.4 million less in net sales from our

marketing segment from the 26.9 million fewer ethanol gallons sold in the three months ended March 31, 2020 as compared to the

Our total volume of production gallons sold declined by 61.7 million

gallons, or 52%, to 56.9 million gallons for the three months ended June 30, 2020 as compared to 118.6 million gallons for the

same period in 2019.

A slight decline of less than $0.01 in our average sales price per gallon for the three months ended March

Our production segment’s average sales price per gallon increased 13% to $1.85 for the three months

ended June 30, 2020 compared to $1.64 for the same period in 2019.

At our production segment’s average sales price per gallon

of $1.85 for the three months ended June 30, 2020, we generated $114.3 million less in net sales from our production segment from

the 61.7 million fewer gallons of produced alcohol and ethanol sold in the three months ended June 30, 2020 as compared to the

same period in 2019.

The increase of $0.21 in our production segment’s average sales price per gallon for the three months

ended June 30, 2020 as compared to the same period in 2019 increased our net sales of alcohol and ethanol from our production segment

by $25.2 million.

sales of co-products declined $29.4 million, or 45%, to $35.3 million for the three months ended June 30, 2020 as compared

to $64.7 million for the same period in 2019.

Our total volume of co-products sold declined by 441.4 thousand tons, or 64%, to

250.1 thousand tons for the three months ended June 30, 2020 from 691.5 thousand tons for the same period in 2019, however,

our average sales price per ton improved to $141.26 for the three months ended June 30, 2020 from $93.53 for the same period

At our average sales price per ton of $141.26 for the three months ended June 30, 2020, we generated $62.4 million

less in net sales from the 441.4 thousand ton decline in co-products sold in the three months ended June 30, 2020 as compared

to the same period in 2019.

The increase in our average sales price per ton of $47.73, or 51%, for the three months ended June 30,

2020 as compared to the same period in 2019 increased our net sales of co-products by $33.0 million.

Net sales of alcohol and ethanol from our marketing

segment, excluding intersegment sales, declined by $15.8 million, or 18%, to $71.4 million for the three months ended June 30,

2020 as compared to $87.2 million for the same period in 2019.

Our total volume of alcohol and ethanol gallons sold by our marketing

segment declined by 71.0 million gallons, or 35%, to 130.8 million gallons for the three months ended June 30, 2020 as compared

to 201.8 million gallons for the same period in 2019.

The 71.0 million decline in gallons sold by our marketing segment is comprised

of 61.7 million fewer production gallons sold and 9.3 million fewer third party gallons sold.

The 9.3 million gallon decline in

third party gallons sold is comprised of 0.3 million fewer gallons sold on a gross basis and 9.0 million fewer gallons sold on

marketing segment’s average fuel ethanol sales price per gallon declined 17% to $1.34 for the three months ended June 30,

2020 compared to $1.62 for the same period in 2019.

At our marketing segment’s average sales price per gallon of $1.34 for

the three months ended June 30, 2020, we generated $0.4 million less in net sales from our marketing segment from the 0.3 million

fewer gallons in third party ethanol sold in the three months ended June 30, 2020 as compared to the same period in 2019.

decline of $0.28 in our marketing segment’s average sales price per gallon for the three months ended June 30, 2020 as compared

to the same period in 2019 reduced our net sales from third party ethanol sold by our marketing segment by $15.4 million.

Months Ended June 30, 2020 and 2019

a consolidated basis, our average sales price per gallon declined 1.3% to $1.55 for the six months ended June 30, 2020 compared

to $1.57 for the same period in 2019.

The average CBOT ethanol price per gallon declined 14.7% to $1.16 for the six months ended

June 30, 2020 compared to $1.36 for the same period in 2019.

Net sales of alcohol and

ethanol from our production segment declined by $83.8 million, or 22%, to $290.0 million for the six months ended June 30, 2020

as compared to $373.8 million for the same period in 2019.

Our total volume of production gallons sold declined by 56.0 million

gallons, or 24%, to 179.5 million gallons for the six months ended June 30, 2020 as compared to 235.5 million gallons for the same

period in 2019.

Our production segment’s average sales price per gallon increased 2% to $1.62 for the six months ended June

30, 2020 compared to $1.59 for the same period in 2019.

At our production segment’s average sales price per gallon of $1.62

for the six months ended June 30, 2020, we generated $90.7 million less in net sales from our production segment from the 56.0

million fewer gallons of produced alcohol and ethanol sold in the six months ended June 30, 2020 as compared to the same period

The increase of $0.03 in our production segment’s average sales price per gallon for the six months ended June 30,

2020 as compared to the same period in 2019 increased our net sales of alcohol and ethanol from our production segment by $6.9

sales of co-products declined $29.3 million, or 22%, to $104.1 million for the six months ended June 30, 2020 as compared

to $133.4 million for the same period in 2019.

Our total volume of co-products sold declined by 453.6 thousand tons, or 33%, to

922.0 thousand tons for the six months ended June 30, 2020 from 1,375.6 thousand tons for the same period in 2019, and our

average sales price per ton increased to $112.94 for the six months ended June 30, 2020 from $97.04 for the same period in

At our average sales price per ton of $112.94 for the six months ended June 30, 2020, we generated $51.2 million less

in net sales from the 453.6 thousand ton decline in co-products sold in the six months ended June 30, 2020 as compared to

the same period in 2019.

The increase in our average sales price per ton of $15.90, or 16%, for the six months ended June 30,

2020 as compared to the same period in 2019 increased our net sales of co-products by $21.9 million.

Net sales of alcohol and ethanol from our marketing

segment, excluding intersegment sales, declined by $65.4 million, or 34%, to $129.4 million for the six months ended June 30,

2020 as compared to $194.8 million for the same period in 2019.

Our total volume of alcohol and ethanol gallons sold by our marketing

segment declined by 97.7 million gallons, or 24%, to 315.8 million gallons for the six months ended June 30, 2020 as compared

to 413.5 million gallons for the same period in 2019.

The 97.7 million decline in gallons sold by our marketing segment is comprised

of 56.0 million fewer production gallons sold and 41.7 million fewer third party gallons sold.

The 41.7 million decline in third

party gallons sold is comprised of 31.7 million fewer gallons sold on a gross basis and 10.0 million fewer gallons sold on a net

marketing segment’s average fuel ethanol sales price per gallon declined 9.8% to $1.47 for the six months ended June 30,

2020 as compared to $1.63 for the same period in 2019.

At our marketing segment’s average sales price per gallon of $1.47

for the six months ended June 30, 2020, we generated $46.7 million less in net sales from our marketing segment from the

41.7 million fewer gallons in third party ethanol sold in the six months ended June 30, 2020 as compared to the same period

The decline of $0.16 in our marketing segment’s average sales price per gallon for the six months ended June 30,

2020 as compared to the same period in 2019 reduced our net sales from third party ethanol sold by our marketing segment by $18.7

$0.3 million.

