* Sale Pending.

Commodity Risk Management

We employ various risk mitigation techniques. For example, we may seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn and natural gas requirements through fixed-price or variable-price contracts with our suppliers, as well as entering into derivative contracts for ethanol, corn and natural gas. To mitigate ethanol inventory price risks, we may sell a portion of our production forward under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by selling exchange-traded futures contracts. Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins. However, the market price of ethanol is volatile and subject to large fluctuations, and given the nature of our business, we cannot effectively hedge against extreme volatility or certain market conditions. For example, ethanol prices, as reported by the Chicago Board of Trade, or CBOT, ranged from $1.26$1.25 to $1.67$1.70 per gallon during 2017,2019 and from $1.31$1.20 to $1.75$1.53 per gallon during 2016 and from $1.31 to $1.69 per gallon during 2015;2018; and corn prices, as reported by the CBOT, ranged from $3.30$3.41 to $3.92$4.55 per bushel during 2017,2019 and from $3.02$3.30 to $4.38$4.09 per bushel during 2016 and from $3.48 to $4.34 per bushel during 2015.2018.

Marketing Arrangements

We market all the ethanol and specialty alcohols produced at our production facilities. In addition, we have exclusive ethanol marketing agreements with two third-party ethanol producers, Calgren Renewable Fuels, LLC and Aemetis Advanced Fuels Keyes, Inc., to market and sell their entire ethanol production volumes. Calgren Renewable Fuels, LLC owns and operates an ethanol production facility in Pixley, California with annual production capacity of 55 million gallons. Aemetis Advanced Fuels Keyes, Inc. owns and operates an ethanol production facility in Keyes, California with annual production capacity of 55 million gallons. We intend to evaluate and pursue opportunities to enter into marketing arrangements with other third-party ethanol producers as business prospects make these marketing arrangements advisable.

Competition

We are the sixth largest producer of ethanol in the United States based on annualized volumes and operate in the highly competitive ethanol production and marketing industry. The largest ethanol producers in the United States are Archer-Daniels-Midland Company, POET, LLC, Green Plains Inc. and Valero Renewable Fuels Company, LLC, collectively with approximately 38%37% of the total installed ethanol production capacity in the United States. In addition, there are many mid-size producers with several plants under ownership, smaller producers with one or two plants, and several ethanol marketers that create significant competition. Overall, we believe there are over 200 ethanol production facilities in the United States with a total installed production capacity of approximately 16.216.5 billion gallons and many brokers and marketers with whom we compete for sales of ethanol and its co-products.

We believe that our competitive strengths include our customer and supplier relationships, our extensive ethanol distribution network, our strategic locations, our low carbon-intensity ethanol, our use of modern technologies at our production facilities and our experienced management. We believe that these advantages will help us to attain our goal to advance our position and significantly increase our market share asbe a leading producer and marketer of low-carbon renewable fuels, high-value animal feed and high-quality alcohol products in the United States.

Most of the largest metropolitan areas in the United States have fuel terminals served by rail, but other major metropolitan areas and more remote smaller cities and rural areas do not. We believe that we have a competitive advantage in the Western United States in particular due to our experience in marketing to the segment of customers located in major metropolitan and rural markets in the Western United States. We manage the complicated logistics of shipping ethanol to intermediate storage locations throughout the Western United States and trucking the ethanol from these storage locations to blending racks where the ethanol is blended with gasoline. We believe that by establishing an efficient service for truck deliveries to these more remote locations, we have differentiated ourselves from our competitors on the West Coast. In addition, due to our plant locations on the West Coast, we believe that we benefit from our ability to increase spot sales of ethanol from those plants following ethanol price spikes caused from time to time by rail delays in delivering ethanol from the Midwest to the Western United States.

Our strategic locations in the Western United States designed to capitalize on cost efficiencies may nevertheless result in higher than expected costs as a result of more expensive raw materials and related shipping costs, including corn, which generally must be transported from the Midwest. If the costs of producing and shipping ethanol and its co-products over short distances are not advantageous relative to the costs of obtaining raw materials from the Midwest, then the benefits of our strategic locations on the West Coast may not be realized.

Governmental Regulation

Our business is subject to federal, state and local laws and regulations relating to the production of renewable fuels, the protection of the environment and in support of the corn and ethanol industries. These laws, their underlying regulatory requirements and their enforcement, some of which are described below, impact, or may impact, our existing and proposed business operations by imposing:

In addition, some governmental regulations are helpful to our ethanol production and marketing business. The ethanol fuel industry is supported by federal and state mandates and environmental regulations that favor the use of ethanol in motor fuel blends in North America. Some of the governmental regulations applicable to our ethanol production and marketing business are briefly described below.

National Energy Legislation

The Energy Independence and Security Act of 2007, which was signed into law in December 2007, significantly increased the prior RFS. The RFS significantly increases the mandated use of renewable fuels, rising incrementally each year, to 36.0 billion gallons by 2022.

Under the provisions of the Energy Independence and Security Act of 2007, the EPA has the authority to waive the mandated RFS requirements in whole or in part. To grant a waiver, the EPA administrator must determine, in consultation with the Secretaries of Agriculture and Energy, that there is inadequate domestic renewable fuel supply or implementation of the requirement would severely harm the economy or environment of a state, region or the United States as a whole.

LegislationPolicy discussion has begun in the 116^th Congress aimed at reducing or eliminating theshifting national power generation to renewable fuel use required by the RFS has been introduced since the 115^th United States Congress began on January 3, 2017.sources and to decarbonize manufacturing and agricultural industries. On January 3, 2017, the 2019, a bill titledLeave Ethanol Volumes at Existing Levels (LEVEL) Act (H.R. 119)104) was introduced into the House of Representatives aiming to repeal certain amendments to the Clean Air Act relating to the expansion of the renewable fuel program, and for other purposes. This bill revises the renewable fuel program, including the RFS. Under current law, the RFS specifies the minimum volume of renewable fuel, such as ethanol, that must be contained in gasoline sold in the United States, except in noncontiguous states or territories. The RFS annually increases until 2022 when a minimum of 36 billion gallons of renewable fuel must be blended into gasoline. This bill decreases the volume of renewable fuel that must be contained in gasoline to 7.5 billion gallons each year. The bill also revises the RFS to eliminate separate volume requirements for the following renewable fuel categories: advanced biofuels, cellulosic biofuel, and biomass-based diesel. This bill has been referred to a congressional subcommittee where it awaits further consideration. On February 7, 2019, Democrats in both the House and Senate introduced non-binding resolutions, H.Res. 109 and S.Res. 59,Recognizing the duty of the Federal Government to create a Green New Deal.The resolutions, referred to as the Green New Deal, outline these goals by providing a blueprint to transition the United States to a 100 percent clean energy system. Expanding from this policy, recently theUtilizing Significant Emissions with Innovative Technologies (USE IT) Act was introduced in both chambers. TheUSE IT Act aims to spur the Housedevelopment and demonstration of Representatives.carbon capture and removal technologies. This legislation has the potential to benefit ethanol producers, as well as a large group of other stakeholders by authorizing grants for these technologies and by streamlining the permitting process for building pipelines that move sequestered carbon. The bills have been referred to their respective congressional subcommittees where they await further consideration. On June 21, 2019, a bill would freeze renewable fuel blending requirements undertitledEliminating the RFS at 7.5 billion gallons per year, prohibit the sale of gasoline containing more than 10% ethanol, and revoke the EPA’s approval of E15 blends. On January 31, 2017, a billIts Destructive Outcomes Act (H.R. 777)3427) was introduced in the House of Representatives that would requireaiming to repeal the EPA and National Academies of SciencesEPA’s Renewable Fuel Standard program, which requires transportation fuel to conductcontain a study on “the implications of the use of mid-level ethanol blends”. A mid-level ethanol blend is an ethanol gasoline blend containing 10-20% ethanol by volume, including E15 and E20, that is intended to be used in any conventional gasoline powered motor vehicle or nonroad vehicle or engine. Also on January 31, 2017, a bill (H.R. 776) was introduced in the House of Representatives that would limit theminimum volume of cellulosic biofuel required under the RFS to what is commercially available. On March 2, 2017, arenewable fuel. The bill (H.R. 1315) was introduced in the House of Representatives that would cap the volume of ethanol in gasoline at 10%. On the same day, theRFS Elimination Act (H.R. 1314) was introduced, which would fully repeal the RFS.

All of these bills werehas been referred to a congressional subcommittee,committee, which will consider themit before possibly sending any of them onthe bill to the House of Representatives as a whole. No legislation affecting the RFS or ethanol has been introduced in the Senate so far this session.

A bill titled theConsumer Protection and Fuel Transparency Act of 2019 (H.R 1024), was introduced on February 6, 2019, which would require the EPA Administrator to revise labeling requirements for fuel pumps that dispense gasoline that contains up to 15% ethanol by volume, or E15. Specifically, the legislation would require labels for fuel pumps that dispense E15 to include the word “WARNING” and “check your owner’s manual.” In addition, the bill would require the EPA to develop a public education campaign on the supposed risks associated with improper E15 use. EPA gave final approval in 2012 to the use of E15 fuel and the fuel blend is now sold in 30 states. The EPA is already required to label at the pump therefore we believe this bill could confuse consumers and retailers who opt to use E15. This bill was referred to a congressional subcommittee where it awaits further consideration.

E15 (a Blend of Gasoline and Ethanol)

The EPA has allowed fuel and fuel-additive manufacturers to introduce into commercial gasoline that contains greater than 10% ethanol by volume, up to 15% ethanol by volume, or E15, for vehicles from model year 2001 and beyond. Additional changes to some states’ laws to allow for the use of E15 are still required; however, commercial sale of E15 has begun in somea majority of states. AtIn 2019, the endEPA enacted a rule that allows for year-round use of 2017, there were over 1,200 stations offering E15. We anticipate the number of stations offeringexpect year-round demand for E15 fuel will reach over 2,000increase in 2018.2020 and future years as E15 adoption accelerates.

State Energy Legislation and Regulations

In January 2007, California’s Governor signed an executive order directing the California Air Resources Board to implement California’s LCFS for transportation fuels. California’s LCFS requires fuel suppliers to reduce the carbon intensity of transportation fuels to 10% below 2010 levels by 2020. The Governor’s office estimates that the standard will have the effect of increasing current renewable fuels use in California by three to five times by 2020.

The California Air Resources Board has engaged in a comprehensive process to consider extending California’s LCFS through 2030, applying aggressive new carbon intensity reduction targets for the final 10 years. Additional LCFS updates became effective in early January 2019 which require fuel suppliers to reduce the carbon intensity of transportation fuels to 20% below 2010 levels by 2030. We believe the revised program will be beneficial as we produce among the lowest carbon intensity ethanol commercially available, and we receive a premium for the fuel we sell into the California marketplace, which we expect will increase as the compliance curve steepens, which began in 2016.

A program similar to California’s LCFS has also been adopted in Oregon and the Canadian province of British Columbia, and is under discussion in Washington State. These regions, together with California, represent a very large segment of the overall demand for transportation fuels in the United States.

Additional Environmental Regulations

In addition to the governmental regulations applicable to the ethanol production and marketing industry described above, our business is subject to additional federal, state and local environmental regulations, including regulations established by the EPA, the San Joaquin Valley Regional Water Quality Control Board, the San Joaquin Valley Air Pollution Control District and the California Air Resources Board. We cannot predict the manner or extent to which these regulations will harm or help our business or the ethanol production and marketing industry in general.

Employees

As of March 15, 2018,27, 2020, we had approximately 560500 full-time employees. We believe that our employees are highly-skilled, and our success will depend in part upon our ability to retain our employees and attract new qualified employees, many of whom are in great demand. Approximately 18040% of our employees are presently represented by a labor union and covered by a collective bargaining agreement. We have never had a work stoppage or strike and we consider our relations with our employees to be good.

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other information contained in this Report and in our other filings with the Securities and Exchange Commission, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Pacific Ethanol, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.

Risks Related to our Business

There is substantial doubt as to our ability to continue as a going concern.

As a result of ethanol industry conditions that have negatively affected our business, 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. As a result, our 2019 financial statements include an explanatory paragraph by our independent registered public accounting firm describing the substantial doubt as to our ability to continue as a going concern.

Although we are actively pursuing a number of initiatives, including seeking to sell assets, there can be no assurance that we will be successful. If we cannot sell assets and obtain sufficient liquidity in the near term, we may need to seek to protection under the U.S. Bankruptcy Code.

If we are unable to timely implement our strategic initiatives and raise sufficient capital on suitable terms, we will likely have insufficient liquidity to operate our business through the next twelve months, or earlier, resulting in a material adverse effect on our business, prospects, financial condition and results of operations, which could result in a need to seek protection under the U.S. Bankruptcy Code.

We are engaged in strategic initiatives to reduce our debt levels and provide additional liquidity to operate our business. These initiatives will likely require the prompt sale of certain production assets as well as other capital raising activities. Financing, whether through a sale of production assets or other capital raising activities, may not be available on a timely basis, in sufficient amounts, on terms acceptable to us, or at all. In addition, any equity financing may cause significant dilution to existing stockholders and any debt financing or other financing of securities senior to our common stock will likely include financial and other covenants that will restrict our flexibility, including our ability to pay dividends on our common stock.

We have entered into a membership interest purchase agreement to sell our 73.93% ownership interest in Pacific Aurora, LLC to Aurora Cooperative Elevator Company. Pacific Aurora, LLC owns two ethanol production facilities and related assets located in Aurora, Nebraska. We may be unable to successfully close this transaction, which is subject to a financing condition in favor of ACEC and numerous customary and other conditions to closing. In addition, after working capital adjustments, our cash consideration at closing may be less than expected.

If we are unable to timely sell production assets or raise additional capital, or both, in sufficient amounts and on suitable terms, or if we do not experience a sustained margin improvement, we will likely have insufficient liquidity to operate our business. A failure to timely implement our strategic initiatives to reduce our debt levels on suitable terms or our inability to satisfy our payment obligations under our various credit facilities will have a material adverse effect on our business, prospects, financial condition and results of operations and could result in a need to idle production at one or more operating facilities and/or seek protection under the U.S. Bankruptcy Code for all or some portion of our production assets and other subsidiaries, at the parent company level, or both.

The effects of the novel coronavirus may further materially and adversely affect our business, results of operations and liquidity.

Last year’s novel strain of coronavirus (COVID-19), has resulted in businesses suspending or substantially curtailing global operations and travel, quarantines, and an overall substantial slowdown of economic activity. Transportation fuels in particular, including ethanol, have experienced significant price declines and reduced demand. A further downturn in global economic growth, or recessionary conditions in major geographic regions, will lead to reduced demand for ethanol and negatively affect the market prices of our products, further materially and adversely affecting our business, results of operations and liquidity.

Our plant indebtedness exposes us to many risks that could negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.

Our plants located in the Midwest have significant indebtedness. The terms of our plant loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our plant credit facilities periodically and automatically declines through the maturity dates of those facilities. Our plant indebtedness could:

Our term loans and credit facilities also require compliance with numerous financial and other covenants. In addition, our plant indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.

Our ability to generate sufficient cash to make all principal and interest payments when due, including an aggregate $40.0 million payment due on September 30, 2020 under our PE Pekin and ICP credit facilities, depends on our business performance, which is subject to a variety of factors beyond our control, including the supply of and demand for ethanol and co-products, ethanol and co-product prices, the cost of key production inputs, and many other factors incident to the ethanol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations. Our failure to timely satisfy our debt obligations could have a material adverse effect on our business, business prospects, liquidity, cash flows and results of operations.

We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and impede us from expanding our business.

We have incurred significant losses and negative operating cash flow in the past. For the years ended December 31, 20172019 and 2015,2018, we incurred consolidated net losses of approximately $38.1$101.3 million and $18.9$68.0 million, respectively. For the year ended December 31, 2015,2019, we incurred negative operating cash flowsflow of $28.0approximately $23.4 million. We may incur losses and negative operating cash flow in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our lines of credit and proceeds from future financing activities, if any, to fund all of the cash requirements of our business. Continued losses and negative operating cash flow may hamper our operations and impede us from expanding our business.

Our results of operations and our ability to operate at a profit is largely dependent on managing the costs of corn and natural gas and the prices of ethanol, distillers grains and other ethanol co-products, all of which are subject to significant volatility and uncertainty.

Our results of operations are highly impacted by commodity prices, including the cost of corn and natural gas that we must purchase, and the prices of ethanol, distillers grains and other ethanol co-products that we sell. Prices and supplies are subject to and determined by market and other forces over which we have no control, such as weather, domestic and global demand, supply shortages, export prices and various governmental policies in the United States and around the world.

As a result of price volatility of corn, natural gas, ethanol, distillers grains and other ethanol co-products, our results of operations may fluctuate substantially. In addition, increases in corn or natural gas prices or decreases in ethanol, distillers grains or other ethanol co-product prices may make it unprofitable to operate. In fact, some of our marketing activities will likely be unprofitable in a market of generally declining ethanol prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory outside the context of a marketing arrangement and therefore must buy ethanol at a price established at the time of purchase and sell ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of ethanol. As a result, our margins for ethanol sold in these transactions generally decline and may turn negative as the market price of ethanol declines.

No assurance can be given that corn or natural gas can be purchased at, or near, current or any particular prices or that ethanol, distillers grains or other ethanol co-products will sell at, or near, current or any particular prices. Consequently, our results of operations and financial position may be adversely affected by increases in the price of corn or natural gas or decreases in the price of ethanol, distillers grains or other ethanol co-products.

Over the past several years, the spread between ethanol and corn prices has fluctuated significantly. Fluctuations are likely to continue to occur. A sustained narrow spread, whether as a result of sustained high or increased corn prices or sustained low or decreased ethanol prices, would adversely affect our results of operations and financial position. Further, combined revenues from sales of ethanol, distillers grains and other ethanol co-products could decline below the marginal cost of production, which may force us to suspend production of ethanol, distillers grains and other ethanol co-products at some or all of our plants.

Increased ethanol production or higher inventory levels may cause a decline in ethanol prices or prevent ethanol prices from rising, and may have other negative effects, adversely impacting our results of operations, cash flows and financial condition.

We believe that the most significant factor influencing the price of ethanol has been the substantial increase in ethanol production. According to the Renewable Fuels Association, domestic ethanol production capacity increased from an annualized rate of 1.5 billion gallons per year in January 1999 to a record 16.216.1 billion gallons in 2017.2018. In addition, if ethanol production margins improve, we anticipate that owners of ethanol production facilities will increase production levels, thereby resulting in more abundant ethanol supplies and inventories. Any increase in the supply of ethanol may not be commensurate with increases in the demand for ethanol, thus leading to lower ethanol prices. Also, demand for ethanol could be impaired due to a number of factors, including regulatory developments and reduced United States gasoline consumption. Reduced gasoline consumption has occurred in the past and could occur in the future as a result of increased gasoline or oil prices or other factors such as increased automobile fuel efficiency. Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition.

The market price of ethanol is volatile and subject to large fluctuations, which may cause our profitability or losses to fluctuate significantly.

The market price of ethanol is volatile and subject to large fluctuations. The market price of ethanol is dependent upon many factors, including the supply of ethanol and the price of gasoline, which is in turn dependent upon the price of petroleum which is highly volatile and difficult to forecast. For example, ethanol prices, as reported by the CBOT, ranged from $1.26$1.25 to $1.67$1.70 per gallon in 2019 and from $1.20 to $1.53 per gallon during 2017, $1.31 to $1.75 per gallon during 2016 and $1.31 to $1.69 per gallon during 2015.2018. Fluctuations in the market price of ethanol may cause our profitability or losses to fluctuate significantly.

Some of our marketing activities will likely be unprofitable in a market of generally declining ethanol prices due to the nature of our business.

Some of our marketing activities will likely be unprofitable in a market of generally declining ethanol prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory outside the context of a marketing arrangement and therefore must buy ethanol at a price established at the time of purchase and sell ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of ethanol. As a result, our margins for ethanol sold in these transactions generally decline and may turn negative as the market price of ethanol declines.

Disruptions in production or distribution infrastructure may adversely affect our business, results of operations and financial condition.

Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. In particular, due to limited storage capacity at our plants and other considerations related to production efficiencies, our plants depend on just-in-time delivery of corn. The production of ethanol and specialty alcohols also requires a significant and uninterrupted supply of other raw materials and energy, primarily water, electricity and natural gas. Local water, electricity and gas utilities may not be able to reliably supply the water, electricity and natural gas that our plants need or may not be able to supply those resources on acceptable terms. During 2014,In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of ethanol by rail, the principle manner by which ethanol from our plants located in the Midwest is transported to market. Disruptions in production or distribution infrastructure, whether caused by labor difficulties, earthquakes, storms, other natural disasters or human error or malfeasance or other reasons, could prevent timely deliveries of corn or other raw materials and energy, and could delay transport of our products to market, and may require us to halt production at one or more plants, any of which could have a material adverse effect on our business, results of operations and financial condition.

We may engage in hedging transactions and other risk mitigation strategies that could harm our results of operations and financial condition.

In an attempt to partially offset the effects of volatility of ethanol prices and corn and natural gas costs, we may enter into contracts to fix the price of a portion of our ethanol production or purchase a portion of our corn or natural gas requirements on a forward basis. In addition, we may engage in other hedging transactions involving exchange-traded futures contracts for corn, natural gas and unleaded gasoline from time to time. The financial statement impact of these activities is dependent upon, among other things, the prices involved and our ability to sell sufficient products to use all of the corn and natural gas for which forward commitments have been made. Hedging arrangements also expose us to the risk of financial loss in situations where the other party to the hedging contract defaults on its contract or, in the case of exchange-traded contracts, where there is a change in the expected differential between the underlying price in the hedging agreement and the actual prices paid or received by us. In addition, our open contract positions may require cash deposits to cover margin calls, negatively impacting our liquidity. As a result, our results of operations and financial condition may be adversely affected by our hedging activities and fluctuations in the price of corn, natural gas, ethanol and unleaded gasoline.

Operational difficulties at our plants could negatively impact sales volumes and could cause us to incur substantial losses.

Operations at our plants are subject to labor disruptions, unscheduled downtimes and other operational hazards inherent in the ethanol production industry, including equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Moreover, our plants may not operate as planned or expected. All of these facilities are designed to operate at or above a specified production capacity. The operation of these facilities is and will be, however, subject to various uncertainties. As a result, these facilities may not produce ethanol, specialty alcohols and co-products at expected levels. In the event any of these facilities do not run at their expected capacity levels, our business, results of operations and financial condition may be materially and adversely affected.

Future demand for ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any of which could negatively affect demand for ethanol and our results of operations.

Although many trade groups, academics and governmental agencies have supported ethanol as a fuel additive that promotes a cleaner environment, others have criticized ethanol production as consuming considerably more energy and emitting more greenhouse gases than other biofuels and potentially depleting water resources. Some studies have suggested that corn-based ethanol is less efficient than ethanol produced from other feedstock and that it negatively impacts consumers by causing increased prices for dairy, meat and other food generated from livestock that consume corn. Additionally, ethanol critics contend that corn supplies are redirected from international food markets to domestic fuel markets. If negative views of corn-based ethanol production gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of federal mandates, which could adversely affect the demand for ethanol. These views could also negatively impact public perception of the ethanol industry and acceptance of ethanol as an alternative fuel.

There are limited markets for ethanol beyond those established by federal mandates. Discretionary blending and E85 blending are important secondary markets. Discretionary blending is often determined by the price of ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for ethanol may be reduced. Also, the demand for ethanol is affected by the overall demand for transportation fuel. Demand for transportation fuel is affected by the number of miles traveled by consumers and the fuel economy of vehicles. Market acceptance of E15 may partially offset the effects of decreases in transportation fuel demand. A reduction in the demand for ethanol and ethanol co-products may depress the value of our products, erode our margins and reduce our ability to generate revenue or to operate profitably. Consumer acceptance of E15 and E85 fuels is needed before ethanol can achieve any significant growth in market share relative to other transportation fuels.

Our future results will suffer if we do not effectively manage our expanded operations.

Our business following recent acquisitions is larger than the individual businesses of Pacific Ethanol and the acquired companies prior to the acquisitions. Our future success depends, in part, upon our ability to manage our expanded business, which may pose continued challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We cannot assure you that we will be successful or that we will realize the expected operating efficiencies, annual net operating synergies, revenue enhancements and other benefits currently anticipated to result from the acquisition.

Our plant indebtedness exposes us to many risks that could negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.

Our plants located in the Midwest have significant indebtedness. Unlike traditional term debt, the terms of our plant loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our plant credit facilities periodically and automatically declines through the maturity dates of those facilities. Our plant indebtedness could:

Our term loans and credit facilities also require compliance with numerous financial and other covenants. In addition, our plant indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.

Our ability to generate sufficient cash to make all principal and interest payments when due depends on our business performance, which is subject to a variety of factors beyond our control, including the supply of and demand for ethanol and co-products, ethanol and co-product prices, the cost of key production inputs, and many other factors incident to the ethanol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations. Our failure to timely satisfy our debt obligations could have a material adverse effect on our business, business prospects, liquidity, cash flows and results of operations.

If Kinergy fails to satisfy its financial covenants under its credit facility, it may experience a loss or reduction of that facility, which would have a material adverse effect on our financial condition and results of operations.

We are substantially dependent on Kinergy’s credit facility to help finance its operations. Kinergy must satisfy monthly financial covenants under its credit facility, including fixed-charge coverage ratio covenants. Kinergy will be in default under its credit facility if it fails to satisfy any financial covenant. A default may result in the loss or reduction of the credit facility. The loss of Kinergy’s credit facility, or a significant reduction in Kinergy’s borrowing capacity under the facility, would result in Kinergy’s inability to finance a significant portion of its business and would have a material adverse effect on our financial condition and results of operations.

The United States ethanol industry is highly dependent upon certain federal and state legislation and regulation and any changes in legislation or regulation could have a material adverse effect on our results of operations, cash flows and financial condition.

The EPA has implemented the RFS pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the quantity of renewable fuels (such as ethanol) that must be blended into motor fuels consumed in the United States. The domestic market for ethanol is significantly impacted by federal mandates under the RFS program for volumes of renewable fuels (such as ethanol) required to be blended with gasoline. Future demand for ethanol will be largely dependent upon incentives to blend ethanol into motor fuels, including the price of ethanol relative to the price of gasoline, the relative octane value of ethanol, constraints in the ability of vehicles to use higher ethanol blends, the RFS, and other applicable environmental requirements. Any significant increase in production capacity above the RFS minimum requirements may have an adverse impact on ethanol prices.

Legislation aimed at reducing or eliminatinglimiting the renewable fuel use required by the RFS has been introduced in the United States Congress. On January 3, 2017,2019, a bill (H.R. 104) was introduced into the Leave Ethanol Volumes at Existing Levels (LEVEL)House of Representatives aiming to repeal certain amendments to the Clean Air Act relating to the expansion of the renewable fuel program, and for other purposes. This bill revises the renewable fuel program, including the RFS. Under current law, the RFS specifies the minimum volume of renewable fuel, such as ethanol, that must be contained in gasoline sold in the United States, except in noncontiguous states or territories. The RFS annually increases until 2022 when a minimum of 36 billion gallons of renewable fuel must be blended into gasoline. This bill decreases the volume of renewable fuel that must be contained in gasoline to 7.5 billion gallons each year. The bill also revises the RFS to eliminate separate volume requirements for the following renewable fuel categories: advanced biofuels, cellulosic biofuel, and biomass-based diesel. The bill was referred to a congressional subcommittee where it awaits further consideration. On May 7, 2019, the Food and Fuel Consumer Protection Act of 2019 (H.R. 119)2540), was introduced in the House of Representatives. The bill would freeze renewable fuelaims to prevent RFS blending requirements underobligations from requiring ethanol to make up more than 9.7 percent of the RFS at 7.5 billion gallons per year, prohibit the saletotal volume of gasoline containing more than 10% ethanol, and revoke the EPA’s approval of E15 blends. On January 31, 2017, a bill (H.R. 777) wasprojected to be sold or introduced into commerce in the House of Representatives that would require the EPA and National Academies of Sciences to conductUnited States for a study on “the implications of the use of mid-level ethanol blends”. A mid-level ethanol blend is an ethanol-gasoline blend containing 10-20% ethanol by volume, including E15 and E20, that is intended to be used in any conventional gasoline-powered motor vehicle or nonroad vehicle or engine. Also on January 31, 2017, agiven calendar year. The bill (H.R. 776) was introduced in the House of Representatives that would limit the volume of cellulosic biofuel required under the RFS to what is commercially available. On March 2, 2017, a bill (H.R. 1315) was introduced in the House of Representatives that would cap the volume of ethanol in gasoline at 10%. On the same day, the RFS Elimination Act (H.R. 1314) was introduced, which would fully repeal the RFS.

All of these bills were referred to a congressional subcommittee,committee, which will consider themit before possibly sending any of them onthe bill to the House of Representatives as a whole. On June 21, 2019, a bill (H.R. 3427) was introduced in the House of Representatives aiming to repeal the EPA’s Renewable Fuel Standard program, which requires transportation fuel to contain a minimum volume of renewable fuel. The bill was referred to a congressional committee, which will consider it before possibly sending the bill to the House of Representatives as a whole. On July 25, 2019, a bill (S.2298) was introduced in the United States Senate, to amend the Clean Air Act to eliminate the corn ethanol mandate for renewable fuel. The bill was read twice and referred to the Committee on Environment and Public Works. Our results of operations, cash flows and financial condition could be adversely impacted if any legislation is enacted that reduces or eliminateslimits the RFS volume requirements or that reduces or eliminates corn ethanol as qualifying as a renewable fuel under the RFS.requirements.

Under the provisions of the Clean Air Act, as amended by the Energy Independence and Security Act of 2007, the EPA has limited authority to waive or reduce the mandated RFS requirements, which authority is subject to consultation with the Secretaries of Agriculture and Energy, and based on a determination that there is inadequate domestic renewable fuel supply or implementation of the applicable requirements would severely harm the economy or environment of a state, region or the United States. Our results of operations, cash flows and financial condition could be adversely impacted if the EPA reduces the RFS requirements from the statutory levels specified in the RFS.

The ethanol production and marketing industry is extremely competitive. Many of our significant competitors have greater production and financial resources and one or more of these competitors could use their greater resources to gain market share at our expense.

The ethanol production and marketing industry is extremely competitive. Many of our significant competitors in the ethanol production and marketing industry, including Archer-Daniels-Midland Company, POET, LLC, Green Plains, Inc. and Valero Renewable Fuels Company, LLC, have substantially greater production and/or financial resources. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time. Successful competition will require a continued high level of investment in marketing and customer service and support. Our limited resources relative to many significant competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and cause a decline in market share, sales and profitability. Even if sufficient funds are available, we may not be able to make the modifications and improvements necessary to compete successfully.

We also face competition from international suppliers. Currently, international suppliers produce ethanol primarily from sugar cane and have cost structures that are generally substantially lower than our cost structures. Any increase in domestic or foreign competition could cause us to reduce our prices and take other steps to compete effectively, which could adversely affect our business, financial condition and results of operations.

Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.

Federal and state income tax laws impose restrictions on the utilization of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the loss corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months.

As of December 31, 2017,2019, of our $154.6$228.8 million of federal NOLs, we had $94.9$82.1 million of federal NOLs that are limited in their annual use under Section 382 of the Code.Code beyond 2019. Accordingly, our ability to utilize these NOL carryforwards may be substantially limited. These limitations could in turn result in increased future tax obligations, which could have a material adverse effect on our business, financial condition and results of operations.

Our business is not diversified. The high concentration of our sales within the ethanol production and marketing industry could result in a significant reduction in sales and negatively affect our profitability if demand for ethanol declines.

Our business is not diversified. Our sales are highly concentrated within the ethanol production and marketing industry. We expect to be substantially focused on the production and marketing of ethanol and its co-products for the foreseeable future. An industry shift away from ethanol, or the emergence of new competing products, may significantly reduce the demand for ethanol. However, we may be unable to timely alter our business focus away from the production and marketing of ethanol to other renewable fuels or competing products. A downturn in the demand for ethanol would likely materially and adversely affect our sales and profitability.

We may be adversely affected by environmental, health and safety laws, regulations and liabilities.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes, and the health and safety of our employees. In addition, some of these laws and regulations require us to operate under permits that are subject to renewal or modification. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns. In addition, we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

We may be liable for the investigation and cleanup of environmental contamination at each of our plants and at off-site locations where we arrange for the disposal of hazardous substances or wastes. If these substances or wastes have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require us to expend significant amounts for investigation, cleanup or other costs.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our plants. Present and future environmental laws and regulations, and interpretations of those laws and regulations, applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on our results of operations and financial condition.

The hazards and risks associated with producing and transporting our products (including fires, natural disasters, explosions and abnormal pressures and blowouts) may also result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. However, we could sustain losses for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations and financial condition.

If we are unable to attract or retain key personnel, our ability to operate effectively may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to operate our business and implement strategies depends, in part, on the efforts of our executive officers and other key personnel. Our future success will depend on, among other factors, our ability to retain our current key personnel and attract and retain qualified future key personnel, particularly executive management. If we are unable to attract or retain key personnel, our ability to operate effectively may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.

We depend on a small number of customers for the majority of our sales. A reduction in business from any of these customers could cause a significant decline in our overall sales and profitability.

The majority of our sales are generated from a small number of customers. During 2017, 20162019 and 2015, three2018, two customers accounted for an aggregate of approximately $544 million, $572$336 million and $467$367 million in net sales, representing 33%, 35%24% and 39%25% of our net sales, respectively, for those periods. We expect that we will continue to depend for the foreseeable future upon a small number of customers for a significant portion of our sales. Our agreements with these customers generally do not require them to purchase any specified volume or dollar value of ethanol or co-products, or to make any purchases whatsoever. Therefore, in any future period, our sales generated from these customers, individually or in the aggregate, may not equal or exceed historical levels. If sales to any of these customers cease or decline, we may be unable to replace these sales with sales to either existing or new customers in a timely manner, or at all. A cessation or reduction of sales to one or more of these customers could cause a significant decline in our overall sales and profitability.

We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operation of our facilities may harm our operating performance.

We regularly incur significant expenses to maintain and upgrade our equipment and facilities. The machines and equipment we use to produce our products are complex, have many parts and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled facility shutdowns result in decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future periods as a result of changes to equipment and operational and mechanical processes made during the shutdown period.

Our lack of long-term ethanol orders and commitments by our customers could lead to a rapid decline in our sales and profitability.

We cannot rely on long-term ethanol orders or commitments by our customers for protection from the negative financial effects of a decline in the demand for ethanol or a decline in the demand for our marketing services. The limited certainty of ethanol orders can make it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales. Moreover, our expense levels are based in part on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. Furthermore, because we depend on a small number of customers for a significant portion of our sales, the ramifications of these risks are greater in magnitude than if our sales were less concentrated. As a result of our lack of long-term ethanol orders and commitments, we may experience a rapid decline in our sales and profitability.

There are limitations on our ability to receive distributions from our subsidiaries.

We conduct most of our operations through subsidiaries and are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to generate free cash flow. Moreover, some of our subsidiaries are limited in their ability to pay dividends or make distributions, loans or advances to us by the terms of their financing arrangements. At December 31, 2017,2019, we had approximately $302.9$180.9 million of net assets at our subsidiaries that were not available to be distributed in the form of dividends, distributions, loans or advances due to restrictions contained in their financing arrangements.

Our future ability to raise capital may be limited by applicable laws and regulations.

Our capital raising activities have benefited from using a “shelf” registration on Form S-3, which typically enables an issuer to raise additional capital on a more timely and cost effective basis than through other means, such as registration of a securities offering under a Form S-1 registration statement. Our current and future ability to raise additional capital through the sale and issuance of our equity securities may be limited by, among other things, current Securities and Exchange Commission, or the SEC, rules and regulations. Under current SEC rules and regulations, to be eligible to use a Form S-3 registration statement for primary offerings without restriction as to the amount of securities to be sold and issued, the aggregate market value of our common equity held by non-affiliates (i.e., our “public float”) must be at least $75.0 million at the time we file the Form S-3 (calculated pursuant to the General Instructions to Form S-3). Furthermore, with respect to our effective Form S-3 registration statement, the SEC’s rules and regulations require that we periodically re-evaluate the value of our public float (typically when we file our Annual Report on Form 10-K) to determine whether we continue to satisfy the foregoing public float requirement. As of the date of this report, we do not satisfy the $75.0 million public float requirement. As a result, the amount we can raise through primary offerings of our securities in any 12-month period using a Form S-3 registration statement is limited to an aggregate of one-third of our public float. Moreover, the market value of all securities sold by us under our Form S-3 registration statements during the 12-month period prior to any intended sale will be subtracted from that amount to determine the amount we can then raise under our Form S-3 registration statements. If our public float increases to $75.0 million or more, this limitation would cease to apply until we conduct our next re-evaluation.

Risks Related to Ownership of our Common Stock

We have received a delisting notice from The NASDAQ Stock Market. Our common stock may be involuntarily delisted from trading on The NASDAQ Capital Market if we fail to regain compliance with the minimum closing bid price requirement of $1.00 per share. A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise additional financing and may also materially and adversely impact our credit terms with our vendors.

The quantitative listing standards of The NASDAQ Stock Market, or NASDAQ, require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. We failed to satisfy this threshold for 30 consecutive trading days and on July 17, 2019, we received a letter from NASDAQ indicating that we had an initial period of 180 calendar days, or until January 13, 2020, in which to regain compliance. On January 15, 2020, we received a letter from NASDAQ granting us a 180-day extension period, or until July 13, 2020, in which to regain compliance by meeting the minimum closing bid price of $1.00 per share for ten consecutive business days. If we do not regain compliance by July 13, 2020, the NASDAQ staff will provide written notice that our common stock is subject to delisting. Given the increased market volatility and the effects of the Coronavirus, including an acute negative margin environment in the biofuels industry, and our lack of liquidity, we may be unable to regain compliance with the closing bid price requirement by July 13, 2020. A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise additional financing and may also materially and adversely impact our credit terms with our vendors.

The conversion of convertible securities and the exercise of outstanding options and warrants to purchase our common stock could substantially dilute your investment, impede our ability to obtain additional financing and cause us to incur additional expenses.

Our Series B Preferred Stock, which are convertible into our common stock, and outstanding options to acquire our common stock issued to employees, directors and others, and the Warrants to purchase our common stock, allow the holders of these securities an opportunity to profit from a rise in the market price of our common stock such that conversion or exercise of the securities will result in dilution of the equity interests of our common stockholders. The terms on which we may obtain additional financing may be adversely affected by the existence and potentially dilutive impact of our Series B Preferred Stock, options and Warrants. In addition, holders of our Series B Preferred Stock and Warrants have registration rights with respect to the common stock underlying those Series B Preferred Stock and Warrants, the registration of which involves substantial expense.

The market price of our common stock and the value of your investment could substantially decline if shares of our Series B Preferred Stock are converted into shares of our common stock and if our options and Warrants are exercised for shares of our common stock and all of these shares of common stock are resold into the market, or if a perception exists that a substantial number of shares of common stock will be issued upon conversion of our Series B Preferred Stock or upon exercise of our Warrants or options and then resold into the market.

Sales of a substantial number of shares of common stock issued upon conversion of our Series B Preferred Stock and upon exercise of our Warrants and options, or even the perception that these sales could occur, could adversely affect the market price of our common stock. As a result, you could experience a substantial decline in the value of your investment as a result of both the actual and potential conversion of our outstanding shares of Series B Preferred Stock and exercise of our outstanding Warrants or options.

Our stock price is highly volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.

The market price of our common stock has fluctuated significantly in the past and may continue to fluctuate significantly in the future. The market price of our common stock may continue to fluctuate in response to one or more of the following factors, many of which are beyond our control:

Demand for ethanol could also be adversely affected by a slow-down in the overall demand for oxygenate and gasoline additive products. The levels of our ethanol production and purchases for resale will be based upon forecasted demand. Accordingly, any inaccuracy in forecasting anticipated revenues and expenses could adversely affect our business. The failure to receive anticipated orders or to complete delivery in any quarterly period could adversely affect our results of operations for that period. Quarterly and annual results are not necessarily indicative of future performance for any particular period, and we may not experience revenue growth or profitability on a quarterly or an annual basis.

The price at which you purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your shares of common stock at or above your purchase price, which may result in substantial losses to you and which may include the complete loss of your investment. In the past, securities class action litigation has often been brought against a company following periods of high stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and our resources away from our business.

Any of the risks described above could have a material adverse effect on our results of operations, or the price of our common stock, or both.

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 20172019 fiscal year and that remain unresolved.

Our corporate headquarters, located in Sacramento, California, consists of a 10,000 square foot office under a lease expiring in 2018.2029. We have plants located in Madera, California, at a 137 acre facility; Boardman, Oregon, at a 25 acre facility; Burley, Idaho, at a 160 acre facility; and Stockton, California, at a 30 acre facility. We own the land in Madera, California and Burley, Idaho. The land in Boardman, Oregon and Stockton, California are leased under leases expiring in 2026 and 2022, respectively. We also have plants located in Pekin, Illinois at facilities totaling 145 acres and Aurora, Nebraska, at a 96 acre facility. We own the land in Pekin, Illinois and Aurora, Nebraska, as well as the grain handling facility, loop track and the real property on which they are located in Aurora, Nebraska. We also own an idled ethanol production facility in Canton, Illinois on a 289 acre facility, of which a significant portion is farm land. Our production segment includes our ethanol production facilities. See “Business—Pacific Ethanol Plants.”

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible that the outcome of those legal proceedings, claims and litigation could adversely affect our quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not adversely affect in any material respect our financial position, results of operations or cash flows.

People of the State of Illinois v. Pacific Ethanol Pekin, LLC, case no. 18-CH-06, was filed on January 8, 2018 in the Circuit Court for the 10th Judicial Circuit in Tazewell County, Illinois. The Illinois Attorney General, on behalf of the People of the State of Illinois, alleges violations of the Pekin facility’s NPDES permit and water pollution associated with the facility’s discharge. Most of the alleged violations relate to thermal limits set forth in the permit. The complaint seeks a cease and desist order and damages for the alleged violations in accordance with statutory limits under the Illinois Environmental Protection Act. We are currently in negotiations with the Illinois Attorney General seeking to resolve this matter.

Not applicable.

PART II

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.

Security Holders

As of March 14, 2018,27, 2020, we had43,959,245 55,893,014 shares of common stock outstanding held ofrecord by approximately 230340 stockholders and 896 shares of non-voting common stock outstanding held of record by one stockholder. These holders of record include depositories that hold shares of stock for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners. On March 14, 2018,27, 2020, the closing sales price of our common stock on The NASDAQ Capital Market was $3.63$0.2879 per share.

Performance Graph

The graph below shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total return on The NASDAQ Composite Index and The NASDAQ Clean Edge Green Energy Index, or Peer Group, in each case over the five-year period ended December 31, 2017.

The graph assumes $100 invested at the indicated starting date in our common stock and in each of The NASDAQ Composite Index and the Peer Group, with the reinvestment of all dividends. We have not paid or declared any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns. This graph assumes that the value of the investment in our common stock and each of the comparison groups was $100 on December 31, 2012.

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 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 2017, 2016 and 2015,2018, 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. 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

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

The following table sets forth our selected consolidated financial data. We prepared this information using our consolidated financial statements for each of the years ended December 31, 2017, 2016, 2015, 2014 and 2013.Not Applicable.

You should read this selected consolidated financial data together with the consolidated financial statements and related notes contained in this report and in our prior and subsequent reports filed with the Securities and Exchange Commission, as well as the section of this report and our other reports entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The historical results that appear below are not necessarily indicative of results to be expected for any future periods.

No cash dividends on our common stock were declared during any of the periods presented above.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements, reflecting our plans and objectives that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this report.

Recent Developments

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 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.

Overview

We are a leading producer and marketer of low-carbon renewable fuels in the United States.

We operate nine strategically-located production facilities. Four of our plants are in the Western states of California, Oregon and Idaho, and five of our plants are located in the Midwestern states of Illinois and Nebraska. We are the sixth largest producer of ethanol in the United States based on annualized volumes. Our plants have a combined production capacity of 605 million gallons per year. We market all the ethanol, specialty alcohols and co-products produced at our plants as well as ethanol produced by third parties. On an annualized basis, we market nearly 1.0 billion gallons of ethanol and over 3.0 million tons of ethanol co-products on a dry matter basis. Our business consists of two operating segments: a production segment and a marketing segment.

Our mission is to advance our position and significantly increase our market share asbe 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 expandinginvesting in our ethanol production capacity and distribution infrastructure, accretive acquisitions, lowering the carbon intensity of our ethanol, extending our marketing business into new regional and international markets, and implementing new technologies to promote higher production yields and greater efficiencies.

Production Segment

We produce ethanol, specialty alcohols and co-products at our production facilities described below. Our plants located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. Our plants located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional domestic markets. In addition, our ability to load unit trains 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. We own approximately 74% ofPacific 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, through Pacific Aurora, LLC, or Pacific Aurora, an entity owned approximately 26% by Aurora Cooperative Elevator Company, or ACEC.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.

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 CO₂.

Marketing Segment

We market ethanol, specialty alcohols and co-products produced by our facilities and market ethanol produced by third parties. We have extensive customer relationships throughout the Western and Midwestern United States. Our ethanol customers are integrated oil companies and gasoline marketers who blend ethanol into gasoline. Our customers depend on us to provide a reliable supply of ethanol, and manage the logistics and timing of delivery with very little effort on their part. Our customers collectively require ethanol volumes in excess of the supplies we produce at our production facilities. We secure additional ethanol supplies from third-party plants in California and other third-party suppliers in the Midwest where a majority of ethanol producers are located. We arrange for transportation, storage and delivery of ethanol purchased by our customers through our agreements with third-party service providers in the Western United States as well as in the Midwest from a variety of sources.

We market our distillers grains and other feed co-products to dairies and feedlots, in many cases located near our ethanol plants. These customers use our feed co-products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market co-products from other ethanol producers.

See “Note 4 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

Current Initiatives and Outlook

Our results forMargins improved during the first half of the fourth quarter and full year reflect a difficult production margin environment dueof 2019, rising to lower averagelevels better than at any time in the prior two years. In response, the ethanol sales prices throughout the year. The industry’s high inventory levels negatively impacted ethanol sales prices, compressing production margins despite a decline in our average delivered cost of corn. Our results also reflectindustry increased production, gallons sold in the second half of the year predominately from increased volumes from our recently acquired ICP facility which,driving down margins for the second half of the year, performed well and contributed $75.9 million in net sales and $3.7 million in pre-tax income.

fourth quarter. In response to high industry-wide inventory levels and lower margins,the first quarter of 2020, we moderated production in locations most impacted byexperienced an acute negative margin compression and where we were not otherwise contractually committed. We also reduced sales of third party ethanol to focus our sales efforts around our own production volumes where we are best able to maximize profitability and contribute to greater pricing stability. Industry inventory levels have since declinedenvironment 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 and higher domestic and export demand. Ethanol inventories, which reached a record high at the beginning of 2018—running twenty percent higher than the same period in 2017—are now slightly lower than the same period last year while ethanol demand remains strong.margins. As a result, marginsethanol producers are curtailing production and idling plants to reduce supply and avoid negative cash flow operations. We believe that as much as 3.0 billion gallons of ethanol production is now off-line. We have improvedreduced production levels and overall plant utilization by approximately fifteen cents per gallon from the lows in December.more than 60%, while seeking to balance our customer commitments with our need to minimize negative operating cash flow.

We remain confidentOur 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 are headingproduce primarily high-quality alcohol for sale into a stronger year supportedindustrial-, chemical- and beverage-grade markets. Historically, ICP has generated approximately 10% of its sales by an improved supply and demand balance, continued stability in corn prices, a strong export market and increasing adoption of E15 across the United States. Domestic gasoline demandselling high-quality alcohol for the first two monthsproduction of 2018 ishand sanitizers. ICP has improved its production processes and has more than 5% higher thandoubled 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 comparable period in 2017. Exports reached a record level of 1.37 billion gallons in 2017, a 17% increase over 2016, and we expect similar if not greater export growth in 2018. We also expect growth in E15 availability and sales. Atlocal community to front-line health workers tending to those impacted by the beginning of 2018, E15 was available at more than 1,200 stations across 29 states. We expect E15 availability at over 2,000 stations by year end. We continue to work diligently with the industry to enable E15 and higher blends to achieve Reid Vapor Pressure (RVP) parity with the standard 10% blend ratio which will allow E15 sales for the entire year across the United States and further bolster ethanol demand. Ethanol remains a low cost, low carbon, high octane transportation fuel that we believe will continue to attract additional demand.coronavirus.

We continuehave engaged a Chief Restructuring Officer on a consulting basis to focus on transactionsassist us in negotiating with our lenders and initiativesimplementing our strategic initiatives. As noted above, in February, we entered into a membership interest purchase agreement with ACEC to build long-term value. As a leading innovatorsell 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. While 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 industry,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 focused on making appropriate investmentsoptimistic that China may step in our production facilities to reduce costs, improve our carbon score and support profitable operations. Our acquisitionas a significant buyer of ICP in July provided product diversification, bringing us high-quality alcohol products, which help support stronger margins and reduce our exposure to commodity price fluctuations inUnited States ethanol as part of China’s phase one trade deal with the fuel ethanol market. Our integration of ICP is progressing well and we are on track to achieve our goal of $4.5 million in annualized cost synergies in 2018.

Our 3.5 megawatt cogeneration system at our Stockton plant is partially complete. The first natural gas fired cogeneration unit is now fully commissioned, generating power and used in production at the plant. The second of two cogeneration units is still in its commissioning stage. The system converts process waste gas and natural gas into electricity and steam, reducing energy costs by up to $4.0 million per year and lowering carbon and nitrogen oxide emissions.

We received an updated LCFS pathway from the California Air Resources Board, incorporating the benefits of our industrial scale membrane system at our Madera facility that separates water from ethanol during the plant’s dehydration process. We are realizing energy savings of a 5% reduction in natural gas costs at the plant. Overall, we estimate the operating efficiencies, energy savings and carbon premium combined will total approximately $1.0 million annually at current market rates. We are in the process of evaluating this technology for potential implementation at other plants.United States.

We are producing commercialpursuing a number of strategic initiatives focused on the sale of certain production assets, a reduction of our debt levels, a strengthening of cellulosic ethanol at our Stockton, Maderacash and Magic Valley plantsliquidity position, and generating D3 RINs atopportunities for strategic partnerships and capital raising activities, positioning us to optimize our Stockton plant. We have filed for approval from the EPA to produce D3 RINs at our Maderabusiness performance. Our most significant challenge in meeting these objectives would be a sustained adverse margin environment. See “—Liquidity and Magic Valley plants.Capital Resources”.

Also atWe remain focused on implementing initiatives and investing in our Madera facility, we remain on schedule to begin full-scale operation of our 5 megawatt solar photovoltaic power system pending interconnection with our local utility. We expect the systemassets to reduce costs, both at the operating and corporate levels; further diversifying our utility costs by over $1.0 million annuallysales through additional high-protein animal feed and lowerhigh-quality alcohol products; improving our production yields and other operating efficiencies; and reducing the carbon score.

Our capital expenditures for 2017 totaled $20.9 million. We expect our 2018 capital expenditures to approximate our 2017 expenditure level, althoughintensity of the ethanol we may adjust this amount based on industry economics and our financial performance.produce.

We plan to drive growth by leveraging our diverse base of production and marketing assets to advance our position and significantly increase market share as a leading producer and marketer of low-carbon renewable fuels and high-quality alcohol products in the United States. The foundations of this strategy are our strategically located bio-refineries, which enable us to serve multiple markets; the diversity of our production, geography, technology, feedstocks and logistics, which helps us mitigate exposure to commodity price risks within fuel markets; and our focus on evaluating and investing in plant improvement and other initiatives to increase production and operating efficiencies and yields.

20172019 Financial Performance Summary

Summary

Our consolidated net sales remained consistent at $1.6declined to $1.4 billion for 2019 compared to 2016.$1.5 billion for 2018. Our net income (loss)loss available to common stockholders declinedincreased by $36.3$28.7 million from net income of $0.1$61.5 million for 20162018 to a net loss of $36.2$90.2 million for 2017.2019.

Factors that contributed to our results of operations for 20172019 include:

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 CO₂, 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 declinedincreased by 3%2.5% to $1.62$1.61 per gallon for 20172019 compared to $1.67$1.57 per gallon for 2016.2018. The average price of ethanol as reported by the Chicago Board of Options Trade, or CBOT, declined by less than 1%increased 1.5% to $1.50$1.39 per gallon for 20172019 compared to $1.51$1.37 per gallon for 2016.2018. Our average cost of corn declined by 2%increased 9% to $3.82$4.26 per bushel for 20172019 from $3.90$3.91 per bushel for 2016.2018. The average price of corn as reported by the CBOT increased slightly4.1% to $3.59$3.83 per bushel for 20172019 from $3.58$3.68 per bushel for 2016.2018.

We believe that our gross profit margins depend primarily on five key factors:

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. We may also 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.

Our limited resources to act upon the anticipated factors described above and/or our inability to anticipate these factors or their relative importance, and adverse movements in the factors themselves, could result in declining or even negative gross profit margins over certain periods of time. Our ability to anticipate these factors or favorable movements in these factors may enable us to generate above-average gross profit margins. However, given the difficulty associated with successfully forecasting any of these factors, we are unable to estimate our future gross profit margins.

Results of Operations

Accounting for the Results of Illinois Corn Processing, LLC

We closed our acquisition of ICP on July 3, 2017 and, as a result, our results of operations include ICP’s results of operations only for the period from July 3, 2017 through December 31, 2017.

Selected Financial Information

The following selected financial information should be read in conjunction with our consolidated financial statements and notes to our consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report.

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

Year Ended December 31, 20172019 Compared to the Year Ended December 31, 20162018

Net Sales

The increasedecrease in our consolidated net sales for 20172019 as compared to 20162018 was primarily due to an increasea decrease in our total gallons sold, partially offset by a decreasean increase in our average sales price per gallon.

We increasedOur production gallons sold and our volume of co-products sold declined for 20172019 as compared to 2016,2018, while decreasingour third-party gallons sold. The increases in volumes of oursold increased slightly. Our production gallons and co-products sold aredeclined primarily due to additional volumes from our recently-acquired ICP production facility. We decreased third-party gallons sold due to an intentional reduction in less profitable third party sales.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 increaseddecreased by $45.7$59.5 million, or 6%7%, to $838.3$800.3 million for 20172019 as compared to $792.6$859.8 million for 2016.2018. Our total volume of production ethanol gallons sold increaseddecreased by 43.165.2 million gallons, or 9%12%, to 527.2491.0 million gallons for 20172019 as compared to 484.1556.2 million gallons for 2016.2018. At our production segment’s average sales price per gallon of $1.59$1.63 for 2017,2019, we generated $68.5$106.5 million in additionalfewer net sales from our production segment from the 43.165.2 million additionalreduction in gallons of produced ethanol sold in 20172019 as compared to 2016.2018. The declineincrease of $0.05,$0.08, or 3%6%, in our production segment’s average sales price per gallon in 20172019 as compared to 2016 reduced2018 improved our net sales from our production segment by $22.8$47.0 million.

Net sales of co-products increased $11.2decreased $27.7 million, or 4%9%, to $264.4$269.0 million for 20172019 as compared to $253.2$296.7 million for 2016.2018. Our total volume of co-products sold increaseddecreased by 0.20.3 million tons, or 10%, to 3.0 million tons for 2017 from 2.8 million tons for 2016.2019 from 3.1 million tons for 2018. At our average sales price per ton of $87.90$95.33 for 2017,2019, we generated $21.8$26.2 million less in additional net sales from the 0.20.3 million additionalfewer tons of co-products sold in 20172019 as compared to 2016.2018. The declinedecrease of $3.84,$0.49, or 4%0.5%, in our average sales price per ton in 20172019 as compared to 20162018 decreased our net sales from our production segment by $10.6$1.5 million.

Marketing Segment

Net sales of ethanol from our marketing segment, excluding intersegment sales, decreased by $49.4$3.3 million, or 9%1%, to $529.5$355.6 million for 20172019 as compared to $578.9$358.9 million for 2016.2018.

Our total volume of third party ethanol gallons sold reported gross by our marketing segment increased by 27.56.7 million gallons, or 3%, to 952.0212.8 million gallons for 20172019 as compared to 924.5206.1 million gallons for 2016. Our additional production gallons sold accounted for 43.1 million gallons of this increase, as noted above, and was offset by 15.6 million fewer third-party gallons sold.

The increase in production gallons sold by our marketing segment contributed insignificantly to net sales generated by our marketing segment, resulting in an additional $0.4 million in net sales, which were eliminated upon consolidation.

2018. At our marketing segment’s average sales price per gallon of $1.67$1.66 for 2017,2019, we generated $26.0$11.1 million in lowerincreased net sales from our marketing segment from the 15.66.7 million gallon reductionincrease in third-party ethanol sold gross in 20172019 as compared to 2016. Further, the decline2018.

Our volume of $0.05third 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.

The decrease of $0.07 per gallon, or 3%4%, in our marketing segment’s average sales price per gallon in 20172019 as compared to 2016 reduced2018 decreased our net sales from third-party ethanol sold by our marketing segment by $23.4$14.4 million.

Cost of Goods Sold and Gross ProfitLoss

Our consolidated gross profit declinedloss improved to $5.9a gross loss of $9.9 million for 20172019 from $54.4$15.2 million for 2016,2018, representing a gross profit margin of 0.4%negative 0.7% for 20172019 compared to 3.3%negative 1.0% for 2016.2018. Our consolidated gross profit decreasedloss improved primarily due to significantly lower crush marginsproduction volumes during the year, resulting fromin lower ethanol prices.net sales at negative production margins. In addition, for the yearsyear ended December 31, 2017 and 2016,2018, cost of goods sold included approximately $10.7 million and $7.4$4.8 million of larger than anticipated repair and maintenance related expenses to replace faulty equipment.

Production Segment

Our production segment’s gross profit declinedloss improved by $38.7$14.1 million to $3.1a gross loss of $24.9 million for 20172019 as compared to $41.8$39.0 million for 2016. Of this decline, $38.9 million2018. This improvement is attributable to lower margins, offset slightly by $0.2 million in higher gross profit attributable to the 43.1 million gallon increase in production volumes sold in 2017 as compared to 2016.and a slightly improved, although still negative, production margin environment.

Marketing Segment

Our marketing segment’s gross profit declined by $9.8$8.9 million to $2.8$14.9 million for 20172019 as compared to $12.6$23.8 million for 2016.2018. Of this decline, $9.6$9.3 million is attributable to lowerdecreased third party sales margins, and $0.2slightly offset by $0.4 million is attributable to decreased third party marketing volumes in 20172019 as compared to 2016.2018.

Selling, General and Administrative Expenses

Our SG&A increased $0.7expenses decreased $0.9 million to $31.5$35.5 million for 20172019 as compared to $30.8$36.4 million for the same period in 2016. The increase in2018. SG&A is due to higher employee benefits, non-cash compensation and professional fees associated with our ICP acquisition, and higher overhead and other costs related to ICP’s business, partially offset by $3.6 million in gains associated with legal matters resolved in the first quarteras a percentage of 2017.revenue remained largely flat on a year over year basis.

Asset Impairment

We expect SG&AIn connection with the pending sale of $34.0our 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 2018, or approximately $8.5 million per quarter.2019.

Interest Expense, net

Interest expense declined by $9.5increased $3.1 million to $12.9$20.2 million for 20172019 from $22.4$17.1 million for 2016.2018. The declineincrease in interest expense is primarily resulted fromdue to higher interest rates on our senior notes, which increased in accordance with the refinanceterms of debt balances acquired in connection with our acquisition of our Midwest plants, in which we replaced existing debt with lower cost debt.the notes.

Provision (Benefit) for Income Taxes

In 2017, we incurred book and tax losses, yet there were no prior years for which to carry back these losses. As a result, we will carry forward these tax losses, however, we must apply a valuation allowance against these net operating loss carryforwards until the realizability of these losses is more likely than not. Further, we revised the amount of our net deferred tax liabilities under the new Federal tax rates, and consequently recognized a gain on the reduction of these net tax liabilities of $0.3 million, resulting in a net tax benefit for 2017.

Net (Income) Loss Attributed to Noncontrolling Interests

Net (income) 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 income (loss)loss for the noncontrolling interests, which were the ownership interests that we did not own.

Preferred Stock Dividends

Shares of our Series B Preferred Stock are entitled to quarterly cumulative dividends payable in arrears in an amount equal to 7% per annum of the purchase price per share of the Series B Preferred Stock. We accrued and paid in cash dividends of $1.3 million for each of 2017 and 2016 in respect of our Series B Preferred Stock.

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

Net Sales

The increase in our consolidated net sales for 2016 as compared to 2015 was primarily due to an increase in our total gallons sold.

We increased both production and third-party gallons sold, and our volume of co-products sold, for 2016 as compared to 2015. The increases in volumes of our production gallons and co-products sold are primarily due to additional volumes from our plants located in the Midwest, as well as third-party sales. In addition, we expanded our customer base and our sales to a larger national footprint with the addition of regions we cover with our Midwest plants.

Our average sales price per gallon remained relatively flat at $1.67 for 2016 compared to our average sales price per gallon of $1.68 for 2015. Similarly, the average CBOT ethanol price per gallon, remained relatively flat at $1.51 for 2016 compared to $1.52 for 2015.

Production Segment

Net sales of ethanol from our production segment increased by $264.9 million, or 50%, to $792.6 million for 2016 as compared to $527.7 million for 2015. Our total volume of production ethanol gallons sold increased by 164.9 million gallons, or 52%, to 484.1 million gallons for 2016 as compared to 319.2 million gallons for 2015. At our production segment’s average sales price per gallon of $1.62 for 2016, we generated $267.0 million in additional net sales from our production segment from the 164.9 million additional gallons of produced ethanol sold in 2016 as compared to 2015. The decline of $0.01, or 0.6%, in our production segment’s average sales price per gallon in 2016 as compared to 2015 reduced our net sales from our production segment by $2.1 million.

Net sales of co-products increased $70.7 million, or 39%, to $253.2 million for 2016 as compared to $182.5 million for 2015. Our total volume of co-products sold increased by 0.7 million tons to 2.8 million tons for 2016 from 2.1 million tons for 2015. At our average sales price per ton of $91.74 for 2016, we generated $60.6 million in additional net sales from the 0.7 million additional tons of co-products sold in 2016 as compared to 2015. In addition, the increase of $4.82, or 5.5%, in our average sales price per ton in 2016 as compared to 2015 increased our net sales from our production segment by $10.1 million.

Marketing Segment

Net sales of ethanol from our marketing segment increased by $98.0 million, or 20%, to $579.0 million for 2016 as compared to $481.0 million for 2015.

Our total volume of ethanol gallons sold by our marketing segment increased by 223.0 million gallons, or 32%, to 924.5 million gallons for 2016 as compared to 701.5 million gallons for 2015. Our additional production gallons sold accounted for 164.9 million gallons of this increase, as noted above, and our additional third-party gallons sold accounted for 58.1 million gallons of this increase.

The increase in production gallons sold by our marketing segment contributed insignificantly to net sales generated by our marketing segment, resulting in an additional $2.6 million in net sales, which were eliminated upon consolidation.

At our marketing segment’s average sales price per gallon of $1.72 for 2016, we generated $99.6 million in additional net sales from our marketing segment from the 58.1 million gallons in additional third-party ethanol sold in 2016 as compared to 2015. However, the decline of less than $0.01, or 0.3%, in our marketing segment’s average sales price per gallon in 2016 as compared to 2015 reduced our net sales from third-party ethanol sold by our marketing segment by $1.6 million.

Cost of Goods Sold and Gross Profit

Our consolidated gross profit improved significantly to $54.4 million for 2016 from $10.4 million for 2015, representing a gross margin of 3.3% for 2016 compared to 0.9% for 2015. Our consolidated gross profit increased primarily due to a decline of $0.39 in our average delivered cost of corn per bushel in 2016 as compared to 2015.

Production Segment

Our production segment improved our consolidated gross profit by $40.6 million for 2016 as compared to 2015. Of this amount, $26.4 million is attributable to higher margins resulting primarily from our lower corn costs in 2016 as compared to 2015, and $14.2 million in higher gross profit is attributed to the 164.9 million gallon increase in production volumes sold in 2016 as compared to 2015.

Marketing Segment

Our marketing segment improved our consolidated gross profit by $3.4 million for 2016 as compared to 2015. Of this amount, $2.2 million is attributable to the 58.1 million gallon increase in third party marketing volumes in 2016 as compared to 2015, and $1.2 million is attributable to higher margins from our marketing segment in 2016 as compared to 2015.

Selling, General and Administrative Expenses

Our SG&A increased $4.5 million to $30.8 million for 2016 as compared to $26.3 million for the same period in 2015. The increase in SG&A is due to increased professional fees relating to our litigation matters, our costs associated with our transaction with ACEC and refinancing efforts during 2016 and an increase in compensation costs.

Interest Expense

Interest expense increased by $9.8 million to $22.4 million for 2016 from $12.6 million for 2015. Increased interest expense is primarily related to a full year of debt inherited in the acquisition of our Midwest facilities as well as increased debt discount amortization resulting from our early payoff of the debt. In December 2016, we refinanced our outstanding plant debt with new term and revolving debt at interest rates much lower than the prior debt which should result in lower interest expense in future periods.

Provision (Benefit) for Income Taxes

In 2016, we generated taxable income, however, we were able to offset taxable income against net operating losses in prior years. Further, we revised our estimate of our valuation allowance related to prior alternative minimum tax credits, which relates to a change in the tax code during the year, resulting in a net tax benefit for 2016.

Net (Income) Loss Attributed to Noncontrolling Interests

Net (income) loss attributed to noncontrolling interests relates to our consolidated treatment of Pacific Aurora as previously discussed, and PE Op Co., which indirectly owns our plants located on the West Coast. In 2015, PE Op Co. was not wholly owned for the entire year, but was wholly owned at the end of 2015.

Preferred Stock Dividends

Shares of our Series B Preferred Stock are entitled to quarterly cumulative dividends payable in arrears in an amount equal to 7% per annum of the purchase price per share of the Series B Preferred Stock. We accrued and paid in cash dividends of $1.3 million for each of 2016 and 2015 in respect of our Series B Preferred Stock.

Liquidity and Capital Resources

During 2017,2019, we funded our operations primarily from cash on hand cash generated from our operations, proceeds from new credit facilities,and advances fromunder our revolving credit facilities, proceeds from the issuance of additional senior notes, income tax refunds and proceeds from warrant exercises. A portion of thesefacilities. These funds were also used to acquire ICP, make payments on our term debt, make capital expenditures, makecapital lease payments and principal and interest payments on our capital leasesterm debt.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and pay dividendsthe satisfaction of liabilities in respectthe 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 Series B Preferred Stock.debt levels, a strengthening of our cash and liquidity position, and opportunities for strategic partnerships and capital raising activities, positioning us to optimize our business performance. Our most significant challenges in meeting these objectives would be a sustained adverse margin environment and insufficient cash flow to fund operations or make our scheduled debt payments.

We do not expect to have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell 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 remainingcurrent cash balances, amounts available for borrowing, if any,availability under our lines of credit, facilities andany cash generated from operations.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 current and future available capital resources, revenues generated from operations, and other existing sourcesas of liquidity, includingthe date of this report, we are in compliance with all debt covenants contained in our credit facilities, will be adequate to meet our anticipated capital requirements for at least the next twelve months.facilities.

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” contained in this report (dollars in thousands).

Restricted Net Assets

At December 31, 2017,2019, we had approximately $302.9$180.9 million of net assets at our subsidiaries that were not available to be transferred to Pacific Ethanol, Inc. 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 decreasedimproved to $112.5$71.7 million at December 31, 20172019 from $156.4a working capital deficit of $63.1 million at December 31, 20162018 as a result of a decreasean increase of $32.0$63.3 million in current assets and an increasea decrease of $11.9$71.5 million in current liabilities.

CurrentOur current assets decreasedincreased primarily due to a decreaseadditional assets held-for-sale of $14.8$69.8 million associated with our pending sale of our interest in cash, $6.7Pacific Aurora.

Our current liabilities declined by $71.5 million in prepaid inventory, $5.9 million in accounts receivable, $5.0 million in income tax receivablesat December 31, 2019 as compared to December 31, 2018 primarily due to our amendment of our senior secured notes and $1.1 million in derivative and other assets, partially offsetresulting long-term treatment, reducing our current portion of long-term debt by an increase of $1.5 million in inventories.$83.7 million.

Our cash and cash equivalents decreaseddeclined by $14.8$7.6 million at December 31, 20172019 as compared to December 31, 20162018 primarily due to $50.4$23.4 million of cash used in our operating activities and $3.3 million in cash used in our investing activities in connection with our plant improvement initiatives and our acquisition of ICP, and an additional $0.8 million used in our net financing activities,2019, partially offset by $36.5 million of cash generated from our operations.

Our current liabilities increased by $11.9 million at December 31, 2017 as compared to December 31, 2016 primarily due to an increase of $9.5$19.0 million in current portion of long-term debt, $4.1 million in accounts payable and accrued liabilities, partially offset by a decrease of $1.5 million in derivative and other current liabilities.

Cashcash provided by orour financing activities for the period.

Cash used in our Operating Activities

Cash provided byused in our operating activities declinedincreased by $0.7$24.9 million in 20172019 as compared to 2016.2018. We generated $36.5used $23.4 million of cash from our operating activities in 2017.2019. Specific factors that contributed to the decreaseincrease in cash provided byused in our operating activities include:

These amounts were partially offset by: