What changed in this filing

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Item 1. Financial Statements

2020-11-16 compared with 2020-08-13 · 992 added, 778 removed, 612 unchanged (74% of the section changed)

FINANCIAL STATEMENTS.

PACIFIC ETHANOL,

ETHANOL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

Current Assets:

Cash and cash equivalents

Accounts receivable, net (net of allowance for doubtful

accounts of $16 and $39, respectively)

Accounts receivable, net (net of allowance for doubtful accounts of $16 and $39, respectively)

Prepaid inventory

3 unchanged sentences

Total current assets

Property and equipment,

Property and equipment, net

Other Assets:

6 unchanged sentences

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL, INC.

ETHANOL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(in thousands, except par value)

September 30,

LIABILITIES AND STOCKHOLDERS’

13 unchanged sentences

Other liabilities

Total Liabilities

Commitments and Contingencies (Note 7)

5 unchanged sentences

1,684 shares authorized;

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

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

1,581 shares authorized;

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

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

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

liquidation preference of $19,344 as of September 30, 2020

Common stock, $0.001 par value;

300,000 shares authorized;

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

63,483 and 55,508 shares issued and outstanding as of September 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

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

Additional paid-in capital

5 unchanged sentences

Total Stockholders’

Total Liabilities

and Stockholders’

Total Liabilities and Stockholders’

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

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL,

ETHANOL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per

in thousands, except per share data)

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Gain on litigation settlement

Income (loss) from operations

9 unchanged sentences

Net income (loss) available to common stockholders

Net income (loss) per share, basic and diluted

Weighted-average shares outstanding, basic and diluted

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted-average shares outstanding, basic

Weighted-average shares outstanding, diluted

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL,

ETHANOL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

Consolidated net loss

Adjustments to reconcile consolidated net loss to

net cash provided by (used in) operating activities:

Consolidated net income (loss)

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

Depreciation and amortization of intangibles

3 unchanged sentences

Non-cash compensation

(Gain) loss on derivative instruments

Gain on derivative instruments

Bad debt expense

1 unchanged sentence

Accounts receivable

Prepaid expenses and other assets

Prepaid inventory

2 unchanged sentences

Liabilities held-for-sale

Accounts payable and accrued

Net cash provided by (used

in) operating activities

Accounts payable and accrued expenses

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

Additions to property and equipment

Net cash provided by (used in) investing activities

Financing Activities:

Net (payments on) proceeds from Kinergy’s

line of credit

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

Proceeds from warrant exercises

Proceeds from issuance of common stock

Proceeds from CoGen contract amendment

Proceeds from borrowings

Principal payments on borrowings

Preferred stock dividends

Net cash (used in) provided

by financing activities

Preferred stock dividends paid

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

Supplemental Information:

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental Cash Flow Information:

Interest paid

Accrued preferred stock dividends

Initial right of use assets

and liabilities recorded under ASC 842

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL,

ETHANOL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

1 unchanged sentence

Other Comprehensive

Non-Controlling

Income (Loss)

11 unchanged sentences

June 30, 2020

compensation expense –

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

of common stock

stock dividends

September 30, 2020

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (CONTINUED)

(unaudited, in thousands)

Other Comprehensive

Non-Controlling

Income (Loss)

9 unchanged sentences

June 30, 2019

compensation expense –

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

stock dividends

September 30, 2019

accompanying notes to consolidated financial statements.

PACIFIC ETHANOL,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AND BASIS OF PRESENTATION.

ETHANOL, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

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”),

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 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 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.

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 –

The accompanying

consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates

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

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 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 production distilleries through April 15,

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 production distilleries located in Nebraska.

Company is a leading producer and marketer of specialty alcohols and essential ingredients in the United States.

Company’s production distilleries in Illinois are located in the heart of the Corn Belt, benefit from low-cost and

abundant feedstock and allow for access to many additional domestic markets.

In addition, the Company’s ability to load

unit trains and barges from these distilleries in the Midwest allows for greater access to international markets.

Company’s four distilleries 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 fuel-grade 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.

In 2019, the Company marketed nearly 1.0

billion gallons combined of specialty alcohols and fuel-grade ethanol, and nearly 3.0 million tons of essential ingredients on

a dry matter basis.

The Company focuses on four key markets:

Health, Home &

Food & Beverage;

Essential Ingredients;

and Renewable Fuels .

Products for the Health, Home & Beauty market

include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners.

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

used for corn oils.

Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial

animal feed and pet foods.

Renewable Fuels includes fuel-grade ethanol and distillers corn oil used as a feedstock for renewable

As of September 30, 2020, the Company was operating at approximately

51% 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 distilleries or resume operations at any idled distillery.

of Presentation –

Interim 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.

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.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a

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

During the nine months ended September 30, 2020, the Company continued to experience significant adverse conditions

in the fuel-grade ethanol market as demand and pricing were at record lows due to reduced domestic transportation and

resulting lower gasoline demand.

In response, the Company reduced fuel-grade ethanol production at its distilleries by more

than 50% in an effort to conserve capital as a result of the substantial reduction in fuel-grade 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

$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 $16,000 and $39,000 as of June 30, 2020 and December 31,

2019, respectively.

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 –

The carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts payable, accrued liabilities

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

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.

Actual results and outcomes may materially differ

from management’s estimates and assumptions.

and selling its specialty alcohols, but also converted a portion of its fuel-grade ethanol production to specialty alcohol

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

These sales of specialty alcohols were

at a mix of fixed and spot prices, both of which resulted in positive net income and cash flows from operations during the

The Company expects current demand for its specialty alcohols 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 specialty

At September 30, 2020, the Company had

$38.7 million in cash and $9.2 million available under Kinergy’s operating line of credit.

During the first nine months of

2020, the Company generated $75.7 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 $91.6

million on its debt during the first nine months of 2020.