Cost of Goods Sold and Gross Loss

Our consolidated gross loss increased to

$12.9 million for the three months ended March 31, 2020 as compared to $2.3 million for the same period in 2019, representing

a negative gross profit margin of 4.1% for the three months ended March 31, 2020 as compared to a negative gross profit margin

of 0.6% for the same period in 2019.

Our consolidated gross loss increased primarily due to significantly lower crush margins

resulting from lower ethanol prices from reduced transportation fuel demand and higher corn costs.

Production Segment

Our production segment’s gross loss

from external sales increased by $5.6 million to $15.6 million for the three months ended March 31, 2020 as compared to $10.0

million for the same period in 2019.

Of this increase, $4.9 million is attributable to lower margins and $0.7 million is attributable

to higher production volumes at negative margins for the three months ended March 31, 2020 as compared to the same period in 2019.

Marketing Segment

Our marketing segment’s gross profit

declined by $5.0 million to $2.6 million for the three months ended March 31, 2020 as compared to $7.6 million for the same period

Of this decline, $2.6 million is attributable to lower margins and $2.4 million is attributable to lower third-party

marketing volumes for the three months ended March 31, 2020 as compared to the same period in 2019, respectively.

Selling, General

and Administrative Expenses

The following table

presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands,

except percentages):

of Goods Sold and Gross Profit

consolidated gross profit improved to $31.2 million, representing a gross profit margin of 14.7%, for the three months ended June

30, 2020 compared to $4.0 million, representing a gross profit margin of 1.1%, for the same period in 2019.

Our consolidated gross

profit improved to $18.3 million, representing a gross profit margin of 3.5%, for the six months ended June 30, 2020 compared

to $1.7 million, representing a gross profit margin of 0.2%, for the same period in 2019.

Our gross profit and gross profit margin

improved primarily due to significantly higher margins from sales of our high quality alcohol.

Months Ended June 30, 2020 and 2019

Our production segment’s gross profit

from external sales improved by $25.6 million to $27.9 million for the three months ended June 30, 2020 as compared to $2.3 million

for the same period in 2019.

Of this improvement, $55.6 million is attributable to our production segment’s higher margins

for the three months ended June 30, 2020 as compared to the same period in 2019, partially offset by $30.0 million in lower gross

profit attributable to decreased ethanol production volumes for the three months ended June 30, 2020 as compared to the same period

marketing segment’s gross profit increased by $1.7 million to $3.3 million for the three months ended June 30, 2020

as compared to $1.6 million for the same period in 2019.

Of this improvement, nearly all of it relates to our marketing segment’s

higher margins per gallon for the three months ended June 30, 2020 as compared to the same period in 2019.

Months Ended June 30, 2020 and 2019

Our production segment’s gross profit

from external sales improved by $20.1 million to $12.3 million for the six months ended June 30, 2020 as compared to a gross loss

of $7.8 million for the same period in 2019.

Of this improvement, $23.9 million is attributable to our production segment’s

higher margins for the six months ended June 30, 2020 as compared to the same period in 2019, partially offset by $3.8 million

in lower gross profit attributable to reduced ethanol production volumes for the six months ended June 30, 2020 as compared to

the same period in 2019.

marketing segment’s gross profit declined by $3.5 million to $5.9 million for the six months ended June 30, 2020 as

compared to $9.4 million for the same period in 2019.

Of this decline, $1.3 million is attributable to our marketing segment’s

lower margins per gallon and $2.2 million is attributable to the reduction in third-party marketing volumes for the six months

ended June 30, 2020 as compared to the same period in 2019.

General and Administrative Expenses

Percentage of

Our SG&A expenses increased for the

three months ended March 31, 2020 as compared to the same period in 2019.

The $2.0 million period over period increase in SG&A

expenses is primarily due to increased professional fees related to our strategic initiatives.

Net Loss Available

following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net

sales (in thousands, except percentages):

Three Months Ended

Six Months Ended

Selling, general and

administrative expenses

Percentage of net sales

SG&A expenses increased for the three and six months ended June 30, 2020 as compared to the same period in 2019.

increase in SG&A expenses is primarily due to increases in professional fees associated with the sale of our interest in Pacific

Aurora, LLC, or Pacific Aurora, and our other strategic initiatives.

Income (Loss) Available to Common Stockholders

following table presents our net income (loss) available to common stockholders in dollars and as a percentage of net sales (in

thousands, except percentages):

Three Months Ended

Six Months Ended

Net income (loss) available

to common stockholders

The following table

presents our net loss available to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages):

loss available to Common Stockholders

Percentage of

The increase in net loss

available to common stockholders is primarily due to our higher gross loss and increased SG&A expenses, as discussed above,

for the three months ended March 31, 2020 as compared to the same period in 2019.

Liquidity and Capital Resources

During the three months ended March 31,

2020, we funded our operations primarily from monetization of working capital, cash generated by our operations and cash on hand.

These funds were also used to make payments under our credit facilities, and for capital expenditures and to make lease payments.

Percentage of net sales

improvement in net income (loss) available to common stockholders is primarily due to significantly higher margins from our high

quality alcohol sales for the three and six months ended June 30, 2020 as compared to the same periods in 2019.

and Capital Resources

the six months ended June 30, 2020, we funded our operations primarily from cash generated by our operations and cash on hand.

These funds were used to make payments on our term debt and under our other credit facilities, and for capital expenditures and

to make lease payments.

Our financial statements have been prepared

on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course

We, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and 2019,

and thus far into 2020, as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory

These factors, which are compounded by the impact of the coronavirus pandemic, resulted and continue to result in negative

operating margins, significantly lower cash flow from operations and substantial net losses.

In response to the low-margin environment,

we have reduced production and continue to pursue strategic initiatives focused on the sale of certain additional production assets,

a reduction of our debt levels, a strengthening of our cash and liquidity position, and opportunities for strategic partnerships

and capital raising activities, positioning us to optimize our business performance.

Our most significant challenges in meeting

these objectives would be a sustained adverse margin environment and insufficient cash flow to fund operations or make our scheduled

debt payments.

We do not expect to have sufficient liquidity

to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell

additional assets, experience a significant improvement in margins and/or obtain other sources of liquidity.

We previously reduced

production at our facilities by more than 60% due to market conditions and in an effort to conserve capital, and are currently

operating at 50% capacity.

If margins do not promptly and sustainably improve from current levels, we may be forced to further

curtail or cease production at one or more of our operating facilities.

See “Risk Factors”.

Our current available capital resources

consist of cash on hand and amounts available for borrowing under our credit facilities.

We expect that our future available capital

resources will consist primarily of our current cash balances, any availability under our lines of credit, any cash generated

from operations, net cash proceeds from any sale of our production assets and net cash proceeds from any equity sales or debt

financing transactions.

As of March 31, 2020, on a consolidated

basis, we had an aggregate of $26.8 million in cash.

As of March 31, 2020, our current assets

of $199.3 million exceeded our current liabilities of $188.2 million, resulting in working capital of $11.1 million.

that as of the date of this report, we are in compliance with all debt covenants contained in our credit facilities.

