What changed in this filing

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Item 1. Business

2021-03-26 compared with 2020-03-30 · 535 added, 645 removed, 31 unchanged (97% of the section changed)

Recent Developments

ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and 2019, and thus far into

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

factors, which are compounded by the impact of the novel coronavirus in 2020, resulted and continue to result in negative

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

In response to the low margin

environment, we have reduced production and have pursued strategic initiatives focused on the sale of certain

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.

significant challenges in meeting these objectives would be a sustained adverse margin environment and insufficient cash flow

to fund operations or make our debt payments.

We do not expect to have sufficient liquidity to meet our anticipated

working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell assets, experience a

significant improvement in margins and/or obtain other sources of liquidity.

We have reduced production at our facilities by more

than 60% due to market conditions and in an effort to conserve capital.

If margins do not promptly and sustainably improve from

current levels, we may be forced to further curtail or cease production at one or more of our operating facilities.

See “Risk

Factors”

and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity

and Capital Resources”.

On February 28, 2020,

we entered into a membership interest purchase agreement with Aurora Cooperative Elevator Company, or ACEC, to sell our full 73.93%

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

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

ACEC currently owns 26.07% of Pacific

Business Overview

We are a leading producer

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

We operate nine strategically-located

production facilities.

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

located in the Midwestern states of Illinois and Nebraska.

We are the sixth largest producer of ethanol in the United States based

on annualized volumes.

Our plants have a combined production capacity of 605 million gallons per year.

We market all the ethanol,

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

On an annualized basis,

we market nearly 1.0 billion gallons of ethanol and over 3.0 million tons of ethanol co-products on a dry matter basis.

consists of two operating segments:

a production segment and a marketing segment.

Our mission is to

be a leading producer and marketer of low-carbon renewable fuels, high-value animal feed and high-quality alcohol products in

the United States.

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

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

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

Production Segment

We produce ethanol,

specialty alcohols and co-products at our production facilities described below.

Our plants located on the West Coast are near

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

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 from our plants located in the Midwest,

and barges from our Pekin, Illinois plants, allows for greater access to international markets.

We wholly-own all

of our plants located on the West Coast and the three plants in Pekin, Illinois.

Pacific Aurora owns the two plants in Aurora,

Nebraska as well as the grain elevator adjacent to those properties and related grain handling assets, including the outer rail

loop, and the real property on which they are located.

All of our plants,

except our Stockton and Aurora East facilities, are currently operating.

Our Stockton facility was idled in March 2020, and our

Aurora East facility was idled in December 2018 due to unfavorable market conditions.

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

* Sale pending.

We produce ethanol

co-products at our production facilities such as wet distillers grains, or WDG, dry 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 are a leading producer and marketer

of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States based on

annualized volumes.

We operate seven alcohol production facilities.

Three of our production facilities are located in the Midwestern state of Illinois and four of our facilities are located in the

Western states of California, Oregon and Idaho.

We have an annual alcohol production capacity of 450 million gallons.

all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties.

In 2020, we marketed over

500 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and nearly 1.5 million

tons of essential ingredients on a dry matter basis.

Our business consists of three reportable segments:

two production segments

and a marketing segment.

Our mission is to expand our business as

a leading 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 specialty alcohol 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.

Production Segments

We produce specialty alcohols, fuel-grade

ethanol 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

Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel

We produce our alcohols and essential ingredients

at our production facilities described below.

Our production facilities 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 production facilities located on the West Coast are near their respective

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

We are currently operating at approximately

64% of our estimated maximum annual production capacity.

Our Magic Valley, Stockton and Madera facilities are currently idled.

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

at any idled facility.

Annual Production Capacity

(estimated, in gallons)

Production Facility

Fuel-Grade Ethanol

Specialty Alcohol

Marketing Segment

We market ethanol,

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

We have extensive

customer relationships throughout the Western and Midwestern United States.

Our ethanol customers are integrated oil companies

and gasoline marketers who blend ethanol into gasoline.

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

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

Our customers collectively require ethanol

volumes in excess of the supplies we produce at our production facilities.

We secure additional ethanol supplies from third-party

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

for transportation, storage and delivery of ethanol purchased by our customers through our agreements with third-party service

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

We market our distillers

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

These customers use

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

We sell our corn oil to poultry

and biodiesel customers.

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

See “Note 4

We market all of the alcohols and essential

ingredients we produce at our facilities.

We also market fuel-grade ethanol produced by third parties.

We have extensive and long-standing customer

relationships, both domestic and international, for our specialty 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.

Our 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 facilities.

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

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.

We market our essential ingredient feed

products to dairies and feedlots, in many cases located near our production facilities.

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

We do not market essential ingredients from other producers.

See “Note 4 –

Segments”

to 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

Company History

We are a Delaware

corporation formed in February 2005.

Our common stock trades on The NASDAQ Capital Market under the symbol “PEIX.”

Our Internet website address is http://www.pacificethanol.com .

Information contained

on our website is not part of this Annual Report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,

Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission

and other Securities and Exchange Commission filings are available free of charge through our website as soon as reasonably practicable

after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

We are a Delaware corporation formed in

February 2005.

Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO”.

Our Internet website

address is http://www.altoingredients.com .

Information contained on our website is not part of this Annual Report on Form

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such

reports filed with or furnished to the Securities and Exchange Commission and other Securities and Exchange Commission filings

are available free of charge through our website as soon as reasonably practicable after the reports are electronically filed

with, or furnished to, the Securities and Exchange Commission.

Business Strategy

Our primary goal is

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

in the United States.

The key elements of our business and growth strategy to achieve this objective include:

● Execute on our strategic

initiatives .

We are pursuing strategic initiatives focused on the sale

of certain production assets, a reduction of our debt levels, a strengthening of our

cash and liquidity position, and on opportunities for strategic partnerships and capital

raising activities, to position us to optimize our business performance.

the carbon intensity of our ethanol .

We plan to further reduce the carbon intensity

of the ethanol we produce.

We are able to sell this lower carbon intensity ethanol in

certain regions at premium prices compared to higher carbon intensity ethanol.

able to charge premium prices for this ethanol based on state laws and regulations, such

as Low-Carbon Fuel Standards enacted in California and Oregon that require blenders to

use lower carbon intensity ethanol in their gasoline.

When available and cost-effective,

we intend to use feedstock other than corn, including cellulosic feedstock, as the raw

material used in the production of ethanol to further reduce the carbon intensity of

new equipment and technologies.

We intend to continue to evaluate and implement new

equipment and technologies to increase our production and operating efficiencies, reduce

our use of carbon-based fuels and improve our carbon scores, use diverse feedstocks,

diversify products and revenues, including through our production of advanced biofuels,

and improve our plant profitability as financial resources and market conditions justify

these investments.

Our goal is to expand our business as a

leading producer and marketer of specialty alcohols and essential ingredients.

The key elements of our business and growth strategy

to achieve this objective include:

● Focus on our customer relationships.

We have repositioned

our business to focus on specialty alcohols and essential ingredients.

As a result, our

business is service-oriented and focused on specialty products compared to a price-oriented

business focused on commodity products.

We strive to make our business ever more customer-centric

to enable our premium services to support premium prices and new differentiated and higher-margin

● Expand product offerings.

We are pursuing initiatives

to broaden our product offerings to appeal to a wider range of customers and uses in

our key markets.

For example, we have secured ISO 9001, ICH Q7 and EXCiPACT certifications.

These certifications appeal to customers with stringent quality demands and enable us

to offer alcohol certified for use as an active pharmaceutical ingredient, or API, and

as an excipient—an inactive component of a drug or medication, such as solvents,

carriers or tinctures—in the pharmaceutical industry.

We are reviewing additional

certifications and product positioning within our key markets to expand the range of

customers we serve and the uses our products support.

● Implement new equipment and technologies.

evaluating and plan to implement new equipment and technologies to increase our production

yields, improve our operating efficiencies and reliability, reduce our overall carbon

footprint, diversify our products and revenues, and increase our profitability as financial

resources and market conditions justify these investments.

● Sell or repurpose underperforming production assets.

We are pursuing the sale of our production facilities located in Stockton and Madera,

We are also evaluating the sale or repurposing of other underperforming fuel-grade

ethanol production assets.

We have idled certain underperforming production facilities

and intend to restart production at those facilities only when economic prospects indicate

a level of production margins sufficient to justify resuming production.

We may repurpose

one or more underperforming production facilities to shift production to specialty alcohols

if market demand justifies the expense.

We are also exploring other potential repositioning

activities, including an expansion into new markets such as essential oils and CBD oils,

high protein development and protein pelletizing.

● Evaluate and pursue strategic opportunities .

are examining opportunities to expand our business such as joint ventures, strategic

partnerships, synergistic acquisitions and other opportunities.

We intend to pursue these

opportunities as financial resources and business prospects make these opportunities

Competitive Strengths

We are the largest producer of specialty

alcohols in the United States based on annualized volumes.

We believe that our competitive strengths include:

the following:

● Our customer and supplier

relationships .

We have extensive business relationships with customers and suppliers

throughout the United States.

In addition, we have developed extensive business relationships

with major and independent un-branded gasoline suppliers who collectively control the

majority of all gasoline sales in those regions.

● Our ethanol distribution

We believe we have a competitive advantage due to our experience in marketing

to customers in major metropolitan and rural markets in the United States.

We have developed

an ethanol distribution network for delivery of ethanol by truck to virtually every significant

fuel terminal as well as to numerous smaller fuel terminals throughout California and

other Western states.

Fuel terminals have limited storage capacity and we have successfully

secured storage tanks at many of the terminals we service.

In addition, we have an extensive

network of third-party delivery trucks available to deliver ethanol throughout the Western

United States.

In the Midwest, we have the ability to sell and deliver products in bulk

via unit trains providing us access to Western, gulf coast and international markets.

Further, higher value co-products from our Illinois facilities can be sold at premium

prices under fixed price, longer-term contracts (up to 12 months) thus providing a more

stable source of revenue in what can be a volatile commodity industry.

● Our s trategic locations .

We operate our ethanol plants in markets where we believe their individual locations,

as well as our overall ethanol production and marketing platform, provide strategic advantages.

Our production in both the Western United States and in the Midwest enables us to source

ethanol from two different regions, which we believe allows us to address regional inefficiencies

and other challenges such as rail congestion and other supply constraints, as well as

pricing anomalies.

operate four plants in the Western United States where we believe local characteristics

create an opportunity to capture a significant production and shipping cost advantage

over competing ethanol production facilities in other regions.

We believe a combination

of factors enables us to achieve this cost advantage, including:

near fuel blending facilities lower our ethanol transportation costs while providing

timing and logistical advantages over competing locations that require ethanol to be

shipped over much longer distances, and in many cases require double-handling.

adjacent to major rail lines allow the efficient delivery of corn in large unit trains

from major corn-producing regions and allow for the efficient delivery of ethanol in

large unit trains to other markets, including markets with higher demand.

near large concentrations of dairy and/or beef cattle enable delivery of WDG, over short

distances without the need for costly drying processes.

operate five plants in the Midwest which enables us to participate in the largest regional

ethanol market in the United States as well as international markets.

Our Midwest locations,

coupled with our locations in the Western United States, also allow us many advantages

over locations solely on the West Coast, including:

in diverse markets assist us in spreading commodity and basis price risks across markets

and products, supporting our efforts to optimize margin management.

in the Midwest enhance our overall hedging opportunities with a greater correlation to

the highly-liquid physical and paper markets in Chicago.

in diverse markets support heightened flexibility and alternatives in feedstock procurement

for our various production facilities.

Illinois facilities provide excellent logistical access via rail, truck and barge.

relatively unique wet milling process at one of our Illinois facilities allows us to

extract the highest use and value from each component of the corn kernel.

the wet milling process generates a higher level of cost recovery from corn than that

produced at a dry mill.

in the Midwest allow us deeper market insight and engagement in major ethanol and feed

markets outside the Western United States, thereby improving pricing opportunities.

low carbon-intensity ethanol.

California and Oregon have enacted Low-Carbon Fuel

Standards for transportation fuels.

Under these Low-Carbon Fuel Standards, the ethanol

we produce in the Western United States has a lower carbon-intensity than most ethanol

produced at plants by other producers.

This is primarily because our plants located on

the West Coast use less energy in their production processes.

The ethanol produced in

California by other producers, all of which we market, also has a lower carbon-intensity

rating than either gasoline or ethanol produced in the Midwest.

The lower carbon-intensity

rating of ethanol we produce at our plants located on the West Coast or otherwise resell

from third-party California producers is valued in the market by our customers due to

California’s Low Carbon Fuel Standard program, or LCFS, which has enabled us to

capture premium prices for this ethanol.

technologies .

Our plants use the latest production technologies to take advantage

of state-of-the-art technical and operational efficiencies to achieve lower operating

costs, higher yields and more efficient production of ethanol and its co-products and

reduce our use of carbon-based fuels.

experienced management .

Our senior management team has a proven track record with

significant operational and financial expertise and many years of experience in the ethanol,

fuel and energy industries.

Our senior executives, who average approximately 19 years

of industry experience, have successfully navigated a wide variety of business and industry-specific

challenges and deeply understand the business of successfully producing and marketing

ethanol and its co-products.

We believe that these

competitive strengths will help us attain our goal to be a leading producer and marketer of low-carbon renewable fuels, high-value

animal feed and high-quality alcohol products in the United States.

Industry Overview and Market Opportunity

Overview of Ethanol Market

The primary applications for fuel-grade ethanol in

the United States include:

● Octane enhancer .

average, regular unleaded gasoline has an octane rating of 87 and premium unleaded gasoline

has an octane rating of 91.

In contrast, pure ethanol has an average octane rating of

Adding ethanol to gasoline enables refiners to produce greater quantities of lower

octane blend stock with an octane rating of less than 87 before blending.

ethanol is commonly added to finished regular grade gasoline as a means of producing

higher octane mid-grade and premium gasoline.

In addition to its performance and environmental benefits, ethanol is used

to extend fuel supplies.

In light of the need for transportation fuel in the United States

and its historical dependence on foreign crude oil and refined products, the United States

is increasingly seeking domestic sources of fuel.

Much of the ethanol blending throughout

the United States is done for the purpose of extending the volume of fuel sold at the

gasoline pump.

Ethanol is blended with gasoline to enable gasoline refiners to comply with

a variety of governmental programs, in particular, the national Renewable Fuel Standard,

or RFS, which was enacted to promote alternatives to fossil fuels.

See “—Governmental

Regulation.”

The United States

ethanol industry is supported by federal and state legislation and regulation.

For example, the Energy Independence and Security

Act of 2007, which was signed into law in December 2007, significantly increased the prior RFS.

Under the RFS, the mandated use

of all renewable fuels rises incrementally in succeeding years and peaks at 36.0 billion gallons by 2022.

Under the RFS, approximately

14.5 billion gallons in 2016 and 15.0 billion gallons in 2017 and 2018 were required from conventional, or corn-based, ethanol.

Under the RFS, 15.0 billion gallons are required from conventional ethanol through 2022.

The RFS allows the Environmental Protection

Agency, or EPA, to adjust the annual requirement based on certain facts.

According to the Renewable

Fuels Association, the domestic ethanol industry produced 15.8 billion gallons of ethanol in 2019.

We believe that the ethanol

market in California alone represented approximately 10% of the national market.

However, the Western United States has relatively

few ethanol facilities and local ethanol production levels are substantially below the local demand for ethanol.

The balance of

ethanol is shipped via rail from the Midwest to the Western United States.

Gasoline and diesel fuel that supply the major fuel

terminals are shipped in pipelines throughout portions of the Western United States.

Unlike gasoline and diesel fuel, however,

ethanol is not shipped in these types of pipelines because ethanol has an affinity for mixing with water already present in the

When mixed, water dilutes ethanol and creates significant quality control issues.

Therefore, ethanol must be trucked

from rail terminals to regional fuel terminals, or blending racks.

We believe that approximately

90% of the ethanol produced in the United States is made in the Midwest from corn.

According to the Department of Energy, or DOE,

ethanol is generally blended at a rate of 10% by volume, but is also blended at a rate of up to 85% by volume for vehicles designed

to operate on 85% ethanol.

The EPA has increased the allowable blend of ethanol in gasoline from 10% by volume to 15% by volume

for model year 2001 and newer automobiles, pending final approvals by certain state regulatory authorities.

Some retailers have

begun blending at higher rates in states that have approved higher blend rates.

Compared to gasoline,

ethanol is generally considered to be cleaner burning and contains higher octane.

We anticipate that the increasing demand for

renewable transportation fuels coupled with limited opportunities for gasoline refinery expansions and the growing importance

of reducing CO 2 emissions through the use of renewable fuels will generate additional growth in the demand for ethanol.

According to the DOE,

total annual gasoline consumption in the United States is approximately 142 billion gallons and total annual ethanol consumption

represented approximately 10% of this amount in 2019.

The domestic ethanol industry has substantially reached this 10% blend ratio,

and we believe the industry has significant potential for growth in the event the industry can migrate to an up to 15% blend ratio,

which would translate into an annual demand of up to 20 billion gallons of ethanol.

On December 19, 2019

the EPA released a final rule which set the 2020 renewable volume obligation, or RVO, as part of the EPA’s annual volume-setting

responsibility under the RFS.

For total renewable fuel, the RVO was finalized at 20.09 billion gallons, up 170 million gallons

when compared to an RVO of 19.92 billion gallons set for 2019.

We believe this is a step forward for the renewable fuels industry

with the RVO for 2020 sending a strong signal to the marketplace through a 15 billion gallon commitment to conventional ethanol

and a 418 million gallon commitment for cellulosic biofuels.

Overview of Ethanol Production

Ethanol production

from starch- or sugar-based feedstock is a highly-efficient process that we believe yields substantially more energy from ethanol

and its co-products than is required to make the products.

The modern production of ethanol requires large amounts of corn, or

other high-starch grains, and water as well as chemicals, enzymes and yeast, and denaturants including unleaded gasoline or liquid

natural gas, in addition to natural gas and electricity.

We have extensive and long-standing close customer and supplier

relationships, both domestic and international, for our specialty alcohols and essential

We have an excellent reputation for developing specialty alcohols under

stringent quality control standards, particularly at our Pekin, Illinois campus, or Pekin

Our quality management systems are supported by ISO 9001, ICH Q7 and EXCiPACT

certifications which are viewed by our customers as important attestations of our quality

control standards.

● Barriers to entry .

Our production facilities use

specialized equipment, technologies and processes to achieve stringent quality controls,

lower operating costs, higher yields, and efficient production of alcohols and essential

Our specialized equipment, technologies and processes, together with our

quality management certifications, strict regulatory requirements, and close customer

and supplier relationships create significant barriers to entry to new market participants.

● Our experienced management .

Our senior management

team has a proven track record with significant operational and financial expertise and

many years of experience in the alcohol production industry.

Our senior executives have

successfully navigated a wide variety of business and industry-specific challenges and

deeply understand the business of successfully producing and marketing specialty alcohols

and essential ingredients.

● The strategic location of our Midwest production facilities .

We operate three distinct but integrated production facilities at our Pekin Campus in

We are able to participate from that location in the largest regional specialty

alcohol market in the United States as well as international markets.

● Our Midwest location enhances our overall hedging opportunities

with a greater correlation to the highly-liquid physical and paper markets in Chicago.

● Our Midwest location provides excellent logistical access

via rail, truck and barge.

In particular, barge access via the Illinois River to the

Mississippi River enables us to efficiently bring our products to international markets.

● The relatively unique wet milling process at one of our production facilities at our Pekin Campus allows us to extract

the highest use and value from each component of the corn kernel.

As a result, the wet milling process generates a higher

level of cost recovery from corn than that produced at a dry mill.

● Our Midwest location allows us deep market insight and engagement

in major fuel-grade ethanol and feed markets, thereby improving pricing opportunities.

We believe that these competitive strengths

will help us attain our goal of expanding our business as a leading producer and marketer of specialty alcohols and essential

Overview of Our Key Markets and Market Opportunity

We produce specialty alcohols, fuel-grade

ethanol and essential ingredients, focusing on four key markets:

Health, Home & Beauty ;

Food & Beverage ;

Essential Ingredients ;

and Renewable Fuels .

Health, Home & Beauty

Our products for the health, home and beauty markets include

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

We offer a variety

of specialty alcohols for the health, home and beauty markets, depending on usage and regulatory requirements, including API-grade,

United States Pharmacopeia, or USP, -grade ethyl alcohols, and industrial-grade ethyl alcohol.

In 2020 we expanded our range of available

product offerings within the health, home and beauty markets through quality management systems certifications.

We have ISO 9001,

ICH Q7 and EXCiPACT certifications at a key production facility at our Pekin Campus, all of which are viewed as important attestations

of quality control standards.

In particular, our ICH Q7 certification qualifies our specialty alcohols for use as an API, and our EXCiPACT certification qualifies our specialty alcohols for use as an excipient in the pharmaceutical industry.

These certifications enable us to offer products to a wider group of customers and generally at more profitable margins.

Food & Beverage

Our products for the food and beverage

market include specialty alcohols used in alcoholic beverages, flavor extracts and vinegar as well as corn germ used for corn

oils and carbon dioxide, or CO 2 , used for beverage carbonation and dry ice.

The principal specialty alcohol we offer

for alcoholic beverages and vinegar is our grain neutral spirits, or GNS, alcohol.

We believe the key drivers in the food

and beverage market include consumer preferences for the social currency of brand authenticity and heritage;

consumers seeking

unique and personalized experiences;

younger adults drawn to the caché

of luxury brands, including super-premium spirits;

improved consumer access to spirits products;

the growth of craft distillers;

and the ability to meet wide-ranging consumer preferences

through a broad diversity of spirits categories and cocktails.

Essential Ingredients

Our essential ingredients products include

dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet

The raw materials for our essential ingredients products are generated as co-products from our production of alcohols.

These co-products are further manufactured, altered and refined into our essential ingredients products, including for special

customer applications.

Many of our essential ingredients are used

in a variety of food products to affect their nutrition, including protein and fat content, as well as other product attributes

such as taste, texture, palatability and stability.

Our high quality and high purity manufacturing enable our customers to use

some of our essential ingredients in human foods while others are used in pet foods and animal feed.

See “—Overview

of Distillers Grains Market”.

We expect the essential ingredients market

to grow significantly due to global demand for higher-grade protein feed, such as feed used in fisheries and other applications.

Renewable Fuels

Our renewable fuels products include fuel-grade

ethanol used as transportation fuel and distillers corn oil used as a biodiesel feedstock.

Our renewable fuels business is supported

by our own production of fuel-grade ethanol as well as fuel-grade ethanol produced by third parties.

Renewable fuels, primarily fuel-grade ethanol,

are used for a variety of purposes, including as octane enhancers for premium gasoline and to enable refiners to produce greater

quantities of lower octane blend stock;

for fuel blending to extend fuel supplies and reduce reliance on crude oil and refined

and to comply with a variety of governmental programs, in particular, the national Renewable Fuel Standard, or RFS,

which was enacted to promote alternatives to fossil fuels.

Under the RFS, the mandated use of all renewable fuels rises incrementally

and peaks at 36.0 billion gallons by 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol.

The RFS allows the Environmental Protection Agency, or EPA, to adjust the annual requirement based on certain facts and circumstances.

See “—Governmental Regulation”.

According to the Renewable Fuels Association,

the domestic fuel-grade ethanol industry produced 13.8 billion gallons of ethanol in 2020.

According to the United States Department

of Energy, total annual gasoline consumption in the United States is approximately 123.5 billion gallons and total annual fuel-grade

ethanol consumption represented approximately 11% of this amount in 2020.

We anticipate that increased transportation and economic

activity as the coronavirus pandemic subsides together with continued limited opportunities for gasoline refinery expansions and

the growing importance of reducing CO 2 emissions through the use of renewable fuels will generate additional growth

in the demand for fuel-grade ethanol.

Overview of Alcohol Production Process

Alcohol production from starch- or sugar-based

feedstock is a highly-efficient process.

Modern alcohol production requires large amounts of corn, or other high-starch grains,

and water as well as chemicals, enzymes and yeast, and denaturants including unleaded gasoline or liquid natural gas, in addition

to natural gas and electricity.

Dry Milling Process

In the dry milling

process, corn or other high-starch grain is first ground into meal, then slurried with water to form a mash.

Enzymes are then

added to the mash to convert the starch into the simple sugar, dextrose.

Ammonia is also added for acidic (pH) control and as

a nutrient for the yeast.

The mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior

to fermentation.

The mash is then cooled and transferred to fermenters, where yeast is added and the conversion of sugar to ethanol

and CO 2 begins.

After fermentation,

the resulting “beer”

is transferred to distillation, where the ethanol is separated from the residual “stillage.”

The ethanol is concentrated to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof,

representing 100% alcohol levels, in a molecular sieve system.

The resulting anhydrous ethanol is then blended with about 2.5%

denaturant, which is usually gasoline, and is then ready for shipment to market.

The residual stillage

is separated into a coarse grain portion and a liquid portion through a centrifugation process.

The soluble liquid portion is

concentrated to about 40% dissolved solids by an evaporation process.

This intermediate state is called condensed distillers solubles,

The coarse grain and syrup portions are then mixed to produce WDG or can be mixed and dried to produce DDGS.

and DDGS are high-protein animal feed products.

In the dry milling process, corn or other

high-starch grain is first ground into meal, then slurried with water to form a mash.

Enzymes are added to the mash to convert

the starch into dextrose, a simple sugar.

Ammonia is added for acidic (pH) control and as a nutrient for the yeast.

processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation.

The mash is then

cooled and transferred to fermenters, where yeast is added and the conversion of sugar to alcohol and CO 2 begins.

After fermentation, the resulting “beer”

is transferred to distillation, where the alcohol is separated from the residual “stillage”.

The resulting alcohol

is concentrated to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof, representing

100% alcohol levels, in a molecular sieve system.

For fuel-grade ethanol, the resulting anhydrous alcohol is then blended with

approximately 2.5% denaturant, which is usually gasoline, and is then ready for shipment to renewable fuels markets.

The residual stillage is separated into

a coarse grain portion and a liquid portion through a centrifugation process.

The soluble liquid portion is concentrated to about

40% dissolved solids by an evaporation process.

This intermediate state is called condensed distillers solubles, or syrup.

coarse grain and syrup portions are then mixed to produce wet distillers grains, or WDG, or can be mixed and dried to produce

dried distillers grains with solubles, or DDGS.

Both WDG and DDGS are high-protein animal feed products.

Wet Milling Process

In the wet milling

process, corn or other high-starch grain is first soaked or “steeped”

In the wet milling process, corn or other

high-starch grain is first soaked or “steeped”

in water for 24 –

48 hours to separate

the grain into its many components.

After steeping, the corn slurry is processed first to separate the corn germ, from which the

corn oil can be further separated.

48 hours to separate the grain into its many

After steeping, the grain slurry is processed first to separate the grain germ, from which the grain oil can be further

The remaining fiber, gluten and starch components are further separated and sold.

The steeping liquor

is concentrated in an evaporator.

The concentrated product, called heavy steep water, is co-dried with the fiber component and

is then sold as corn gluten feed.

The gluten component is filtered and dried to produce corn gluten meal.

The starch and any

remaining water from the mash is then processed into ethanol or dried and processed into corn syrup.

The fermentation process

for ethanol at this stage is similar to the dry milling process.

The steeping liquor is concentrated in

an evaporator.

The concentrated product, called heavy steep water, is co-dried with the fiber component and is then sold as gluten

The gluten component is filtered and dried to produce gluten meal.

The starch and any remaining water from

the mash is then processed into alcohol or dried and processed into corn syrup.

The fermentation process for alcohol at this stage

is similar to the dry milling process.

Overview of Distillers Grains Market

Distillers grains

are produced as a co-product of ethanol production and are valuable components of feed rations primarily to dairies and beef cattle

markets, both nationally and internationally.

Distillers grains are produced as a co-product

of alcohol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally

and internationally.

Our plants produce both WDG and DDGS.

WDG is sold to customers proximate to the

plants and DDGS is delivered by truck, rail and barge to customers in domestic and international markets.

Producing WDG also

allows us to use up to one-third less process energy, thus reducing production costs and lowering the carbon footprint of these

plants, thereby increasing demand in California where premiums are paid for the low-carbon attributes.

Historically, the

market price for distillers grains has generally tracked the value of corn.

We believe that the market price of WDG and DDGS is

determined by a number of factors, including the market value of corn, soybean meal and other competitive ingredients, the performance

or value of WDG and DDGS in a particular feed formulation and general market forces of supply and demand, including export markets

for these co-products.

The market price of distillers grains is also often influenced by nutritional models that calculate the

feed value of distillers grains by nutritional content, as well as reliability of consistent supply.

We market and sell

through our wholly-owned subsidiary, Kinergy Marketing LLC, or Kinergy, all of the ethanol produced by our production facilities.

Kinergy also markets ethanol produced by third parties.

We have extensive customer relationships throughout the Western and Midwestern

United States.

Our ethanol customers are integrated oil companies and gasoline marketers who blend ethanol into gasoline.

customers depend on us to provide a reliable supply of ethanol, and manage the logistics and timing of delivery with very little

effort on their side.

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

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

Midwest where a majority of ethanol producers are located.

We arrange for transportation, storage and delivery of ethanol purchased

by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest

from a variety of sources.

We also market all

of the co-products produced at our plants.

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

Our co-products include

WDG, DDGS, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, corn oil, dried yeast and

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

our ethanol plants.

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

We sell our corn oil to poultry and biodiesel customers.

Our production segment

generated $800.3 million and $859.8 million in net sales for the years ended December 31, 2019 and 2018, respectively, from the

sale of ethanol.

Our production segment generated $269.0 million and $296.7 million in net sales for the years ended December

31, 2019 and 2018, respectively, from the sale of co-products.

During 2019 and 2018,

our production segment sold an aggregate of approximately 491.0 million and 556.2 million gallons of ethanol and 2.8 million and

3.1 million tons of ethanol co-products, respectively.

Our marketing segment

generated $355.6 million and $358.9 million in net sales for the years ended December 31, 2019 and 2018, respectively, from the

sale of ethanol.

During 2019 and 2018,

we produced or purchased ethanol from third parties and resold an aggregate of approximately 704 million and 762 million gallons

of fuel-grade ethanol and specialty alcohols to approximately 109 and 80 customers, respectively.

Sales to our two largest customers,

Valero Energy Corporation and Chevron Products USA in 2019 and 2018 represented an aggregate of approximately 24% and 25%, of

our net sales, respectively.

Sales to each of our other customers represented less than 10% of our net sales in each of 2019 and

Production Segment

Our production operations

are dependent upon various raw materials suppliers, including suppliers of corn, natural gas, electricity and water.

of corn is the most important variable cost associated with our production.

We source corn for our plants using standard contracts,

including spot purchase, forward purchase and basis contracts.

When resources are available, we seek to limit the exposure of

our production operations to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed

price basis and by purchasing corn and other raw materials futures contracts.

During 2019 and 2018,

purchases of corn from our four largest suppliers represented an aggregate of approximately 49% and 52% of our total corn purchases,

respectively, for those periods.

Purchases from each of our other corn suppliers represented less than 10% of total corn purchases

in each of 2019 and 2018.

WDG is sold to customers proximate to the plants and DDGS is delivered

by truck, rail and barge to customers in domestic and international markets.

Producing WDG also allows us to use up to one-third

less process energy, thus reducing production costs and lowering the carbon footprint of our production facilities.

Historically, the market price for distillers

grains has generally tracked the value of corn.

We believe that the market price of WDG and DDGS is determined by a number of

factors, including the market value of corn, soybean meal and other competitive ingredients, the performance or value of WDG and

DDGS in a particular feed formulation and general market forces of supply and demand, including export markets for these co-products.

The market price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers

grains by nutritional content, as well as reliability of consistent supply.

We market and sell through our wholly-owned

subsidiary, Kinergy Marketing LLC, or Kinergy, all of the alcohols we produce.

Kinergy also markets fuel-grade ethanol produced

by third parties.

We market and sell through our wholly-owned subsidiary, Alto Nutrients, LLC, all of the essential ingredients

We have extensive and long-standing customer

relationships, both domestic and international, for our specialty 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.

Our 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 facilities.

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

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.

We market our essential ingredient feed

products to dairies and feedlots, in many cases located near our production facilities.

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

We do not market essential ingredients from other producers.

Our Pekin Campus production segment generated

$330.4 million and $343.6 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of

Our Pekin Campus production segment generated $130.3 million and $139.0 million in net sales for the years ended December

31, 2020 and 2019, respectively, from the sale of essential ingredients.

During 2020 and 2019, our Pekin Campus

production segment sold an aggregate of approximately 193.9 million and 218.5 million gallons of alcohols and 829,000 and 913,000

tons of essential ingredients, respectively, on a dry matter basis.

Our other production segment generated

$137.7 million and $455.3 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of

Our other production segment generated $40.9 million and $130.0 million in net sales for the years ended December 31,

2020 and 2019, respectively, from the sale of essential ingredients.

During 2020 and 2019, our other production

segment sold an aggregate of approximately 78.0 million and 272.5 million gallons of alcohols and 619,000 and 1,908,000 tons of

essential ingredients, respectively, on a dry matter basis.

Our marketing segment generated $257.7

million and $356.9 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of alcohols.

During 2020 and 2019, we produced or purchased

from third parties and resold an aggregate of 536.3 million and 819.4 million gallons of alcohols to approximately 65 and 109

customers, respectively.

For 2020 and 2019, sales to our two largest customers, Chevron Products USA and Valero Energy Corporation

represented an aggregate of approximately 14% and 24%, of our net sales, respectively.

For 2020 and 2019, sales to each of our

other customers represented less than 10% of our net sales.

Production Segments

Our production operations depend upon various

raw materials suppliers, including suppliers of corn, natural gas, electricity and water.

The cost of corn is the most important

variable cost associated with our alcohol production.

We source corn for our plants using standard contracts, including spot purchase,

forward purchase and basis contracts.

When resources are available, we seek to limit the exposure of our production operations

to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and by purchasing

corn and other raw materials futures contracts.

During 2020 and 2019, purchases of corn

from our two largest suppliers represented an aggregate of approximately 25% and 40% of our total corn purchases, respectively,

for those periods.

Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of

2020 and 2019.

Marketing Segment

Our marketing operations

are dependent upon various third-party producers of fuel-grade ethanol.

In addition, we provide ethanol transportation, storage

and delivery services through third-party service providers with whom we have contracted to receive ethanol at agreed upon locations

from our third-party suppliers and to store and/or deliver the ethanol to agreed-upon locations on behalf of our customers.

contracts generally run from year-to-year, subject to termination by either party upon advance written notice before the end of

the then current annual term.

During 2019 and 2018,

we purchased and resold from third parties an aggregate of approximately 213 million and 206 million gallons, respectively, of

fuel-grade ethanol.

During 2019 and 2018,

purchases of fuel-grade ethanol from our largest third-party supplier represented an aggregate of approximately 35% of our total

third-party ethanol purchases for each of those periods.

Purchases from each of our other third-party ethanol suppliers represented

less than 10% of total third-party ethanol purchases in each of 2019 and 2018.

Pacific Ethanol Plants

The table below provides

an overview of our nine ethanol production facilities.

Our plants have an aggregate annual production capacity of up to 605 million

All of our plants, with the exception of our Aurora East facility, are currently operating.

As market conditions change,

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

We wholly-own all

of our plants located on the West Coast and the three plants in Pekin, Illinois.

We own approximately 74% of the plants in Aurora,

Nebraska as well as the grain elevator adjacent to those properties and related grain handling assets, including the outer rail

loop, and the real property on which they are located, through Pacific Aurora, an entity owned approximately 26% by ACEC.

Approximate maximum annual ethanol production

Our marketing operations cover alcohols

and essential ingredients we produce but also depend upon various third-party producers of fuel-grade ethanol.

In addition, we

provide transportation, storage and delivery services through third-party service providers with whom we have contracted to receive

fuel-grade ethanol at agreed upon locations from our third-party suppliers and to store and/or deliver the ethanol to agreed-upon

locations on behalf of our customers.

These contracts generally run from year-to-year, subject to termination by either party

upon advance written notice before the end of the then current annual term.

During 2020 and 2019, we purchased and

resold from third parties an aggregate of approximately 163 million and 213 million gallons, respectively, of fuel-grade ethanol.

During 2020 and 2019, purchases of fuel-grade

ethanol from our two largest third-party suppliers represented 54% and 35%, respectively, of our total third-party ethanol purchases

for each of those periods.

Purchases from each of our other third-party ethanol suppliers represented less than 10% of total third-party

ethanol purchases in each of 2020 and 2019.

Production Facilities

We operate seven production facilities.

Three of our production facilities are located in the Midwestern state of Illinois and four of our facilities are located in the

Western states of California, Oregon and Idaho.

We have a combined annual alcohol production capacity of 450 million gallons.

Our Magic Valley, Stockton and Madera facilities are currently idled.

As market conditions change, we may increase, decrease or

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

The tables below provide an overview

of our seven production facilities.

Pekin Campus Production Facilities

Operating status

Approximate maximum annual alcohol production

capacity (in millions of gallons)

Approximate maximum annual specialty alcohol production capacity

(in millions of gallons)*

Production milling process

Primary energy source

Pekin ICP Facility

Approximate maximum annual ethanol production

capacity (in millions of gallons)

* Included in approximate maximum annual

alcohol production capacity.

Western Production Facilities

Operating status

Approximate maximum annual fuel-grade ethanol

production capacity (in millions of gallons)

Production milling process

Primary energy source

* Sale Pending.

Commodity Risk Management

We employ various

risk mitigation techniques.

For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward

a portion of our corn and natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well

as entering into derivative contracts for ethanol, corn and natural gas.

To mitigate ethanol inventory price risks, we may sell

a portion of our production forward under fixed- or index-price contracts, or both.

We may hedge a portion of the price risks

by selling exchange-traded futures contracts.

Proper execution of these risk mitigation strategies can reduce the volatility of

our gross profit margins.

However, the market price of ethanol is volatile and subject to large fluctuations, and given the nature

of our business, we cannot effectively hedge against extreme volatility or certain market conditions.

For example, ethanol prices,

as reported by the Chicago Board of Trade, or CBOT, ranged from $1.25 to $1.70 per gallon during 2019 and from $1.20 to $1.53

per gallon during 2018;

and corn prices, as reported by the CBOT, ranged from $3.41 to $4.55 per bushel during 2019 and from $3.30

to $4.09 per bushel during 2018.

We employ various risk mitigation techniques.

For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn

and natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering into derivative

contracts for fuel-grade ethanol, corn and natural gas.

To mitigate fuel-grade ethanol inventory price risks, we may sell a portion

of our production forward under fixed- or index-price contracts, or both.

We may hedge a portion of the price risks by selling

exchange-traded futures contracts.

Proper execution of these risk mitigation strategies can reduce the volatility of our gross

profit margins.

Specialty alcohols have relatively low

price volatility and are usually priced at significant premiums to fuel-grade ethanol.

The market price of fuel-grade ethanol

is volatile, however, and subject to large fluctuations.

Given the nature of our business, we cannot effectively hedge against

extreme volatility or certain market conditions.

For example, fuel-grade ethanol prices, as reported by the Chicago Board of Trade,

or CBOT, ranged from $0.81 to $1.62 per gallon during 2020 and from $1.25 to $1.70 per gallon during 2019;

and corn prices, as

reported by the CBOT, ranged from $3.03 to $4.84 per bushel during 2020 and from $3.41 to $4.55 per bushel during 2019.

Marketing Arrangements

We market all the

ethanol and specialty alcohols produced at our production facilities.

In addition, we have exclusive ethanol marketing agreements

with two third-party ethanol producers, Calgren Renewable Fuels, LLC and Aemetis Advanced Fuels Keyes, Inc., to market and sell

their entire ethanol production volumes.

Calgren Renewable Fuels, LLC owns and operates an ethanol production facility in Pixley,

We market all the alcohols and essential

ingredients produced at our facilities.

In addition, we have exclusive fuel-grade ethanol marketing arrangements with two third-party

ethanol producers, Calgren Renewable Fuels, LLC and Aemetis Advanced Fuels Keyes, Inc., to market and sell their entire fuel-grade

ethanol production volumes.

Calgren Renewable Fuels, LLC owns and operates a fuel-grade ethanol production facility in Pixley,

California with annual production capacity of 55 million gallons.

Aemetis Advanced Fuels Keyes, Inc.

owns and operates an ethanol

production facility in Keyes, California with annual production capacity of 55 million gallons.

We intend to evaluate and pursue

opportunities to enter into marketing arrangements with other third-party ethanol producers as business prospects make these marketing

arrangements advisable.

We are the sixth largest

producer of ethanol in the United States based on annualized volumes and operate in the highly competitive ethanol production

and marketing industry.

The largest ethanol producers in the United States are Archer-Daniels-Midland Company, POET, LLC, Green

and Valero Renewable Fuels Company, LLC, collectively with approximately 37% of the total installed ethanol production

capacity in the United States.

In addition, there are many mid-size producers with several plants under ownership, smaller producers

with one or two plants, and several ethanol marketers that create significant competition.

Overall, we believe there are over

200 ethanol production facilities in the United States with a total installed production capacity of approximately 16.5 billion

gallons and many brokers and marketers with whom we compete for sales of ethanol and its co-products.

We believe that our

competitive strengths include our customer and supplier relationships, our extensive ethanol distribution network, our strategic

locations, our low carbon-intensity ethanol, our use of modern technologies at our production facilities and our experienced management.

We believe that these advantages will help us to attain our goal to be a leading producer and marketer of low-carbon renewable

fuels, high-value animal feed and high-quality alcohol products in the United States.

Most of the largest

metropolitan areas in the United States have fuel terminals served by rail, but other major metropolitan areas and more remote

smaller cities and rural areas do not.

We believe that we have a competitive advantage in the Western United States in particular

due to our experience in marketing to the segment of customers located in major metropolitan and rural markets in the Western

owns and operates a fuel-grade

ethanol production facility in Keyes, California with annual production capacity of 60 million gallons.

We are the largest producer of specialty

alcohols in the United States based on annualized volumes.

Other significant producers of specialty

alcohols in the United States are Archer-Daniels-Midland Company, MGP Ingredients, Inc., Grain Processing Corporation, CIE and

Greenfield Global Inc., which collectively make up a significant majority of the total installed specialty alcohol production

capacity in the United States along with many smaller producers.

The largest producers of fuel-grade ethanol

in the United States are POET, LLC, Valero Renewable Fuels Company, LLC, Archer-Daniels-Midland Company, Green Plains Inc.

Flint Hills Resources, collectively with approximately 41% of the total installed fuel-grade ethanol production capacity in the

United States.

We manage the complicated logistics of shipping ethanol to intermediate storage locations throughout the Western

United States and trucking the ethanol from these storage locations to blending racks where the ethanol is blended with gasoline.

We believe that by establishing an efficient service for truck deliveries to these more remote locations, we have differentiated

ourselves from our competitors on the West Coast.

In addition, due to our plant locations on the West Coast, we believe that we

benefit from our ability to increase spot sales of ethanol from those plants following ethanol price spikes caused from time to

time by rail delays in delivering ethanol from the Midwest to the Western United States.

Our strategic locations

in the Western United States designed to capitalize on cost efficiencies may nevertheless result in higher than expected costs

as a result of more expensive raw materials and related shipping costs, including corn, which generally must be transported from

If the costs of producing and shipping ethanol and its co-products over short distances are not advantageous relative

to the costs of obtaining raw materials from the Midwest, then the benefits of our strategic locations on the West Coast may not

In addition, there are many mid-sized fuel-grade ethanol producers with several plants under ownership, smaller

producers with one or two plants, and several fuel-grade ethanol marketers that create significant competition.

Overall, we believe

there are over 200 fuel-grade ethanol production facilities in the United States with a total installed production capacity of

approximately 17.4 billion gallons and many brokers and marketers with whom we compete for sales of fuel-grade ethanol and its

Our fuel-grade ethanol also competes on

a global market against production from other countries, such as Brazil, which may have lower production costs than United States

Lower feedstock input costs such as sugarcane used in Brazil as compared to corn used in the Unites States may give

foreign producers a competitive advantage.

In addition, fuel-grade ethanol from sugarcane feedstock qualifies as an advanced biofuel,

unlike corn ethanol, allowing required parties to economically satisfy an advanced biofuel standard.

Moreover, new products and

production technologies are under continuous development, many of which, if adopted by competitors, could harm ability to compete.

We believe that our competitive strengths include our customer and supplier relationships, the barriers to entry to our most profitable

lines of business—including our modern technologies at our production facilities—our experienced management, and the

strategic location of our Midwest production facilities.

We believe that these advantages will help us to attain our goal to expand

our business as a leading producer and marketer of specialty alcohols and essential ingredients.

See “—Competitive

Strengths”.

Governmental Regulation

Our business is subject

to federal, state and local laws and regulations relating to the production of renewable fuels, the protection of the environment

and in support of the corn and ethanol industries.

These laws, their underlying regulatory requirements and their enforcement,

some of which are described below, impact, or may impact, our existing and proposed business operations by imposing:

● restrictions on our existing

and proposed business operations and/or the need to install enhanced or additional controls;

need to obtain and comply with permits and authorizations;

for exceeding applicable permit limits or legal requirements, in some cases for the remediation

of contaminated soil and groundwater at our facilities, contiguous and adjacent properties

and other properties owned and/or operated by third parties;

● specifications

for the ethanol we market and produce.

In addition, some

governmental regulations are helpful to our ethanol production and marketing business.

The ethanol fuel industry is supported

by federal and state mandates and environmental regulations that favor the use of ethanol in motor fuel blends in North America.

Some of the governmental regulations applicable to our ethanol production and marketing business are briefly described below.

National Energy Legislation

The Energy Independence

and Security Act of 2007, which was signed into law in December 2007, significantly increased the prior RFS.

The RFS significantly

increases the mandated use of renewable fuels, rising incrementally each year, to 36.0 billion gallons by 2022.

Under the provisions

of the Energy Independence and Security Act of 2007, the EPA has the authority to waive the mandated RFS requirements in whole

To grant a waiver, the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy,

that there is inadequate domestic renewable fuel supply or implementation of the requirement would severely harm the economy or

environment of a state, region or the United States as a whole.

Policy discussion

has begun in the 116 th Congress aimed at shifting national power generation to renewable sources and to decarbonize

manufacturing and agricultural industries.

On January 3, 2019, a bill titled Leave Ethanol Volumes at Existing Levels

(LEVEL) Act (H.R.

104) was introduced into the House of Representatives aiming to repeal certain amendments to the Clean Air

Act relating to the expansion of the renewable fuel program, and for other purposes.

This bill revises the renewable fuel program,

including the RFS.

Under current law, the RFS specifies the minimum volume of renewable fuel, such as ethanol, that must be contained

in gasoline sold in the United States, except in noncontiguous states or territories.

The RFS annually increases until 2022 when

a minimum of 36 billion gallons of renewable fuel must be blended into gasoline.

This bill decreases the volume of renewable fuel

that must be contained in gasoline to 7.5 billion gallons each year.

The bill also revises the RFS to eliminate separate volume

requirements for the following renewable fuel categories:

advanced biofuels, cellulosic biofuel, and biomass-based diesel.

bill has been referred to a congressional subcommittee where it awaits further consideration.

On February 7, 2019, Democrats in

both the House and Senate introduced non-binding resolutions, H.Res.

109 and S.Res.

59, Recognizing the duty of the Federal

Government to create a Green New Deal.

The resolutions, referred to as the Green New Deal, outline these goals by providing

a blueprint to transition the United States to a 100 percent clean energy system.

Expanding from this policy, recently the Utilizing

Significant Emissions with Innovative Technologies (USE IT) Act was introduced in both chambers.

The USE IT Act

aims to spur the development and demonstration of carbon capture and removal technologies.

This legislation has the potential

to benefit ethanol producers, as well as a large group of other stakeholders by authorizing grants for these technologies and

by streamlining the permitting process for building pipelines that move sequestered carbon.

The bills have been referred to their

respective congressional subcommittees where they await further consideration.

On June 21, 2019, a bill titled Eliminating

the RFS and Its Destructive Outcomes Act (H.R.

3427) was introduced in the House of Representatives aiming to repeal the EPA’s

Renewable Fuel Standard program, which requires transportation fuel to contain a minimum volume of renewable fuel.

been referred to a congressional committee, which will consider it before possibly sending the bill to the House of Representatives

A bill titled the

Consumer Protection and Fuel Transparency Act of 2019 (H.R 1024), was introduced on February 6, 2019, which would require

the EPA Administrator to revise labeling requirements for fuel pumps that dispense gasoline that contains up to 15% ethanol by

volume, or E15.

Specifically, the legislation would require labels for fuel pumps that dispense E15 to include the word “WARNING”

and “check your owner’s manual.”

In addition, the bill would require the EPA to develop a public education campaign

on the supposed risks associated with improper E15 use.

EPA gave final approval in 2012 to the use of E15 fuel and the fuel blend

is now sold in 30 states.

The EPA is already required to label at the pump therefore we believe this bill could confuse consumers

and retailers who opt to use E15.

This bill was referred to a congressional subcommittee where it awaits further consideration.

E15 (a Blend of Gasoline and Ethanol )

The EPA has allowed

fuel and fuel-additive manufacturers to introduce into commercial gasoline that contains greater than 10% ethanol by volume, up

to 15% ethanol by volume, for vehicles from model year 2001 and beyond.

Additional changes to some states’

laws to allow

for the use of E15 are still required;

however, commercial sale of E15 has begun in a majority of states.

In 2019, the EPA enacted

a rule that allows for year-round use of E15.

We expect year-round demand for E15 will increase in 2020 and future years as E15

adoption accelerates.

State Energy Legislation

and Regulations

In January 2007, California’s

Governor signed an executive order directing the California Air Resources Board to implement California’s LCFS for transportation

California’s LCFS requires fuel suppliers to reduce the carbon intensity of transportation fuels to 10% below 2010

levels by 2020.

The Governor’s office estimates that the standard will have the effect of increasing current renewable fuels

use in California by three to five times by 2020.

The California Air

Resources Board has engaged in a comprehensive process to consider extending California’s LCFS through 2030, applying aggressive

new carbon intensity reduction targets for the final 10 years.

Additional LCFS updates became effective in early January 2019

which require fuel suppliers to reduce the carbon intensity of transportation fuels to 20% below 2010 levels by 2030.

the revised program will be beneficial as we produce among the lowest carbon intensity ethanol commercially available, and we

receive a premium for the fuel we sell into the California marketplace, which we expect will increase as the compliance curve

steepens, which began in 2016.

A program similar

to California’s LCFS has also been adopted in Oregon and the Canadian province of British Columbia, and is under discussion

in Washington State.

These regions, together with California, represent a very large segment of the overall demand for transportation

fuels in the United States.

Additional Environmental

In addition to the

governmental regulations applicable to the ethanol production and marketing industry described above, our business is subject

to additional federal, state and local environmental regulations, including regulations established by the EPA, the San Joaquin

Valley Regional Water Quality Control Board, the San Joaquin Valley Air Pollution Control District and the California Air Resources

We cannot predict the manner or extent to which these regulations will harm or help our business or the ethanol production

and marketing industry in general.

As of March 27, 2020,

we had approximately 500 full-time employees.

We believe that our employees are highly-skilled, and our success will depend in

part upon our ability to retain our employees and attract new qualified employees, many of whom are in great demand.

Our business is subject to a wide range

of federal, state and local laws and regulations directed at protecting public health and the environment, including those promulgated

by the Occupational Safety and Health Administration, or OSHA, the U.S.

Food and Drug Administration, or FDA, the EPA, and numerous

state and local authorities.

These laws, their underlying regulatory requirements and their potential enforcement, some of which

are described below, impact, or may impact, nearly every aspect of our operations, including our production of alcohols (including

distillation), our production of essential ingredients, our storage facilities, and our water usage, waste water discharge, disposal

of hazardous wastes and emissions, and other matters pertaining to our existing and proposed business by imposing:

● restrictions on our existing and proposed operations and/or

the need to install enhanced or additional controls;

● special requirements applicable to food and drug additives;

● the need to obtain and comply with permits and authorizations;

● liability for exceeding applicable permit limits or legal

requirements, in some cases for the remediation of contaminated soil and groundwater

at our production facilities, contiguous and adjacent properties and other properties

owned and/or operated by third parties;

● other specifications for the specialty alcohols and essential

ingredients we produce and market.

In addition, some governmental regulations

are helpful to our production and marketing business.

The fuel-grade ethanol industry in particular is supported by federal and

state mandates and environmental regulations that favor the use of fuel-grade ethanol in motor fuel blends in North America.

of the governmental regulations applicable to our production and marketing business are briefly described below.

Food and Drug Regulation

Our products for the Health, Home &

Beauty, Food & Beverage and some Essential Ingredients markets are subject to regulation by the FDA as well as similar state

Under the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA regulates the processing, formulation, safety, manufacture,

packaging, labeling and distribution of food ingredients, vitamins and cosmetics.

Many of the FDA’s and FDCA’s rules

and regulations apply directly to us as well as indirectly through their application in our

customers’

To be properly marketed and sold in the United States, a relevant product must be generally recognized

as safe, approved and not adulterated or misbranded under the FDCA and relevant regulations issued under the FDCA.

broad authority to enforce the provisions of the FDCA.

Failure to comply with the laws and regulations of the FDA or similar state

agencies could prevent us from selling certain of our products or subject us to liability.

Renewable Fuels Energy Legislation

Under the RFS, the mandated use of all

renewable fuels, including fuel-grade ethanol, rises incrementally and peaks at 36.0 billion gallons by 2022, of which 15.0 billion

gallons are required from conventional, or corn-based, ethanol.

Under the provisions of the Energy Independence and Security Act

of 2007, the EPA has the authority to waive the mandated RFS requirements in whole or in part.

To grant a waiver, the EPA administrator

must determine, in consultation with the Secretaries of Agriculture and Energy, that there is inadequate domestic renewable fuel

supply or implementation of the requirement would severely harm the economy or environment of a state, region or the United States

Various bills in Congress introduced from

time to time are also directed at altering existing renewable fuels energy legislation, but none has passed in recent years.

legislative bills are directed at halting or reversing expansion of, or even eliminating, the renewable fuel program, while other

bills are directed at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry.

The EPA has allowed fuel and fuel-additive

manufacturers to introduce into commercial gasoline that contains greater than 10% fuel-grade ethanol by volume, up to 15% fuel-grade

ethanol by volume, or E15, for vehicles from model year 2001 and beyond.

Commercial sale of E15 has begun in a majority of states,

and the EPA has enacted a rule allowing for year-round use of E15.

Various states including California, Oregon

and Washington, and other regions such as the Canadian province of British Columbia, have implemented low-carbon fuel standards

focused on reducing the carbon intensity of transportation fuels.

Blending fuel-grade ethanol into gasoline is one of the primary

means of attaining these goals.

Additional Environmental Regulations

In addition to the governmental regulations

applicable to the alcohol production and marketing industry described above, our business is subject to additional federal, state

and local environmental regulations, including regulations established by the EPA and state regulatory agencies related to water

quality and air pollution control.

We cannot predict the manner or extent to which these regulations will harm or help our business

or the alcohol production and marketing industry in general.

As of March 25, 2021, we had approximately

370 employees, including 369 full-time employees.

We believe that our employees are highly-skilled, and our success will depend

in part upon our ability to retain our employees and attract new qualified employees, many of whom are in great demand.

Approximately

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Item 1. Business