Further, subsequent to September 30, 2020, the Company made an additional

$25.3 million in payments on its term debt from proceeds of its offerings of common stock and warrants that generated net

proceeds of approximately $70.0 million.

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 debt and a dispute over whether a portion of the Company’s principal payments originated

from an approved source of funds.

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.

though the Company doesn’t believe acceleration is probable, it has classified its related debt as current on the

Company’s consolidated balance sheets.

In addition to the Company’s

projected cash flows from operations, the Company recently raised net proceeds of $70.0 million in offerings of common stock

and warrants, and has recently announced the sale of certain assets for $10.0 million, which is expected to close by November

In addition, the Company continues to evaluate its Western fuel-grade ethanol distilleries for either repurposing

or sale, which may provide additional proceeds to repay debt.

Given these factors, the Company believes it has

alleviated substantial doubt about its ability to continue as a going concern and has sufficient liquidity to meet its

anticipated working capital, debt service and other liquidity needs for the next twelve months from the date of this

Receivable and Allowance for Doubtful Accounts –

Trade accounts receivable are presented at face value, net of

the allowance for doubtful accounts.

The Company sells fuel-grade 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.

the accounts receivable balance, approximately $35,872,000 and $63,736,000 at September 30, 2020 and December 31, 2019, respectively,

were used as collateral under Kinergy’s operating line of credit.

The allowance for doubtful accounts was $16,000 and $39,000

as of September 30, 2020 and December 31, 2019, respectively.

The Company recorded no bad debt expense for the three months ended

September 30, 2020 and 2019.

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

30, 2020 and 2019, respectively.

Instruments –

The carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts

payable, accrued liabilities and derivative liabilities are reasonable estimates of their fair values because of the short maturity

of these items.

The carrying 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 September

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.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets, including property and equipment, internally developed software

and purchased intangibles subject to amortization, when events or changes in circumstances indicate that the fair value of assets

could be less than their net book value.

In such event, the Company assesses long-lived assets for impairment by first determining

the forecasted, undiscounted cash flows the asset group is expected to generate plus the net proceeds expected from the sale of

the asset group.

If this amount is less than the carrying value of the asset, the Company will then determine the fair value of

the asset group.

An impairment loss would be recognized when the fair value is less than the related asset group’s net book

value, and an impairment expense would be recorded in the amount of the difference.

An impairment loss may also occur to the extent

that the Company determines long-lived assets as held-for-sale and sales prices are less than carrying value.

of future cash flows are judgments based on the Company’s experience and knowledge of its operations and the industries in

which it operates.

These forecasts could be significantly affected by future changes in market conditions, the economic environment,

including inflation, and purchasing decisions of the Company’s customers.

The Company performed an undiscounted cash flow

analysis for its long-lived assets held-for-use, as of September 30, 2020, resulting in amounts in excess of carrying values.

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

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.

Actual results and outcomes

may materially differ from management’s estimates and assumptions.

Pacific Aurora

On December 19, 2019, Pacific Ethanol Central,

LLC (“PE Central”) entered into a term sheet covering the proposed sale of its 73.93% ownership interest in Pacific

Aurora to Aurora Cooperative Elevator Company (“ACEC”) for $52.8 million, and as a result, the Company determined

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

On April 15, 2020, the Company closed the

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

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

in long-term ACEC promissory notes, resulting in a net loss on sale of approximately $1.4 million, recorded as 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.

December 19, 2019, Pacific Ethanol Central, LLC (“PE Central”) entered into a term sheet covering the proposed sale

of its 73.93% ownership interest in Pacific Aurora to Aurora Cooperative Elevator Company (“ACEC”) for $52.8 million,

and as a result, the Company determined that as of December 31, 2019, the long-lived assets of Pacific Aurora should be classified

as held-for-sale.

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

interest in Pacific Aurora and preliminarily received total consideration of $52.8 million, subject to working capital adjustments

of approximately $35.3 million, resulting in cash proceeds of $19.9 million and the balance of $16.5 million in long-term ACEC

promissory notes, resulting in a net loss on sale of approximately $1.4 million, recorded as 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

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

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

The Company received two promissory notes, as adjusted, in the

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

The $8.6 million

note accrues interest at an annual rate of 5.00%.

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

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

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

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

January 3, 2022.

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):

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

addition, upon the sale, the Company no longer had noncontrolling interests on its balance sheet and no longer records income

(loss) of noncontrolling interests for future periods.

the three months ended September 30, 2019, Pacific Aurora contributed approximately $40.1 million in net sales, $6.7 million in

pre-tax loss and $1.7 million in net loss attributed to noncontrolling interests, respectively.

For the nine months ended September

30, 2020 and 2019, Pacific Aurora contributed $39.6 million and $112.0 million in net sales, $8.4 million and $14.0 million in

pre-tax loss, and $2.2 million and $3.7 million in net loss attributed to noncontrolling interests, respectively.

Pacific Ethanol Magic Valley

On July 28, 2020, the Company entered

into a term sheet with Liberty Basin, LLC (“Liberty”) to sell 134 acres, the rail loop and grain handling assets

at its Magic Valley plant in Burley, Idaho for $10.0 million in cash.

The Company will retain the fuel-grade ethanol

production facility and terminal on the remaining 25 acres and will enter into certain agreements with Liberty for delivery

of grain to the plant, and as a result, the Company determined that as of September 30, 2020, these long-lived assets should

be classified as held-for-sale.

On November 9, 2020, the Company announced a definitive sales agreement with Liberty had been

The sale is expected to close on or before November 30, 2020, subject to customary and other closing conditions.

The Company reports its financial and operating performance

in two segments:

(1) production, which includes the production and sale of alcohols and essential ingredients, with all of the

Company’s production distilleries aggregated, and (2) marketing and distribution, which includes marketing and merchant trading

for Company-produced products as well as third-party fuel-grade ethanol.