Quantitative Quarter-End

Liquidity Status

We believe that the

following amounts provide insight into our liquidity and capital resources.

The following selected financial information should

be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere

in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results

of Operations”

During the six months ended June 30, 2020, we continued to experience significant adverse conditions in the ethanol

fuel market as demand and pricing were at record lows due to reduced domestic transportation and resulting lower gasoline demand.

In response, we reduced production at our facilities by more than 50% in an effort to conserve capital as a result of a substantial

reduction in demand due to stay-at-home orders issued in response to the coronavirus pandemic.

We have, however, not only continued

producing and selling high quality alcohol, but also converted a portion of our fuel ethanol production to higher quality alcohol

to respond to increased demand from the sanitizer and disinfectant markets.

These sales of high quality alcohol were at a mix

of fixed and spot pricing, both of which resulted in positive net income and cash flows from operations during the second quarter.

We expect robust demand for our high quality alcohol to continue for at least the next twelve months as we continue to enter fixed

price contracts and hedge corn input costs, locking in profit margins on sales of high quality alcohol.

June 30, 2020, we had $29.8 million in cash and $10.0 million available under our operating line of credit for our marketing subsidiary,

Kinergy Marketing LLC, or Kinergy.

During the first half of 2020, we generated $45.7 million in cash from our operations and realized

$19.9 million in net cash from the sale of our interest in Pacific Aurora.

These positive cash flows have allowed us to make net

payments totaling $52.3 million on our debt.

Further, subsequent to June 30, 2020, we made an additional $9.2 million in payments

on our term debt.

As previously agreed with our lenders, we have

presented and continue to negotiate a comprehensive plan to restructure our assets and liabilities.

We have appointed a chief

restructuring officer to facilitate the development of such a plan and to assist in our current strategic initiatives.

expect the negotiated plan may include additional assets sales, soliciting new investments in us or our assets, further debt payments

and further reductions to overhead expenses.

current available capital resources consist of cash on hand and amounts available for borrowing under our credit facilities.

expect that our future available capital resources will consist primarily of any cash generated from our operations, cash balances,

any availability under our lines of credit, net cash proceeds from any sale of our production assets and net cash proceeds from

any equity sales or debt financing transactions.

As of June 30, 2020, our current

liabilities of $147.0 million exceeded our current assets of $131.8 million, resulting in a working capital deficit of $15.2

We believe that as of the date of this report,

we are in compliance with all debt covenants contained in our credit facilities, except our obligation to obtain lender approval

of a comprehensive plan to restructure our assets and liabilities with respect to our Pekin and ICP lenders.

As noted above, we

appointed a chief restructuring officer to facilitate the development of such a plan and we have presented and continue to negotiate

the plan with our lenders.

As a result, we are not in compliance with our obligations to our lenders, which could result in their

acceleration of our debt.

Although we do not expect such an outcome, especially in light of our financial performance and debt

prepayments during the second quarter and thereafter, we do not have sufficient liquidity or capital resources to immediately

repay our debt if accelerated.

Even though we do not believe acceleration is probable, we have classified our related debt as

current on our consolidated balance sheets.

Given our cash flows from operations and debt prepayments, we believe we have alleviated

substantial doubt about our ability to continue as a going concern.

We therefore believe that we will have sufficient liquidity

to meet our anticipated working capital, debt service and other liquidity needs for the next twelve months.

Quarter-End Liquidity Status

believe that the following amounts provide insight into our liquidity and capital resources.

The following selected financial

information should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements

included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition

and Results of Operations”

contained in this report (dollars in thousands):

June 30, 2020

December 31, 2019

Cash and cash equivalents

3 unchanged sentences

Long-term debt, net of current portion

Working capital

Working capital (deficit)

Working capital ratio

Restricted Net Assets

At March 31, 2020, we had approximately

$174.9 million of net assets at our subsidiaries that were not available to be transferred to Pacific Ethanol, Inc.

of dividends, loans or advances due to restrictions contained in the credit facilities of our subsidiaries.

Changes in Working Capital and Cash

Our working capital declined to $11.1 million

at March 31, 2020 from $71.7 million at December 31, 2019 as a result of a decrease of $32.8 million in current assets and an

increase of $27.8 million in current liabilities.

Current assets decreased primarily due

to a decrease in accounts receivable and inventories, due to the timing of collections and lower sales and production near quarter-end.

Our current liabilities increased primarily

due to an increase in liabilities held-for-sale associated with the pending sale of our interest in Pacific Aurora, which closed

after quarter-end.

Our cash and cash equivalents increased

by $7.8 million at March 31, 2020 as compared to December 31, 2019 primarily due to $26.9 million in cash provided by our operating

activities, partially offset by $17.9 million in cash used in our financing activities to repay amounts owed under Kinergy’s

credit facility.

Cash provided by our Operating Activities

Cash provided by our operating activities

increased by $41.9 million for the three months ended March 31, 2020, as compared to the same period in 2019.

We generated $26.9

million of cash from our operating activities during the first quarter of 2020.

Specific factors that contributed to the increase

in cash provided by our operating activities include:

● a decrease of $32.0 million related to accounts receivable

primarily due to the timing of collections;

● a decrease of $15.8 million related to inventories

as we reduced production near the end of the period;

● an increase of $9.4 million related to liabilities

held-for-sale.

These amounts were partially offset by:

● an increase of $13.0 million in our consolidated net

● a decrease of $2.4 million in depreciation expense;

● a decrease of $5.5 million related to prepaid expenses

and other assets due to the timing of payments.

Cash used in our Investing Activities

Cash used in our investing activities remained

relatively flat at $1.2 million for the three months ended March 31, 2020.

We continued to reduce spending on capital projects

during the low margin environment.

June 30, 2020, we had approximately $204.4 million of net assets at our subsidiaries that were not available to be transferred

to Pacific Ethanol, Inc.

in the form of dividends, loans or advances due to restrictions contained in the credit facilities of

our subsidiaries.

in Working Capital and Cash Flows

Our working capital declined to a deficit of

$15.2 million at June 30, 2020 from working capital of $71.7 million at December 31, 2019 as a result of a decrease of $100.3

million in current assets, partially offset by a decrease of $13.4 million in current liabilities.

assets decreased primarily due to a decrease in assets held-for-sale associated with the completed sale of our interest in Pacific

Aurora, and decreases in accounts receivable and inventories, due to the timing of collections, and lower ethanol production and

current liabilities decreased primarily due to a decrease in liabilities held-for-sale associated with the completed sale of our

interest in Pacific Aurora, partially offset by an increase in the current portion of our long-term debt primarily due to our

failure to obtain lender approval of a comprehensive plan to restructure our assets and liabilities.

cash and cash equivalents increased by $10.8 million at June 30, 2020 as compared to December 31, 2019 primarily due

to $45.7 million in cash provided by our operating activities and $17.4 million in cash provided by our investing activities,

partially offset by $52.3 million in cash used in our financing activities.

provided by our Operating Activities

provided by our operating activities increased by $71.4 million for the six months ended June 30, 2020, as compared to the

same period in 2019.

We generated $45.7 million in cash from our operating activities during the first half of 2020.

factors that contributed to the increase in cash provided by our operating activities include:

decrease of $24.5 million related to accounts receivable primarily due to the timing of collections;

decrease of $34.0 million related to inventories as we reduced production during the period;

decrease of $10.1 million in our consolidated net loss due to higher margins from our sales of high quality alcohol;

increase of $9.4 million related to liabilities held-for-sale in connection with the sale of our interests in Pacific Aurora.

amounts were partially offset by:

decrease of $9.9 million related to prepaid expenses and other assets due to the timing of payments;

decrease of $5.1 million in depreciation expense resulting from the sale of Pacific Aurora.

provided by our Investing Activities

provided by our investing activities was $17.4 million for the six months ended June 30, 2020, which included $19.9 million

in net proceeds from the sale of Pacific Aurora, partially offset by $2.5 million of additions to property and equipment.

used in our Financing Activities

used in our financing activities was $52.3 million for the six months ended June 30, 2020.

Cash used in our financing activities

Cash used in our financing activities increased

by $29.1 million for the three months ended March 31, 2020 as compared to the same period in 2019.

The increase in cash used in

our financing activities is primarily due to a $31.3 million change in our net borrowings under Kinergy’s line of credit,

as we repaid amounts owed under the facility, and a reduction of $3.4 million in sales of our common stock in the first quarter

of 2020 as compared to the same period in 2019.

Kinergy Operating Line of Credit

Kinergy maintains an operating line of

credit for an aggregate amount of up to $100.0 million.

was primarily due to $36.9 million in net payments under Kinergy’s line of credit and $25.5 million in principal payments

on our term debt, partially offset by $9.9 million in proceeds under our CARES Act loans and $0.3 million from the issuance of

common stock.

Our capital expenditures totaled $2.5 million

for the first six months of 2020, largely attributable to enhancements made to the production process of our operating facilities.

Operating Line of Credit

maintains an operating line of credit for an aggregate amount of up to $100.0 million.

The credit facility matures on August 2,

Interest accrues under

the credit facility at a rate equal to (i) the three-month London Interbank Offered Rate (“LIBOR”), plus (ii)

a specified applicable margin ranging from 1.50% to 2.00%.

The credit facility’s monthly unused line fee is 0.25% to 0.375%

of the amount by which the maximum credit under the facility exceeds the average daily principal balance during the immediately

preceding month.

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

by Pacific Ethanol to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter.

facility also includes the accounts receivable of Pacific Ag.

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

plus (ii) a specified applicable margin ranging from 1.50% to 2.00%.

The credit facility’s monthly unused line fee is 0.25%

to 0.375% of the amount by which the maximum credit under the facility exceeds the average daily principal balance during the

immediately preceding month.

Payments that may be made by Kinergy to Pacific Ethanol as reimbursement for management and other

services provided by Pacific Ethanol to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal

The credit facility also includes the accounts receivable of Pacific Ag.

Products, LLC, or PAP, as additional collateral.

Payments that may

be made by PAP to Pacific Ethanol as reimbursement for management and other services provided by Pacific Ethanol to PAP are limited

under the terms of the credit facility to $0.5 million per fiscal quarter.

PAP, one of our indirect wholly-owned subsidiaries,

markets our co-products and also provides raw material procurement services to our subsidiaries.

For all monthly periods in which excess

borrowing availability falls below a specified level, Kinergy and PAP must collectively maintain a fixed-charge coverage ratio

(calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization (EBITDA) divided by the sum

of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid

during such twelve-month rolling period) of at least 2.0 and are prohibited from incurring certain additional indebtedness (other

than specific intercompany indebtedness).

Kinergy’s and PAP’s obligations under the credit facility are secured by

a first-priority security interest in all of their assets in favor of the lender.

We believe Kinergy and PAP are in compliance

with this covenant.

The following table summarizes Kinergy’s financial covenants and actual results for the periods presented:

Payments that may be made by PAP to Pacific Ethanol as reimbursement for management and other services provided by Pacific Ethanol

to PAP are limited under the terms of the credit facility to $0.5 million per fiscal quarter.

PAP, one of our indirect wholly-owned

subsidiaries, markets our co-products and also provides raw material procurement services to our subsidiaries.

all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and PAP must collectively maintain

a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization

(EBITDA) divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital

leases and taxes paid during such twelve-month rolling period) of at least 2.0 and are prohibited from incurring certain additional

indebtedness (other than specific intercompany indebtedness).

Kinergy’s and PAP’s obligations under the credit facility

are secured by a first-priority security interest in all of their assets in favor of the lender.

We believe Kinergy and PAP are

in compliance with this covenant.

The following table summarizes Kinergy’s financial covenants and actual results for the

periods presented:

Three Months Ended

Fixed-Charge Coverage Ratio Requirement

Pacific Ethanol has guaranteed all of Kinergy’s

obligations under the credit facility.

As of March 31, 2020, Kinergy had an outstanding balance of $60.2 million with no additional

borrowing availability under the credit facility.

Pekin Credit Facilities

On December 15, 2016,

Pacific Ethanol Pekin, LLC, or PE Pekin, entered into term and revolving credit facilities.

PE Pekin borrowed $64.0 million under

a term loan facility that matures on August 20, 2021 and $32.0 million under a revolving credit facility that matures on February

The PE Pekin credit facilities are secured by a first-priority security interest in all of PE Pekin’s assets.

initially accrued under the PE Pekin credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly.

PE Pekin is required to make quarterly principal payments in the amount of $3.5 million on the term loan beginning on May 20,

2017, with the remaining principal balance payable at maturity on August 20, 2021.

PE Pekin is required to pay monthly in arrears

a fee on any unused portion of the revolving credit facility at a rate of 0.75% per annum.

Prepayment of these facilities is subject

to a prepayment penalty.

Under the initial terms of the credit facilities, PE Pekin was required to maintain not less than $20.0

million in working capital and an annual debt service coverage ratio of not less than 1.25 to 1.0.

On August 7, 2017, PE

Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 25 basis

points to an annual rate equal to the 30-day LIBOR plus 4.00%.

PE Pekin and its lender also agreed that PE Pekin is required to

maintain working capital of not less than $17.5 million from August 31, 2017 through December 31, 2017 and working capital of

not less than $20.0 million from January 1, 2018 and continuing at all times thereafter.

In addition, the required debt service

coverage ratio was reduced to 0.15 to 1.00 for the fiscal year ended December 31, 2017.

PE Pekin’s actual debt service coverage

ratio was 0.17 to 1.00 for the fiscal year ended December 31, 2017, 0.02 in excess of the required 0.15 to 1.00.

For the month

ended January 31, 2018, PE Pekin was not in compliance with its working capital requirement due to larger than anticipated repair

and maintenance expenses to replace faulty equipment.

PE Pekin received a waiver from its lender for this noncompliance.

the lender decreased PE Pekin’s working capital covenant requirement to $13.0 million for the month ended February 28, 2018,

excluding from the calculation a $3.5 million principal payment previously due in May 2018.

