What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-26 compared with 2020-03-30 · 817 added, 839 removed, 154 unchanged (91% of the section changed)

Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades

on The NASDAQ Capital Market under the symbol “PEIX”.

We also have non-voting common stock outstanding which is not

listed on an exchange.

The table below shows, for each fiscal quarter indicated, the high and low sales prices of shares of our

common stock.

The prices shown reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily

represent actual transactions.

Year Ended December 31, 2019:

First Quarter (January 1 –

Second Quarter (April 1 –

Third Quarter (July 1 –

September 30)

Fourth Quarter (October 1 –

Year Ended December 31, 2018:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Our common stock trades on The Nasdaq Capital Market under

the symbol “ALTO”.

Prior to February 1, 2021, our common stock traded on The Nasdaq Capital Market under the symbol

“PEIX”.

We also have non-voting common stock outstanding which is not listed on an exchange.

Security Holders

7 unchanged sentences

Dividend Policy

We have never paid

cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.

We have never paid cash

dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.

We anticipate

that we will retain any earnings for use in the continued development of our business.

Our current and future

debt financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the achievement

of specified financial and other operating conditions and our ability to properly service our debt, thereby limiting or preventing

us from paying cash dividends.

Further, the holders of our outstanding Series B Preferred Stock are entitled to dividends of 7%

per annum, payable quarterly in arrears.

In 2018, we declared and paid in cash dividends on our outstanding shares of Series B

Preferred Stock as they became due.

For the first nine months of 2019, we declared and paid in cash dividends on our outstanding

shares of Series B Preferred Stock as they became due;

however, for the fourth quarter, we accrued but did not declare or pay

cash dividends under an agreement with the holders of our Series B Preferred Stock in an effort to preserve liquidity.

and unpaid dividends in respect of our Series B Preferred Stock must be paid prior to the payment of any dividends in respect

of shares of our common stock.

Our current and

future debt financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the

achievement of specified financial and other operating conditions and our ability to properly service our debt, thereby

limiting or preventing us from paying cash dividends.

Further, the holders of our outstanding Series B Preferred Stock are

entitled to dividends of 7% per annum, payable quarterly in arrears.

For the first nine months of 2019, we declared and paid

in cash dividends on our outstanding shares of Series B Preferred Stock as they became due;

however, for the fourth quarter

of 2019, and for all of 2020, we accrued but did not declare or pay cash dividends under an agreement with the holders of our

Series B Preferred Stock in an effort to preserve liquidity.

Accrued and unpaid dividends in respect of our Series B

Preferred Stock must be paid prior to the payment of any dividends in respect of shares of our common stock.

Recent Sales of Unregistered Securities

1 unchanged sentence

Securities by the Issuer and Affiliated Purchasers

Selected Financial

Financial Data.

Not Applicable.

Management’s

Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion

7 unchanged sentences

and elsewhere in this report.

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 “—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 Aurora.

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 co-products on a dry matter basis.

Our business consists

of two operating segments:

a production segment and a marketing segment.

Our mission is to

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

the United States.

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.

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, 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 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

Current Initiatives and Outlook

Margins improved

during the first half of the fourth quarter of 2019, rising to levels better than at any time in the prior two years.

response, the ethanol industry increased production, driving down margins for the second half of the fourth quarter.

first quarter of 2020, we experienced an acute negative margin environment resulting from continued excess ethanol supplies

compounded by plummeting demand from the impact of the novel coronavirus pandemic.

Numerous statewide stay-at-home orders

have significantly reduced transportation fuel demand.

We expect up to a 50% reduction or more in demand while the

stay-at-home orders remain in place throughout the markets we serve.

Declining demand has impacted the market price of

ethanol, pushing prices to historically low levels.

While corn prices have also declined, they have moved less on a

percentage basis, and have not alleviated lower ethanol prices, resulting in industry-wide negative production margins.

result, ethanol producers are curtailing production and idling plants to reduce supply and avoid negative cash flow

We believe that as much as 3.0 billion gallons of ethanol production is now off-line.

We have reduced production

levels and overall plant utilization by more than 60%, while seeking to balance our customer commitments with our need to

minimize negative operating cash flow.

Our ICP production

facility in Pekin, Illinois is producing and selling record amounts of high-quality alcohol, a key ingredient in the production

of hand sanitizers.

At our ICP plant, we produce primarily high-quality alcohol for sale into industrial-, chemical- and beverage-grade

Historically, ICP has generated approximately 10% of its sales by selling high-quality alcohol for the production of

hand sanitizers.

ICP has improved its production processes and has more than doubled its sales of high-quality alcohol for the

production of hand sanitizers to meet increased demand.

We are also working with local health organizations and first-responders

in Pekin, Illinois to produce and donate hand sanitizer in the local community to front-line health workers tending to those impacted

by the coronavirus.

We have engaged a

Chief Restructuring Officer on a consulting basis to assist us in negotiating with our lenders and implementing our strategic

As noted above, in February, we entered into a membership interest purchase agreement with ACEC to sell our ownership

interest in 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.

We expect this transaction to close in the second quarter.

We are also in

discussions with multiple other parties regarding the sale of various other assets or strategic partnerships.

The Environmental

Protection Agency’s, or EPA’s, final rule for Renewable Fuel Standard, or RFS, blending requirements for 2020 maintained

the minimum 15.0 billion gallon target set by Congress for conventional biofuels, which is primarily met by corn ethanol.

The EPA has elected

not to appeal a 10th Circuit federal court decision limiting small refinery exemptions from the RFS.

Although some refiners have

appealed the decision, we believe the EPA will not join in or support the appeal, reducing the likelihood of its success.

the court decision is geographically limited, we expect the EPA to apply the decision nationally and substantially limit small

refinery exemptions going forward.

If applied nationally, we expect that fewer small refinery exemptions would restore over 1.0

billion gallons of annual demand for renewable fuels once the industry recovers from the crisis caused by the coronavirus pandemic.

Approximately thirty

countries have renewable fuel standards or targets.

United States ethanol exports were seasonally strong in the fourth quarter.

For all of 2019, exports declined slightly compared to 2018.

We expect United States ethanol exports in 2020 at approximately

the same level as 2019 provided that the effects of the coronavirus are not long-lasting.

Since China appears to be the first

country to emerge from the most significant effects of the coronavirus, we are optimistic that China may step in as a significant

buyer of United States ethanol as part of China’s phase one trade deal with the United States.

We are pursuing a

number of 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.

Our most significant challenge in meeting these objectives would be a sustained

adverse margin environment.

See “—Liquidity and Capital Resources”.

We remain focused

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

further diversifying

our sales through additional high-protein animal feed and high-quality alcohol products;

improving our production yields and other

operating efficiencies;

and reducing the carbon intensity of the ethanol we produce.

Last year was a transformative year.

started 2020 with 605 million gallons of annual production capacity, of which approximately 85 million gallons, or 14%, was specialty

alcohols and the balance was fuel-grade ethanol.

While our long-standing specialty alcohols business has been profitable, those

favorable results were obscured in recent years by a challenging renewable fuels business environment and related operating losses.

In 2020, we reduced fuel-grade ethanol production capacity by 55% through a combination of idling unprofitable facilities and

selling underperforming production assets.

We maximized production of specialty alcohols

at our Pekin Campus where spot demand for those products grew rapidly due to the coronavirus pandemic.

We first expanded specialty

alcohol production capacity to 110 million gallons annually in 2020 and then, by refurbishing our grain neutral spirits system,

further increased specialty alcohol production capacity to 140 million gallons annually in early 2021.

We are now the largest producer of specialty

alcohols in the United States based on annualized volumes.

We currently have 450 million gallons of annual production capacity,

of which approximately 140 million gallons, or 31%, is specialty alcohols and the balance is fuel-grade ethanol.

We are currently

operating production facilities with 290 million gallons of annual capacity, of which nearly 50% is specialty alcohols.

our operating facilities are running at break-even or better on an earnings before interest, taxes, depreciation and amortization

In 2020, we sold assets and generated substantial

cash flow from operations.

We also completed an equity capital raise in the fourth quarter.

These results provided funds for substantial

repayments of debt, reducing our interest expense, strengthening our balance sheet and positioning us for growth opportunities.

We also announced a corporate rebranding and changed our name to Alto Ingredients, Inc., which reflects our goal to deliver the

highest levels of integrity, purity, and quality to create greater value for our customers, partners and shareholders.

Strong demand for hand sanitizer contributed

to our results for 2020, but in the fourth quarter, and through the first quarter of 2021, abundant supplies tempered prices.

In response, we focused our efforts on strengthening our sales in product lines other than sanitizers by working with dominant,

name brand consumer product leaders.

Our product mix is well-diversified with over 90% of our contracted volumes sold to major

producers of food and beverage and home and beauty products, while only 10% of our contracted volumes are for sanitizers.

demand for sanitizer has returned to pre-pandemic levels, we expect demand resurgence and firmer pricing as restaurants, arenas,

theaters, offices, stadiums and other public places reopen.

In addition, we expect that higher quality sanitizers utilizing USP-grade

alcohol will replace low-quality sanitizer inventories.

We believe we are well positioned to support customer needs for USP, API

and beverage-grade specialty alcohols for 2021 and beyond and to provide quality products for consumer goods and sanitizers as

We have contracted approximately 65% of

the 110 million gallons of specialty alcohol production capacity available during last fall’s contracting cycle, or 50%

of our now expanded annual production capacity of 140 million gallons of specialty alcohols.

This represents a significant increase

in both total gallons contracted and our average price as compared to our 2020 contracts negotiated in the fall 2019 contracting

This also reflects reductions we made to address the current dynamics in the market for sanitizers.