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Production, recorded as gross:

Ethanol/alcohol sales

Co-product sales

Alcohol sales

Other product sales

Intersegment sales

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Marketing and distribution:

Ethanol/alcohol sales, gross

Ethanol/alcohol sales, net

Alcohol sales, gross

Alcohol sales, net

Intersegment sales

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Corporate activities

The following table sets forth the Company’s

total assets by operating segment (in thousands):

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

September 30,

Total assets:

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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):

consisted primarily of bulk specialty alcohols, fuel-grade 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.

Inventory is net of a $32,000 and $1,290,000 valuation adjustment

as of September 30, 2020 and December 31, 2019, respectively.

Inventory balances consisted of the following (in

September 30,

Finished goods

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Low-carbon and RIN credits

Long-term borrowings are summarized as follows

(in thousands):

business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity

The Company monitors and manages these financial exposures as an integral part of its risk management program.

recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility

could have on operating results.

Cash Flow Hedges –

The Company uses derivative instruments to protect cash flows

from fluctuations caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit

margins from potentially adverse effects of market and price volatility on fuel-grade ethanol sale and purchase commitments where

the prices are set at a future date and/or if the contracts specify a floating or index-based price for fuel-grade ethanol.

addition, the Company hedges anticipated sales of fuel-grade ethanol to minimize its exposure to the potentially adverse effects

of price volatility.

These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by assessing

the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and

sales prices.

Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure,

is recognized immediately in cost of goods sold.

For the three and nine months ended September 30, 2020 and 2019, the Company did

not designate any of its derivatives as cash flow hedges.

Non-Designated Hedges –

The Company uses derivative instruments to lock in prices for certain

amounts of corn and fuel-grade ethanol by entering into exchange-traded forward contracts for those commodities.

derivatives are not designated for hedge accounting treatment.

The changes in fair value of these contracts are recorded on

the balance sheet and recognized immediately in cost of goods sold.

The Company recognized gains of $1,582,000 and losses of

$3,320,000 as the changes in the fair values of these contracts for the three months ended September 30, 2020 and 2019,

respectively.

The Company recognized gains of $1,582,000 and $1,565,000 as the changes in the fair values of these contracts

for the nine months ended September 30, 2020 and 2019, respectively.

Designated Derivative Instruments –

The classification and amounts of the Company’s derivatives not designated

as hedging instruments, and related cash collateral balances, are as follows (in thousands):

As of September 30, 2020

Balance Sheet

Type of Instrument

Cash collateral balance

Other current assets

Commodity contracts

Derivative instruments

As of December 31,

Balance Sheet

Type of Instrument

Cash collateral balance

Other current assets

Commodity contracts

Derivative instruments

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

are as follows (in thousands):

Realized Gains (Losses)

Three Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

Three Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Realized Gains (Losses)

Nine Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

Unrealized Gains (Losses)

Nine Months Ended

September 30,

Type of Instrument

Statements of Operations Location

Commodity contracts

Cost of goods sold

borrowings are summarized as follows (in thousands):

September 30,

Kinergy line of credit

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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.

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

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.

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 distilleries 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.

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.

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.

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

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.

Parent Notes Payable –

On November 10, 2020, the Company repaid an additional $25.3 million in principal on its parent notes payable from the net proceeds

of its recent offerings of common stock and warrants.

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 (“CARES Act”), through the Paycheck Protection

Program administered by the U.S.

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.

Restrictions –

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.

COMMITMENTS AND CONTINGENCIES.

Sales Commitments –

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,

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.

At September 30, 2020, there were approximately $291.3 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 –

At September 30, 2020, the Company had entered into sales contracts

with its major customers to sell certain quantities of fuel-grade ethanol and co-products.

The Company had open fuel-grade ethanol

indexed-price contracts for 54,750,000 gallons of fuel-grade ethanol as of September 30, 2020 and open fixed-price fuel-grade ethanol

and specialty alcohol sales contracts totaling $327,244,000 as of September 30, 2020.

The Company had open fixed-price co-product

sales contracts totaling $18,120,000 and open indexed-price co-product sales contracts for 165,000 tons as of September 30, 2020.

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.

Commitments –

At September 30, 2020, the Company had indexed-price purchase contracts to purchase 4,890,000

gallons of fuel-grade ethanol and fixed-price purchase contracts to purchase $3,341,000 of fuel-grade ethanol from its

The Company had fixed-price purchase contracts to purchase $9,525,000 of corn from its suppliers as of September

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

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.

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.

AND RETIREMENT BENEFIT PLANS.

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 distillery 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.

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

VALUE MEASUREMENTS.

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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 June 30, 2020 were as follows:

assumptions used and related fair value for the warrants as of August 5, 2020, the day on which they were fully exercised, were

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.

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

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

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

Derivative financial instruments

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

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

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Net income attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Basic income per share:

Income available to common stockholders

Three Months Ended June 30, 2019

Dilutive securities

Diluted income per share:

Income available to common stockholders

Three Months Ended September 30, 2019

Net loss attributed to Pacific Ethanol, Inc.

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Loss available to common stockholders

Six Months Ended June 30, 2020

Net loss attributed to Pacific Ethanol, Inc.

Nine Months Ended September 30, 2020

Net income attributed to Pacific Ethanol, Inc.

Preferred stock dividends

Basic and diluted loss per share:

Loss available to common stockholders

Six Months Ended June 30, 2019

Basic income per share:

Income available to common stockholders

Dilutive securities

Diluted income per share:

Income available to common stockholders

Nine Months Ended September 30, 2019

Net loss attributed to Pacific Ethanol, Inc.

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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.

There were an aggregate of 844,000 and 634,000 potentially dilutive

weighted-average shares from convertible securities outstanding for the three and nine months ended September 30, 2020 and 2019,

respectively.

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.

October 28, 2020, the Company closed an underwritten public offering of 5,075,000 shares of its common stock at a public offering

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

of $8.42 per pre-funded warrant.