On March 30, 2018, PE

Pekin further amended its term loan facility by reducing the amount of working capital it is required to maintain to not less

than $13.0 million from March 31, 2018 through November 30, 2018 and not less than $16.0 million from December 1, 2018 and continuing

at all times thereafter.

In addition, a principal payment in the amount of $3.5 million due for May 2018 was deferred until the

maturity date of the term loan.

At December 31, 2018

and January 31, 2019, PE Pekin experienced certain covenant violations under its term and revolving credit facilities.

2019, PE Pekin reached an agreement with its lender to forbear until March 11, 2019 and to defer a $3.5 million principal payment

until that date.

On March 21, 2019, PE

Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 125 basis

points to an annual rate equal to the 30-day LIBOR plus 5.00%.

PE Pekin and its lender also agreed that it is required to maintain

working capital of not less than $15.0 million from March 21, 2019 through July 15, 2019 and working capital of not less than

$30.0 million from July 15, 2019 and continuing at all times thereafter.

On July 15, 2019, PE Pekin and its lender agreed to a

further amendment extending the aforementioned July 15, 2019 dates to November 15, 2019.

On August 6, 2019, PE Pekin paid its

$3,500,000 principal payment scheduled for August 20, 2019.

Under these amendments,

the lender agreed to temporarily waive financial covenant violations, working capital maintenance violations and intercompany

accounts receivable collections violations that occurred with respect to the credit agreement.

The lenders also agreed to defer

all scheduled principal payments, including further deferral of principal payments in the amount of $3.5 million each due on February

20, 2019 and May 20, 2019.

The waivers and principal

deferral expired on November 15, 2019, at which time the waivers were to become permanent if PE Pekin’s parent, Pacific

Ethanol Central, LLC, or PE Central, made a contribution to PE Pekin in an amount equal to $30.0 million, minus the then-existing

amount of PE Pekin’s working capital, plus the amount of any accounts receivable owed by PE Central to PE Pekin, plus $12.0

million, or the Parent Contribution Amount.

In addition, if the Parent Contribution Amount was timely received, the lender agreed

to waive PE Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019.

If the Parent Contribution

Amount was not timely made, then the temporary waivers would automatically expire.

PE Pekin was also required

to pay by November 15, 2019 the aggregate amount of $10.5 million representing all deferred and unpaid scheduled principal payments

and all additional scheduled principal payments for the remainder of 2019.

On November 15, 2019,

PE Pekin amended its term and revolving credit facilities by agreeing to extend the temporary waiver of violations of financial

and other covenants relating to working capital maintenance, intercompany accounts receivable collections, financial projections,

cash flow forecasts, and sales reports.

The lender also agreed to extend the deferral of all scheduled principal payments payable

on February 20, 2019, May 20, 2019 and November 15, 2019 to December 15, 2019.

The amendment also made a payment default of $250,000

or more under Kinergy’s credit facility or the senior secured notes, or any acceleration of indebtedness, or any termination

of any commitment to lend or termination of any forbearance or other accommodation, an event of default.

The waivers and principal

deferral expired on December 15, 2019.

On December 15, 2019, the waivers were to become permanent if PE Central made a contribution

to PE Pekin in an amount equal to the Parent Contribution Amount.

Ethanol has guaranteed all of Kinergy’s obligations under the credit facility.

As of June 30, 2020, Kinergy had an

outstanding balance of $41.4 million with additional borrowing availability under the credit facility of $10.0 million.

Credit Facilities

December 15, 2016, Pacific Ethanol Pekin, LLC, or PE Pekin, entered into term and revolving credit facilities.

PE Pekin borrowed

$64.0 million under a term loan facility that matures on August 20, 2021 and $32.0 million under a revolving credit facility that

matures on February 1, 2022.

The PE Pekin credit facilities are secured by a first-priority security interest in all of PE Pekin’s

Interest initially accrued under the PE Pekin credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%,

payable monthly.

PE Pekin is required to make quarterly principal payments in the amount of $3.5 million on the term loan beginning

on May 20, 2017, with the remaining principal balance payable at maturity on August 20, 2021.

PE Pekin is required to pay monthly

in arrears a fee on any unused portion of the revolving credit facility at a rate of 0.75% per annum.

Prepayment of these facilities

is subject to a prepayment penalty.

Under the initial terms of the credit facilities, PE Pekin was required to maintain not less

than $20.0 million in working capital and an annual debt service coverage ratio of not less than 1.25 to 1.0.

August 7, 2017, PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the

facilities by 25 basis points to an annual rate equal to the 30-day LIBOR plus 4.00%.

PE Pekin and its lender also agreed that

PE Pekin is required to maintain working capital of not less than $17.5 million from August 31, 2017 through December 31,

2017 and working capital of not less than $20.0 million from January 1, 2018 and continuing at all times thereafter.

the required debt service coverage ratio was reduced to 0.15 to 1.00 for the fiscal year ended December 31, 2017.

PE Pekin’s

actual debt service coverage ratio was 0.17 to 1.00 for the fiscal year ended December 31, 2017, 0.02 in excess of the required

0.15 to 1.00.

For the month ended January 31, 2018, PE Pekin was not in compliance with its working capital requirement due to

larger than anticipated repair and maintenance expenses to replace faulty equipment.

PE Pekin received a waiver from its lender

for this noncompliance.

Further, the lender decreased PE Pekin’s working capital covenant requirement to $13.0 million for

the month ended February 28, 2018, excluding from the calculation a $3.5 million principal payment previously due in May 2018.

March 30, 2018, PE Pekin further amended its term loan facility by reducing the amount of working capital it is required to maintain

to not less than $13.0 million from March 31, 2018 through November 30, 2018 and not less than $16.0 million from December 1,

2018 and continuing at all times thereafter.

In addition, a principal payment in the amount of $3.5 million due for May 2018 was

deferred until the maturity date of the term loan.

December 31, 2018 and January 31, 2019, PE Pekin experienced certain covenant violations under its term and revolving credit

In February 2019, PE Pekin reached an agreement with its lender to forbear until March 11, 2019 and to defer a $3.5

million principal payment until that date.

March 21, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the

facilities by 125 basis points to an annual rate equal to the 30-day LIBOR plus 5.00%.

PE Pekin and its lender also agreed that

it is required to maintain working capital of not less than $15.0 million from March 21, 2019 through July 15, 2019 and working

capital of not less than $30.0 million from July 15, 2019 and continuing at all times thereafter.

On July 15, 2019, PE Pekin and

its lender agreed to a further amendment extending the aforementioned July 15, 2019 dates to November 15, 2019.

On August 6, 2019,

PE Pekin paid its $3.5 million principal payment scheduled for August 20, 2019.

these amendments, the lender agreed to temporarily waive financial covenant violations, working capital maintenance violations

and intercompany accounts receivable collections violations that occurred with respect to the credit agreement.

The lenders also

agreed to defer all scheduled principal payments, including further deferral of principal payments in the amount of $3.5 million

each due on February 20, 2019 and May 20, 2019.

waivers and principal deferral expired on November 15, 2019, at which time the waivers were to become permanent if PE Pekin’s

parent, Pacific Ethanol Central, LLC, or PE Central, made a contribution to PE Pekin in an amount equal to $30.0 million, minus

the then-existing amount of PE Pekin’s working capital, plus the amount of any accounts receivable owed by PE Central to

PE Pekin, plus $12.0 million, or the Parent Contribution Amount.

In addition, if the Parent Contribution Amount was timely received,

1 unchanged sentence

If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically expire.

On December 16, 2019,

PE Pekin amended its term and revolving credit facilities by agreeing to extend the deferral of all scheduled principal payments

payable on February 20, 2019, May 20, 2019 and November 20, 2019 to December 20, 2019.

On December 20, 2019,

PE Pekin’s lender agreed to temporarily waive working capital covenant violations, debt service coverage ratio covenant

violations, reporting covenant violations and certain other covenant violations that occurred under the PE Pekin credit agreement,

and replaced those covenants with new EBITDA and production volume covenants.

PE Pekin’s lender also agreed to defer all

scheduled principal installments payable under the term note on February 20, 2019, May 20, 2019 and November 20, 2019 until August

In addition, PE Pekin was not required to make its prior scheduled quarterly principal payments of $3.5 million until

September 30, 2020, at which time $3.5 million will be due, with the same amount due quarterly thereafter until maturity.

Under the amendment,

PE Pekin, collectively with Illinois Corn Processing, LLC, or ICP, agreed to pay the lenders an aggregate of $40.0 million on

or before September 30, 2020 to reduce the outstanding balances of the term loans under the PE Pekin credit agreement and the

ICP credit agreement.

The $40.0 million is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and

allocated between them.

The $40.0 million is to be funded through asset sales, proceeds of any award, judgment or settlement of

litigation, or, at our election, from funds contributed to PE Pekin by us.

Pekin was also required to pay by November 15, 2019 the aggregate amount of $10.5 million representing all deferred and unpaid

scheduled principal payments and all additional scheduled principal payments for the remainder of 2019.

November 15, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to extend the temporary waiver of violations

of financial and other covenants relating to working capital maintenance, intercompany accounts receivable collections, financial

projections, cash flow forecasts, and sales reports.

The lender also agreed to extend the deferral of all scheduled principal

payments payable on February 20, 2019, May 20, 2019 and November 15, 2019 to December 15, 2019.

The amendment also made a payment

default of $250,000 or more under Kinergy’s credit facility or the senior secured notes, or any acceleration of indebtedness,

or any termination of any commitment to lend or termination of any forbearance or other accommodation, an event of default.

waivers and principal deferral expired on December 15, 2019.

On December 15, 2019, the waivers were to become permanent if PE

Central made a contribution to PE Pekin in an amount equal to the Parent Contribution Amount.

In addition, if the Parent Contribution

Amount was timely received, the lender agreed to waive PE Pekin’s debt service coverage ratio financial covenant for the

year ended December 31, 2019.

If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically

December 16, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to extend the deferral of all scheduled

principal payments payable on February 20, 2019, May 20, 2019 and November 20, 2019 to December 20, 2019.

December 20, 2019, PE Pekin’s lender agreed to temporarily waive working capital covenant violations, debt service coverage

ratio covenant violations, reporting covenant violations and certain other covenant violations that occurred under the PE Pekin

credit agreement, and replaced those covenants with new EBITDA and production volume covenants.

PE Pekin’s lender also agreed

to defer all scheduled principal installments payable under the term note on February 20, 2019, May 20, 2019 and November 20,

2019 until August 20, 2021.

In addition, PE Pekin was not required to make its prior scheduled quarterly principal payments of

$3.5 million until September 30, 2020, at which time $3.5 million will be due, with the same amount due quarterly thereafter until

the amendment, PE Pekin, collectively with Illinois Corn Processing, LLC, or ICP, agreed to pay the lenders an aggregate of $40.0

million on or before September 30, 2020 to reduce the outstanding balances of the term loans under the PE Pekin credit agreement

and the ICP credit agreement.

The $40.0 million is an aggregate amount payable to ICP’s lender and PE Pekin’s lender,

and allocated between them.

The $40.0 million is to be funded through asset sales, proceeds of any award, judgment or settlement

of litigation, or, at our election, from funds contributed to PE Pekin by us.

Following receipt by the lenders under the ICP credit

4 unchanged sentences

lender, collectively, the selling security holders, and us, respectively.

PE Pekin’s lender

also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive $40.0 million, a default

under the ICP credit agreement would constitute a default under the PE Pekin credit agreement.

PE Pekin agreed to provide additional

collateral security to support its obligations under the PE Pekin credit agreement, including second lien positions in our western

plants, which will terminate and be released upon PE Pekin’s lender’s receipt of $40.0 million.

On December 29, 2019,

PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional guarantee

of the payment of up to an aggregate $40.0 million to satisfy the obligations of ICP to ICP’s lender under the ICP credit

On March 20, 2020, PE

Pekin and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May

On that same date, we granted to the lender a security interest in all of our equity interests in our wholly-owned subsidiary,

PE Op Co., which indirectly owns our plants located on the West Coast.

We also entered into intercreditor agreements with our

PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of

proceeds from asset sales.

On April 15, 2020, upon

the closing of the sale of our interests in Pacific Aurora, we repaid approximately $11.6 million in principal on our PE Pekin

ICP Credit Facilities

On September 15, 2017, ICP entered into

term and revolving credit facilities.

ICP borrowed $24.0 million under a term loan facility that matures on September 20, 2021

and $18.0 million under a revolving credit facility that matures on September 1, 2022.

The ICP credit facilities are secured by

a first-priority security interest in all of ICP’s assets.

Interest accrues under the ICP credit facilities at an annual

rate equal to the 30-day LIBOR plus 3.75%, payable monthly.

ICP is required to make quarterly consecutive principal payments in

the amount of $1.5 million.

ICP is required to pay monthly in arrears a fee on any unused portion of the revolving credit facility

at a rate of 0.75% per annum.

Pekin’s lender also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive

$40.0 million, a default under the ICP credit agreement would constitute a default under the PE Pekin credit agreement.

agreed to provide additional collateral security to support its obligations under the PE Pekin credit agreement, including second

lien positions in our western plants, which will terminate and be released upon PE Pekin’s lender’s receipt of $40.0

December 29, 2019, PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional

guarantee of the payment of up to an aggregate $40.0 million to satisfy the obligations of ICP to ICP’s lender under the

ICP credit agreement.

March 20, 2020, PE Pekin and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April

20, 2020 until May 20, 2020.

On that same date, we granted to the lender a security interest in all of our equity interests in

our wholly-owned subsidiary, PE Op Co., which indirectly owns our plants located on the West Coast.

We also entered into intercreditor

agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority

and the allocation of proceeds from asset sales.

April 15, 2020, upon the closing of the sale of our interests in Pacific Aurora, we repaid approximately $11.6 million in principal

on our PE Pekin term debt.

June 26, 2020, we repaid approximately $1.9 million in additional principal on our PE Pekin term debt.

July 22, 2020, we repaid approximately $7.4 million in additional principal on our PE Pekin term debt.

As of the filing of this

report, we believe we are in compliance with all debt covenants under our PE Pekin credit facilities, except our obligation to

obtain lender approval of a comprehensive plan to restructure our assets and liabilities.

Credit Facilities

September 15, 2017, ICP entered into term and revolving credit facilities.

ICP borrowed $24.0 million under a term loan facility

that matures on September 20, 2021 and $18.0 million under a revolving credit facility that matures on September 1, 2022.

ICP credit facilities are secured by a first-priority security interest in all of ICP’s assets.

Interest accrues under the

ICP credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly.

ICP is required to make quarterly

consecutive principal payments in the amount of $1.5 million.

ICP is required to pay monthly in arrears a fee on any unused portion

of the revolving credit facility at a rate of 0.75% per annum.

Prepayment of these facilities is subject to a prepayment penalty.

Under the terms of the credit

facilities, ICP is required to maintain not less than $8.0 million in working capital and an annual debt service coverage ratio

of not less than 1.5 to 1.0, beginning for the year ended December 31, 2018.

As of September 30, 2019, ICP had no additional borrowing

availability under its revolving credit facility.

As of September 30, 2019, ICP did not meet its minimum working capital requirement,

however, ICP’s lender subsequently waived the minimum working capital deficiency.

On December 20, 2019, ICP amended its term

and revolving credit facilities under which ICP’s lender granted waivers for certain ICP covenant defaults and replaced

those covenants with new EBITDA and production volume covenants.

ICP’s lender also imposed cross-default terms such that,

until ICP’s lender and PE Pekin’s lender receive an aggregate of $40.0 million, a default under the PE Pekin credit

agreement would constitute a default under the ICP credit agreement.

ICP agreed to provide additional collateral security to support

its obligations under the ICP credit agreement, including second lien positions in our western plants, which will terminate and

be released upon ICP’s lender’s receipt of an aggregate of $40.0 million.

ICP’s prior scheduled principal payment

of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September 20, 2021.

Scheduled quarterly

principal payments of $1.5 million will resume March 20, 2020.

Under the amendment, ICP, collectively

with PE Pekin, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce the outstanding

balances of the term loans under the ICP credit agreement and the PE Pekin credit agreement.

The $40.0 million is an aggregate

amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them.

The $40.0 million is to be funded

through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed

to ICP by us.

Following receipt by the lenders under the ICP credit agreement and the PE Pekin credit agreement, collectively,

of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, any additional

proceeds from a sale of our midwestern plant assets will generally be allocated 33/34/33% among ICP’s lender and PE Pekin’s

lender, collectively, the selling security holders, and us, respectively.

Proceeds from the sale of any of our western assets

will generally be allocated 33/34/33% among PE Pekin’s lender and ICP’s lender, collectively, the selling security

holders, and us, respectively.

On December 29, 2019, ICP agreed to amend

the secured obligations under its security agreement to include ICP’s unconditional guarantee of the payment of up to an

aggregate $40.0 million to satisfy the obligations of PE Pekin to PE Pekin’s lender under the PE Pekin credit agreement.

On March 20, 2020, ICP and its lender agreed

to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate interest payments due March 20, 2020

and April 20, 2020 until May 20, 2020.

On that same date, we granted to the lender a security interest in all of our equity interests

We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured

noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On April 15, 2020, upon

the closing of the sale of our interests in Pacific Aurora, we repaid approximately $2.9 million in principal on our ICP term

Pacific Ethanol, Inc.

Under the terms of the credit facilities, ICP is required to maintain not less than $8.0 million in working capital and an annual

debt service coverage ratio of not less than 1.5 to 1.0, beginning for the year ended December 31, 2018.

As of September

30, 2019, ICP had no additional borrowing availability under its revolving credit facility.

As of September 30, 2019, ICP did

not meet its minimum working capital requirement, however, ICP’s lender subsequently waived the minimum working capital

December 20, 2019, ICP amended its term and revolving credit facilities under which ICP’s lender granted waivers for certain

ICP covenant defaults and replaced those covenants with new EBITDA and production volume covenants.

ICP’s lender also imposed

cross-default terms such that, until ICP’s lender and PE Pekin’s lender receive an aggregate of $40.0 million, a default

under the PE Pekin credit agreement would constitute a default under the ICP credit agreement.

ICP agreed to provide additional

collateral security to support its obligations under the ICP credit agreement, including second lien positions in our western

plants, which will terminate and be released upon ICP’s lender’s receipt of an aggregate of $40.0 million.

prior scheduled principal payment of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September

Scheduled quarterly principal payments of $1.5 million will resume March 20, 2020.

the amendment, ICP, collectively with PE Pekin, agreed to pay the lenders an aggregate of $40.0 million on or before September

30, 2020 to reduce the outstanding balances of the term loans under the ICP credit agreement and the PE Pekin credit agreement.

The $40.0 million is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them.

The $40.0 million is to be funded through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our

election, from funds contributed to ICP by us.

Following receipt by the lenders under the ICP credit agreement and the PE Pekin

credit agreement, collectively, of $40.0 million in full, and once any loans corresponding to the particular midwestern asset

sold are repaid, any additional proceeds from a sale of our midwestern plant assets will generally be allocated 33/34/33% among

ICP’s lender and PE Pekin’s lender, collectively, the selling security holders, and us, respectively.

Proceeds from

the sale of any of our western assets will generally be allocated 33/34/33% among PE Pekin’s lender and ICP’s lender,

collectively, the selling security holders, and us, respectively.

December 29, 2019, ICP agreed to amend the secured obligations under its security agreement to include ICP’s unconditional

guarantee of the payment of up to an aggregate $40.0 million to satisfy the obligations of PE Pekin to PE Pekin’s lender

under the PE Pekin credit agreement.

March 20, 2020, ICP and its lender agreed to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate

interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020.

On that same date, we granted to the lender a security

interest in all of our equity interests in PE Op Co.

We also entered into intercreditor agreements with our PE Pekin and ICP lenders,

and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

April 15, 2020, upon the closing of the sale of our interests in Pacific Aurora, we repaid approximately $2.9 million in principal

on our ICP term debt.

June 26, 2020, we repaid approximately $6.1 million in additional principal on our ICP term debt, fully repaying the ICP term

July 22, 2020, we repaid approximately $1.8 million in additional principal on our ICP revolving debt.

of the filing of this report, we believe we are in compliance with all debt covenants under our ICP credit facilities, except

our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities.

Ethanol, Inc.

Notes Payable

On December 12, 2016, we entered into a

Note Purchase Agreement with five accredited investors.

On December 15, 2016, under the terms of the Note Purchase Agreement,

we sold $55.0 million in aggregate principal amount of our senior secured notes to the investors in a private offering for aggregate

gross proceeds of 97% of the principal amount of the notes sold.

On June 26, 2017, we entered into a second Note Purchase Agreement

with five accredited investors.

On June 30, 2017, under the terms of the second Note Purchase Agreement, we sold an additional

$13.9 million in aggregate principal amount of our senior secured notes to the investors in a private offering for aggregate gross

proceeds of 97% of the principal amount of the notes sold, for a total of $68.9 million in aggregate principal amount of senior

secured notes.

The notes had an original maturity date

of December 15, 2019.

Interest on the notes accrued at an annual rate equal to (i) the greater of 1% and the three-month LIBOR,

plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and three-month LIBOR, plus 9% between December 15,

2017 and December 14, 2018, and (iii) the greater of 1% and three-month LIBOR plus 11% between December 15, 2018 and the maturity

The interest rate would increase by an additional 2% per annum above the interest rate otherwise applicable upon the occurrence

and during the continuance of an event of default until cured.

Interest was payable in cash in arrears on the 15th calendar day

of each March, June, September and December.

We are required to pay all outstanding principal and any accrued and unpaid interest

on the notes on the maturity date.

We may, at our option, prepay the outstanding principal amount of the notes at any time without

premium or penalty.

December 12, 2016, we entered into a Note Purchase Agreement with five accredited investors.

On December 15, 2016, under the terms

of the Note Purchase Agreement, we sold $55.0 million in aggregate principal amount of our senior secured notes to the investors

in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold.

On June 26, 2017, we entered

into a second Note Purchase Agreement with five accredited investors.

On June 30, 2017, under the terms of the second Note

Purchase Agreement, we sold an additional $13.9 million in aggregate principal amount of our senior secured notes to the investors

in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold, for a total of $68.9 million

in aggregate principal amount of senior secured notes.

notes had an original maturity date of December 15, 2019.

Interest on the notes accrued at an annual rate equal to (i) the greater

of 1% and the three-month LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and three-month

LIBOR, plus 9% between December 15, 2017 and December 14, 2018, and (iii) the greater of 1% and three-month LIBOR plus 11% between

December 15, 2018 and the maturity date.

The interest rate would increase by an additional 2% per annum above the interest rate

otherwise applicable upon the occurrence and during the continuance of an event of default until cured.

Interest was payable in

cash in arrears on the 15th calendar day of each March, June, September and December.

We are required to pay all outstanding principal

and any accrued and unpaid interest on the notes on the maturity date.

We may, at our option, prepay the outstanding principal

amount of the notes at any time without premium or penalty.

Pacific Ethanol, Inc.

issued the notes, which are secured by a first-priority security interest in the equity

interest held by Pacific Ethanol, Inc.

On December 16, 2019,

we amended the notes to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the interest rate from

the greater of 1% and the three-month LIBOR, plus 11% between December 15, 2018 through December 14, 2019 to 15% commencing on

September 15, 2019.

Under the amendment, we also agreed to pay the December 15, 2019 interest payment 50% in cash and 50% in-kind

through the issuance of an additional note in the principal amount equal thereto.

On December 22, 2019,

we amended and restated the notes which extended the maturity date from December 23, 2019 to December 15, 2021.

Interest on the

Notes accrues at a rate of 15% per annum, payable quarterly.

On March 20, 2020,

we and the noteholders agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May 20, 2020.

same date, ICP granted a junior lien in certain of its personal property to the noteholders, and PE Central granted a junior lien

in certain of its personal property to the noteholders.

PE Central also pledged its equity interests in Pacific Aurora, PE Pekin

and ICP in favor of the noteholders.

issued the notes, which are secured by a first-priority

security interest in the equity interest held by Pacific Ethanol, Inc.

December 16, 2019, we amended the notes to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the

interest rate from the greater of 1% and the three-month LIBOR, plus 11% between December 15, 2018 through December 14, 2019 to

15% commencing on September 15, 2019.

Under the amendment, we also agreed to pay the December 15, 2019 interest payment 50% in

cash and 50% in-kind through the issuance of an additional note in the principal amount equal thereto.

December 22, 2019, we amended and restated the notes which extended the maturity date from December 23, 2019 to December 15, 2021.

Interest on the Notes accrues at a rate of 15% per annum, payable quarterly.

March 20, 2020, we and the noteholders agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May

On that same date, ICP granted a junior lien in certain of its personal property to the noteholders, and PE Central

granted a junior lien in certain of its personal property to the noteholders.

PE Central also pledged its equity interests in

Pacific Aurora, PE Pekin and ICP in favor of the noteholders.

In addition, PE Op Co.

and Pacific Ethanol West, LLC, which directly owns our plants located

on the West Coast, granted a security interest in certain of their personal property to the noteholders.

We also entered into

intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues

of priority and the allocation of proceeds from asset sales.

CARES Act Loans

On May 4, 2020, Pacific Ethanol, Inc.

and PE Pekin received

loan proceeds from Bank of America, NA under the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or CARES

Act, through the Paycheck Protection Program administered by the U.S.

Small Business Administration.

and Pacific Ethanol West, LLC, which directly

owns our plants located on the West Coast, granted a security interest in certain of their personal property to the noteholders.

We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders,

to address issues of priority and the allocation of proceeds from asset sales.

As of the filing of this report, we believe

we are in compliance with all debt covenants under our senior secured notes.

May 4, 2020, Pacific Ethanol, Inc.

and PE Pekin received loan proceeds from Bank of America, NA under the recently enacted Coronavirus

Aid, Relief, and Economic Security Act, or CARES Act, through the Paycheck Protection Program administered by the U.S.

Small Business

Administration.

Pacific Ethanol, Inc.

$6.0 million and PE Pekin received $3.9 million in loan proceeds.

The loans mature in two years and bear interest at a rate of

1.00% per annum.

Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described

in the CARES Act, but we can provide no assurance that we will be able to obtain forgiveness of all or any portion of the loans.

At-the-Market

We have established an “at-the-market”

equity distribution program under which we may offer and sell shares of common stock to, or through, sales agents by means of

ordinary brokers’

transactions on the NASDAQ, in block transactions, or as otherwise agreed to between us and the sales

agent at prices we deem appropriate.

We are under no obligation to offer and sell shares of common stock under the program.

the three months ended March 31, 2020, we sold 421,147 shares of common stock through our “at-the-market”

equity program

that resulted in net proceeds of $282,320 and fees paid to our sales agent of $12,102.

Effects of Inflation

The impact of inflation

was not significant to our financial condition or results of operations for the three months ended March 31, 2020 and 2019.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

received $6.0 million and PE Pekin received $3.9 million in loan proceeds.

The loans mature

in two years and bear interest at a rate of 1.00% per annum.

Under the terms of the loans, certain amounts may be forgiven if

they are used for qualifying expenses as described in the CARES Act, but we can provide no assurance that we will be able to obtain

forgiveness of all or any portion of the loans.

impact of inflation was not significant to our financial condition or results of operations for the three and six months ended

June 30, 2020 and 2019.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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-Q

Item 1. Financial Statements