We are working with

our customers to facilitate the blending and extending of contracted volumes for sanitizer products into 2022 and 2023 if consumer

demand is less than anticipated.

Aside from the many other variables in

our business, including the sale of fuel-grade ethanol and our uncontracted specialty alcohols, we expect our existing contracted

specialty alcohol sales to contribute at least $60.0 million dollars in gross profit for 2021.

Many variables could materially

impact our results, including export conditions, the ability of our customers to take all of their contracted volumes for 2021,

market demand for sanitizers and disinfectants, our ability to timely sell our Stockton and Madera, California production facilities,

and fuel-grade ethanol crush margins, which year-to-date are running at negative 25 cents per gallon, compared to negative 11

cents per gallon in the first quarter of 2020.

We expect that as businesses reopen and travel resumes, fuel-grade ethanol margins

will improve, with each 5 cent increase in crush margins improving earnings before interest, taxes, depreciation and amortization

by $5.0 million.

We are producing a wide selection of essential

ingredients products such as corn meal and feed, corn germ, and yeast for use in human and pet foods.

We produce most of these

higher value and higher margin ingredients at our Pekin Campus wet mill, generating co-product returns in excess of 54% and lifting

our average co-product return across all operating facilities to around 44%.

Some of our highest quality essential ingredients

products are sold under fixed-price, one-year or longer contracts to name brand companies.

We will continue to produce fuel-grade

ethanol to support our specialty alcohol production and to capitalize on ethanol’s beneficial low-carbon characteristics

integral to the ultimate decarbonization of the environment.

We remain optimistic over industry discussions around carbon reduction.

That said, fuel-grade ethanol margins remain depressed, especially for our Western operations.

In light of these conditions, we

have decided to sell our Stockton and Madera, California fuel-grade ethanol production facilities, both of which are currently

We came to this decision after considering all reasonable alternatives and how and where to best deploy our resources.

Sales of these production assets, if they occur, will further strengthen our balance sheet and improve profitability by eliminating

the fixed carrying costs from idled assets.

We are focused on a number of longer term

opportunities.

As previously reported, we have worked diligently and collaboratively with key customers to obtain three critical

certifications for specialty alcohol production at our ICP production facility at our Pekin Campus, specifically, ISO 9001, the

world’s most widely recognized quality management system certification;

ICH Q7, which sets forth good manufacturing practices

for active pharmaceutical ingredients;

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

These certifications

support further market penetration of our specialty alcohols, both domestically and internationally, for applications that require

the highest quality products.

Most of our specialty alcohol products for these applications are contracted under fixed terms each

fall for the following year.

We plan to continue to expand our market share within the health, home and beauty and food and beverage

markets to sell our increased specialty alcohol production at favorable prices.

In addition, we are in the process of increasing

our yeast facility’s annual production capacity by approximately 15%.

We remain on schedule and within budget to complete

this expansion by the third quarter of 2021.

This project entails a relatively low capital investment of $5.5 million and we expect

payback in less than two years, or over $3.0 million annually in earnings before interest, taxes, depreciation and amortization.

We will also have the ability to further expand production of even higher value yeast derivatives with similar payback profiles.

We have earmarked an additional $14.0 million

for various other projects we expect will expand revenue, increase efficiencies or improve plant reliability.

For example, an

upgrade of our feed dryers at our Pekin Campus, a $3.5 million dollar enhancement, will produce even higher value feed, improve

overall plant efficiency and reliability and increase annual earnings before interest, taxes, depreciation and amortization by

an estimated $1.4 million dollars beginning in the fourth quarter of 2021.

Finally, as recently mentioned in congressional

subcommittee hearings on climate change, our Pekin Campus sits on the Mt.

Simon sandstone formation, considered one of the most

significant potential carbon storage resources in the United States.

As a member of the Carbon Capture Coalition, we are actively

engaged in discussions to develop a carbon capture and sequestration program at our Pekin site and expect to be an active player

in the carbon capture space.

We also have additional projects under development with attractive return profiles.

We have transformed our company to build

a foundation based on consumer demand.

We have suspended and sought to minimize the impact of unprofitable operations and reduced

operating and overhead expenses.

That said, our transformation is not yet complete.

Given our significantly improved balance sheet

we are actively exploring and developing new build or buy opportunities to grow and expand our business to further increase revenues

and profitability while controlling expenses.

2020 Financial Performance

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sales declined to $0.9 billion for 2020 compared to $1.4 billion for 2019.

Our net loss available to common stockholders increased

Our net loss available to common stockholders decreased

by $73.8 million from $90.2 million for 2019 to $16.4 million for 2020.

1 unchanged sentence

to our results of operations for 2020 include:

Our net sales for 2019 declined 7% to $1.4 billion for 2019 from $1.5 billion

for 2018 as a result of a decrease in total gallons sold, partially offset by an increase

in our average sales price per gallon.

Our total gallons sold declined 7% to 819 million

gallons for 2019 from 883 million gallons for 2018.

Our production sales volume decreased

12% to 491 million gallons for 2019 from 556 million gallons for 2018, which was partially

offset by a less than 1% increase in our third party sales volume to 328 million gallons

for 2019 from 327 million gallons for 2018.

We intentionally reduced production volume,

and thus production sales volume, including idling our Aurora East facility, due to an

unfavorable production margin environment.

We entered into an agreement to sell our 74% ownership interest in Pacific

Aurora, LLC, and as such, recorded its long-lived assets as held-for-sale.

we recognized an impairment charge to fair value of $29.3 million.

on debt extinguishment .

In December 2019, we amended our senior secured notes, extending

their term for two years.

As part of that amendment, we recognized $6.5 million in loss

on debt extinguishment, primarily related to recording certain direct fees paid to our

lenders and recording the amended notes at fair value.

Our interest expense increased by $3.1 million to $20.2 million for 2019

from $17.1 million for 2018.

This increase is primarily due to higher interest rates

on our senior secured notes, which increased in accordance with the terms of the notes.

Our net sales

for 2020 declined by $0.5 billion, or 37%, to $0.9 billion for 2020 from $1.4 billion

for 2019 as a result of a decrease in total alcohol gallons sold, partially offset by

an increase in our average sales price per gallon.

Our total gallons sold declined by

283 million gallons, or 35%, to 536 million gallons for 2020 from 819 million gallons

Our production sales volume declined by 219 million gallons, or 45%, to 272

million gallons for 2020 from 491 million gallons for 2019.

These declines are due primarily

to the negative effects of the coronavirus pandemic on the demand for transportation

fuels and fuel-grade ethanol.

In response, we reduced production and idled fuel-grade

ethanol production facilities.

Moreover, we completed the sale of our two fuel-grade

ethanol production facilities in Nebraska in April 2020, resulting in no further sales

volumes from those facilities.

Our third-party sales volume declined by 64 million gallons,

or 20%, to 264 million gallons for 2020 from 328 million gallons for 2019.

We intentionally

reduced sales of third-party fuel-grade ethanol to focus on sales of inventory from our

own production.

The above declines and challenges were partially offset by robust

demand for our specialty alcohols used in sanitizers and disinfectants as a result of

the coronavirus pandemic.

● Gross Profit (loss) .

gross profit (loss) improved by $62.8 million to a gross profit of $52.9 million

for 2020 from a gross loss of $9.9 million for 2019 as a result of substantially higher margins

due to strong demand for our specialty alcohols used in sanitizers and disinfectants

as a result of the coronavirus pandemic.

We also idled or sold unprofitable fuel-grade

ethanol production facilities, substantially reducing costs in a challenging market environment.

● Asset impairments.

have evaluated for impairment our production facilities located in the Western United

States, including our plan to sell our Madera and Stockton facilities, and as such we

recognized an aggregate impairment charge of $24.4 million.

Sales and Margins

We generate sales

by marketing all the ethanol produced by our ethanol plants, all the ethanol produced by two other ethanol producers in the Western

United States and ethanol purchased from other third-party suppliers throughout the United States.

We also market high-quality

alcohol products and ethanol co-products, including WDG and DDGS, wet and dry corn gluten feed, condensed distillers solubles,

corn gluten meal, corn germ, corn oil, dried yeast and CO 2 , for our ethanol plants.

Our profitability

is highly dependent on various commodity prices, including the market prices of ethanol, corn and natural gas.

Our average ethanol

sales price increased by 2.5% to $1.61 per gallon for 2019 compared to $1.57 per gallon for 2018.

The average price of ethanol

as reported by the Chicago Board of Options Trade, or CBOT, increased 1.5% to $1.39 per gallon for 2019 compared to $1.37 per

gallon for 2018.

Our average cost of corn increased 9% to $4.26 per bushel for 2019 from $3.91 per bushel for 2018.

price of corn as reported by the CBOT increased 4.1% to $3.83 per bushel for 2019 from $3.68 per bushel for 2018.

We believe that our

gross profit margins depend primarily on five key factors:

market price of ethanol, which we believe is impacted by the degree of competition in

the ethanol market;

the price of gasoline and related petroleum products;

and government

regulation, including government mandates;

market price of key production input commodities, including corn and natural gas;

market price of co-products;

ability to anticipate trends in the market price of ethanol, co-products, and key input

commodities and implement appropriate risk management and opportunistic strategies;

proportion of our sales of ethanol produced at our ethanol plants to our sales of ethanol

produced by unrelated third-parties.

We seek to optimize

our gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions

and taking other actions designed to limit risk and address these factors.

For example, we may seek to decrease inventory levels

in anticipation of declining ethanol prices and increase inventory levels in anticipation of rising ethanol prices.

seek to alter our proportion or timing, or both, of purchase and sales commitments.