In addition, in a concurrent private placement, the Company also issued to the investor, for

a nominal price, warrants to purchase an additional 8,900,493 shares of common stock at an exercise price of $9.757 per share.

The warrants will become exercisable after the six-month anniversary of the offering and will expire on the 18-month anniversary

of the offering.

The aggregate gross proceeds from the offerings of common stock, pre-funded warrants and warrants was approximately

$75.0 million.

The net offering proceeds were approximately $70.0 million after deducting underwriting discounts and commissions

and other estimated offering expenses.

COMPANY FINANCIALS.

Net Assets –

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

At September 30, 2020, the Company had approximately $291,300,000 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

1 unchanged sentence

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

September 30,

Current Assets:

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Total current assets

Property and equipment,

Property and equipment, net

Other Assets:

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Other liabilities

Total Liabilities

Stockholders’

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stockholders’

Total Liabilities

and Stockholders’

Three Months Ended

Six Months Ended

Total Liabilities and Stockholders’

Management fees from subsidiaries

Selling, general and administrative expenses

Income (loss) from operations

Fair value adjustments

Interest income

Loss from operations

Interest income from subsidiaries

Interest expense

Fair value adjustments

Other expense

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Consolidated net income (loss)

For the Six Months Ended

the Nine Months Ended

September 30,

Operating Activities:

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

Equity in losses of subsidiaries

Net income (loss)

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

Equity in (income) losses of subsidiaries

Fair value adjustments

Amortization of debt (premiums) discounts

Amortization of debt discounts

Changes in operating assets and liabilities:

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Proceeds from issuances of common stock

Proceeds from plant receivables

Proceeds from warrant exercises

Proceeds from long-term debt

Proceeds from Pacific Ethanol West

Payments on senior notes

Preferred stock dividend payments

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

Net cash provided by financing activities

Net increase (decrease) 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.

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

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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.

fluctuations in the

market prices of our products;

fluctuations 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;

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.

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

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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:

are a leading United States producer and marketer of specialty alcohols and essential ingredients.

operate seven strategically located production distilleries.

Three of our distilleries are located in the Midwestern state of

Illinois and four of our distilleries are located in the Western states of California, Oregon and Idaho.

Our distilleries have

a combined production capacity of 450 million gallons per year.

We market all of the alcohols produced at our distilleries as

well as fuel-grade ethanol produced by third parties.

In 2019, we marketed nearly 1.0 billion gallons combined of specialty alcohols

and fuel-grade ethanol, and nearly 3.0 million tons of essential ingredients on a dry matter basis.

Our business consists of two

operating segments:

a production segment and a marketing segment.

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

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 –

mission is to be a leading United States producer and marketer of specialty alcohols and essential ingredients.

We intend to accomplish

this goal in part by investing in our specialized and higher value production and distribution infrastructure, expanding production

in high demand essential ingredients, expanding and extending the sale of our products into new regional and international markets,

building efficiencies and economies of scale and by capturing a greater portion of the value stream.

produce specialty alcohols and essential ingredients, focusing on four key markets:

Health, Home & Beauty;

Food & Beverage;

Essential Ingredients;

and Renewable Fuels .

Products for the Health, Home & Beauty market include specialty alcohols used

in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners.

Products for the Food & Beverage markets

include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils.

Products for Essential

Ingredients markets include yeast, corn gluten and distillers grains used in commercial animal feed and pet foods.

Renewable Fuels

includes fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

produce these products at our distilleries described below.

Our distilleries located in the Midwest are in the heart of the Corn

Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both

domestic and international markets via truck, rail or barge.

Our distilleries located on the West Coast are near their respective

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

are currently operating at approximately 51% of production capacity.

As market conditions change, we may increase, decrease or

idle production at one or more operating distilleries or resume operations at any idled distillery.

anticipate restarting our Pekin dry mill, which was idled due to temporary lock repairs

and resultant river closures, during the fourth quarter of 2020.

market all of the alcohols and essential ingredients we produce at our distilleries.

We also market fuel-grade ethanol produced

by third parties.

have extensive and long-standing customer relationships, both domestic and international, for our alcohols and essential ingredients.

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.

fuel-grade ethanol customers are located throughout the Western and Midwestern United States and consist of integrated oil companies

and gasoline marketers who blend fuel-grade ethanol into gasoline.

Our customers depend on us to provide a reliable supply of

fuel-grade ethanol and manage the logistics and timing of delivery with very little effort on their part.

Our customers collectively

require fuel-grade ethanol volumes in excess of the supplies we produce at our production distilleries.

We secure additional fuel-grade

ethanol supplies from third-party fuel-grade ethanol plants in California and other third-party suppliers in the Midwest where

a majority of fuel-grade ethanol producers are located.

We arrange for transportation, storage and delivery of fuel-grade 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 essential ingredient feed products to dairies and feedlots, in many cases located near our distilleries.

These customers

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

We sell our corn oil to

poultry and biodiesel customers.

We do not market essential ingredients from other producers.

“Note 3 –

Segments”

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

to 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

initiatives focused on the sale of 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.

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.

the third quarter, we continued to experience an excellent margin environment for our specialty alcohols and essential ingredients.

In addition, margins for our fuel-grade ethanol improved, and ethanol spot prices have now largely recovered to pre-pandemic levels.

Our positive results for the quarter were mitigated, however, by significant logistical constraints due to closure of the Illinois

River for lock repairs.

Although we expected this closure, it nevertheless required greater use of less cost-effective modes of

product transport such as via rail and truck, which resulted in higher costs.

The Illinois River lock repairs are now complete

approximately thirty days past the completion date initially anticipated –

and we do not expect similar logistical

constraints going forward.

have strategically realigned our business to focus on specialty alcohols and essential ingredients in the three key markets of

Health, Home & Beauty , Food & Beverage and Essential Ingredients , in addition to our continued focus

on renewable fuel.

These three markets have experienced stable growth and represent strong demand for our specialty alcohols and

essential ingredients that we sell to blue chip customers and well-known household brands.

In the first nine months of 2020, we

generated approximately 45% of our net sales from specialty alcohols as compared to only 15% for all of 2019, excluding sales

of third-party fuel-grade ethanol.

Our focus on specialty alcohols has also reduced our exposure to fuel-grade ethanol markets

that have experienced inventory over-supply challenges and demand destruction.

demand for specialty alcohols used in sanitizers and disinfectants as a result of the coronavirus pandemic has positively impacted

our results thus far in 2020.

As demand vastly exceeded available supplies in the first months of the pandemic, spot prices for

these specialty alcohols significantly exceeded prices for more premium products.

While this market remains highly dynamic, spot

demand has declined and spot prices have fallen from the peaks witnessed in the second quarter.

Specialty alcohol premiums over

fuel-grade ethanol still remain greater than historical averages, contributing to our optimistic outlook for 2021 and beyond.

In fact, the majority of our specialty alcohol production for 2021 is already contracted for at fixed prices and for terms of

up to one year or more.

optimistic outlook is also supported by two key market drivers.

First, we expect an increase in the use of alcohol-based sanitizers

and disinfectants.

Demand has increased for specialty alcohols used in sanitizers and disinfectants such as GermX and Lysol for

use in hospitals, restaurants, offices and schools.

We believe that as the pandemic abates and the population begins to return

to typical social and work environs, demand for sanitizers and disinfectants will remain strong as individuals use these products

to protect themselves and businesses use these products to protect their customers and employees.

Second, we expect continued

growth in distilled spirits consumption.

Demand for distilled spirits has increased every year for the past decade, and we are

working to add 30 million gallons of grain neutral spirits production capacity in the fourth quarter to meet this rising demand.

Once completed, we will have increased our annual production capacity of specialty alcohols to 140 million gallons, the majority

of which will meet or exceed United States Pharmacopeia (USP) specifications, representing an increase of 65% in annual capacity

compared to 85 million gallons in 2019.

are working to broaden our addressable customers and markets by obtaining additional certifications.

In October, we obtained our

ISO9001 certification, the world’s most widely recognized quality management system certification.

We are also pursuing

two additional certifications, specifically, ICH Q7, which sets forth good manufacturing practices for active pharmaceutical ingredients,

and EXCiPACT, which sets standards for excipient safety and quality.

We expect final audits for these additional certifications

by the end of 2020.

continue to evaluate many attractive investment opportunities in our asset portfolio.

These opportunities are now available given

our performance and strengthened balance sheet.

For example, we are expanding annual production capacity of our yeast facility

Our yeast product is a high-value essential ingredient and we anticipate the full return of our investment of $5.5 million

in less than two years.

We expect to complete this capacity expansion by the third quarter of 2021.

also continue to pursue our strategic realignment plans to sell or repurpose our Western distilleries.

We recently announced an

agreement to sell our grain handling assets at our Magic Valley distillery in Burley, Idaho, comprising 134 acres of land, the

rail loop, and related grain handling assets, for $10.0 million.

The sale is expected to close by the end of November and we intend

to use the sale proceeds to repay term debt.

We will retain our alcohol production distillery, terminal and 25 acres of remaining

land in Burley, Idaho.

remain focused on our transformation to a stable, higher-margin business.

We have already successfully transitioned production

to approximately 50% specialty alcohols and we are focusing on established markets that will continue to see long-term demand.

Our initiatives around quality assurance and certifications are directed at expanding our addressable customers and markets.

financial performance and balance sheet have greatly improved year over year, enabling us to pursue investment opportunities in

our asset portfolio.

Overall, we are encouraged that we will be able to deliver greater and more consistent profitability for

our shareholders.

Accounting Policies

18 unchanged sentences

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

Production gallons sold (in millions)

Third party gallons sold (in millions)

Total gallons sold (in millions)

Total gallons produced (in millions)

Production capacity utilization

Average sales price per gallon

Corn cost per bushel –

gallons sold (in millions)

party gallons sold (in millions)

gallons sold (in millions)

gallons produced (in millions)

capacity utilization

sales price per gallon

cost per bushel –

CBOT equivalent

Average basis (1)

Delivered cost of corn

Total co-product tons sold (in thousands)

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

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

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.

co-product tons sold (in thousands)

revenues as % of delivered cost of corn (2)

CBOT fuel-grade ethanol price per gallon

CBOT corn price per bushel

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

the future price of corn for Chicago delivery.

(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 alcohols 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,

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):

Months Ended September 30,

Cost of goods sold

Percentage of net sales

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 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.

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

Gross profit (loss)

Percentage of

decline in our net sales for the three and nine months ended September 30, 2020 as compared to the same periods in 2019 was primarily

due to a significant decline in our fuel-grade ethanol production gallons sold.

sold fewer fuel-grade ethanol production gallons and co-products for the three and nine months ended September 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 third quarter.

Demand for our specialty alcohols, however,

increased significantly in the sanitizer and disinfectant markets.

These markets have historically, and even more so in the

second and third quarters, provided a premium price over fuel-grade ethanol markets.

Our third-party gallons sold declined

slightly in the quarter, but significantly less than the decline in overall fuel-grade ethanol demand, as most of our

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

Months Ended September 30, 2020 and 2019

a consolidated basis, our average sales price per gallon increased 6.2% to $1.71 for the three months ended September 30, 2020

compared to $1.61 for the same period in 2019.

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

decreased 9.9% to $1.27 for the three months ended September 30, 2020 compared to $1.41 for the same period in 2019.

in our average sales price per gallon, despite lower fuel-grade ethanol prices, is due to a change in our mix of sales, with a

higher percentage of gallons sold of specialty alcohols as compared to fuel-grade ethanol.

sales of alcohols from our production segment declined by $123.1 million, or 58%, to $89.8 million for the three months ended

September 30, 2020 as compared to $212.9 million for the same period in 2019.

Our total volume of production gallons sold declined

by 86.6 million gallons, or 67%, to 43.5 million gallons for the three months ended September 30, 2020 as compared to 130.1 million

gallons for the same period in 2019.

Our production segment’s average sales price per gallon increased 25% to $2.02 for

the three months ended September 30, 2020 compared to our production segment’s average sales price per gallon of $1.62 for

the same period in 2019.

At our production segment’s average sales price per gallon of $2.02 for the three months ended

September 30, 2020, we generated $174.5 million less in net sales from our production segment from the 86.6 million fewer production

gallons sold in the three months ended September 30, 2020 as compared to the same period in 2019.

This decline was partially offset

by the increase of $0.40 in our production segment’s average sales price per gallon for the three months ended September

30, 2020 as compared to the same period in 2019, which increased our net sales of alcohols from our production segment by $51.4

sales of co-products declined $35.1 million, or 53%, to $30.6 million for the three months ended September 30, 2020 as compared

to $65.7 million for the same period in 2019.

Our total volume of co-products sold declined by 464.9 thousand tons, or 65%, 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

255.5 thousand tons for three months ended September 30, 2020 from 720.4 thousand tons for the same period in 2019, and our average

sales price per ton increased to $119.57 for the three months ended September 30, 2020 from $91.19 for the same period in 2019,

due to a higher mix of more valuable essential ingredients sold from our wet mill.

At our average sales price per ton of $119.57

for the three months ended September 30, 2020, we realized $55.5 million less in net sales from the 464.9 thousand ton decline

in co-products sold in the three months ended September 30, 2020 as compared to the same period in 2019.

The increase in our average

sales price per ton of $28.38, or 31%, for the three months ended September 30, 2020 as compared to the same period in 2019 increased

our net sales of co-products by $20.4 million.

sales of alcohols from our marketing segment, excluding intersegment sales, declined by $2.3 million, or 3%, to $84.3 million

for the three months ended September 30, 2020 as compared to $86.6 million for the same period in 2019.

Our total volume of gallons

sold by our marketing segment declined by 90.1 million gallons, or 43%, to 120.2 million gallons for the three months ended September

30, 2020 as compared to 210.3 million gallons for the same period in 2019.

The 90.1 million decline in gallons sold by our marketing

segment is comprised of 86.6 million fewer production gallons sold and 3.5 million fewer third party gallons sold.

The 3.5 million

gallon decline in third party gallons sold is comprised of 0.3 million fewer gallons sold on a gross basis and 3.2 million fewer

gallons sold on a net basis.

marketing segment’s average sales price per gallon declined 2% to $1.65 for the three months ended September 30, 2020 compared

to $1.61 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

At our marketing segment’s average sales price per gallon of $1.65 for the three months

ended September 30, 2020, we generated $5.7 million less in net sales from our marketing segment from the 3.5 million fewer gallons

in third party fuel-grade ethanol sold in the three months ended September 30, 2020 as compared to the same period in 2019.

increase of $0.04 in our marketing segment’s average sales price per gallon for the three months ended September 30, 2020

as compared to the same period in 2019 increased our net sales from third party fuel-grade ethanol sold by our marketing segment

by $3.4 million.

Months Ended September 30, 2020 and 2019

a consolidated basis, our average sales price per gallon increased 0.6% to $1.60 for the nine months ended September 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

The average CBOT fuel-grade ethanol price per gallon declined 13.0% to $1.20 for

the nine months ended September 30, 2020 compared to $1.38 for the same period in 2019.

The increase in our average sales price

per gallon, despite lower fuel-grade ethanol production, is due to a change in our mix of sales, with a higher percentage of gallons

sold of specialty alcohols as compared to fuel-grade ethanol.

sales of alcohols from our production segment declined by $206.9 million, or 35%, to $379.8 million for the nine months ended

September 30, 2020 as compared to $586.7 million for the same period in 2019.

Our total volume of production gallons sold declined

by 142.6 million gallons, or 39%, to 223.0 million gallons for the nine months ended September 30, 2020 as compared to 365.6 million

gallons for the same period in 2019.

Our production segment’s average sales price per gallon increased 6% to $1.68 for the

nine months ended September 30, 2020 compared to $1.59 for the same period in 2019.

At our production segment’s average

sales price per gallon of $1.68 for the nine months ended September 30, 2020, we generated $239.4 million less in net sales from

our production segment from the 142.6 million fewer production gallons sold in the nine months ended September 30, 2020 as compared

to the same period in 2019.

The increase of $0.09 in our production segment’s average sales price per gallon for the nine

months ended September 30, 2020 as compared to the same period in 2019 increased our net sales of alcohols from our production

segment by $32.5 million.

sales of co-products declined $64.5 million, or 32%, to $134.7 million for the nine months ended September 30, 2020 as compared

to $199.2 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,

Our total volume of co-products sold decreased by 918.5 thousand tons, or 44%,

to 1,177.5 thousand tons for nine months ended September 30, 2020 from 2,096.0 thousand tons for the same period in 2019.

average sales price per ton increased to $114.38 for the nine months ended September 30, 2020 from $95.03 for the same period

in 2019 due to a higher mix of more valuable essential ingredients.

At our average sales price per ton of $114.38 for the nine

months ended September 30, 2020, we generated $105.0 million less in net sales from the 918.5 thousand tons of fewer co-products

sold in the nine months ended September 30, 2020 as compared to the same period in 2019.

The increase of $19.35, or 20%, in our

average sales price per ton for the nine months ended September 30, 2020 as compared to the same period in 2019 increased net

sales of co-products by $40.5 million.

sales of alcohols from our marketing segment, excluding intersegment sales, declined by $67.7 million, or 24%, to $213.7 million

for the nine months ended September 30, 2020 as compared to $281.4 million for the same period in 2019.

Our total volume of gallons

sold by our marketing segment declined by 188.0 million gallons, or 30%, to 435.9 million gallons for the nine months ended September

30, 2020 as compared to 623.9 million gallons for the same period in 2019.

The 188.0 million decline in gallons sold by our marketing

segment is comprised of 142.6 million fewer production gallons sold and 45.4 million fewer third party gallons sold.

million decline in third party gallons sold is comprised of 32.2 million fewer gallons sold on a gross basis and 13.2 million

fewer gallons sold on a net basis.

marketing segment’s average sales price per gallon increased less than 1% to $1.53 for the nine months ended September 30,

2020 as compared to $1.52 for the same period in 2019.

At our marketing segment’s average sales price per gallon of $1.53

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

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

for the nine months ended September 30, 2020, we generated $69.3 million less in net sales from our marketing segment from the

45.4 million fewer gallons in third party fuel-grade ethanol sold in the nine months ended September 30, 2020 as compared to the

same period in 2019.

The increase of $0.01 in our marketing segment’s average sales price per gallon for the nine months

ended September 30, 2020 as compared to the same period in 2019 increased our net sales from third party fuel-grade ethanol sold

by our marketing segment by $1.6 million.

of Goods Sold and Gross Profit (Loss)

consolidated gross profit improved to $20.9 million, representing a gross profit margin of 10.2%, for the three months ended September

30, 2020 compared to a gross loss of $14.8 million, representing a gross profit margin of negative 4.1% for the same period in

Our consolidated gross profit improved to $39.2 million, representing a gross profit margin of 5.4%, for the nine months

ended September 30, 2020 compared to a gross loss of $13.1 million, representing a gross profit margin of negative 1.2%, for the

same period in 2019.

Our gross profit and gross profit margin improved primarily due to significantly higher margins from sales

of our specialty alcohols.

Months Ended September 30, 2020 and 2019

production segment’s gross profit from external sales improved by $36.3 million to $20.4 million for the three months ended

September 30, 2020 as compared to a loss of $15.9 million for the same period in 2019.

Of this improvement, $77.0 million is attributable

to our production segment’s higher production volumes and margins of specialty alcohols for the three months ended September

30, 2020 as compared to the same period in 2019, partially offset by $40.7 million in lower gross profit attributable to lower

production volumes and margins of fuel-grade ethanol for the three months ended September 30, 2020 as compared to the same period

marketing segment’s gross profit declined by $0.6 million to $0.5 million for the three months ended September 30, 2020

as compared to $1.1 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

This decline primarily relates to our marketing segment’s lower

margins per gallon for fuel-grade ethanol for the three months ended September 30, 2020 as compared to the same period in 2019.

Months Ended September 30, 2020 and 2019

production segment’s gross profit from external sales improved by $56.4 million to $32.8 million for the nine months ended

September 30, 2020 as compared to a gross loss of $23.6 million for the same period in 2019.

Of this improvement, $77.4 million

is attributable to our production segment’s higher production volumes and margins of specialty alcohols for the nine months

ended September 30, 2020 as compared to the same period in 2019, partially offset by $21.0 million in lower gross profit attributable

to production volumes and margins of fuel-grade ethanol for the nine months ended September 30, 2020 as compared to the same period

marketing segment’s gross profit declined by $4.1 million to $6.4 million for the nine months ended September 30, 2020 as

compared to $10.5 million for the same period in 2019.

Of this decline, $2.7 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.

lower margins per gallon for fuel-grade ethanol and $1.4 million is attributable to lower third-party marketing volumes for the

nine months ended September 30, 2020 as compared to the same period in 2019.

General and Administrative Expenses

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sales (in thousands, except percentages):

Three Months Ended

Six Months Ended

September 30,

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.

SG&A expenses decreased for the three months ended September 30, 2020 as compared to the same period in 2019.

in SG&A expenses is primarily due to reduced legal and consulting expenses.

Our SG&A expenses increased for the nine months

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

The 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

Income (Loss) Available to Common Stockholders

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thousands, except percentages):

Three Months Ended

Six Months Ended

Net income (loss) available

to common stockholders

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.

September 30,

income (loss) available to common stockholders

Percentage of

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

alcohol sales for the three and nine months ended September 30, 2020 as compared to the same periods in 2019 and a gain on settlement

of litigation of $11.8 million, partially offset by higher fair value adjustments resulting from higher market prices of our common

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

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.

the nine months ended September 30, 2020, we funded our operations primarily from cash generated by our operations and cash on

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.

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 of business.

During the nine months ended September 30, 2020, we continued to experience significant

adverse conditions in the fuel-grade ethanol 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 distilleries 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 specialty alcohols, but also converted a portion of our fuel-grade

ethanol production to specialty alcohol production to respond to increased demand from the sanitizer and disinfectant markets.

These sales of specialty alcohols 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 and third quarters.

We expect robust demand for our specialty alcohols 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 specialty alcohols.

September 30, 2020, we had $38.7 million in cash and $9.2 million available under our operating line of credit for our marketing

subsidiary, Kinergy Marketing LLC, or Kinergy.

During the nine months ended September 30, 2020, we generated $75.7 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 $91.6 million on our debt.

Further, subsequent to September 30, 2020,

we made an additional $25.3 million in payments on our term debt using the proceeds of an equity offering described below.

October 28, 2020, we closed an underwritten public offering of 5,075,000 shares of our common stock at a public offering price

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

per pre-funded warrant.

In addition, in a concurrent private placement, we also issued to the investor, for a nominal price, warrants

to purchase an additional 8,900,493 shares of common stock at an exercise price of $9.757 per share.

The warrants will become

exercisable after the six-month anniversary of the offering and will expire on the 18-month anniversary of the offering.

The aggregate

gross proceeds from the offerings of common stock, pre-funded warrants and warrants was approximately $75.0 million.

The net offering

proceeds to us were approximately $70.0 million after deducting underwriting discounts and commissions and other estimated offering

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.

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

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 debt and a dispute over whether a portion of our principal payments originated from an approved

source of funds.

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.

Even though we do not believe acceleration

is probable, we have classified our related debt as current on our consolidated balance sheets.

addition to our projected cash flows from operations, we recently raised net proceeds of $70.0 million in offerings of common

stock and warrants, and have recently announced the sale of certain assets for $10.0 million, which is expected to close by

November 30, 2020.

We continue to evaluate our Western fuel-grade ethanol distilleries for either repurposing or sale,

which may provide additional proceeds to repay debt.

Given these factors, we believe we have alleviated substantial doubt

about our ability to continue as a going concern and we will have sufficient liquidity to meet our anticipated working

capital, debt service and other liquidity needs for the next twelve months from the date of this report.

Quarter-End Liquidity Status

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contained in this report (dollars in thousands):

June 30, 2020

December 31, 2019

Cash and cash equivalents

Current assets

Property and equipment, net

Current liabilities

Long-term debt, net of current portion

Working capital (deficit)

Working capital ratio

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

September 30,

and cash equivalents

and equipment, net

debt, net of current portion

capital ratio

September 30, 2020, we had approximately $291.3 million of net assets at our subsidiaries that were not available to be transferred

to Pacific Ethanol, Inc.

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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.

working capital declined to $22.6 million at September 30, 2020 from $71.7 million at December 31, 2019 as a result of a decrease

of $94.3 million in current assets, partially offset by a decrease of $45.3 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

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

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

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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.

cash and cash equivalents increased by $19.7 million at September 30, 2020 as compared to December 31, 2019 primarily due to $75.7

million in cash provided by our operating activities and $15.0 million in cash provided by our investing activities, partially

offset by $71.0 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.

provided by our operating activities increased by $102.9 million for the nine months ended September 30, 2020, as compared to

the same period in 2019.

We generated $75.7 million in cash from our operating activities during the nine months ended September

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

increase of $54.4 million in our consolidated net income due to higher margins from our

sales of specialty alcohols;

decrease of $30.2 million related to accounts receivable primarily due to the timing

of collections and reduced volumes;

decrease of $27.6 million related to inventories as we reduced fuel-grade ethanol production

during the period;

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 $18.8 million in accounts payable and accrued expenses, primarily due to increased payments of past due amounts;

decrease of $9.1 million in depreciation expense resulting from the sale of Pacific Aurora;

decrease of $4.5 million related to other assets due to the timing of payments.

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

provided by our investing activities was $15.0 million for the nine months ended September 30, 2020, which included $19.9 million

in net proceeds from the sale of Pacific Aurora, partially offset by $4.9 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

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.

used in our financing activities was $71.0 million for the nine months ended September 30, 2020.

The increase in cash used in

our financing activities was primarily due to $39.5 million in net payments under Kinergy’s line of credit and $52.1 million

in principal payments on our other borrowings, partially offset by $9.9 million in proceeds under our CARES Act loans, $5.5 million

in proceeds from warrant exercises and $5.3 million from the issuance of common stock.

Operating Line of Credit

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periods presented:

Three Months Ended

Fixed-Charge Coverage Ratio Requirement

September 30,

Coverage Ratio Requirement

Ethanol has guaranteed all of Kinergy’s obligations under the credit facility.

As of June 30, 2020, Kinergy had an

As of September 30, 2020, Kinergy had an

outstanding balance of $41.4 million with additional borrowing availability under the credit facility of $9.2 million.

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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.

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

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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.

December 31, 2018 and January 31, 2019, PE Pekin experienced certain covenant violations under its term and revolving credit facilities.

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

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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, additional proceeds from the sale of any 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.

midwestern asset sold are repaid, additional proceeds from the sale of any of our midwestern distillery 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.

Pekin’s lender also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive

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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

lien positions in our western distilleries, which will terminate and be released upon PE Pekin’s lender’s receipt

of $40.0 million.

December 29, 2019, PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional

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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.

our wholly-owned subsidiary, PE Op Co., which indirectly owns our distilleries 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.

the end of the second quarter and during the third quarter of 2020, we repaid an aggregate of approximately $19.4 million in additional

principal on our PE Pekin term debt.

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 and a

dispute over whether a portion of our principal payments originated from an approved source of funds.

See “Risk

Factors”.

Credit Facilities

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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

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.

December 20, 2019, ICP amended its term and revolving credit facilities under which ICP’s lender granted waivers for certain

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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.

distilleries, 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

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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.

sold are repaid, any additional proceeds from a sale of our midwestern distillery 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.

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

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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.

the end of the second quarter and during the third quarter of 2020, we repaid an aggregate of approximately $9.7 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.

our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities and a dispute over

whether a portion of our principal payments originated from an approved source of funds.

See “Risk

Factors”.

Ethanol, Inc.

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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.

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.

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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.

owns our distilleries 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.

September 2020, we repaid approximately $5.5 million in additional principal on the notes.

November 10, 2020, we repaid approximately $25.3 million in additional principal on the notes.

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.

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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.

At-the-Market

previously established an “at-the-market”

equity distribution program under which we could offer and sell shares of

common stock to, or through, sales agents by means of ordinary brokers’

transactions on The NASDAQ Capital Market, in block

transactions, or as otherwise agreed to between us and the sales agent at prices we deem appropriate.

We were under no obligation

to offer and sell shares of common stock under the program.

For the three months ended September 30, 2020, we sold 1,000,000 shares

of common stock through our “at-the-market”

equity program that resulted in net proceeds of $5,013,741 and fees paid

to our sales agent of $159,048.

We terminated our “at-the-market”

equity program on October 22, 2020.

impact of inflation was not significant to our financial condition or results of operations for the three and nine months ended

September 30, 2020 and 2019.

QUANTITATIVE 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