Furthermore, we may diversify our ethanol

feedstock to lower our average costs and/or increase our ethanol sales prices from premiums for low-carbon intensity rated ethanol.

We generate sales by

marketing all of the alcohols produced by our production facilities, all of the fuel-grade ethanol produced by two other production

facilities in the Western United States and fuel-grade ethanol purchased from other third-party suppliers throughout the United

We also market essential ingredients produced by our production facilities, including dried yeast, corn gluten meal, corn

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

Our profitability is

highly dependent on various commodity prices, including the market prices of corn, natural gas and fuel-grade ethanol.

Our consolidated average

alcohol sales price increased by 1.2% to $1.63 per gallon for 2020 compared to $1.61 per gallon for 2019.

The average price of

fuel-grade ethanol as reported by the Chicago Board of Options Trade, or CBOT, decreased 10.1% to $1.25 per gallon for 2020 compared

to $1.39 per gallon for 2019.

Our average cost of corn decreased 9.9% to $3.84 per bushel for 2020 from $4.26 per bushel for 2019.

The average price of corn as reported by the CBOT decreased 5.2% to $3.63 per bushel for 2020 from $3.83 per bushel for 2019.

We believe that our gross

profit margins depend primarily on six key factors:

● the prices of our specialty alcohols

and the market price of fuel-grade ethanol, the latter of which is impacted by the price

of gasoline and related petroleum products, and government regulation, including government

ethanol mandates;

● the market price of key production

input commodities, including corn and natural gas;

● the prices of our essential ingredients;

● our ability to anticipate trends

in the prices of our alcohols, essential ingredients, and key input commodities, and

our ability to implement appropriate risk management and opportunistic pricing strategies;

● the proportion of our sales of

specialty alcohols to our sales of fuel-grade ethanol produced at our facilities;

● the proportion of our sales of

fuel-grade ethanol produced at our facilities to our sales of fuel-grade ethanol produced

by unrelated third-parties.

We seek to optimize our

gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and

taking other actions designed to limit risk and address these factors.

For example, we may seek to reduce inventory levels in

anticipation of declining alcohol or essential ingredient prices and increase production and inventory levels in anticipation

of rising alcohol or essential ingredient prices.

We may also seek to alter our proportion or timing, or both, of purchase and

sales commitments.

Our limited resources

13 unchanged sentences

contained in this report.

Certain performance

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

Certain performance metrics

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

Years Ended December 31,

Percentage Change

Production gallons sold (in millions)

8 unchanged sentences

Total co-product tons sold (in thousands)

Co-product revenues as % of delivered cost of

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

Average CBOT ethanol price per gallon

Average CBOT corn price per bushel

(1) Corn basis represents

the difference between the immediate cash price of delivered corn and the future price

of corn for Chicago 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 ethanol we produced.

Corn basis represents the difference

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

Co-product revenues as a percentage of delivered

cost of corn shows our yield based on sales of co-products, including WDG and corn oil, generated from ethanol we produced.

Year Ended December 31, 2020 Compared to the Year

Ended December 31, 2019

Results as a Percentage of Net Sales

Results as a Percentage

of Net Sales for the

(Unfavorable)

2 unchanged sentences

Cost of goods sold

Gross profit (loss)

Selling, general and administrative expenses

Asset impairment

Loss from operations

Gain on litigation settlement

Gain on sale of assets

Asset impairments

Income (loss) from operations

Fair value adjustments

Loss on debt extinguishment

1 unchanged sentence

Other income, net

Loss before provision (benefit) for income taxes

Loss before benefit for income taxes

Benefit for income taxes

Consolidated net loss

Net loss attributed to noncontrolling

Net loss attributed to Pacific

Ethanol, Inc.

Net loss attributed to noncontrolling interests

Net loss attributed to Alto Ingredients, Inc.

Preferred stock dividends

Loss available to common stockholders

The decrease in our

consolidated net sales for 2019 as compared to 2018 was primarily due to a decrease in our total gallons sold, partially offset

by an increase in our average sales price per gallon.

Our production gallons

sold and our volume of co-products sold declined for 2019 as compared to 2018, while our third-party gallons sold increased slightly.

Our production gallons and co-products sold declined primarily due to an intentional reduction in production levels at our facilities,

including the idling of our Aurora East facility, as a result of an unfavorable production margin environment.

Production Segment

Net sales of ethanol

from our production segment decreased by $59.5 million, or 7%, to $800.3 million for 2019 as compared to $859.8 million for 2018.

Our total volume of production gallons sold decreased by 65.2 million gallons, or 12%, to 491.0 million gallons for 2019 as compared

to 556.2 million gallons for 2018.

At our production segment’s average sales price per gallon of $1.63 for 2019, we generated

$106.5 million in fewer net sales from our production segment from the 65.2 million reduction in gallons of produced ethanol sold

in 2019 as compared to 2018.

The increase of $0.08, or 6%, in our production segment’s average sales price per gallon in

2019 as compared to 2018 improved our net sales from our production segment by $47.0 million.

Net sales of co-products

decreased $27.7 million, or 9%, to $269.0 million for 2019 as compared to $296.7 million for 2018.

Our total volume of co-products

sold decreased by 0.3 million tons, or 10%, to 2.8 million tons for 2019 from 3.1 million tons for 2018.

At our average sales

price per ton of $95.33 for 2019, we generated $26.2 million less in net sales from the 0.3 million fewer tons of co-products

sold in 2019 as compared to 2018.

The decrease of $0.49, or 0.5%, in our average sales price per ton in 2019 as compared to 2018

decreased our net sales from our production segment by $1.5 million.

The decrease in our consolidated

net sales for 2020 as compared to 2019 was primarily due to a decrease in our total gallons sold, partially offset by an increase

in our average sales price per gallon.

Our production

gallons sold and our volume of essential ingredients sold declined for 2020 as compared to 2019 in addition to declines in

our third-party gallons sold.

Our production gallons and essential ingredients sold declined primarily due to an intentional

reduction in our production of fuel-grade ethanol at our facilities due to adverse market conditions as well as the sale of

our Nebraska facilities.

Marketing Segment

Net sales of ethanol

from our marketing segment, excluding intersegment sales, decreased by $3.3 million, or 1%, to $355.6 million for 2019 as compared

to $358.9 million for 2018.

Our volume of third

party ethanol gallons sold reported gross by our marketing segment increased by 6.7 million gallons, or 3%, to 212.8 million gallons

for 2019 as compared to 206.1 million gallons for 2018.

At our marketing segment’s average sales price per gallon of $1.66

for 2019, we generated $11.1 million in increased net sales from our marketing segment from the 6.7 million gallon increase in

third-party ethanol sold gross in 2019 as compared to 2018.

Our volume of third party ethanol gallons

sold reported net by our marketing segment decreased by 5.1 million gallons, or 4%, to 115.6 million gallons for 2019 as compared

to 120.7 million gallons for 2018.

The decrease in third party ethanol gallons sold reported had less than $0.1 million impact

in net sales.

Net sales of fuel-grade ethanol from our

marketing segment, excluding intersegment sales, decreased by $99.2 million, or 28%, to $257.7 million for 2020 as compared to

$356.9 million for 2019.

Our volume of third party fuel-grade

ethanol gallons sold reported gross by our marketing segment decreased by 48.9 million gallons, or 23%, to 163.9 million

gallons for 2020 as compared to 212.8 million gallons for 2019.

At our marketing segment’s average sales price per

gallon of $1.55 for 2020, we generated $75.8 million less in net sales from our marketing segment from the 48.9

million fewer gallons of third-party fuel-grade ethanol sold gross in 2020 as compared to 2019.

Our volume of third party fuel-grade ethanol

gallons sold reported net by our marketing segment decreased by 15.1 million gallons, or 13%, to 100.5 million gallons for 2020

as compared to 115.6 million gallons for 2019.

The decrease in third-party fuel-grade ethanol gallons sold reported net had an

approximately $0.3 million impact reducing net sales.

The decrease of $0.11 per gallon, or 7%,

in our marketing segment’s average sales price per gallon in 2020 as compared to 2019 decreased our net sales from third-party

ethanol sold by our marketing segment by $14.4 million.

Cost of Goods

Sold and Gross Loss

Our consolidated gross

loss improved to a gross loss of $9.9 million for 2019 from $15.2 million for 2018, representing a gross profit margin of negative

fuel-grade ethanol sold by our marketing segment by $23.1 million.

Pekin Campus Production

Net sales of alcohol

from our Pekin Campus production segment decreased by $13.2 million, or 4%, to $330.4 million for 2020 as compared to $343.6 million

Our total volume of production gallons sold decreased by 24.6 million gallons, or 11%, to 193.9 million gallons for

2020 as compared to 218.5 million gallons for 2019.

At our Pekin Campus production segment’s average sales price per gallon

of $1.70 for 2020, we generated $41.9 million less in net sales from our Pekin Campus production segment from the 24.6 million

reduction in gallons of alcohol sold in 2020 as compared to 2019.

The increase of $0.13, or 8%, in our Pekin Campus production

segment’s average sales price per gallon in 2020 as compared to 2019 improved our net sales from our Pekin Campus production

segment by $28.7 million.

Net sales of essential

ingredients decreased $8.7 million, or 6%, to $130.3 million for 2020 as compared to $139.0 million for 2019.

Our total volume

of essential ingredients sold decreased by 84,000 tons, or 9%, to 829,000 tons for 2020 from 913,000 tons for 2019.

At our average

sales price per ton of $157.19 for 2020, we generated $13.3 million less in net sales from the 84,000 fewer tons of essential

ingredients sold in 2020 as compared to 2019.

The increase of $5.01, or 3.3%, in our average sales price per ton in 2020 as compared

to 2019 increased our net sales from our Pekin Campus production segment by $4.6 million.

Other Production Segment

Net sales of alcohol

from our other production segment decreased by $317.6 million, or 70%, to $137.7 million for 2020 as compared to $455.3 million

Our total volume of gallons sold decreased by 194.5 million gallons, or 71%, to 78.0 million gallons for 2020 as compared

to 272.5 million gallons for 2019.

At our other production segment’s average sales price per gallon of $1.77 for 2020, we

generated $343.3 million less in net sales from our other production segment from the 194.5 million fewer gallons of alcohol sold

in 2020 as compared to 2019.

The increase of $0.09, or 5%, in our other production segment’s average sales price per gallon

in 2020 as compared to 2019 improved our net sales from our other production segment by $25.7 million.

Net sales of essential ingredients decreased

$89.1 million, or 69%, to $40.9 million for 2020 as compared to $130.0 million for 2019.

Our total volume of essential ingredients

sold decreased by 1,289,000 tons, or 68%, to 619,000 tons for 2020 from 1,908,000 tons for 2019.

At our average sales price per

ton of $66.07 for 2020, we generated $85.2 million less in net sales from the 1,289,000 fewer tons of essential ingredients sold

in 2020 as compared to 2019.

The decrease of $2.06, or 3.0%, in our average sales price per ton in 2020 as compared to 2019 decreased

our net sales from our other production segment by $3.9 million.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit (loss) improved

to a gross profit of $52.9 million for 2020 from a gross loss of $9.9 million for 2019, representing a gross profit margin of

5.9% for 2020 compared to negative 0.7% for 2019.

Our consolidated gross loss improved primarily due to significantly lower production

volumes during the year, resulting in lower net sales at negative production margins.

In addition, for the year ended December

31, 2018, cost of goods sold included approximately $4.8 million of larger than anticipated repair and maintenance related expenses

to replace faulty equipment.

Production Segment

Our production segment’s

gross loss improved by $14.1 million to a gross loss of $24.9 million for 2019 as compared to $39.0 million for 2018.

This improvement

is attributable to lower production volumes and a slightly improved, although still negative, production margin environment.

Our consolidated gross profit (loss) improved due to significantly higher margin

sales of our specialty alcohols due to high demand for alcohols used in sanitizers and disinfectants and a substantial reduction

in negative margin sales of fuel-grade ethanol as we idled a significant amount of our fuel-grade ethanol production capacity

and sold unprofitable assets.

Marketing Segment

Our marketing segment’s

gross profit declined by $8.9 million to $14.9 million for 2019 as compared to $23.8 million for 2018.

Of this decline, $9.3 million

is attributable to decreased third party sales margins, slightly offset by $0.4 million attributable to decreased third party

marketing volumes in 2019 as compared to 2018.

Selling, General

and Administrative Expenses

Our SG&A expenses

decreased $0.9 million to $35.5 million for 2019 as compared to $36.4 million for the same period in 2018.

SG&A as a percentage

of revenue remained largely flat on a year over year basis.

Asset Impairment

In connection with

the pending sale of our ownership interest in Pacific Aurora, we recorded the related long-lived assets to fair value, less estimated

selling costs, and classified them as held-for-sale on the accompanying consolidated balance sheets.

As a result, we recorded

an impairment charge of $29.3 million for 2019.

Our marketing segment’s gross profit

declined by $5.0 million to $5.9 million for 2020 as compared to $10.9 million for 2019.

Of this decline, $3.2 million is attributable

to lower margins from sales of third-party fuel-grade ethanol and $1.8 million is attributable to lower marketing volumes of third-party

fuel-grade ethanol in 2020 as compared to 2019.

Pekin Campus Production Segment

Our Pekin Campus production segment’s

gross profit improved by $70.2 million to a gross profit of $74.2 million for 2020 as compared to $4.0 million for 2019.

improvement, $80.0 million is attributable to increased margins from our specialty alcohols, partially offset by $9.8 million

less in gross profit attributable to decreased sales volumes in 2020 as compared to 2019.

Other Production Segment

Our other production segment’s

gross profit declined by $2.4 million to a gross loss of $27.2 million for 2020 as compared to a gross loss of $24.8 million

Of this decline, $70.3 million is attributable to a negative margin environment for fuel-grade ethanol, offset by a

$67.9 million improvement in gross profit attributable to lower sales volumes at negative margins in 2020 as compared to

Selling, General and Administrative

Our selling, general and administrative,

or SG&A, expenses decreased $3.5 million to $32.0 million for 2020 as compared to $35.5 million for the same period in 2019.

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

We expect to reduce SG&A expenses by $7.0

million to $12.0 million year over year in 2021.

Asset Impairments

We assess the impairment of long-lived

assets, including property and equipment, when events or changes in circumstances indicate that the fair value of an asset could

be less than the net book value of the asset.

In addition, with the anticipated sale of our Madera and Stockton, California production

facilities, we also reviewed their fair values compared to their estimated sales prices, less estimated selling costs.

we recorded an aggregate impairment charge of $24.4 million for 2020.

Further, in connection with the anticipated sales, we classified

those facilities as held-for-sale on the accompanying consolidated balance sheets.

As of December 31, 2019, in connection with

the sale of our ownership interest in two fuel-grade ethanol production facilities in Nebraska, we recorded the related long-lived

assets to fair value, less estimated selling costs, and classified them as held-for-sale on the accompanying consolidated balance

As a result, we recorded an aggregate impairment charge of $29.3 million for 2019.

Interest Expense,

Interest expense increased

Interest expense decreased

$2.3 million to $17.9 million for 2020 from $20.2 million for 2019.

The increase in interest expense is primarily due to higher

interest rates on our senior notes, which increased in accordance with the terms of the notes.

Net Loss Attributed

to Noncontrolling Interests

Net loss attributed

to noncontrolling interests relates to our consolidated treatment of Pacific Aurora.

Beginning in 2016, we consolidated the assets

associated with Pacific Aurora before and after the admission of a 26% equity owner of Pacific Aurora.

As a result, we reduced

our consolidated net loss for the noncontrolling interests, which were the ownership interests that we did not own.

The decrease in interest expense is primarily due to principal

payments on our outstanding indebtedness during the year, resulting in lower average debt balances.

We expect to reduce interest

expense by as much as $14.0 million year over year in 2021.

Liquidity and Capital Resources

During 2019, we funded

our operations primarily from cash on hand and advances under our revolving credit facilities.

These funds were also used to make

capital expenditures, capital lease payments and principal and interest payments on term debt.

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 of business.

We, and the ethanol industry as a whole, experienced significant adverse

conditions throughout most of 2018 and 2019, and thus far into 2020, as a result of industry-wide record low ethanol prices

due to reduced demand and high industry inventory levels.

These 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.

Our most significant challenges in meeting these objectives

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

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”.

Our current available

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

We expect that our

future available capital resources will consist primarily of our current cash balances, availability under our lines of credit,

any cash generated from operations, net cash proceeds from any sale of our production assets and net cash proceeds from any equity

sales or debt financing transactions.

At December 31, 2019,

on a consolidated basis, we had an aggregate of $19.0 million in cash.

As of December 31,

2019, our current assets of $232.1 million exceeded our current liabilities of $160.4 million, resulting in working capital of

$71.7 million.

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

During the year ended December 31, 2020,

we funded our operations primarily from cash generated by our operations, sales of common stock and warrants, and cash on hand.

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

make lease payments.

During 2020, we experienced

significant adverse conditions in the fuel-grade ethanol market as demand and pricing reached record lows due to reduced

domestic transportation and resulting lower gasoline demand resulting from stay-at-home orders issued in response to the

coronavirus pandemic.

In response, we reduced fuel-grade ethanol production by more than 50% in an effort to conserve

We continued producing and selling our specialty alcohols, and also converted a portion of our fuel-grade ethanol

production to specialty alcohol production to respond to substantial increased demand from the sanitizer and disinfectant

Sales of specialty alcohols were at a mix of fixed and spot prices, both of which resulted in significant cash flow

from operations during the year.

We expect continued demand for our specialty alcohols for at least the next twelve months

and, as appropriate, will endeavor to sign fixed-price contracts and hedge corn input costs to lock in profit margins.

As of December 31, 2020, we had $47.7 million

in cash and $16.0 million available for borrowing under Kinergy’s operating line of credit.

During 2020, we generated $71.8

million in cash from our operations.

We also realized $19.9 million in net cash proceeds from the sale of our interest in two

production facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley

production facility.

In addition, we received net proceeds of approximately $75.8 million from issuances of common stock and warrants

and $5.5 million from warrant exercises.

These sources of cash enabled us to make principal payments totaling $157.6 million on

our debt during 2020, resulting in our return to compliance with our lenders.

As a result, we believe we 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

Quantitative Year-End

Liquidity Status

We believe that the

following amounts provide insight into our liquidity and capital resources.

The following selected financial information should

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

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

of Operations”

We believe that the following

amounts provide insight into our liquidity and capital resources.

The following selected financial information should be read

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

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

Operations”

contained in this report (dollars in thousands).

4 unchanged sentences

Long-term debt, noncurrent portion

Working capital (deficit)

Working capital

Working capital ratio

Restricted Net Assets

At December 31, 2019,

we had approximately $180.9 million of net assets at our subsidiaries that were not available to be transferred to Pacific Ethanol,

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

subsidiaries.

Changes in Working

Capital and Cash Flows

Working capital improved

to $71.7 million at December 31, 2019 from a working capital deficit of $63.1 million at December 31, 2018 as a result of an increase

of $63.3 million in current assets and a decrease of $71.5 million in current liabilities.

Our current assets increased primarily due

to additional assets held-for-sale of $69.8 million associated with our pending sale of our interest in Pacific Aurora.

Our current liabilities

declined by $71.5 million at December 31, 2019 as compared to December 31, 2018 primarily due to our amendment of our senior secured

notes and resulting long-term treatment, reducing our current portion of long-term debt by $83.7 million.

Our cash and cash

equivalents declined by $7.6 million at December 31, 2019 as compared to December 31, 2018 primarily due to $23.4 million of cash

used in our operating activities and $3.3 million in cash used in our investing activities in 2019, partially offset by $19.0

million in cash provided by our financing activities for the period.

Cash used in our

Operating Activities

Cash used in our operating

activities increased by $24.9 million in 2019 as compared to 2018.

We used $23.4 million of cash from our operating activities

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

● a decrease of $33.3 million

related to our higher net loss;

decrease of $19.4 million related to accounts receivable due to lower net sales and the

timing of collections;

decrease of $10.2 million related to payments on operating leases

under new lease accounting standards for 2019;

decrease of $6.9 million related to inventories due to lower net sales and the timing

These amounts were partially

asset impairment of $29.3 million related to our interest in Pacific Aurora held for

increase in depreciation of $7.1 million due to additional depreciation on leases;

increase in loss on debt extinguishment of $6.5 million in connection with the refinancing

of our senior secured notes;

increase of $12.8 million related to prepaid expenses.

Cash used in our Investing

Cash used in our investing

activities decreased by $11.9 million in 2019 as compared to 2018 due to reduced capital expenditures and related projects during

Cash provided by

our Financing Activities

We generated $19.0

million in cash from our financing activities in 2019.

The increase in cash provided by our financing activities is primarily

due to an increase of $21.7 million in proceeds under our credit agreements, term debt and a cogeneration contract amendment in

2019 as compared to 2018.

In addition, there was a decrease of $6.8 million in payments in respect of our term and revolving debt

in 2019 as compared to 2018, as we agreed with our lenders to defer certain scheduled payments.

Kinergy Operating

Line of Credit

Kinergy maintains

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

At December 31, 2020, we had approximately

$262.1 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc.

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

Changes in Working Capital and Cash

Working capital improved to $127.1 million

at December 31, 2020 from $71.7 million at December 31, 2019 as a result of a decrease of $73.4 million in current liabilities,

partially offset by a decrease in current assets of $18.0 million.

Current assets decreased primarily due

to a decrease in assets held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production

facilities in Nebraska, and decreases in accounts receivable and inventories due to lower sales volumes and the timing of collections,

partially offset by an increase in cash and cash equivalents.

Our current liabilities declined primarily

due to a decrease in liabilities held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production

facilities in Nebraska and reductions in our current portion of long-term debt as we paid down indebtedness during the year.

Our cash and cash equivalents increased

by $28.7 million primarily due to $71.8 million in cash provided by our operating activities and $23.3 million in cash provided

by our investing activities, partially offset by $66.4 million in cash used in our financing activities.

Cash provided by our Operating Activities

Cash provided by our operating activities

increased by $95.1 million for the year ended December 31, 2020, as compared to the same period in 2019.

We generated $71.8 million

in cash from our operating activities during the year.

Specific factors that contributed to the increase in cash provided by our

operating activities include:

● a decrease of $84.0 million in our consolidated net loss

due to higher margins from our sales of specialty alcohols;

● a decrease of $37.3 million related to accounts receivable

primarily due to lower sales volumes and the timing of collections;

● a decrease of $21.9 million related to lower inventory

levels as we reduced fuel-grade ethanol production during the period;

● an increase of $10.0 million related to noncash fair value adjustments associated

with outstanding warrants to purchase common stock;

● an increase of $9.1 million related to liabilities held-for-sale

in connection with the sale of our interests in two fuel-grade ethanol production facilities

These amounts were partially offset by:

● a decrease of $17.6 million in noncash depreciation expense

resulting from the sale of two fuel-grade ethanol production facilities in Nebraska;

● a decrease of $17.2 million in accounts payable and accrued

expenses, primarily due to increased payments of past due amounts;

● an increase of $14.2 million in derivative instruments

due to the recent rise in corn prices;

● a decrease of $9.2 million related to prepaid expenses and other assets due to the timing of payments.

Cash provided by our Investing Activities

Cash provided by our investing activities

was $23.3 million for the year, which included $19.9 million in net proceeds from the sale of two fuel-grade ethanol production

facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley production

facility, partially offset by $6.6 million of additions to property and equipment resulting from our capital expenditure projects,

such as the expansion of our grain neutral spirits system capacity completed at the end of 2020 and the expansion of our yeast

production capacity still in process.

Cash used in our Financing Activities

Cash used in our financing activities was

$66.4 million for the year.

The increase in cash used in our financing activities was primarily due to $45.8 million in net payments

on Kinergy’s operating line of credit and $111.8 million in principal payments on our other indebtedness, partially offset

by $75.8 million in proceeds from the sale of common stock and warrants, $9.9 million in proceeds under our CARES Act loans and

$5.5 million in proceeds from warrant exercises.

Kinergy’s Operating Line of

Kinergy maintains an operating line of

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

The credit facility matures on August 2, 2022.

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

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

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

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

immediately preceding month.

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

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

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

Products, LLC, or PAP, as additional collateral.

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

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

PAP, one of our indirect wholly-owned

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

For all monthly periods

in which excess borrowing availability falls below a specified level, Kinergy and PAP must collectively maintain a fixed-charge

coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization (EBITDA) divided

by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and

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

Interest accrues under

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

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

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

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

preceding month.

Payments that may be made by Kinergy to Alto Ingredients, Inc.

as reimbursement for management and other services

provided by Alto Ingredients, Inc.

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

The credit facility also includes the accounts receivable of our wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients,

as additional collateral.

Payments that may be made by Alto Nutrients to Alto Ingredients, Inc.

as reimbursement for management

and other services provided by Alto Ingredients, Inc.

to Alto Nutrients are limited under the terms of the credit facility to

$0.5 million per fiscal quarter.

Alto Nutrients, one of our indirect wholly-owned subsidiaries, markets our essential ingredients

and also provides raw material procurement services to our subsidiaries.

For all monthly periods in which excess

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

ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by

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

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

(other than specific intercompany indebtedness).

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

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

We believe Kinergy and PAP are in compliance

with this covenant.

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

The obligations of Kinergy and Alto Nutrients under the credit facility are secured

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

We believe Kinergy and Alto Nutrients are

in compliance with the fixed-charge coverage ratio covenant as of the filing of this report.

The following table sets forth the

fixed-charge coverage ratio financial covenant and the actual results for the periods presented:

Fixed Charge Coverage Ratio Requirement

Pacific Ethanol has

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

As of December 31, 2019, Kinergy had an outstanding balance

of $78.3 million with no additional borrowing availability under the credit facility.

Pekin Credit Facilities

On December 15, 2016,

PE Pekin entered into term and revolving credit facilities.

PE Pekin borrowed $64.0 million under a term loan facility that matures

on August 20, 2021 and $32.0 million under a revolving credit facility that matures on February 1, 2022.

The PE Pekin credit facilities

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

Interest initially accrued under the PE Pekin

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

PE Pekin is required to make quarterly

principal payments in the amount of $3.5 million on the term loan beginning on May 20, 2017, with the remaining principal balance

payable at maturity on August 20, 2021.

PE Pekin is required to pay monthly in arrears a fee on any unused portion of the revolving

credit facility at a rate of 0.75% per annum.

Prepayment of these facilities is subject to a prepayment penalty.

Under the initial

terms of the credit facilities, PE Pekin was required to maintain not less than $20.0 million in working capital and an annual

debt service coverage ratio of not less than 1.25 to 1.0.

On August 7, 2017,

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

basis points to an annual rate equal to the 30-day LIBOR plus 4.00%.

PE Pekin and its lender also agreed that PE Pekin is required

to maintain working capital of not less than $17.5 million from August 31, 2017 through December 31, 2017 and working capital

of not less than $20.0 million from January 1, 2018 and continuing at all times thereafter.

In addition, the required debt service

coverage ratio was reduced to 0.15 to 1.00 for the fiscal year ended December 31, 2017.

PE Pekin’s actual debt service coverage

ratio was 0.17 to 1.00 for the fiscal year ended December 31, 2017, 0.02 in excess of the required 0.15 to 1.00.

For the month

ended January 31, 2018, PE Pekin was not in compliance with its working capital requirement due to larger than anticipated repair

and maintenance expenses to replace faulty equipment.

PE Pekin received a waiver from its lender for this noncompliance.

the lender decreased PE Pekin’s working capital covenant requirement to $13.0 million for the month ended February 28, 2018,

excluding from the calculation a $3.5 million principal payment previously due in May 2018.

On March 30, 2018,

PE Pekin further amended its term loan facility by reducing the amount of working capital it is required to maintain to not less

than $13.0 million from March 31, 2018 through November 30, 2018 and not less than $16.0 million from December 1, 2018 and continuing

at all times thereafter.

In addition, a principal payment in the amount of $3.5 million due for May 2018 was deferred until the

maturity date of the term loan.

At December 31, 2018

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

2019, PE Pekin reached an agreement with its lender to forbear until March 11, 2019 and to defer a $3.5 million principal payment

until that date.

On March 21, 2019,

PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 125

basis points to an annual rate equal to the 30-day LIBOR plus 5.00%.

PE Pekin and its lender also agreed that it is required to

maintain working capital of not less than $15.0 million from March 21, 2019 through July 15, 2019 and working capital of not less

than $30.0 million from July 15, 2019 and continuing at all times thereafter.

On July 15, 2019, PE Pekin and its lender agreed

to a further amendment extending the aforementioned July 15, 2019 dates to November 15, 2019.

On August 6, 2019, PE Pekin paid

its $3,500,000 principal payment scheduled for August 20, 2019.

Under these amendments,

the lender agreed to temporarily waive financial covenant violations, working capital maintenance violations and intercompany

accounts receivable collections violations that occurred with respect to the credit agreement.

The lenders also agreed to defer

all scheduled principal payments, including further deferral of principal payments in the amount of $3.5 million each due on February

20, 2019 and May 20, 2019.

The waivers and principal

deferral expired on November 15, 2019, at which time the waivers were to become permanent if PE Pekin’s parent, Pacific

Ethanol Central, LLC, or PE Central, made a contribution to PE Pekin in an amount equal to $30.0 million, minus the then-existing

amount of PE Pekin’s working capital, plus the amount of any accounts receivable owed by PE Central to PE Pekin, plus $12.0

million, or the Parent Contribution Amount.

In addition, if the Parent Contribution Amount was timely received, the lender agreed

to waive PE Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019.

If the Parent Contribution

Amount was not timely made, then the temporary waivers would automatically expire.

PE Pekin was also

required to pay by November 15, 2019 the aggregate amount of $10.5 million representing all deferred and unpaid scheduled principal

payments and all additional scheduled principal payments for the remainder of 2019.

On November 15, 2019,

PE Pekin amended its term and revolving credit facilities by agreeing to extend the temporary waiver of violations of financial

and other covenants relating to working capital maintenance, intercompany accounts receivable collections, financial projections,

cash flow forecasts, and sales reports.

The lender also agreed to extend the deferral of all scheduled principal payments payable

on February 20, 2019, May 20, 2019 and November 15, 2019 to December 15, 2019.

The amendment also made a payment default of $250,000

or more under Kinergy’s credit facility or the senior secured notes, or any acceleration of indebtedness, or any termination

of any commitment to lend or termination of any forbearance or other accommodation, an event of default.

The waivers and principal

deferral expired on December 15, 2019.

On December 15, 2019, the waivers were to become permanent if PE Central made a contribution

to PE Pekin in an amount equal to the Parent Contribution Amount.

In addition, if the Parent Contribution Amount was timely received,

the lender agreed to waive PE Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019.

If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically expire.

On December 16, 2019,

PE Pekin amended its term and revolving credit facilities by agreeing to extend the deferral of all scheduled principal payments

payable on February 20, 2019, May 20, 2019 and November 20, 2019 to December 20, 2019.

Alto Ingredients,

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

As of December 31, 2020, Kinergy had an outstanding

balance of $32.5 million and $16.0 million of unused borrowing availability under the credit facility.

Alto Pekin Credit Facilities

On December 15, 2016,

PE Pekin’s lender agreed to temporarily waive working capital covenant violations, debt service coverage ratio covenant

violations, reporting covenant violations and certain other covenant violations that occurred under the PE Pekin credit agreement,

and replaced those covenants with new EBITDA and production volume covenants.

PE Pekin’s lender also agreed to defer all

scheduled principal installments payable under the term note on February 20, 2019, May 20, 2019 and November 20, 2019 until August

In addition, PE Pekin was not required to make its prior scheduled quarterly principal payments of $3.5 million until

September 30, 2020, at which time $3.5 million will be due, with the same amount due quarterly thereafter until maturity.

Under the amendment,

PE Pekin, collectively with ICP, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce

the outstanding balances of the term loans under the PE Pekin credit agreement and the ICP credit agreement.

The $40.0 million

is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them.

The $40.0 million

is to be funded through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds

contributed to PE Pekin by us.

Following receipt by the lenders under the ICP credit 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.

PE Pekin’s lender

also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive $40.0 million, a default

under the ICP credit agreement would constitute a default under the PE Pekin credit agreement.

PE Pekin agreed to provide additional

collateral security to support its obligations under the PE Pekin credit agreement, including second lien positions in our western

plants, which will terminate and be released upon PE Pekin’s lender’s receipt of $40.0 million.

Alto Pekin, LLC, or Alto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production

facilities in Pekin, Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1 st Farm Credit

Services, PCA and CoBank, ACB, or CoBank.

Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1 st

Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up

to $32.0 million under a revolving term loan facility that matures on February 1, 2022, or the Pekin Revolving Loan, and together

with the Pekin Term Loan, the Pekin Credit Facility.

The Pekin Credit Facility is secured by a first-priority security interest

in all of Alto Pekin’s assets.

The Pekin Credit Facility

and related agreements contain a variety of representations, warranties, covenants and events of default.

Following a series of

amendments and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as follows:

● Interest accrues under the Pekin

Credit Facility at an annual rate equal to the 30-day LIBOR plus 5.00%.

● Alto Pekin is required to pay

a monthly fee on any unused portion of the Pekin Revolving Loan at a rate of 0.75% per

● Alto Pekin and Alto ICP, LLC, or ICP, one of our indirect wholly-owned subsidiaries and the entity

that holds one of our production facilities in Pekin, Illinois, are collectively required

to maintain working capital of not less than 50% of the combined outstanding revolving

lines of credit, which was $30.0 million at December 31, 2020;

and an annual debt service

coverage ratio of not less than 1.25 to 1.00, in addition to various other affirmative

and negative covenants.

Alto Pekin and ICP collectively

agreed to pay Alto Pekin’s and ICP’s lenders an aggregate of $40.0 million on or before September 30, 2020, or the

September Paydown Amount, to reduce the outstanding balances of Alto Pekin’s and ICP’s respective term loans, to be

allocated between them.

Alto Pekin, ICP and their lenders contemplated funding the September Paydown Amount through asset sales,

proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed by us to Alto Pekin or

In March 2020, we granted

to Alto Pekin’s lender a security interest in all of our equity interests in Alto Op Co., the entity which indirectly owns

our western production facilities.

We and certain subsidiaries also entered into intercreditor agreements with the Alto Pekin’s

and ICP’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of

proceeds from asset sales.

On December 18, 2020,

PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional guarantee

of the payment of up to an aggregate $40.0 million to satisfy the obligations of ICP to ICP’s lender under the ICP credit

On March 20, 2020,

PE Pekin and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until

May 20, 2020.

On that same date, we granted to the lender a security interest in all of our equity interests in our wholly-owned

subsidiary, PE Op Co., which indirectly owns our plants located on the West Coast.

We also entered into intercreditor agreements

with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation

of proceeds from asset sales.

Alto Pekin and its lender further amended the Pekin Credit Facility to waive certain covenant defaults, including the covenant

requiring Alto Pekin and ICP to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

The effect of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed

to amend the Pekin Credit Facility to provide for a payment to Alto Pekin’s and ICP’s lenders of an aggregate of $24.9

million, or the December Paydown Amount, on or prior to December 21, 2020, with $19.9 million allocated to Alto Pekin’s

lenders and $5.0 million allocated to ICP’s lenders.

On December 18, 2020, Alto Pekin and ICP paid the December Paydown

Amount in full.

Following receipt of

the December Paydown Amount, any additional proceeds arising from the sale of any of our midwestern production facility assets

will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and

us, respectively;

and any additional proceeds arising from the sale of any of our western production facility assets will be allocated

first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s

lenders, collectively, our senior secured noteholders, and us, respectively.

As of the filing of this

report, we believe we are in compliance with the terms and conditions of our Pekin Credit Facility.

ICP Credit Facilities

On September 15, 2017,

ICP entered into term and revolving credit facilities.

ICP borrowed $24.0 million under a term loan facility that matures on September

20, 2021 and $18.0 million under a revolving credit facility that matures on September 1, 2022.

The ICP credit facilities are

secured by a first-priority security interest in all of ICP’s assets.

Interest accrues under the ICP credit facilities at

an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly.

ICP is required to make quarterly consecutive principal

payments in the amount of $1.5 million.

ICP is required to pay monthly in arrears a fee on any unused portion of the revolving

credit facility at a rate of 0.75% per annum.

Prepayment of these facilities is subject to a prepayment penalty.

Under the terms

of the credit facilities, ICP is required to maintain not less than $8.0 million in working capital and an annual debt service

coverage ratio of not less than 1.5 to 1.0, beginning for the year ended December 31, 2018.

As of September 30, 2019, ICP had

no additional borrowing availability under its revolving credit facility.

As of September 30, 2019, ICP did not meet its minimum

working capital requirement, however, ICP’s lender subsequently waived the minimum working capital deficiency.

On December 20, 2019,

ICP amended its term and revolving credit facilities under which ICP’s lender granted waivers for certain ICP covenant defaults

and replaced those covenants with new EBITDA and production volume covenants.

ICP’s lender also imposed cross-default terms

such that, until ICP’s lender and PE Pekin’s lender receive an aggregate of $40.0 million, a default under the PE

Pekin credit agreement would constitute a default under the ICP credit agreement.

ICP agreed to provide additional collateral

security to support its obligations under the ICP credit agreement, including second lien positions in our western plants, which

will terminate and be released upon ICP’s lender’s receipt of an aggregate of $40.0 million.

ICP’s prior scheduled

principal payment of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September 20, 2021.

Scheduled quarterly principal payments of $1.5 million will resume March 20, 2020.

Under the amendment,

ICP, collectively with PE Pekin, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce

the outstanding balances of the term loans under the ICP credit agreement and the PE Pekin credit agreement.

The $40.0 million

is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them.

The $40.0 million

is to be funded through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds

contributed to ICP by us.

Following receipt by the lenders under the ICP credit agreement and the PE Pekin credit agreement, collectively,

of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, any additional

proceeds from a sale of our midwestern plant assets will generally be allocated 33/34/33% among ICP’s lender and PE Pekin’s

lender, collectively, the selling security holders, and us, respectively.

Proceeds from the sale of any of our western assets

will generally be allocated 33/34/33% among PE Pekin’s lender and ICP’s lender, collectively, the selling security

holders, and us, respectively.

On December 29, 2019, ICP agreed to amend

the secured obligations under its security agreement to include ICP’s unconditional guarantee of the payment of up to an

aggregate $40.0 million to satisfy the obligations of PE Pekin to PE Pekin’s lender under the PE Pekin credit agreement.

On March 20, 2020, ICP and its lender agreed

to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate interest payments due March 20, 2020

and April 20, 2020 until May 20, 2020.

On that same date, we granted to the lender a security interest in all of our equity interests

We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured

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

Pacific Ethanol, Inc.

Notes Payable

On December 12, 2016,

we entered into a Note Purchase Agreement with five accredited investors.

On December 15, 2016, under the terms of the Note Purchase

Agreement, we sold $55.0 million in aggregate principal amount of our senior secured notes to the investors in a private offering

for aggregate gross proceeds of 97% of the principal amount of the notes sold.

On June 26, 2017, we entered into a second Note

Purchase Agreement with five accredited investors.

On June 30, 2017, under the terms of the second Note Purchase Agreement, we

sold an additional $13.9 million in aggregate principal amount of our senior secured notes to the investors in a private offering

for aggregate gross proceeds of 97% of the principal amount of the notes sold, for a total of $68.9 million in aggregate principal

amount of senior secured notes.

The notes had an original

maturity date of December 15, 2019.

Interest on the notes accrued at an annual rate equal to (i) the greater of 1% and the three-month

LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and three-month LIBOR, plus 9% between December

15, 2017 and December 14, 2018, and (iii) the greater of 1% and three-month LIBOR plus 11% between December 15, 2018 and the maturity

The interest rate would increase by an additional 2% per annum above the interest rate otherwise applicable upon the occurrence

and during the continuance of an event of default until cured.

Interest was payable in cash in arrears on the 15th calendar day

of each March, June, September and December.

We are required to pay all outstanding principal and any accrued and unpaid interest

on the notes on the maturity date.

We may, at our option, prepay the outstanding principal amount of the notes at any time without

premium or penalty.

Pacific Ethanol, Inc.

issued the notes, which are secured by a first-priority security interest in the equity

interest held by Pacific Ethanol, Inc.

On December 16, 2019,

we amended the notes to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the interest rate from

the greater of 1% and the three-month LIBOR, plus 11% between December 15, 2018 through December 14, 2019 to 15% commencing on

September 15, 2019.

Under the amendment, we also agreed to pay the December 15, 2019 interest payment 50% in cash and 50% in-kind

through the issuance of an additional note in the principal amount equal thereto.

On December 22, 2019,

we amended and restated the notes which extended the maturity date from December 23, 2019 to December 15, 2021.

Interest on the

Notes accrues at a rate of 15% per annum, payable quarterly.

On March 20, 2020,

we and the noteholders agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May 20, 2020.

same date, ICP granted a junior lien in certain of its personal property to the noteholders, and PE Central granted a junior lien

in certain of its personal property to the noteholders.

PE Central also pledged its equity interests in Pacific Aurora, PE Pekin

and ICP in favor of the noteholders.

In addition, PE Op Co.

and Pacific Ethanol West, LLC, which directly owns our plants located

on the West Coast, granted a security interest in certain of their personal property to the noteholders.

We also entered into

intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues

On September 15, 2017, ICP, Compeer Financial,

PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement.

Under the terms of the ICP

Credit Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the

ICP Term Loan, and up to $18.0 million under a revolving term loan facility that matures on September 1, 2022, or the ICP Revolving

Loan, and together with the ICP Term Loan, the ICP Credit Facility.

The ICP Credit Facility is secured by a first-priority security

interest in all of ICP’s assets.

The ICP Credit Facility

and related agreements contain a variety of representations, warranties, covenants and events of default.

Following a series of

amendments and waivers among ICP, its lenders and their agent, certain terms of the agreements are as follows:

● Interest accrues under the ICP

Credit Facility at an annual rate equal to the 30-day LIBOR plus 3.75%.

● ICP is required to pay an annual

nonrefundable commitment fee, calculated as 0.75% multiplied by the average daily positive

difference between (i) the ICP Revolving Loan commitment (which may be reduced by ICP

from time to time in increments of $0.5 million), minus (ii) the aggregate principal

amounts outstanding under the ICP Revolving Loan.

● ICP and Alto Pekin are collectively

required to maintain working capital of not less than 50% of the combined outstanding

revolving lines of credit, which was $30.0 million at December 31, 2020;

and an annual

debt service coverage ratio of not less than 1.50 to 1.00, in addition to various other

affirmative and negative covenants.

ICP and Alto Pekin collectively

agreed to pay ICP’s and Alto Pekin’s lenders an aggregate of $40.0 million on or before September 30, 2020, the same

amount referred to above as the September Paydown Amount, to reduce the outstanding balances of ICP’s and Alto Pekin’s

respective term loans, to be allocated between them.

ICP, Alto Pekin, and their lenders contemplated funding the September Paydown

Amount through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed

by us to ICP or Alto Pekin.

In March 2020, we granted to Alto Pekin’s

lender a security interest in all of our equity interests in Alto Op Co.

We and certain subsidiaries also entered into intercreditor

agreements with the ICP’s and Alto Pekin’s lenders, and the agent for our senior secured noteholders, to address issues

of priority and the allocation of proceeds from asset sales.

At-the-Market

We have established

an “at-the-market”

equity distribution program under which we may offer and sell shares of common stock to, or through,

sales agents by means of ordinary brokers’

transactions on the NASDAQ, in block transactions, or as otherwise agreed to

between us and the sales agent at prices we deem appropriate.

We are under no obligation to offer and sell shares of common stock

under the program.

For the year ended December 31, 2019, we sold 3.1 million shares of common stock through our “at-the-market”

equity program that resulted in net proceeds of $3.7 million and fees paid to our sales agent of approximately $66,000.

proceeds from these issuances were used to repay a portion of our senior secured notes.

On December 18, 2020,

ICP and its lender further amended the ICP Credit Facility to waive certain covenant defaults, including the covenant requiring

ICP and Alto Pekin to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020.

of this amendment was, in part, to deem the September Paydown Amount to have been timely paid.

The parties also agreed to amend

the ICP Credit Facility to provide for a payment to ICP’s and Alto Pekin’s lenders of an aggregate of $24.9 million,

the same amount referred to above as the December Paydown Amount, on or prior to December 21, 2020, with $5.0 million allocated

to ICP’s lenders and $19.9 million allocated to Alto Pekin’s lenders.

On December 18, 2020, ICP and Alto Pekin paid

the December Paydown Amount in full.

Following receipt of

the December Paydown Amount, any additional proceeds arising from the sale of any of our midwestern production facility assets

will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and

us, respectively;

and any additional proceeds arising from the sale of any of our western production facility assets will be allocated

first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s

lenders, collectively, our senior secured noteholders, and us, respectively.

As of the filing of this

report, we believe we are in compliance with the terms and conditions of our ICP Credit Facility.

Senior Secured Notes

On December 12, 2016, we entered into a

Note Purchase Agreement with five accredited investors and sold $55.0 million in aggregate principal amount of senior secured

notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold.

June 26, 2017, we entered into a second Note Purchase Agreement with five accredited investors and sold an additional $13.9 million

in aggregate principal amount of senior secured notes to the investors in a private offering for aggregate gross proceeds of 97%

of the principal amount of the notes sold, and collectively with the notes previously sold, the Notes.

The Notes are secured by

a first-priority security interest in all of our equity interests in Alto Op Co.

The Notes and related

agreements contain a variety of representations, warranties, covenants and events of default.

Following a series of amendments

and waivers with the senior secured note holders and their agent, certain terms of the agreements are as follows:

● The Notes mature on December 15, 2021.

● Payments due under the Notes rank senior to all other

indebtedness of Alto Ingredients, Inc.

other than permitted senior indebtedness.

● Interest on the Notes accrues at a rate of 15% per annum.

● Any voluntary prepayments must be made at 102% of the

principal amount prepaid.

The Notes also contain a variety of limitations,

including a prohibition on parent company indebtedness;

restrictions on redemption, repurchase or payment of any dividend or distribution

in respect of our or our subsidiaries’

equity interests;

restrictions on asset sales and other dispositions;

and restrictions

on our or our subsidiaries’

ability to issue equity for purposes other than to pay down a portion of the outstanding balance

of the Notes.

In March 2020, ICP granted to the senior

secured noteholders a security interest in certain of its personal property.

In addition, Alto Central granted to the senior secured

noteholders a security interest in certain of its personal property.

Alto Central also pledged its equity interests in Alto Pekin

and ICP in favor of the senior secured noteholders as additional collateral securing our obligations to the noteholders.

Co also granted to the senior secured noteholders a security interest in certain of its personal property.

We and certain

subsidiaries also entered into intercreditor agreements with the ICP’s and Alto Pekin’s lenders, and the agent for

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

In November 2020, we repaid $35.3 million

in principal under the Notes using a portion of the net proceeds of our then-recent offerings of common stock and warrants and

the sale of certain real property assets at our Magic Valley production facility.

As of the filing of this

report, we believe we are in compliance with the terms and conditions of the Notes.

CARES Act Loans

On May 4, 2020, Alto Ingredients, Inc.

and Alto Pekin received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES

Act”), through the Paycheck Protection Program administered by the U.S.

Small Business Administration.

Alto Ingredients,

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

The loans mature in two years and bear interest

at a rate of 1.00% per annum.

Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses

as described in the CARES Act, but we can provide no assurance that we will be able to obtain forgiveness of all or any portion

of the loans.

We are in the process of applying for loan forgiveness.

Effects of Inflation

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Critical Accounting Policies

Our discussion and

analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have

been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of

these financial statements requires us to make estimates and judgments 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 amount of net sales

and expenses for each period.

The following represents a summary of our critical accounting policies, defined as those policies

that we believe are the most important to the portrayal of our financial condition and results of operations and that require

management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the

effects of matters that are inherently uncertain.

Our discussion and analysis

of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared

in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial

statements requires us to make estimates and judgments 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 amount of net sales and expenses

for each period.

The following represents a summary of our critical accounting policies, defined as those policies that we believe

are the most important to the portrayal of our financial condition and results of operations and that require management’s

most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters

that are inherently uncertain.

Revenue Recognition

We recognize revenue

primarily from sales of ethanol and its related co-products.

We have nine ethanol

production facilities from which we produce and sell ethanol to our customers through our subsidiary Kinergy.

Kinergy enters into

sales contracts with ethanol customers under exclusive intercompany ethanol sales agreements with each of our nine ethanol plants.

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

Finally, Kinergy has

exclusive sales agreements with other third-party owned ethanol plants under which it sells their ethanol production for a fee

plus the costs to deliver the ethanol to Kinergy’s customers.

primarily from sales of alcohols and essential ingredients.

We have seven alcohol production facilities

from which we produce and sell alcohols to our customers through our subsidiary Kinergy.

Kinergy enters into sales contracts with

customers under exclusive intercompany sales agreements with each of our seven production facilities.

Kinergy also acts as a principal

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

Finally, Kinergy has exclusive sales agreements

with other third-party owned fuel-grade ethanol plants under which it sells their fuel-grade ethanol production for a fee plus

the costs to deliver the ethanol to Kinergy’s customers.

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

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delivery costs.

We have nine ethanol

production facilities from which we produce and sell co-products to our customers through our subsidiary PAP.

PAP enters into

sales contracts with co-product customers under exclusive intercompany co-product sales agreements with each of the Company’s

nine ethanol plants.

We recognize revenue

from sales of ethanol and co-products at the point in time when the customer obtains control of such products, which typically

occurs upon delivery depending on the terms of the underlying contracts.

In some instances, we enter into contracts with customers

that contain multiple performance obligations to deliver volumes of ethanol or co-products over a contractual period of less than

We have seven production

facilities from which we produce and sell essential ingredients to our customers through our subsidiary Alto Nutrients.

Alto Nutrients

enters into sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each of our

seven production facilities.

We recognize revenue from sales of alcohols

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

delivery depending on the terms of the underlying contracts.

In some instances, we enter into contracts with customers that contain

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

We allocate the transaction price to each performance obligation identified in the contract based on relative standalone

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

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

of the corresponding performance obligations.

When we are the agent,

the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible for

fulfilling the promise to provide the product, has inventory risk before the product has been transferred to a customer and has

discretion in establishing the price for the product.

When we are the principal, we control the products before they are transferred

to the customer because we are primarily responsible for fulfilling the promise to provide the products, we have inventory risk

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

When we are the agent, the supplier controls

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

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

the price for the product.

When we are the principal, we control the products before they are transferred to the customer because

we are primarily responsible for fulfilling the promise to provide the products, we have inventory risk before the product has

been transferred to a customer and we have discretion in establishing the price for the product.

See “Note 4

Segments”

of the Notes to Consolidated Financial Statements commencing on page F-19 of this report for our revenue-breakdown

by type of contract.

of the Notes to Consolidated Financial Statements commencing on page F-21 of this report for our

revenue-breakdown by type of contract.

Impairment of

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Our long-lived assets

have been primarily associated with our ethanol production facilities, reflecting their original cost, adjusted for depreciation

and any subsequent impairment.

have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and any

subsequent impairment.

We assess the impairment

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

If the amount of proceeds is less than the carrying value of the asset, we then determine the fair value of the asset.

An impairment loss would be recognized when the fair value is less than the related net book value, and an impairment expense

would be recorded in the amount of the difference.

Forecasts of future cash flows are judgments based on our experience and knowledge

of our operations and the industry in which we operate.

These forecasts could be significantly affected by future changes in market

conditions, the economic environment, including inflation, and the purchasing decisions of our customers.

If the total amount of the undiscounted cash flows is less than the carrying value of the asset, we then determine the

fair value of the asset.

An impairment loss would be recognized when the fair value is less than the related net book value, and

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

Forecasts of future cash flows are judgments based on

our experience and knowledge of our operations and the industry in which we operate.

These forecasts could be significantly affected

by future changes in market conditions, the economic environment, including inflation, and the purchasing decisions of our customers.

We review our intangible

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the acquired assets.

We entered into a

term sheet with ACEC dated December 19, 2019 for the sale of our interest in Pacific Aurora.

We reviewed the criteria for held-for-sale

classification of the long-lived assets associated with the pending transaction.

Our analysis concluded that these long-lived

assets shall be classified as held-for-sale with a related impairment of $29.3 million to fair value.

We did not recognize any

other asset impairment charges in 2019 and 2018.

Assets held-for-sale

are assessed for impairment by comparing the carrying value to their expected net sales proceeds.

We entered into a term sheet

dated December 19, 2019 with Aurora Cooperative Elevator Company for the sale of our interest in two fuel-grade ethanol production

facilities in Nebraska.

We reviewed the criteria for held-for-sale classification of the long-lived assets associated with the

pending transaction.

Our analysis concluded that these long-lived assets should be classified as held-for-sale with a related

impairment of $29.3 million to fair value.

We did not recognize any other asset impairment charges in 2019.

In October 2020, our

Board of Directors approved a plan to sell our fuel-grade ethanol production facilities in Madera and Stockton, California.

Consequently,

we determined the long-lived asset groups should be classified as held-for-sale at December 31, 2020.

The analysis of these potential

sales resulted in an aggregate asset impairment of $22.3 million.

We further reviewed indicators of impairment for our other production

facilities, resulting in an additional asset impairment of $2.1 million in 2020.

Valuation Allowance

for Deferred Taxes

We account for income

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

financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected

to be in effect when the differences reverse.

Valuation allowances are established when necessary to reduce deferred tax assets

to the amounts expected to be realized.

We evaluate our deferred

tax asset balance for realizability.

To the extent we believe it is more likely than not that some portion or all of our deferred

tax assets will not be realized, we will establish a valuation allowance against the deferred tax assets.

Realization of our deferred

tax assets is dependent upon future taxable income during the periods in which the associated temporary differences become deductible.

We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in

making this assessment.

These changes, if any, may require possible material adjustments to these deferred tax assets, resulting

in a reduction in net income or an increase in net loss in the period when such determinations are made.

Our pre-tax consolidated

losses were $101.3 million and $68.5 million for the years ended December 31, 2019 and 2018, respectively.

Based on our current

and prior results, we do not have significant evidence to support a conclusion that we will more likely than not be able to benefit

from our remaining deferred tax assets.

We account for income taxes under the asset

and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting

and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when

the differences reverse.

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

to be realized.

We evaluate our deferred tax asset balance

for realizability.

To the extent we believe it is more likely than not that some portion or all of our deferred tax assets will

not be realized, we will establish a valuation allowance against the deferred tax assets.

Realization of our deferred tax assets

is dependent upon future taxable income during the periods in which the associated temporary differences become deductible.

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

this assessment.

These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a

reduction in net income or an increase in net loss in the period when such determinations are made.

Our pre-tax consolidated losses were $17.3

million and $101.3 million for the years ended December 31, 2020 and 2019, respectively.

Based on our current and prior results,

we do not have significant evidence to support a conclusion that we will more likely than not be able to benefit from our remaining

deferred tax assets.

As such, we have recorded a valuation allowance against our net deferred tax assets.

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We enter into short-term

cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol and managing exposure

to changes in commodity prices.

cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of fuel-grade ethanol and managing

exposure to changes in commodity prices.

All of our exchange-traded derivatives are designated as non-hedge derivatives for accounting

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Although the contracts are economic hedges of specified risks,

they are not designated as and accounted for as hedging instruments.

they are not designated or accounted for as hedging instruments.

Realized and unrealized

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The fair values of contracts entered through commodity exchanges are presented on the accompanying balance

sheet as derivative instruments.

The selection of normal purchase or sales contracts, and use of hedge accounting, are accounting

policies that can change the timing of recognition of gains and losses in the statement of operations.

sheet as derivative assets or liabilities.

The selection of normal purchase or sales contracts, and use of hedge accounting, are

accounting policies that can change the timing of recognition of gains and losses in the statement of operations.

Impact of New Accounting

Pronouncements

See “Note 1

Organization and Significant Accounting Policies –

Recent Accounting Pronouncements”

of the Notes to Consolidated

Financial Statements commencing on page F-9 of this report.

Quantitative and

Qualitative Disclosures About Market Risk.

Not applicable.

Financial Statements

and Supplementary Data.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Statements and Supplementary Data.

Reference is made to

the financial statements, which begin at page F-1 of this report.

Changes in and

Disagreements with Accountants on Accounting and Financial Disclosure.

in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity