UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020 

OR

For the transition period from to

Commission file number: 000-21467

PACIFIC ETHANOL,ALTO INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (916) 403-2123

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐    No  ☒

The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant computed by reference to the closing sale price of such stock, was approximately $112.2$37.7 million as of June 29, 2018,30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter.

As of April 26, 2019,March 25, 2021, there were 49,870,56573,167,785 shares of the registrant’s common stock, $0.001 par value per share, and 896 shares of the registrant’s non-voting common stock, $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NonePart III incorporates by reference certain information from the registrant’s proxy statement (the “Proxy Statement”) for the 2021 Annual Meeting of Stockholders to be filed on or before April 30, 2021.

TABLE OF CONTENTS

EXPLANATORY NOTECAUTIONARY STATEMENT

This Amendment No. 1 (this “Amendment No. 1”) on Form 10-K/A amends theAll statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements or characterizations of Pacific Ethanol, Inc. (the “Company”, “we,historical fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning projected net sales, costs and expenses and gross margins; our ability to timely and successfully implement our strategic initiatives; our ability to continue as a going concern; our accounting estimates, assumptions and judgments; the demand for ethanol and its co-products; the competitive nature of and anticipated growth in our industry; production capacity and goals; our ability to consummate acquisitions and integrate their operations successfully; and our prospective needs for additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “us,“expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and variations or “our”)negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under “Risk Factors” in Item 1A of this report. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

PART I

Item 1. Business.

Business Overview

We are a leading producer and marketer of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States based on annualized volumes.

We operate seven alcohol production facilities. Three of our production facilities are located in the Midwestern state of Illinois and four of our facilities are located in the Western states of California, Oregon and Idaho. We have an annual alcohol production capacity of 450 million gallons. We market all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties. In 2020, we marketed over 500 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and nearly 1.5 million tons of essential ingredients on a dry matter basis. Our business consists of three reportable segments: two production segments and a marketing segment.

Our mission is to expand our business as a leading producer and marketer of specialty alcohols and essential ingredients. We intend to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

Production Segments

We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels. Products for the year ended December 31, 2018Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial animal feed and pet foods. Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

We produce our alcohols and essential ingredients at our production facilities described below. Our production facilities located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.

We are currently operating at approximately 64% of our estimated maximum annual production capacity. Our Magic Valley, Stockton and Madera facilities are currently idled. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Marketing Segment

We market all of the alcohols and essential ingredients we produce at our facilities. We also market fuel-grade ethanol produced by third parties.

We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

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

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

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

Company History

We are a Delaware corporation formed in February 2005. Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO”. Our Internet website address is http://www.altoingredients.com. Information contained on our website is not part of this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission on March 18, 2019 (the “Original Report”).and other Securities and Exchange Commission filings are available free of charge through our website as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

The purpose of this Amendment No. 1Business Strategy

Our goal is to include in Part III the information that was to be incorporated by reference to the Proxy Statement forexpand our 2019 Annual Meetingbusiness as a leading producer and marketer of Stockholders. This Amendment No. 1 hereby amends Part III, Items 10 through 14,specialty alcohols and Part IV, Items 15 and 16 of the Original Report.

essential ingredients. The reference on the cover page of the Original Report to the incorporation by reference of the registrant’s Definitive Proxy Statement into Part III of the Original Report is hereby amended to delete that reference.

Except for the additions and modifications described above, the Company has not modified or updated disclosures presented in the Original Report in this Amendment No. 1.

PART III

Directors

The following table sets forth certain information regarding our directors as of April 26, 2019:

Experience and Background

The biographies below describe the skills, qualities and attributes and business experience of eachkey elements of our directors, including the capacities in which they served during the past five years:

William L. Jones has served as Chairman of the Boardbusiness and as a director since March 2005. Mr. Jones is a co-founder of Pacific Ethanol California, Inc., or PEI California, which is one of our predecessors, and served as Chairman of the Board of PEI California since its formation in January 2003 through March 2004, when he stepped off the board of directors of PEI Californiagrowth strategy to focus on his candidacy for one of California’s United States Senate seats. Mr. Jones was California’s Secretary of State from 1995 to 2003. Since May 2002, Mr. Jones has also been the owner of Tri-J Land & Cattle, a diversified farming and cattle company in Fresno County, California. Mr. Jones has a B.A. degree in Agribusiness and Plant Sciences from California State University, Fresno.

Mr. Jones’s qualifications to serve on our Boardachieve this objective include:

Neil M. KoehlerCompetitive Strengths has served as Chief Executive Officer, President and as a director since March 2005. Mr. Koehler is a co-founder

We are the largest producer of PEI California and served as its Chief Executive Officer since its formation in January 2003 and as a member of its board of directors from March 2004 until its dissolution in March 2012. Prior to his association with PEI California, Mr. Koehler was the co-founder and General Manager of Parallel Products, one of the first ethanol production facilities in California, which was sold to a public company in 1997. Mr. Koehler was also the sole manager and sole limited liability company member of Kinergy Marketing, LLC, or Kinergy, which he founded in September 2000, and which is one of our wholly-owned subsidiaries. Mr. Koehler has over 30 years of experiencespecialty alcohols in the ethanol production and marketing industry in the Western United States. Mr. Koehler is Chairman of the Board of Directors of the Renewable Fuels Association and is a nationally-recognized speakerStates based on the production and marketing of renewable fuels. Mr. Koehler has a B.A. degree in Government from Pomona College.

Mr. Koehler’s qualifications to serve onannualized volumes. We believe that our Boardcompetitive strengths include:

Michael D. Kandris has served as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris served as an independent contractor with supervisory responsibility for ethanol plant operations, under the direction of our Chief Executive Officer, from January 1, 2012 to January 5, 2013. Mr. Kandris was President, Western Division of Ruan Transportation Management Systems from November 2008 until his retirement in September 2009. From January 2000 to November 2008, Mr. Kandris served as President and Chief Operating Officer of Ruan Transportation Management Systems, where he had overall responsibility for all operations, finance and administrative functions. Mr. Kandris has 30 years of experience in all modes of transportation and logistics. Mr. Kandris served on the Executive Committee of the American Trucking Association and as a board member for the National Tank Truck Organization until his retirement from Ruan Transportation Management Systems in September 2009. Mr. Kandris has a B.S. degree in Business from California State University, Hayward.

Mr. Kandris’s qualifications to serve on our Board include:

Terry L. Stone has served as a director since March 2005. Mr. Stone is a Certified Public Accountant with over thirty years of experience in accounting and taxation. He has been the owner of his own accountancy firm since 1990 and has provided accounting and taxation services to a wide range of industries, including agriculture, manufacturing, retail, equipment leasing, professionals and not-for-profit organizations. Mr. Stone has served as a part-time instructor at California State University, Fresno, teaching classes in taxation, auditing and financial and management accounting. Mr. Stone is also a financial advisor and franchisee of Ameriprise Financial Services, Inc. Mr. Stone has a B.S. degree in Accounting from California State University, Fresno.

Mr. Stone’s qualifications to serve on our Board include:

John L. Prince has served as a director since July 2005. Mr. Prince is retired but also works as a consultant. Mr. Prince was an Executive Vice President with Land O’ Lakes, Inc. from July 1998 until his retirement in 2004. Prior to that time, Mr. Prince was President and Chief Executive Officer of Dairyman’s Cooperative Creamery Association located in Tulare, California, until its merger with Land O’ Lakes, Inc. in July 1998. Land O’ Lakes, Inc. is a farmer-owned, national branded organization based in Minnesota with annual sales in excess of $6 billion and membership and operations in over 30 states. Prior to joining the Dairyman’s Cooperative Creamery Association, Mr. Prince was President and Chief Executive Officer for nine years until 1994, and was Operations Manager for the preceding ten years commencing in 1975, of the Alto Dairy Cooperative in Waupun, Wisconsin. Mr. Prince has a B.A. degree in Business Administration from the University of Northern Iowa.

Mr. Prince’s qualifications to serve on our Board include:

Douglas L. Kieta has served as a director since April 2006. Mr. Kieta is currently retired but also works as a consultant through Century West Projects, Inc., of which he is the President and an owner, providing project and construction management services. Prior to retirement in January 2009, Mr. Kieta was employed by BE&K, Inc., a large engineering and construction company headquartered in Birmingham, Alabama, where he served as the Vice President of Power from May 2006 to January 2009. From April 1999 to April 2006, Mr. Kieta was employed at Calpine Corporation where he was the Senior Vice President of Construction and Engineering. Calpine Corporation is a major North American power company which leases and operates integrated systems of fuel-efficient natural gas-fired and renewable geothermal power plants and delivers clean, reliable and fuel-efficient electricity to customers and communities in 21 states and three Canadian provinces. Mr. Kieta has a B.S. degree in Civil Engineering from Clarkson University and a Master’s degree in Civil Engineering from Cornell University.

Mr. Kieta’s qualifications to serve on our Board include:

Larry D. Layne has served as a director since December 2007. Mr. Layne joined First Western Bank in 1963 and served in various capacities with First Western Bank and its acquiror, Lloyds Bank of California, and Lloyd’s acquiror, Sanwa Bank California, until his retirement in 2000. Sanwa Bank California was subsequently acquired by Bank of the West. From 1999 to 2000, Mr. Layne was Vice Chairman of Sanwa Bank California in charge of its Commercial Banking Group which encompassed all of Sanwa Bank California’s 38 commercial and business banking centers and 12 Pacific Rim branches as well as numerous internal departments. From 1997 to 2000, Mr. Layne was also Chairman of the Board of The Eureka Funds, a mutual fund family of five separate investment funds with total assets of $900 million. From 1996 to 2000, Mr. Layne was Group Executive Vice President of the Relationship Banking Group of Sanwa Bank California in charge of its 107 branches and 13 commercial banking centers as well as numerous internal departments. Mr. Layne has also served in various capacities with many industry and community organizations, including as Director and Chairman of the Board of the Agricultural Foundation at California State University, Fresno; Chairman of the Audit Committee of the Agricultural Foundation at California State University, Fresno; board member of the Fresno Metropolitan Flood Control District; and Chairman of the Agricultural Lending Committee of the California Bankers Association. Mr. Layne has a B.S. degree in Dairy Husbandry from California State University, Fresno and is a graduate of the California Agriculture Leadership Program.

Mr. Layne’s qualifications to serve on our Board include:

Family Relationships

There are no family relationships among our directors.

Corporate Governance

Our Board believes that good corporate governance is paramount to ensure that Pacific Ethanol is managed for the long-term benefit of our stockholders. Our Board has adopted corporate governance guidelines that guide its actions with respect to, among other things, the composition of the Board and its decision-making processes, Board meetings and involvement of management, the Board’s standing committees and procedures for appointing members of the committees, and its performance evaluation of our Chief Executive Officer.

Our Board has adopted a Code of Ethics that applies to all of our directors, officers, employees and consultants and an additional Code of Ethics that applies to our Chief Executive Officer and senior financial officers. The Codes of Ethics, as applied to our principal executive officer, principal financial officer and principal accounting officer constitutes our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and is our “code of conduct” within the meaning of NASDAQ’s listingquality control standards. Our Codes of Ethics are available on our website athttp://www.pacificethanol.com/investors/governance. Information on our Internet website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the Securities and Exchange Commission.

Audit Committee

Our Audit Committee selects our independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors, reviews our financial statements for each interim period and for the full year and implements and manages our enterprise risk management program. The Audit Committee also has the authority to retain consultants, and other advisors. Messrs. Stone, Jones and Prince served on our Audit Committee for all of 2018. Our Board has determined that each member of the Audit Committee is “independent” under the current NASDAQ listing standards and satisfies the other requirements under NASDAQ listing standards and Securities and Exchange Commission rules regarding audit committee membership. Our Board has determined that Mr. Stone qualifies as an “audit committee financial expert” under applicable Securities and Exchange Commission rules and regulations governing the composition of the Audit Committee, and satisfies the “financial sophistication” requirements of NASDAQ’s listing standards. During 2018, our Audit Committee held eight meetings.

Executive Officers

The following table sets forth certain information regarding our executive officers as of April 26, 2019:

Neil M. Koehler has served as Chief Executive Officer, President and as a director since March 2005. Mr. Koehler is a co-founder of PEI California and served as its Chief Executive Officer since its formation in January 2003 and as a member of its board of directors from March 2004 until its dissolution in March 2012. Prior to his association with PEI California, Mr. Koehler was the co-founder and General Manager of Parallel Products, one of the first ethanol production facilities in California, which was sold to a public company in 1997. Mr. Koehler was also the sole manager and sole limited liability company member of Kinergy, which he founded in September 2000, and which is one of our wholly-owned subsidiaries. Mr. Koehler has over 30 years of experience in the ethanol production and marketing industry in the Western United States. Mr. Koehler is the Chairman of the Board of Directors of the Renewable Fuels Association and is a nationally-recognized speaker on the production and marketing of renewable fuels. Mr. Koehler has a B.A. degree in Government from Pomona College.

Michael D. Kandris has served as a director since June 2008 and as our Chief Operating Officer since January 6, 2013. Mr. Kandris served as an independent contractor with supervisory responsibility for ethanol plant operations, under the direction of our Chief Executive Officer, from January 1, 2012 to January 5, 2013. Mr. Kandris was President, Western Division of Ruan Transportation Management Systems from November 2008 until his retirement in September 2009. From January 2000 to November 2008, Mr. Kandris served as President and Chief Operating Officer of Ruan Transportation Management Systems, where he had overall responsibility for all operations, finance and administrative functions. Mr. Kandris has 30 years of experience in all modes of transportation and logistics. Mr. Kandris served on the Executive Committee of the American Trucking Association and as a board member for the National Tank Truck Organization until his retirement from Ruan Transportation Management Systems in September 2009. Mr. Kandris has a B.S. degree in Business from California State University, Hayward.

Bryon T. McGregor has served as our Chief Financial Officer since November 19, 2009. Mr. McGregor served as Vice President, Finance at Pacific Ethanol from September 2008 until he became Interim Chief Financial Officer in April 2009. Prior to joining Pacific Ethanol, Mr. McGregor was employed as Senior Director for E*TRADE Financial from February 2002 to August 2008, serving in various capacities including International Treasurer based in London, England from 2006 to 2008, Brokerage Treasurer and Director from 2003 to 2006 and Assistant Treasurer and Director of Finance and Investor Relations from 2002 to 2003. Prior to joining E*TRADE, Mr. McGregor served as Manager of Finance and Head of Project Finance for BP (formerly Atlantic Richfield Company – ARCO) from 1998 to 2001. Mr. McGregor has extensive experience in banking and served as a Director of International Project Finance for Credit Suisse from 1992 to 1998, as Assistant Vice President for Sumitomo Mitsubishi Banking Corp (formerly The Sumitomo Bank Limited) from 1989 to 1992, and as Commercial Banking Officer for Bank of America from 1987 to 1989. Mr. McGregor has a B.S. degree in Business Management from Brigham Young University.

Christopher W. Wright has served as Vice President, General Counsel and Secretary since June 2006. From April 2004 until he joined Pacific Ethanol in June 2006, Mr. Wright operated an independent consulting practice, advising companies on complex transactions, including acquisitions and financings. Prior to that time, from January 2003 to April 2004, Mr. Wright was a partner with Orrick, Herrington & Sutcliffe, LLP, and from July 1998 to December 2002, Mr. Wright was a partner with Cooley Godward LLP, where he served as Partner-in-Charge of the Pacific Northwest office. Mr. Wright has extensive experience advising boards of directors on compliance, securities matters and strategic transactions, with a particular focus on guiding the development of rapidly growing companies. He has acted as general counsel for numerous technology enterprises in all aspects of corporate development, including fund-raising, business and technology acquisitions, mergers and strategic alliances. Mr. Wright has an A.B. degree in History from Yale College and a J.D. from the University of Chicago Law School.

Paul P. Koehlerhas served as a Vice President since 2005. Mr. Koehler has over 25 years of experience in business development and marketing in the energy industry. Prior to joining Pacific Ethanol in 2005, he served as Director of Business Development for PPM Energy, Inc., leading PPM’s efforts to develop and acquire several wind power projects. Mr. Koehler was also a co-founder of ReEnergy, one of the companies acquired by Pacific Ethanol. Mr. Koehler also served as a member of the board of directors of Towerstream Corporation, a public company, from May 30, 2007 to January 31, 2018. During the 1990s he worked for Portland General Electric and Enron in marketing and origination of long-term transactions, risk management, and energy trading. Mr. Koehler has a B.A. degree from the Honors College at the University of Oregon.

James R. Sneed has served as a Vice President since September 2012. Mr. Sneed has worked for over 20 years in various senior management and executive positions in the ethanol industry. Prior to joining Pacific Ethanol in 2012, Mr. Sneed was employed by Hawkeye Gold, LLC from April 2010 to September 2012, ultimately serving as Vice President – Ethanol Marketing and Trading. Prior to that time, from May 2003 to April 2010, Mr. Sneed was employed by Aventine Renewable Energy, an ethanol production and marketing company, where he helped build its operations from two ethanol plants in two states to marketing for fifteen production facilities in eight states, ultimately serving as Vice President, Marketing and Logistics. Mr. Sneed is a Certified Public Accountant, has a B.S. degree in Accounting from Olivet Nazarene University, and has an MBA degree from Northwestern University, Kellogg School of Management.

Family Relationships

Our officers are appointed by and serve at the discretion of our Board. Except for Neil M. Koehler and Paul P. Koehler, who are brothers, there are no family relationships among our executive officers and directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our common stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. These officers, directors and stockholders are required by Securities and Exchange Commission regulations to furnish us with copies of all reports that they file.

Based solely upon a review of copies of the reports furnished to us during the year ended December 31, 2018 and thereafter, or any written representations received by us from directors, officers and beneficial owners of more than 10% of our common stock (“reporting persons”) that no other reports were required, we believe that all reporting persons filed, on a timely basis, all reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2018 or prior fiscal years.

Summary Compensation Table

The following table sets forth summary information concerning the compensation of our (i) Chief Executive Officer and President, who serves as our principal executive officer, (ii) Chief Operating Officer, and (iii) Chief Financial Officer, who serves as our principal financial officer (collectively, the “named executive officers”), for all services rendered in all capacities to us for the years ended December 31, 2018 and 2017.

Executive Employment Agreements

Neil M. Koehler

Our Amended and Restated Employment Agreement with Neil M. Koehler provides for at-will employment as our President and Chief Executive Officer. Mr. Koehler’s annual base salary is $489,305. Mr. Koehler is eligible to participate in our short-term incentive plan with a pay-out target of 70% of his base salary, to be paid based upon performance criteria set by the Compensation Committee of our board of directors. For 2017, we paid Mr. Koehler a cash bonus under our annual cash incentive compensation program based on his performance during that year.

Upon termination by us without cause or resignation by Mr. Koehler for good reason, Mr. Koehler is entitled to receive (i) severance equal to eighteen months of his base salary, (ii) 150% of his total target short-term incentive plan award, (iii) continued health insurance coverage for eighteen months or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 25% of all shares or options subject to any equity awards granted to Mr. Koehler prior to Mr. Koehler’s termination which are unvested as of the date of termination.

However, if Mr. Koehler is terminated without cause or resigns for good reason in anticipation of or twenty-four months after a change in control, Mr. Koehler is entitled to (i) severance equal to thirty-six months of base salary, (ii) 300% of his total target short-term incentive plan award, (iii) continued health insurance coverage for thirty-six months or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 100% of all shares or options subject to any equity awards granted to Mr. Koehler prior to Mr. Koehler’s termination that are unvested as of the date of termination.

If we terminate Mr. Koehler’s employment upon his disability, Mr. Koehler is entitled to severance equal to twelve months of base salary.

The term “for good reason” is defined in the Amended and Restated Employment Agreement as (i) the assignment to Mr. Koehler of any duties or responsibilities that result in the material diminution of Mr. Koehler’s authority, duties or responsibility, (ii) a material reduction by us in Mr. Koehler’s annual base salary, except to the extent the base salaries of all or our other executive officers are accordingly reduced, (iii) a relocation of Mr. Koehler’s place of work, or our principal executive offices if Mr. Koehler’s principal office is at these offices, to a location that increases Mr. Koehler’s daily one-way commute by more than thirty-five miles, or (iv) any material breach by us of any material provision of the Amended and Restated Employment Agreement.

The term “cause” is defined in the Amended and Restated Employment Agreement as (i) Mr. Koehler’s indictment or conviction of any felony or of any crime involving dishonesty, (ii) Mr. Koehler’s participation in any fraud or other act of willful misconduct against us, (iii) Mr. Koehler’s refusal to comply with any of our lawful directives, (iv) Mr. Koehler’s material breach of his fiduciary, statutory, contractual, or common law duties to us, or (v) conduct by Mr. Koehler which, in the good faith and reasonable determination of our board of directors, demonstrates gross unfitness to serve; provided, however, that in the event that any of the foregoing events is reasonably capable of being cured, we shall, within twenty days after the discovery of the event, provide written notice to Mr. Koehler describing the nature of the event and Mr. Koehler shall thereafter have ten business days to cure the event.

A “change in control” is deemed to have occurred if, in a single transaction or series of related transactions (i) any person (as the term is used in Section 13(d) and 14(d) of the Exchange Act), or persons acting as a group, other than a trustee or fiduciary holding securities under an employee benefit program, is or becomes a “beneficial owner” (as defined in Rule 13-3 under the Exchange Act), directly or indirectly of securities of Pacific Ethanol, Inc. representing a majority of the combined voting power of Pacific Ethanol, Inc., (ii) there is a merger, consolidation or other business combination transaction of Pacific Ethanol, Inc. with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of Pacific Ethanol, Inc. outstanding immediately prior to the transaction continue to hold (either by the shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of Pacific Ethanol, Inc. (or the surviving entity) outstanding immediately after the transaction, or (iii) all or substantially all of our assets are sold.

Michael D. Kandris

Our Amended and Restated Employment Agreement with Michael D. Kandris provides for at-will employment as our Chief Operating Officer. Mr. Kandris’s annual base salary is $350,745. Mr. Kandris is eligible to participate in our short-term incentive plan with a pay-out target of 50% of his base salary, to be paid based upon performance criteria set by the Compensation Committee of our board of directors. For 2017, we paid Mr. Kandris a cash bonus under our annual cash incentive compensation program based on his performance during that year.

Upon termination by us without cause or resignation by Mr. Kandris for good reason, Mr. Kandris is entitled to receive (i) severance equal to twelve months of his base salary, (ii) 100% of his total target short-term incentive plan award, (iii) continued health insurance coverage for twelve months or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 25% of all shares or options subject to any equity awards granted to Mr. Kandris prior to Mr. Kandris’s termination which are unvested as of the date of termination.

However, if Mr. Kandris is terminated without cause or resigns for good reason in anticipation of or twenty-four months after a change in control, Mr. Kandris is entitled to (i) severance equal to twenty-four months of base salary, (ii) 200% of his total target short-term incentive plan award, (iii) continued health insurance coverage for twenty-four months or until the earlier effective date of coverage under a subsequent employer’s plan, and (iv) accelerated vesting of 100% of all shares or options subject to any equity awards granted to Mr. Kandris prior to Mr. Kandris’s termination that are unvested as of the date of termination.

If we terminate Mr. Kandris’s employment upon his disability, Mr. Kandris is entitled to severance equal to twelve months of base salary.

The meanings given to the terms “cause,” “good reason” and “change in control” in Mr. Kandris’s Amended and Restated Employment Agreement are the same as those contained in Mr. Koehler’s Amended and Restated Employment Agreement described above.

Bryon T. McGregor

Our Amended and Restated Employment Agreement with Bryon T. McGregor provides for at-will employment as our Chief Financial Officer, Vice President and Assistant Secretary. Mr. McGregor’s annual base salary is $317,963. Mr. McGregor is eligible to participate in our short-term incentive plan with a pay-out target of 50% of his base salary, to be paid based upon performance criteria set by the Compensation Committee of our board of directors. For 2017, we paid Mr. McGregor a cash bonus under our annual cash incentive compensation program based on his performance during that year.

All other terms and conditions of Mr. McGregor’s Amended and Restated Employment Agreement are substantially the same as those contained in Mr. Kandris’s Amended and Restated Employment Agreement described above.

Outstanding Equity Awards at Fiscal Year-End – 2018

The following table sets forth information about outstanding equity awards held by our named executive officers as of December 31, 2018.

Compensation of Directors

We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting the compensation of directors, we consider the significant amount of time that Board members spend in fulfilling their duties to Pacific Ethanol as well as the experience level we require to serve on our Board. The Board, through its Compensation Committee, annually reviews the compensation and compensation policies for Board members. In recommending director compensation, the Compensation Committee is guided by the following three goals:

In making compensation decisions for 2018 as to our directors, our Compensation Committee compared our cash and equity compensation payable to directors against market data obtained by Korn Ferry Hay Group in 2015. Our Compensation Committee determined that this data from 2015 remained relevant to its compensation decisions for 2018. The Korn Ferry Hay Group data included a survey of 1,400 companies across 24 industries with revenues between $1 billion and $2.5 billion. For 2018, our Compensation Committee targeted compensation for our directors at approximately the median of compensation paid to directors of the companies contained in the Korn Ferry Hay Group data.

Cash Compensation

Our annual cash compensation program for directors includes the following:

We believe that these competitive strengths will help us attain our goal of expanding our business as a leading producer and marketer of specialty alcohols and essential ingredients.

Overview of Our Key Markets and Market Opportunity

We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels.

Health, Home & Beauty

Our products for the health, home and beauty markets include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. We offer a variety of specialty alcohols for the health, home and beauty markets, depending on usage and regulatory requirements, including API-grade, United States Pharmacopeia, or USP, -grade ethyl alcohols, and industrial-grade ethyl alcohol.

In 2020 we expanded our range of available product offerings within the health, home and beauty markets through quality management systems certifications. We have ISO 9001, ICH Q7 and EXCiPACT certifications at a key production facility at our Pekin Campus, all of which are viewed as important attestations of quality control standards. In particular, our ICH Q7 certification qualifies our specialty alcohols for use as an API, and our EXCiPACT certification qualifies our specialty alcohols for use as an excipient in the pharmaceutical industry. These certifications enable us to offer products to a wider group of customers and generally at more profitable margins.

Food & Beverage

Our products for the food and beverage market include specialty alcohols used in alcoholic beverages, flavor extracts and vinegar as well as corn germ used for corn oils and carbon dioxide, or CO₂, used for beverage carbonation and dry ice. The principal specialty alcohol we offer for alcoholic beverages and vinegar is our grain neutral spirits, or GNS, alcohol.

We believe the key drivers in the food and beverage market include consumer preferences for the social currency of brand authenticity and heritage; consumers seeking unique and personalized experiences; younger adults drawn to the caché of luxury brands, including super-premium spirits; improved consumer access to spirits products; the growth of craft distillers; and the ability to meet wide-ranging consumer preferences through a broad diversity of spirits categories and cocktails.

Essential Ingredients

Our essential ingredients products include dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods. The raw materials for our essential ingredients products are generated as co-products from our production of alcohols. These co-products are further manufactured, altered and refined into our essential ingredients products, including for special customer applications.

Many of our essential ingredients are used in a variety of food products to affect their nutrition, including protein and fat content, as well as other product attributes such as taste, texture, palatability and stability. Our high quality and high purity manufacturing enable our customers to use some of our essential ingredients in human foods while others are used in pet foods and animal feed. See “—Overview of Distillers Grains Market”.

We expect the essential ingredients market to grow significantly due to global demand for higher-grade protein feed, such as feed used in fisheries and other applications.

Renewable Fuels

Our renewable fuels products include fuel-grade ethanol used as transportation fuel and distillers corn oil used as a biodiesel feedstock. Our renewable fuels business is supported by our own production of fuel-grade ethanol as well as fuel-grade ethanol produced by third parties.

Renewable fuels, primarily fuel-grade ethanol, are used for a variety of purposes, including as octane enhancers for premium gasoline and to enable refiners to produce greater quantities of lower octane blend stock; for fuel blending to extend fuel supplies and reduce reliance on crude oil and refined products; and to comply with a variety of governmental programs, in particular, the national Renewable Fuel Standard, or RFS, which was enacted to promote alternatives to fossil fuels. Under the RFS, the mandated use of all renewable fuels rises incrementally and peaks at 36.0 billion gallons by 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol. The RFS allows the Environmental Protection Agency, or EPA, to adjust the annual requirement based on certain facts and circumstances. See “—Governmental Regulation”.

According to the Renewable Fuels Association, the domestic fuel-grade ethanol industry produced 13.8 billion gallons of ethanol in 2020. According to the United States Department of Energy, total annual gasoline consumption in the United States is approximately 123.5 billion gallons and total annual fuel-grade ethanol consumption represented approximately 11% of this amount in 2020. We anticipate that increased transportation and economic activity as the coronavirus pandemic subsides together with continued limited opportunities for gasoline refinery expansions and the growing importance of reducing CO₂ emissions through the use of renewable fuels will generate additional growth in the demand for fuel-grade ethanol.

Overview of Alcohol Production Process

Alcohol production from starch- or sugar-based feedstock is a highly-efficient process. Modern alcohol production requires large amounts of corn, or other high-starch grains, and water as well as chemicals, enzymes and yeast, and denaturants including unleaded gasoline or liquid natural gas, in addition to natural gas and electricity.

Dry Milling Process

In the dry milling process, corn or other high-starch grain is first ground into meal, then slurried with water to form a mash. Enzymes are added to the mash to convert the starch into dextrose, a simple sugar. Ammonia is added for acidic (pH) control and as a nutrient for the yeast. The mash is processed through a high temperature cooking procedure, which reduces bacteria levels prior to fermentation. The mash is then cooled and transferred to fermenters, where yeast is added and the conversion of sugar to alcohol and CO₂begins.

After fermentation, the resulting “beer” is transferred to distillation, where the alcohol is separated from the residual “stillage”. The resulting alcohol is concentrated to 190 proof using conventional distillation methods and then is dehydrated to approximately 200 proof, representing 100% alcohol levels, in a molecular sieve system. For fuel-grade ethanol, the resulting anhydrous alcohol is then blended with approximately 2.5% denaturant, which is usually gasoline, and is then ready for shipment to renewable fuels markets.

The residual stillage is separated into a coarse grain portion and a liquid portion through a centrifugation process. The soluble liquid portion is concentrated to about 40% dissolved solids by an evaporation process. This intermediate state is called condensed distillers solubles, or syrup. The coarse grain and syrup portions are then mixed to produce wet distillers grains, or WDG, or can be mixed and dried to produce dried distillers grains with solubles, or DDGS. Both WDG and DDGS are high-protein animal feed products.

Wet Milling Process

In the wet milling process, corn or other high-starch grain is first soaked or “steeped” in water for 24 – 48 hours to separate the grain into its many components. After steeping, the grain slurry is processed first to separate the grain germ, from which the grain oil can be further separated. The remaining fiber, gluten and starch components are further separated and sold.

The steeping liquor is concentrated in an evaporator. The concentrated product, called heavy steep water, is co-dried with the fiber component and is then sold as gluten feed. The gluten component is filtered and dried to produce gluten meal.

The starch and any remaining water from the mash is then processed into alcohol or dried and processed into corn syrup. The fermentation process for alcohol at this stage is similar to the dry milling process.

Overview of Distillers Grains Market

Distillers grains are produced as a co-product of alcohol production and are valuable components of feed rations primarily to dairies and beef cattle markets, both nationally and internationally. Our plants produce both WDG and DDGS. WDG is sold to customers proximate to the plants and DDGS is delivered by truck, rail and barge to customers in domestic and international markets. Producing WDG also allows us to use up to one-third less process energy, thus reducing production costs and lowering the carbon footprint of our production facilities.

Historically, the market price for distillers grains has generally tracked the value of corn. We believe that the market price of WDG and DDGS is determined by a number of factors, including the market value of corn, soybean meal and other competitive ingredients, the performance or value of WDG and DDGS in a particular feed formulation and general market forces of supply and demand, including export markets for these co-products. The market price of distillers grains is also often influenced by nutritional models that calculate the feed value of distillers grains by nutritional content, as well as reliability of consistent supply.

Customers

We market and sell through our wholly-owned subsidiary, Kinergy Marketing LLC, or Kinergy, all of the alcohols we produce. Kinergy also markets fuel-grade ethanol produced by third parties. We market and sell through our wholly-owned subsidiary, Alto Nutrients, LLC, all of the essential ingredients we produce.

We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

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

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

Our Pekin Campus production segment generated $330.4 million and $343.6 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of alcohols. Our Pekin Campus production segment generated $130.3 million and $139.0 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of essential ingredients.

During 2020 and 2019, our Pekin Campus production segment sold an aggregate of approximately 193.9 million and 218.5 million gallons of alcohols and 829,000 and 913,000 tons of essential ingredients, respectively, on a dry matter basis.

Our other production segment generated $137.7 million and $455.3 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of alcohols. Our other production segment generated $40.9 million and $130.0 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of essential ingredients.

During 2020 and 2019, our other production segment sold an aggregate of approximately 78.0 million and 272.5 million gallons of alcohols and 619,000 and 1,908,000 tons of essential ingredients, respectively, on a dry matter basis.

Our marketing segment generated $257.7 million and $356.9 million in net sales for the years ended December 31, 2020 and 2019, respectively, from the sale of alcohols.

During 2020 and 2019, we produced or purchased from third parties and resold an aggregate of 536.3 million and 819.4 million gallons of alcohols to approximately 65 and 109 customers, respectively. For 2020 and 2019, sales to our two largest customers, Chevron Products USA and Valero Energy Corporation represented an aggregate of approximately 14% and 24%, of our net sales, respectively. For 2020 and 2019, sales to each of our other customers represented less than 10% of our net sales.

Suppliers

Production Segments

Our production operations depend upon various raw materials suppliers, including suppliers of corn, natural gas, electricity and water. The cost of corn is the most important variable cost associated with our alcohol production. We source corn for our plants using standard contracts, including spot purchase, forward purchase and basis contracts. When resources are available, we seek to limit the exposure of our production operations to raw material price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and by purchasing corn and other raw materials futures contracts.

During 2020 and 2019, purchases of corn from our two largest suppliers represented an aggregate of approximately 25% and 40% of our total corn purchases, respectively, for those periods. Purchases from each of our other corn suppliers represented less than 10% of total corn purchases in each of 2020 and 2019.

Marketing Segment

Our marketing operations cover alcohols and essential ingredients we produce but also depend upon various third-party producers of fuel-grade ethanol. In addition, we provide transportation, storage and delivery services through third-party service providers with whom we have contracted to receive fuel-grade ethanol at agreed upon locations from our third-party suppliers and to store and/or deliver the ethanol to agreed-upon locations on behalf of our customers. These contracts generally run from year-to-year, subject to termination by either party upon advance written notice before the end of the then current annual term.

During 2020 and 2019, we purchased and resold from third parties an aggregate of approximately 163 million and 213 million gallons, respectively, of fuel-grade ethanol.

During 2020 and 2019, purchases of fuel-grade ethanol from our two largest third-party suppliers represented 54% and 35%, respectively, of our total third-party ethanol purchases for each of those periods. Purchases from each of our other third-party ethanol suppliers represented less than 10% of total third-party ethanol purchases in each of 2020 and 2019.

Production Facilities

We operate seven production facilities. Three of our production facilities are located in the Midwestern state of Illinois and four of our facilities are located in the Western states of California, Oregon and Idaho. We have a combined annual alcohol production capacity of 450 million gallons. Our Magic Valley, Stockton and Madera facilities are currently idled. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility. The tables below provide an overview of our seven production facilities.

Pekin Campus Production Facilities

* Included in approximate maximum annual alcohol production capacity.

Western Production Facilities

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 fuel-grade ethanol, corn and natural gas. To mitigate fuel-grade ethanol inventory price risks, we may sell a portion of our production forward under fixed- or index-price contracts, or both. We may hedge a portion of the price risks by selling exchange-traded futures contracts. Proper execution of these risk mitigation strategies can reduce the volatility of our gross profit margins.

Specialty alcohols have relatively low price volatility and are usually priced at significant premiums to fuel-grade ethanol. The market price of fuel-grade ethanol is volatile, however, and subject to large fluctuations. Given the nature of our business, we cannot effectively hedge against extreme volatility or certain market conditions. For example, fuel-grade ethanol prices, as reported by the Chicago Board of Trade, or CBOT, ranged from $0.81 to $1.62 per gallon during 2020 and from $1.25 to $1.70 per gallon during 2019; and corn prices, as reported by the CBOT, ranged from $3.03 to $4.84 per bushel during 2020 and from $3.41 to $4.55 per bushel during 2019.

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Marketing Arrangements

We market all the alcohols and essential ingredients produced at our facilities. In addition, we have exclusive fuel-grade ethanol marketing arrangements with two third-party ethanol producers, Calgren Renewable Fuels, LLC and Aemetis Advanced Fuels Keyes, Inc., to market and sell their entire fuel-grade ethanol production volumes. Calgren Renewable Fuels, LLC owns and operates a fuel-grade ethanol production facility in Pixley, California with annual production capacity of 55 million gallons. Aemetis Advanced Fuels Keyes, Inc. owns and operates a fuel-grade ethanol production facility in Keyes, California with annual production capacity of 60 million gallons.

Competition

We are the largest producer of specialty alcohols in the United States based on annualized volumes.

Other significant producers of specialty alcohols in the United States are Archer-Daniels-Midland Company, MGP Ingredients, Inc., Grain Processing Corporation, CIE and Greenfield Global Inc., which collectively make up a significant majority of the total installed specialty alcohol production capacity in the United States along with many smaller producers.

The largest producers of fuel-grade ethanol in the United States are POET, LLC, Valero Renewable Fuels Company, LLC, Archer-Daniels-Midland Company, Green Plains Inc. and Flint Hills Resources, collectively with approximately 41% of the total installed fuel-grade ethanol production capacity in the United States. In addition, there are many mid-sized fuel-grade ethanol producers with several plants under ownership, smaller producers with one or two plants, and several fuel-grade ethanol marketers that create significant competition. Overall, we believe there are over 200 fuel-grade ethanol production facilities in the United States with a total installed production capacity of approximately 17.4 billion gallons and many brokers and marketers with whom we compete for sales of fuel-grade ethanol and its co-products.

Our fuel-grade ethanol also competes on a global market against production from other countries, such as Brazil, which may have lower production costs than United States producers. Lower feedstock input costs such as sugarcane used in Brazil as compared to corn used in the Unites States may give foreign producers a competitive advantage. In addition, fuel-grade ethanol from sugarcane feedstock qualifies as an advanced biofuel, unlike corn ethanol, allowing required parties to economically satisfy an advanced biofuel standard. Moreover, new products and production technologies are under continuous development, many of which, if adopted by competitors, could harm ability to compete.

We believe that our competitive strengths include our customer and supplier relationships, the barriers to entry to our most profitable lines of business—including our modern technologies at our production facilities—our experienced management, and the strategic location of our Midwest production facilities. We believe that these advantages will help us to attain our goal to expand our business as a leading producer and marketer of specialty alcohols and essential ingredients. See “—Competitive Strengths”.

Governmental Regulation

Our business is subject to a wide range of federal, state and local laws and regulations directed at protecting public health and the environment, including those promulgated by the Occupational Safety and Health Administration, or OSHA, the U.S. Food and Drug Administration, or FDA, the EPA, and numerous state and local authorities. These laws, their underlying regulatory requirements and their potential enforcement, some of which are described below, impact, or may impact, nearly every aspect of our operations, including our production of alcohols (including distillation), our production of essential ingredients, our storage facilities, and our water usage, waste water discharge, disposal of hazardous wastes and emissions, and other matters pertaining to our existing and proposed business by imposing:

These amounts are paid in advance in bi-weekly installments. In addition, directorssome governmental regulations are reimbursedhelpful to our production and marketing business. The fuel-grade ethanol industry in particular is supported by federal and state mandates and environmental regulations that favor the use of fuel-grade ethanol in motor fuel blends in North America. Some of the governmental regulations applicable to our production and marketing business are briefly described below.

Food and Drug Regulation

Our products for specified reasonablethe Health, Home & Beauty, Food & Beverage and documented expenses some Essential Ingredients markets are subject to regulation by the FDA as well as similar state agencies. Under the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA regulates the processing, formulation, safety, manufacture, packaging, labeling and distribution of food ingredients, vitamins and cosmetics. Many of the FDA’s and FDCA’s rules and regulations apply directly to us as well as indirectly through their application in connectionour customers’ products. To be properly marketed and sold in the United States, a relevant product must be generally recognized as safe, approved and not adulterated or misbranded under the FDCA and relevant regulations issued under the FDCA. The FDA has broad authority to enforce the provisions of the FDCA. Failure to comply with attendance at meetingsthe laws and regulations of the FDA or similar state agencies could prevent us from selling certain of our Boardproducts or subject us to liability.

Renewable Fuels Energy Legislation

Under the RFS, the mandated use of all renewable fuels, including fuel-grade ethanol, rises incrementally and its committees. Employee directors do not receive director compensationpeaks at 36.0 billion gallons by 2022, of which 15.0 billion gallons are required from conventional, or corn-based, ethanol. Under the provisions of the Energy Independence and Security Act of 2007, the EPA has the authority to waive the mandated RFS requirements in connectionwhole or in part. To grant a waiver, the EPA administrator must determine, in consultation with their servicethe 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 directors.a whole.

Various bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none has passed in recent years. Some legislative bills are directed at halting or reversing expansion of, or even eliminating, the renewable fuel program, while other bills are directed at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry.

The EPA has allowed fuel and fuel-additive manufacturers to introduce into commercial gasoline that contains greater than 10% fuel-grade ethanol by volume, up to 15% fuel-grade ethanol by volume, or E15, for vehicles from model year 2001 and beyond. Commercial sale of E15 has begun in a majority of states, and the EPA has enacted a rule allowing for year-round use of E15.

Various states including California, Oregon and Washington, and other regions such as the Canadian province of British Columbia, have implemented low-carbon fuel standards focused on reducing the carbon intensity of transportation fuels. Blending fuel-grade ethanol into gasoline is one of the primary means of attaining these goals.

Additional Environmental Regulations

In addition to the governmental regulations applicable to the alcohol production and marketing industry described above, our business is subject to additional federal, state and local environmental regulations, including regulations established by the EPA and state regulatory agencies related to water quality and air pollution control. We cannot predict the manner or extent to which these regulations will harm or help our business or the alcohol production and marketing industry in general.

Employees

As of March 25, 2021, we had approximately 370 employees, including 369 full-time employees. We believe that our employees are highly-skilled, and our success will depend in part upon our ability to retain our employees and attract new qualified employees, many of whom are in great demand. Approximately 51% 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.

Item 1A. Risk Factors.

Equity CompensationBefore 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 Alto Ingredients, 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.

Our Compensation Committee or our full Board typically grants equity compensationRisks Related to our newly elected or reelected directors which normally vests as to 100%Business

The effects of the grants atcoronavirus pandemic, or its abatement, may materially and adversely affect our business, results of operations and liquidity.

The coronavirus pandemic has resulted in businesses suspending or substantially curtailing operations and travel, quarantines, and an overall substantial slowdown of economic activity. Federal, state and foreign governments have implemented measures to contain the earliervirus, including social distancing requirements, travel restrictions, border closures, limitations on public gatherings, work-from-home orders, and closure of non-essential businesses. Many of these measures remain or have been curtailed only partially. Transportation fuels in particular, including fuel-grade ethanol, experienced significant price declines and reduced demand. A further or extended ongoing downturn in global economic activity, or recessionary conditions in general, would likely lead to poor demand for, and negatively affect the prices of, fuel-grade ethanol, materially and adversely affecting our business, results of operations and liquidity.

Furthermore, to protect the health and well-being of our next annual meetingemployees and customers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or approximatelyshifted marketing and other corporate events to virtual-only formats for the foreseeable future. While we continue to monitor our circumstances and may adjust our current policies as more information and public health guidance become available, these precautionary measures could negatively affect our sales and marketing efforts, delay and lengthen our sales cycles, or create operational or other challenges, any of which could harm our business and results of operations.

In addition, if one year after the dateor more of grant. Vesting is typicallyour employees or customers becomes ill from coronavirus and attributes their infection to us, including through exposure at one of our offices or production facilities, we could be subject to continued service onallegations of failure to adequately mitigate the risk of exposure. Such allegations could harm our Board duringreputation and expose us to the full year.

In determining the amountrisks of equity compensation for 2018, the Compensation Committee determined a target value of total compensation of approximately the median of compensation paid to directors of the companies comprising the market data provided to us by Korn Ferry Hay Group in 2015. The Compensation Committee then determined the cash component based on this market data. The balance of the total compensation target was then allocated to equity awards,litigation and the number of shares to be granted to our directors was based on the estimated value of the underlying shares on the expected grant date.liability.

Our annual equity compensation programspecialty alcohols business has benefitted significantly from the coronavirus pandemic due to a substantial increase in demand for directors includesalcohol-based sanitizers and disinfectants. As the following:coronavirus pandemic abates, demand for alcohol-based sanitizers and disinfectants may decline, ultimately exerting downward pressure on prices for our specialty alcohols used in those products. In addition, higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of specialty alcohols for sanitizers and disinfectants would also exert downward pressure on prices. Reduced demand and prices for our specialty alcohols used in sanitizers and disinfectants, or industry oversupply of those specialty alcohols, may materially and adversely affect our business, results of operations and liquidity.

Our results of operations and our ability to operate at a profit are largely dependent on our ability to manage the costs of corn, natural gas and other production inputs, with the prices of our alcohols and essential ingredients, all of which are subject to volatility and uncertainty.

Our results of operations are highly impacted by commodity prices, including the cost of corn, natural gas and other production inputs that we must purchase, and the prices of alcohols and essential ingredients 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 throughout the world.

Price volatility of corn, natural gas and other production inputs, and alcohols and essential ingredients, may cause our results of operations to fluctuate substantially. We may fail to generate expected levels of net sales and profits even under fixed-price and other contracts for the sale of specialty alcohols used in consumer products. Our customers may not pay us timely or at all, even under longer-term, fixed-price contracts for our specialty alcohols, and may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility.

Over the past several years, for example, the spread between corn and fuel-grade ethanol 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 alcohol or essential ingredient prices, would adversely affect our results of operations and financial position. Revenues from sales of alcohols, particularly fuel-grade ethanol, and essential ingredients could decline below the marginal cost of production, which may force us to further suspend production, particularly fuel-grade ethanol production, at some or all of our facilities.

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

We can provide no assurance that corn, natural gas or other production inputs can be purchased at or near current or any particular prices, or that our alcohols or essential ingredients 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 prices of corn, natural gas and other production inputs or decreases in the prices of our alcohols and essential ingredients.

Increased alcohol or essential ingredient production or higher inventory levels may cause a decline in prices for those products, and may have other negative effects, adversely impacting our results of operations, cash flows and financial condition.

The prices of our alcohols and essential ingredients are impacted by competing third-party supplies of those products. For example, we believe that the most significant factor influencing the price of fuel-grade ethanol has been the substantial increase in production. According to the Renewable Fuels Association, domestic fuel-grade ethanol production capacity increased from an annualized rate of 1.5 billion gallons per year in January 1999 to a record 16.1 billion gallons in 2018. In addition, if fuel-grade ethanol production margins improve, we anticipate that owners of production facilities operating at below capacity, or owners of idled production facilities, will increase production levels, thereby resulting in more abundant fuel-grade ethanol supplies and inventories. Increases in the supply of alcohols and essential ingredients may not be commensurate with increases in demand for alcohols and essential ingredients, thus leading to lower prices. Moreover, higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of alcohols for sanitizers and disinfectants, and corresponding oversupply of essential ingredient co-products, may also exert downward pressure on prices. Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition.

The prices of our products are volatile and subject to large fluctuations, which may cause our results of operations to fluctuate significantly.

The prices of our products are volatile and subject to large fluctuations. For example, the market price of fuel-grade 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 itself is highly volatile and difficult to forecast. Our fuel-grade ethanol sales are tied to prevailing spot market prices rather than long-term, fixed-price contracts. Fuel-grade ethanol prices, as reported by the CBOT, ranged from $0.81 to $1.62 per gallon in 2020 and from $1.25 to $1.70 per gallon in 2019. In addition, even under longer-term, fixed-price contracts for our specialty alcohols, our customers may seek to renegotiate prices under those contracts during periods of falling prices or high price volatility. Fluctuations in the prices of our products may cause our results of operations to fluctuate significantly.

Disruptions in our production or distribution 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 production facilities and other considerations related to production efficiencies, our facilities depend on just-in-time delivery of corn. The production of 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 fail to reliably supply the water, electricity and natural gas that our production facilities need or may fail to supply those resources on acceptable terms. In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of fuel-grade ethanol by rail, the principle manner by which fuel-grade ethanol from our facilities located in the Midwest is transported to market. In addition, we recently experienced closure of the Illinois River for lock repairs which required greater use of less cost-effective modes of product transport such as via rail and truck, which resulted in higher costs and negatively affected our results of operations.

Disruptions in production or distribution, whether caused by labor difficulties, unscheduled downtimes and other operational hazards inherent in the alcohol production industry, including equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters such as earthquakes, floods and storms, 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 production facilities, any of which could have a material adverse effect on our business, results of operations and financial condition.

Some of these operational hazards may also 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 fully cover the potential hazards described above or we may be unable to renew our insurance on commercially reasonable terms or at all.

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 our product prices, in particular fuel-grade ethanol, corn and natural gas costs, we may enter into contracts to fix the price of a portion of our 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 hedging activities and fluctuations in the price of corn, natural gas, fuel-grade ethanol and unleaded gasoline may adversely affect our results of operations, financial condition and liquidity.

The industries in which we operate are extremely competitive. Many of our significant competitors have greater production and financial resources and could use their greater resources to gain market share at our expense.

The industries in which we operate are extremely competitive. Many of our significant competitors have substantially greater production and financial resources than we do. 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 facility maintenance. We may fail to anticipate or respond adequately to new industry developments and other competitive pressures due to our limited resources relative to many significant competitors. 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, particularly of fuel-grade ethanol, many of whom have cost structures substantially lower than ours. An increase in domestic or foreign competition could force us to reduce our prices and take other steps to compete effectively, which could adversely affect our business, financial condition and results of operations.

We incur significant expenses to maintain and upgrade our production facilities and operating equipment, and any interruption in our operations would harm our operating performance.

We regularly incur significant expenses to maintain and upgrade our production facilities and operating equipment. The machines and equipment we use to produce our alcohols and manufacture our essential ingredients are complex, have many parts, and some operate on a continuous basis. We must perform routine equipment maintenance and must periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our production facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled shutdowns result in lower sales and increased costs in the periods during 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 shutdown.

Risks Related to our Finances

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, 2020 and 2019, we incurred consolidated net losses of approximately $17.3 million and $101.3 million, respectively. For the year ended December 31, 2019, we incurred negative operating cash flow of approximately $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 our future financing activities, if any, to fund all of the cash requirements of our business. Additional losses and negative operating cash flow may hamper our operations and impede us from expanding our business.

Our 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 production facilities located in the Midwest have significant indebtedness. In addition, we have significant indebtedness under our senior secured notes issued at the parent-company level. The terms of our loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our revolving credit facilities periodically and automatically declines through the maturity dates of those facilities. Our indebtedness could:

In addition, our Compensation Committee may grant, and has from time to time granted, additional equity compensation to directors at its discretion.

Compensation of Employee Directors

Messrs. Koehler and Kandris were compensated as full-time employees and officers and therefore received no additional compensation for service as Board members during 2018. Information regarding the compensation awarded to Messrs. Koehler and Kandris is included in “Executive Compensation and Related Information—Summary Compensation Table” below.

Director Compensation Table – 2018

The following table summarizes the compensation of our non-employee directors for the year ended December 31, 2018:

Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with a pending or completed action, suit or proceeding if the officer or director acted in good faith and in a manner the officer or director reasonably believed to be in the best interests of the corporation.

Our certificate of incorporation provides that, except in certain specified instances, our directors shall not be personally liable to us or our stockholders for monetary damages for breach of their fiduciary duty as directors, except liability for the following:

Our term loans and credit facilities also require compliance with numerous financial and other covenants, the violation of which could result in an acceleration of our indebtedness.

Much of our 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 our alcohols and other products, product prices, the cost of key production inputs, and many other factors incident to the alcohol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations.

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 our use 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 corporation entitled to use NOL or other loss carryforwards have increased their ownership 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 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. Our ability to utilize our NOL and other loss carryforwards may be substantially limited. These limitations could result in increased future tax obligations, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to Legal and Regulatory Matters

Future demand for fuel-grade 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 fuel-grade ethanol and our results of operations.

Although many trade groups, academics and governmental agencies have supported fuel-grade ethanol as a fuel additive that promotes a cleaner environment, others have criticized fuel-grade 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, critics of fuel-grade ethanol 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 as a fuel additive could decline, leading to reduction or repeal of federal ethanol usage mandates, which would materially and adversely affect the demand for fuel-grade ethanol. These views could also negatively impact public perception of the fuel-grade ethanol industry and acceptance of ethanol as an alternative fuel.

There are limited markets for fuel-grade ethanol beyond those established by federal mandates. Discretionary blending and E85 blending (i.e., gasoline blended with up to 85% fuel-grade ethanol by volume) are important secondary markets. Discretionary blending is often determined by the price of fuel-grade ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for fuel-grade ethanol may decline. Also, the demand for fuel-grade 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 vehicle fuel economy. Lower demand for fuel-grade ethanol and co-products would reduce the value of our ethanol and related products, erode our overall margins and diminish our ability to generate revenue or to operate profitably. In addition, we believe that consumer acceptance of E15 and E85 fuels is necessary before fuel-grade ethanol can achieve any significant growth in market share relative to other transportation fuels.

The United States fuel-grade ethanol industry is highly dependent upon various federal and state laws and any changes in those laws could have a material adverse effect on our certificateresults of incorporationoperations, cash flows and bylaws obligate usfinancial condition.

The EPA has implemented the RFS under 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 fuel-grade ethanol) that must be blended into motor fuels consumed in the United States. The domestic market for fuel-grade ethanol is significantly impacted by federal mandates under the RFS program for volumes of renewable fuels (such as ethanol) required to indemnify our directors and officers against expensesbe blended with gasoline. Future demand for fuel-grade ethanol will largely depend on 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 amounts reasonably incurred in connection with any proceeding arising from the fact that such person is or was an agent of ours. Our bylaws also authorize us to purchase and maintain insurance on behalf of any of our directors or officers against any liability asserted against that person in that capacity, whether or not we would have the power to indemnify that person underapplicable environmental requirements.

Under the provisions of the Delaware General Corporation Law. We have enteredClean Air Act, as amended by the Energy Independence and expectSecurity Act of 2007, the EPA has limited authority to continuewaive or reduce the mandated RFS requirements, which authority is subject to enter into agreements to indemnify our directorsconsultation with the Secretaries of Agriculture and officers as determined by our Board. These agreements provide for indemnificationEnergy, and based on a determination that there is inadequate domestic renewable fuel supply or implementation of related expenses including attorneys’ fees, judgments, finesthe applicable requirements would severely harm the economy or environment of a state, region or the United States in general. Our results of operations, cash flows and settlement amounts incurred by any of these individualsfinancial condition could be adversely impacted if the EPA reduces the RFS requirements from the statutory levels specified in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.the RFS.

The limitationVarious bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none has passed in recent years. Some legislative bills are directed at halting or reversing expansion of, liabilityor even eliminating, the renewable fuel program, while other bills are directed at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry. Our results of operations, cash flows and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reducefinancial condition could be adversely impacted if any legislation is enacted that reduces the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investmentRFS volume requirements.

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 extentdischarge 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 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 production facility shutdowns. In addition, we payhave 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 production facilities 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 settlementinvestigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties alleging property damage awards against directors and officers as required bypersonal injury due to exposure to hazardous or other materials at or from those properties. Some of these indemnification provisions.

Insofar as indemnificationmatters may require us to expend significant amounts for liabilities arising under the Securities Actinvestigation, cleanup or other costs.

In addition, new laws, new interpretations of 1933, as amended (“Securities Act”), may be permittedexisting 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 will likely result in increased future investments for environmental controls at our production facilities. Present and future environmental laws and regulations, and interpretations of those laws and regulations, applicable to our directors, officersoperations, more vigorous enforcement policies and controlling persons under the foregoing provisionsdiscovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on our certificateresults of incorporation or bylaws, or otherwise, we have been informed that in the opinion of the Securitiesoperations and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Security Ownership of Certain Beneficial Owners and Managementfinancial condition.

The following table sets forth informationhazards and risks associated with respectproducing and transporting our products (including fires, natural disasters, explosions and abnormal pressures and blowouts) may also result in personal injury claims or damage to the beneficial ownershipproperty 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 coverages. 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.

Risks Related to Ownership of our voting securities as of April 26, 2019, the date of the table, by:Common Stock

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting or investment power with respect to the securities. To our knowledge, except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Shares of common stock underlying derivative securities, if any, that currently are exercisable or convertible or are scheduled to become exercisable or convertible for or into shares of common stock within 60 days after the date of the table are deemed to be outstanding in calculating the percentage ownership of each listed person or group but are not deemed to be outstanding as to any other person or group. Except as indicated by footnote, percentage of beneficial ownership is based on 49,870,565 shares of common stock and 926,942 shares of Series B Preferred Stock outstanding as of the date of the table.our ability to raise capital.

The table below excludes an aggregateFuture sales of 896 shares of our Non-Voting Common Stock. Our Non-Voting Common Stock is convertible on a one-for-one basis into sharessubstantial amounts of our common stock; provided, that our Non-Voting Common Stock may not be converted:

Equity Compensation Plan Information

The following table provides information about our common stock that may be issued upon the exercise of options,outstanding warrants, and rights under allor perceptions that those sales could occur, could adversely affect the prevailing market price of our existing equity compensation plans as of December 31, 2018.common stock and our ability to raise capital.

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:

Director IndependenceThe 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, the price of our common stock, or both.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless and until they sell them.

We intend to retain a significant portion of any future earnings to finance the development, operation and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment, and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, our results of operations, cash flows, and financial condition, operating and capital requirements, and other factors as our board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless our board of directors determines to pay dividends, our stockholders will be required to look to appreciation of our common stock to realize a gain on their investment. There can be no assurance that this appreciation will occur. See “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy”.

Our bylaws contain an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our corporate governance guidelinesbylaws provide that, unless we consent in writing to the selection of an alternative forum, the Delaware Court of Chancery shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of us, (b) any action asserting a majorityclaim of breach of a fiduciary duty owed by any director, officer or other employee of us to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the BoardDelaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine.

For the avoidance of doubt, the exclusive forum provision described above does not apply to any claims arising under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all memberssuits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

The choice of forum provision in our bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the provision making the Delaware Court of Chancery the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Delaware Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Finally, if a court were to find this provision of our Audit, Compensationbylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on us.

General Risk Factors

Cyberattacks through security vulnerabilities could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security vulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining access to our networks, data centers, cloud data centers, corporate computers, manufacturing systems, and/or access to accounts we have at our suppliers, vendors, and Nominatingcustomers. External parties may gain access to our data or our customers’ data, or attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account security practices such as failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and Corporate Governance Committees shalluser account policies. However, there can be independent. On an annual basis, each directorno assurance these measures will be sufficient to avoid cyberattacks. If any of these types of security breaches were to occur and executive officer is obligatedwe were unable to completeprotect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a Directorrisk of litigation and Officer Questionnaire that requirespossible significant liability.

Further, if we fail to adequately maintain our information technology infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently deliver products to customers or develop new products. Such disruptions and data loss may adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.

The State of California enacted the California Consumer Privacy Act of 2018, or CCPA, effective on January 1, 2020. Our and our business partners’ or contractors’ failure to fully comply with the CCPA and other laws could lead to significant fines and require onerous corrective action. In addition, data security breaches experienced by us or our business partners or contractors could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally identifiable information (including sensitive personal information) of our employees, customers, suppliers, contractors and others.

Unauthorized use or disclosure of, or access to, any transactions with Pacific Ethanolpersonal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest. Following completion of these questionnaires, the Board,notifying affected persons and entities and otherwise complying with the assistancemultitude of the Nominatingforeign, federal, state and Corporate Governance Committee, makes an annual determination aslocal laws and regulations relating to the independenceunauthorized access to, or use or disclosure of, each director usingpersonal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments.

We have received no written comments regarding our periodic or current reports from the current standards for “independence” established bystaff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2020 fiscal year and NASDAQ, additional criteria contained in our corporate governance guidelines and consideration of any other material relationship a director may have with Pacific Ethanol.that remain unresolved.

The Board has determined that all of its directors are independent under these standards, except for Neil M. Koehler, who serves as our President and Chief Executive Officer, and Michael D. Kandris, who serves as our Chief Operating Officer. Messrs. Koehler and Kandris are deemed not to be independent due to their employment relationships with Pacific Ethanol, Inc.

Certain Relationships and Related TransactionsItem 2. Properties.

Other than as described below or elsewhereOur corporate headquarters, located in this report, since January 1, 2017, there has not beenPekin, Illinois, consists of plants and facilities totaling 145 acres on land we own. In Sacramento, California, we lease office space totaling 10,000 square feet under a transaction or serieslease expiring in 2029. We have plants located in Madera, California, at a 137 acre facility; Boardman, Oregon, at a 25 acre facility; Burley, Idaho, at a 25 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 own an idled ethanol production facility in Canton, Illinois on a 110 acre facility, of related transactions to which Pacific Ethanol was ora significant portion is a party involving an amount in excess of $120,000 and in which any director, executive officer, holder of more than 5% of any class offarmland. Our production segments include our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest. All of the below transactions were separately ratified and/or approved by our Board or an appropriate independent committee of our Board.ethanol production facilities. See “Business—Production Facilities”.

MiscellaneousItem 3. Legal Proceedings.

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.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades on The Nasdaq Capital Market under the symbol “ALTO”. Prior to February 1, 2021, our common stock traded on The Nasdaq Capital Market under the symbol “PEIX”. We also have been a party to employmentnon-voting common stock outstanding which is not listed on an exchange.

Security Holders

As of March 25, 2021, we had 73,167,785 shares of common stock outstanding held of record by approximately 290 stockholders and compensation arrangements with related parties, as more particularly described above896 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 “Executive Compensation and Related Information.” In addition, we have entered into an indemnification agreement with eachturn, hold shares of stock for numerous beneficial owners. On March 25, 2021, the closing sales price of our directorscommon stock on The Nasdaq Capital Market was $5.36 per share.

Dividend Policy

We have never paid cash dividends on our common stock and executive officers. The indemnification agreementsdo 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 certificateability to properly service our debt, thereby limiting or preventing us from paying cash dividends. Further, the holders of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.

Neil M. Koehler

outstanding Series B Preferred Stock

On May 20, 2008, are entitled to dividends of 7% per annum, payable quarterly in arrears. For the first nine months of 2019, we sold to Neil M. Koehler, who isdeclared and paid in cash dividends on our Presidentoutstanding shares of Series B Preferred Stock as they became due; however, for the fourth quarter of 2019, and Chief Executive Officer and onefor all of our directors, 256,410 shares2020, we accrued but did not declare or pay cash dividends under an agreement with the holders of our Series B Preferred Stock all of which were initially convertible intoin an aggregate of 7,326 shares of our common stock based on an initial preferred-to-common stock conversion ratio of approximately 1-for-0.03,effort to preserve liquidity. Accrued and warrants to purchase an aggregate of 3,663 shares of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $5,000,000. As a result of various anti-dilution adjustments, the conversion ratio of the Series B Preferred Stock has increased to approximately 1-for-0.68.

For the quarter ended March 31, 2019, we accrued and paid cashunpaid dividends in the amount of $86,301 in respect of shares of Series B Preferred Stock held by Mr. Koehler.

For each of the years ended December 31, 2018 and 2017, we accrued and paid cash dividends in the amount of $350,000 in respect of shares of Series B Preferred Stock held by Mr. Koehler.

Restricted Stock Grants

On April 22, 2019, we granted 167,000 shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined to be $187,040. The shares vest 50% on April 1, 2020 and vest 50% on April 1, 2021.

On June 14, 2018, we granted 138,888 shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined to be $427,775. The shares vested 33% on April 1, 2019 and vest 33% and 34% on April 1, 2020 and 2021, respectively.

On March 15, 2017, we granted 74,074 shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined to be $500,000. The shares vested 33% on each of April 1, 2018 and 2019 and vest 34% on April 1, 2020.

Paul P. Koehler

Paul P. Koehler, a brother of Neil M. Koehler, who is our President and Chief Executive Officer and one of our directors, is employed by us as Vice President of Commodities and Corporate Development. Mr. Koehler’s base salary rate was $252,916 per year at the end of 2017 and was increased to $260,504 per year effective April 15, 2018. In addition, Mr. Koehler received compensation of $4,349 for 2018 in perquisites or personal benefits relating to payment or reimbursement of commuting expenses from Mr. Koehler’s home to our corporate offices in Sacramento, California, and housing and other living expenses.

Series B Preferred Stock

On May 20, 2008, we sold to Mr. Koehler 12,820 shares of our Series B Preferred Stock allmust be paid prior to the payment of which were initially convertible into an aggregate of 366 shares of our common stock based on an initial preferred-to-common conversion ratio of approximately 1-for-0.03, and warrants to purchase an aggregate of 184 shares of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $250,000. As a result of various anti-dilution adjustments, the conversion ratio of the Series B Preferred Stock has increased to approximately 1-for-0.68.

For the quarter ended March 31, 2019, we accrued and paid cashany dividends in the amount of $4,315 in respect of shares of Series B Preferred Stock held by Mr. Koehler.our common stock.

For eachRecent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 6. Selected Financial Data.

Not Applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

Overview

We are a leading producer and marketer of specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United States based on annualized volumes.

We operate seven alcohol production facilities. Three of our production facilities are located in the Midwestern state of Illinois and four of our facilities are located in the Western states of California, Oregon and Idaho. We have an annual alcohol production capacity of 450 million gallons. We market all of the alcohols produced at our facilities as well as fuel-grade ethanol produced by third parties. In 2020, we marketed over 500 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and nearly 1.5 million tons of essential ingredients on a dry matter basis. Our business consists of three reportable segments: two production segments and a marketing segment.

Our mission is to expand our business as a leading producer and marketer of specialty alcohols and essential ingredients. We intend to accomplish this goal in part by investing in our specialized and higher value specialty alcohol production and distribution infrastructure, expanding production in high-demand essential ingredients, expanding and extending the sale of our products into new regional and international markets, building efficiencies and economies of scale and by capturing a greater portion of the value stream.

Production Segments

We produce specialty alcohols, fuel-grade ethanol and essential ingredients, focusing on four key markets: Health, Home & Beauty; Food & Beverage; Essential Ingredients; and Renewable Fuels. Products for the Health, Home & Beauty market include specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants and cleaners. Products for the Food & Beverage markets include grain neutral spirits used in alcoholic beverages and vinegar as well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and distillers grains used in commercial animal feed and pet foods. Our Renewable Fuels products include fuel-grade ethanol and distillers corn oil used as a feedstock for renewable diesel fuel.

We produce our alcohols and essential ingredients at our production facilities described below. Our production facilities located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages.

We are currently operating at approximately 64% of our estimated maximum annual production capacity. Our Magic Valley, Stockton and Madera facilities are currently idled. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

Marketing Segment

We market all of the alcohols and essential ingredients we produce at our facilities. We also market fuel-grade ethanol produced by third parties.

We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.

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

We market our essential ingredient feed products to dairies and feedlots, in many cases located near our production facilities. These customers use our feed products for livestock as a substitute for corn and other sources of starch and protein. We sell our corn oil to poultry and biodiesel customers. We do not market essential ingredients from other producers.

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

Current Initiatives and Outlook

Last year was a transformative year. We started 2020 with 605 million gallons of annual production capacity, of which approximately 85 million gallons, or 14%, was specialty alcohols and the balance was fuel-grade ethanol. While our long-standing specialty alcohols business has been profitable, those favorable results were obscured in recent years by a challenging renewable fuels business environment and related operating losses. In 2020, we reduced fuel-grade ethanol production capacity by 55% through a combination of idling unprofitable facilities and selling underperforming production assets.

We maximized production of specialty alcohols at our Pekin Campus where spot demand for those products grew rapidly due to the coronavirus pandemic. We first expanded specialty alcohol production capacity to 110 million gallons annually in 2020 and then, by refurbishing our grain neutral spirits system, further increased specialty alcohol production capacity to 140 million gallons annually in early 2021.

We are now the largest producer of specialty alcohols in the United States based on annualized volumes. We currently have 450 million gallons of annual production capacity, of which approximately 140 million gallons, or 31%, is specialty alcohols and the balance is fuel-grade ethanol. We are currently operating production facilities with 290 million gallons of annual capacity, of which nearly 50% is specialty alcohols. All of our operating facilities are running at break-even or better on an earnings before interest, taxes, depreciation and amortization basis.

In 2020, we sold assets and generated substantial cash flow from operations. We also completed an equity capital raise in the fourth quarter. These results provided funds for substantial repayments of debt, reducing our interest expense, strengthening our balance sheet and positioning us for growth opportunities. We also announced a corporate rebranding and changed our name to Alto Ingredients, Inc., which reflects our goal to deliver the highest levels of integrity, purity, and quality to create greater value for our customers, partners and shareholders.

Strong demand for hand sanitizer contributed to our results for 2020, but in the fourth quarter, and through the first quarter of 2021, abundant supplies tempered prices. In response, we focused our efforts on strengthening our sales in product lines other than sanitizers by working with dominant, name brand consumer product leaders. Our product mix is well-diversified with over 90% of our contracted volumes sold to major producers of food and beverage and home and beauty products, while only 10% of our contracted volumes are for sanitizers. While demand for sanitizer has returned to pre-pandemic levels, we expect demand resurgence and firmer pricing as restaurants, arenas, theaters, offices, stadiums and other public places reopen. In addition, we expect that higher quality sanitizers utilizing USP-grade alcohol will replace low-quality sanitizer inventories. We believe we are well positioned to support customer needs for USP, API and beverage-grade specialty alcohols for 2021 and beyond and to provide quality products for consumer goods and sanitizers as needed.

We have contracted approximately 65% of the 110 million gallons of specialty alcohol production capacity available during last fall’s contracting cycle, or 50% of our now expanded annual production capacity of 140 million gallons of specialty alcohols. This represents a significant increase in both total gallons contracted and our average price as compared to our 2020 contracts negotiated in the fall 2019 contracting cycle. This also reflects reductions we made to address the current dynamics in the market for sanitizers. We are working with our customers to facilitate the blending and extending of contracted volumes for sanitizer products into 2022 and 2023 if consumer demand is less than anticipated.

Aside from the many other variables in our business, including the sale of fuel-grade ethanol and our uncontracted specialty alcohols, we expect our existing contracted specialty alcohol sales to contribute at least $60.0 million dollars in gross profit for 2021. Many variables could materially impact our results, including export conditions, the ability of our customers to take all of their contracted volumes for 2021, market demand for sanitizers and disinfectants, our ability to timely sell our Stockton and Madera, California production facilities, and fuel-grade ethanol crush margins, which year-to-date are running at negative 25 cents per gallon, compared to negative 11 cents per gallon in the first quarter of 2020. We expect that as businesses reopen and travel resumes, fuel-grade ethanol margins will improve, with each 5 cent increase in crush margins improving earnings before interest, taxes, depreciation and amortization by $5.0 million.

We are producing a wide selection of essential ingredients products such as corn meal and feed, corn germ, and yeast for use in human and pet foods. We produce most of these higher value and higher margin ingredients at our Pekin Campus wet mill, generating co-product returns in excess of 54% and lifting our average co-product return across all operating facilities to around 44%. Some of our highest quality essential ingredients products are sold under fixed-price, one-year or longer contracts to name brand companies.

We will continue to produce fuel-grade ethanol to support our specialty alcohol production and to capitalize on ethanol’s beneficial low-carbon characteristics integral to the ultimate decarbonization of the environment. We remain optimistic over industry discussions around carbon reduction. That said, fuel-grade ethanol margins remain depressed, especially for our Western operations. In light of these conditions, we have decided to sell our Stockton and Madera, California fuel-grade ethanol production facilities, both of which are currently idled. We came to this decision after considering all reasonable alternatives and how and where to best deploy our resources. Sales of these production assets, if they occur, will further strengthen our balance sheet and improve profitability by eliminating the fixed carrying costs from idled assets.

We are focused on a number of longer term opportunities. As previously reported, we have worked diligently and collaboratively with key customers to obtain three critical certifications for specialty alcohol production at our ICP production facility at our Pekin Campus, specifically, ISO 9001, the world’s most widely recognized quality management system certification; ICH Q7, which sets forth good manufacturing practices for active pharmaceutical ingredients; and EXCiPACT, which sets standards for excipient safety and quality. These certifications support further market penetration of our specialty alcohols, both domestically and internationally, for applications that require the highest quality products. Most of our specialty alcohol products for these applications are contracted under fixed terms each fall for the following year. We plan to continue to expand our market share within the health, home and beauty and food and beverage markets to sell our increased specialty alcohol production at favorable prices.

In addition, we are in the process of increasing our yeast facility’s annual production capacity by approximately 15%. We remain on schedule and within budget to complete this expansion by the third quarter of 2021. This project entails a relatively low capital investment of $5.5 million and we expect payback in less than two years, or over $3.0 million annually in earnings before interest, taxes, depreciation and amortization. We will also have the ability to further expand production of even higher value yeast derivatives with similar payback profiles.

We have earmarked an additional $14.0 million for various other projects we expect will expand revenue, increase efficiencies or improve plant reliability. For example, an upgrade of our feed dryers at our Pekin Campus, a $3.5 million dollar enhancement, will produce even higher value feed, improve overall plant efficiency and reliability and increase annual earnings before interest, taxes, depreciation and amortization by an estimated $1.4 million dollars beginning in the fourth quarter of 2021.

Finally, as recently mentioned in congressional subcommittee hearings on climate change, our Pekin Campus sits on the Mt. Simon sandstone formation, considered one of the most significant potential carbon storage resources in the United States. As a member of the Carbon Capture Coalition, we are actively engaged in discussions to develop a carbon capture and sequestration program at our Pekin site and expect to be an active player in the carbon capture space. We also have additional projects under development with attractive return profiles.

We have transformed our company to build a foundation based on consumer demand. We have suspended and sought to minimize the impact of unprofitable operations and reduced operating and overhead expenses. That said, our transformation is not yet complete. Given our significantly improved balance sheet we are actively exploring and developing new build or buy opportunities to grow and expand our business to further increase revenues and profitability while controlling expenses.

2020 Financial Performance Summary

Summary

Our consolidated net sales declined to $0.9 billion for 2020 compared to $1.4 billion for 2019. Our net loss available to common stockholders decreased by $73.8 million from $90.2 million for 2019 to $16.4 million for 2020.

Factors that contributed to our results of operations for 2020 include:

Sales and Margins

We generate sales by marketing all of the alcohols produced by our production facilities, all of the fuel-grade ethanol produced by two other production facilities in the Western United States and fuel-grade ethanol purchased from other third-party suppliers throughout the United States. We also market essential ingredients produced by our production facilities, including dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods.

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

Our consolidated average alcohol sales price increased by 1.2% to $1.63 per gallon for 2020 compared to $1.61 per gallon for 2019. The average price of fuel-grade ethanol as reported by the Chicago Board of Options Trade, or CBOT, decreased 10.1% to $1.25 per gallon for 2020 compared to $1.39 per gallon for 2019. Our average cost of corn decreased 9.9% to $3.84 per bushel for 2020 from $4.26 per bushel for 2019. The average price of corn as reported by the CBOT decreased 5.2% to $3.63 per bushel for 2020 from $3.83 per bushel for 2019.

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

We seek to optimize our gross profit margins by anticipating the factors above and, when resources are available, implementing hedging transactions and taking other actions designed to limit risk and address these factors. For example, we may seek to reduce inventory levels in anticipation of declining alcohol or essential ingredient prices and increase production and inventory levels in anticipation of rising alcohol or essential ingredient prices. We may also seek to alter our proportion or timing, or both, of purchase and sales commitments.

Our limited resources 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

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, 2020 Compared to the Year Ended December 31, 2019

Net Sales

The decrease in our consolidated net sales for 2020 as compared to 2019 was primarily due to a decrease in our total gallons sold, partially offset by an increase in our average sales price per gallon.

Our production gallons sold and our volume of essential ingredients sold declined for 2020 as compared to 2019 in addition to declines in our third-party gallons sold. Our production gallons and essential ingredients sold declined primarily due to an intentional reduction in our production of fuel-grade ethanol at our facilities due to adverse market conditions as well as the sale of our Nebraska facilities.

Marketing Segment

Net sales of fuel-grade ethanol from our marketing segment, excluding intersegment sales, decreased by $99.2 million, or 28%, to $257.7 million for 2020 as compared to $356.9 million for 2019.

Our volume of third party fuel-grade ethanol gallons sold reported gross by our marketing segment decreased by 48.9 million gallons, or 23%, to 163.9 million gallons for 2020 as compared to 212.8 million gallons for 2019. At our marketing segment’s average sales price per gallon of $1.55 for 2020, we generated $75.8 million less in net sales from our marketing segment from the 48.9 million fewer gallons of third-party fuel-grade ethanol sold gross in 2020 as compared to 2019.

Our volume of third party fuel-grade ethanol gallons sold reported net by our marketing segment decreased by 15.1 million gallons, or 13%, to 100.5 million gallons for 2020 as compared to 115.6 million gallons for 2019. The decrease in third-party fuel-grade ethanol gallons sold reported net had an approximately $0.3 million impact reducing net sales.

The decrease of $0.11 per gallon, or 7%, in our marketing segment’s average sales price per gallon in 2020 as compared to 2019 decreased our net sales from third-party fuel-grade ethanol sold by our marketing segment by $23.1 million.

Pekin Campus Production Segment

Net sales of alcohol from our Pekin Campus production segment decreased by $13.2 million, or 4%, to $330.4 million for 2020 as compared to $343.6 million for 2019. Our total volume of production gallons sold decreased by 24.6 million gallons, or 11%, to 193.9 million gallons for 2020 as compared to 218.5 million gallons for 2019. At our Pekin Campus production segment’s average sales price per gallon of $1.70 for 2020, we generated $41.9 million less in net sales from our Pekin Campus production segment from the 24.6 million reduction in gallons of alcohol sold in 2020 as compared to 2019. The increase of $0.13, or 8%, in our Pekin Campus production segment’s average sales price per gallon in 2020 as compared to 2019 improved our net sales from our Pekin Campus production segment by $28.7 million.

Net sales of essential ingredients decreased $8.7 million, or 6%, to $130.3 million for 2020 as compared to $139.0 million for 2019. Our total volume of essential ingredients sold decreased by 84,000 tons, or 9%, to 829,000 tons for 2020 from 913,000 tons for 2019. At our average sales price per ton of $157.19 for 2020, we generated $13.3 million less in net sales from the 84,000 fewer tons of essential ingredients sold in 2020 as compared to 2019. The increase of $5.01, or 3.3%, in our average sales price per ton in 2020 as compared to 2019 increased our net sales from our Pekin Campus production segment by $4.6 million.

Other Production Segment

Net sales of alcohol from our other production segment decreased by $317.6 million, or 70%, to $137.7 million for 2020 as compared to $455.3 million for 2019. Our total volume of gallons sold decreased by 194.5 million gallons, or 71%, to 78.0 million gallons for 2020 as compared to 272.5 million gallons for 2019. At our other production segment’s average sales price per gallon of $1.77 for 2020, we generated $343.3 million less in net sales from our other production segment from the 194.5 million fewer gallons of alcohol sold in 2020 as compared to 2019. The increase of $0.09, or 5%, in our other production segment’s average sales price per gallon in 2020 as compared to 2019 improved our net sales from our other production segment by $25.7 million.

Net sales of essential ingredients decreased $89.1 million, or 69%, to $40.9 million for 2020 as compared to $130.0 million for 2019. Our total volume of essential ingredients sold decreased by 1,289,000 tons, or 68%, to 619,000 tons for 2020 from 1,908,000 tons for 2019. At our average sales price per ton of $66.07 for 2020, we generated $85.2 million less in net sales from the 1,289,000 fewer tons of essential ingredients sold in 2020 as compared to 2019. The decrease of $2.06, or 3.0%, in our average sales price per ton in 2020 as compared to 2019 decreased our net sales from our other production segment by $3.9 million.

Cost of Goods Sold and Gross Profit (Loss)

Our consolidated gross profit (loss) improved to a gross profit of $52.9 million for 2020 from a gross loss of $9.9 million for 2019, representing a gross profit margin of 5.9% for 2020 compared to negative 0.7% for 2019. Our consolidated gross profit (loss) improved due to significantly higher margin sales of our specialty alcohols due to high demand for alcohols used in sanitizers and disinfectants and a substantial reduction in negative margin sales of fuel-grade ethanol as we idled a significant amount of our fuel-grade ethanol production capacity and sold unprofitable assets.

Marketing Segment

Our marketing segment’s gross profit declined by $5.0 million to $5.9 million for 2020 as compared to $10.9 million for 2019. Of this decline, $3.2 million is attributable to lower margins from sales of third-party fuel-grade ethanol and $1.8 million is attributable to lower marketing volumes of third-party fuel-grade ethanol in 2020 as compared to 2019.

Pekin Campus Production Segment

Our Pekin Campus production segment’s gross profit improved by $70.2 million to a gross profit of $74.2 million for 2020 as compared to $4.0 million for 2019. Of this improvement, $80.0 million is attributable to increased margins from our specialty alcohols, partially offset by $9.8 million less in gross profit attributable to decreased sales volumes in 2020 as compared to 2019.

Other Production Segment

Our other production segment’s gross profit declined by $2.4 million to a gross loss of $27.2 million for 2020 as compared to a gross loss of $24.8 million for 2019. Of this decline, $70.3 million is attributable to a negative margin environment for fuel-grade ethanol, offset by a $67.9 million improvement in gross profit attributable to lower sales volumes at negative margins in 2020 as compared to 2019.

Selling, General and Administrative Expenses

Our selling, general and administrative, or SG&A, expenses decreased $3.5 million to $32.0 million for 2020 as compared to $35.5 million for the same period in 2019. SG&A expenses declined primarily due to reduced legal and consulting expenses. We expect to reduce SG&A expenses by $7.0 million to $12.0 million year over year in 2021.

Asset Impairments

We assess the impairment of long-lived assets, including property and equipment, when events or changes in circumstances indicate that the fair value of an asset could be less than the net book value of the asset. In addition, with the anticipated sale of our Madera and Stockton, California production facilities, we also reviewed their fair values compared to their estimated sales prices, less estimated selling costs. As a result, we recorded an aggregate impairment charge of $24.4 million for 2020. Further, in connection with the anticipated sales, we classified those facilities as held-for-sale on the accompanying consolidated balance sheets. As of December 31, 2019, in connection with the sale of our ownership interest in two fuel-grade ethanol production facilities in Nebraska, we recorded the related long-lived assets to fair value, less estimated selling costs, and classified them as held-for-sale on the accompanying consolidated balance sheets. As a result, we recorded an aggregate impairment charge of $29.3 million for 2019.

Interest Expense, net

Interest expense decreased $2.3 million to $17.9 million for 2020 from $20.2 million for 2019. The decrease in interest expense is primarily due to principal payments on our outstanding indebtedness during the year, resulting in lower average debt balances. We expect to reduce interest expense by as much as $14.0 million year over year in 2021.

Liquidity and Capital Resources

During the year ended December 31, 20182020, we funded our operations primarily from cash generated by our operations, sales of common stock and 2017,warrants, and cash on hand. These funds were also used to make payments on our term debt and our other credit facilities, for capital expenditures and to make lease payments.

During 2020, we accrued and paid cash dividendsexperienced significant adverse conditions in the amountfuel-grade ethanol market as demand and pricing reached record lows due to reduced domestic transportation and resulting lower gasoline demand resulting from stay-at-home orders issued in response to the coronavirus pandemic. In response, we reduced fuel-grade ethanol production by more than 50% in an effort to conserve capital. We continued producing and selling our specialty alcohols, and also converted a portion of $17,500our fuel-grade ethanol production to specialty alcohol production to respond to substantial increased demand from the sanitizer and disinfectant markets. Sales of specialty alcohols were at a mix of fixed and spot prices, both of which resulted in respect of shares of Series B Preferred Stock held by Mr. Koehler.significant cash flow from operations during the year. We expect continued demand for our specialty alcohols for at least the next twelve months and, as appropriate, will endeavor to sign fixed-price contracts and hedge corn input costs to lock in profit margins.

As of December 31, 2020, we had $47.7 million in cash and $16.0 million available for borrowing under Kinergy’s operating line of credit. During 2020, we generated $71.8 million in cash from our operations. We also realized $19.9 million in net cash proceeds from the sale of our interest in two production facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley production facility. In addition, we received net proceeds of approximately $75.8 million from issuances of common stock and warrants and $5.5 million from warrant exercises. These sources of cash enabled us to make principal payments totaling $157.6 million on our debt during 2020, resulting in our return to compliance with our lenders. As a result, we believe we have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs for the next twelve months from the date of this report.

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 Stock GrantsNet Assets

At December 31, 2020, we had approximately $262.1 million of net assets at our subsidiaries that were not available to be transferred to Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of the subsidiaries.

Changes in Working Capital and Cash Flows

Working capital improved to $127.1 million at December 31, 2020 from $71.7 million at December 31, 2019 as a result of a decrease of $73.4 million in current liabilities, partially offset by a decrease in current assets of $18.0 million.

Current assets decreased primarily due to a decrease in assets held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production facilities in Nebraska, and decreases in accounts receivable and inventories due to lower sales volumes and the timing of collections, partially offset by an increase in cash and cash equivalents.

Our current liabilities declined primarily due to a decrease in liabilities held-for-sale associated with the completed sale of our interests in two fuel-grade ethanol production facilities in Nebraska and reductions in our current portion of long-term debt as we paid down indebtedness during the year.

Our cash and cash equivalents increased by $28.7 million primarily due to $71.8 million in cash provided by our operating activities and $23.3 million in cash provided by our investing activities, partially offset by $66.4 million in cash used in our financing activities.

Cash provided by our Operating Activities

Cash provided by our operating activities increased by $95.1 million for the year ended December 31, 2020, as compared to the same period in 2019. We generated $71.8 million in cash from our operating activities during the year. Specific factors that contributed to the increase in cash provided by our operating activities include:

These amounts were partially offset by:

Cash provided by our Investing Activities

Cash provided by our investing activities was $23.3 million for the year, which included $19.9 million in net proceeds from the sale of two fuel-grade ethanol production facilities in Nebraska and $10.0 million from the sale of certain real property and related assets at our Magic Valley production facility, partially offset by $6.6 million of additions to property and equipment resulting from our capital expenditure projects, such as the expansion of our grain neutral spirits system capacity completed at the end of 2020 and the expansion of our yeast production capacity still in process.

Cash used in our Financing Activities

Cash used in our financing activities was $66.4 million for the year. The increase in cash used in our financing activities was primarily due to $45.8 million in net payments on Kinergy’s operating line of credit and $111.8 million in principal payments on our other indebtedness, partially offset by $75.8 million in proceeds from the sale of common stock and warrants, $9.9 million in proceeds under our CARES Act loans and $5.5 million in proceeds from warrant exercises.

Kinergy’s Operating Line of Credit

Kinergy maintains an operating line of credit for an aggregate amount of up to $100.0 million. The credit facility matures on August 2, 2022. Interest accrues under the credit facility at a rate equal to (i) the three-month London Interbank Offered Rate (“LIBOR”), plus (ii) a specified applicable margin ranging from 1.50% to 2.00%. The credit facility’s monthly unused line fee is 0.25% to 0.375% of the amount by which the maximum credit under the facility exceeds the average daily principal balance during the immediately preceding month. Payments that may be made by Kinergy to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter. The credit facility also includes the accounts receivable of our wholly-owned subsidiary, Alto Nutrients, LLC, or Alto Nutrients, as additional collateral. Payments that may be made by Alto Nutrients to Alto Ingredients, Inc. as reimbursement for management and other services provided by Alto Ingredients, Inc. to Alto Nutrients are limited under the terms of the credit facility to $0.5 million per fiscal quarter. Alto Nutrients, one of our indirect wholly-owned subsidiaries, markets our essential ingredients and also provides raw material procurement services to our subsidiaries.

For all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and Alto Nutrients must collectively maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 2.0 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). The obligations of Kinergy and Alto Nutrients under the credit facility are secured by a first-priority security interest in all of their respective assets in favor of the lender.

We believe Kinergy and Alto Nutrients are in compliance with the fixed-charge coverage ratio covenant as of the filing of this report. The following table sets forth the fixed-charge coverage ratio financial covenant and the actual results for the periods presented:

Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of December 31, 2020, Kinergy had an outstanding balance of $32.5 million and $16.0 million of unused borrowing availability under the credit facility.

Alto Pekin Credit Facilities

On April 22, 2019, we granted 42,000 sharesDecember 15, 2016, Alto Pekin, LLC, or Alto Pekin, one of our restricted common stockindirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin, Illinois, entered into a Credit Agreement, or the Pekin Credit Agreement, with 1^st Farm Credit Services, PCA and CoBank, ACB, or CoBank. Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1^st Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up to Mr. Koehler$32.0 million under a revolving term loan facility that matures on February 1, 2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit Facility. The Pekin Credit Facility is secured by a first-priority security interest in considerationall of servicesAlto Pekin’s assets.

The Pekin Credit Facility and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers among Alto Pekin, its lenders and their agent, certain terms of the agreements are as follows:

Alto Pekin and ICP collectively agreed to pay Alto Pekin’s and ICP’s lenders an aggregate of $40.0 million on or before September 30, 2020, or the September Paydown Amount, to reduce the outstanding balances of Alto Pekin’s and ICP’s respective term loans, to be provided. The valueallocated between them. Alto Pekin, ICP and their lenders contemplated funding the September Paydown Amount through asset sales, proceeds of the common stock was determinedany award, judgment or settlement of litigation, or, at our election, from funds contributed by us to be $47,040. The shares vest 50% on April 1, 2020 and vest 50% on April 1, 2021.

On June 14, 2018, we granted 34,722 shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined to be $106,944. The shares vested 33% on April 1, 2019 and vest 33% and 34% on April 1, 2020 and 2021, respectively.

On March 15, 2017, we granted 18,518 shares of our restricted common stock to Mr. Koehler in consideration of services to be provided. The value of the common stock was determined to be $124,997. The shares vested 33% on each of April 1, 2018 and 2019 and vest 34% on April 1, 2020.

Annual Cash Incentive Compensation

In April 2018, we paid Mr. Koehler annual performance-based cash incentive compensation of $20,120 based on his 2017 performance.Alto Pekin or ICP.

In March 2017,2020, we paid Mr. Koehler annual performance-based cash incentive compensationgranted to Alto Pekin’s lender a security interest in all of $19,534 based on his 2016 performanceour equity interests in Alto Op Co., the entity which indirectly owns our western production facilities. We and a special discretionary cash bonuscertain subsidiaries also entered into intercreditor agreements with the Alto Pekin’s and ICP’s lenders, and the agent for our senior secured noteholders, to address issues of $25,000.

Thomas D. Koehler

Series B Preferred Stockpriority and the allocation of proceeds from asset sales.

On May 20, 2008, we soldDecember 18, 2020, Alto Pekin and its lender further amended the Pekin Credit Facility to Thomas D. Koehler,waive certain covenant defaults, including the covenant requiring Alto Pekin and ICP to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020. The effect of this amendment was, in part, to deem the September Paydown Amount to have been timely paid. The parties also agreed to amend the Pekin Credit Facility to provide for a brotherpayment to Alto Pekin’s and ICP’s lenders of Neil M. Koehler, who is our President and Chief Executive Officer and one of our directors, 12,820 shares of our Series B Preferred Stock, all of which were initially convertible into an aggregate of 366 shares$24.9 million, or the December Paydown Amount, on or prior to December 21, 2020, with $19.9 million allocated to Alto Pekin’s lenders and $5.0 million allocated to ICP’s lenders. On December 18, 2020, Alto Pekin and ICP paid the December Paydown Amount in full.

Following receipt of the December Paydown Amount, any additional proceeds arising from the sale of any of our common stock based on an initial preferred-to-common conversion ratiomidwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively; and any additional proceeds arising from the sale of approximately 1-for-0.03, and warrants to purchase an aggregate of 184 sharesany of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $250,000. As a result of various anti-dilution adjustments,western production facility assets will be allocated first to the conversion ratio of the Series B Preferred Stock has increasedsenior secured noteholders up to approximately 1-for-0.68.$20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

For the quarter ended March 31, 2019, we accrued and paid cash dividends in the amountAs of $4,315 in respect of shares of Series B Preferred Stock held by Mr. Koehler.

For each of the years ended December 31, 2018 and 2017, we accrued and paid cash dividends in the amount of $17,500 in respect of shares of Series B Preferred Stock held by Mr. Koehler.

Independent Contractor Services Agreement

On April 1, 2008, we entered into an Independent Contractor Services Agreement with Mr. Koehler for the provision of strategic consulting services, including in connection with promoting Pacific Ethanol, and ethanol as a fuel additive and transportation fuel, with governmental agencies. Mr. Koehler was compensated at a rate of $7,500 per month under this arrangement during 2018 and 2017 and through the filing of this report.report, we believe we are in compliance with the terms and conditions of our Pekin Credit Facility.

William L. JonesICP Credit Facilities

On May 20, 2008, we sold to William L. Jones, who is our ChairmanSeptember 15, 2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into a Credit Agreement, or the ICP Credit Agreement. Under the terms of the BoardICP Credit Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the ICP Term Loan, and one of our directors, 12,820 shares of our Series B Preferred Stock,up to $18.0 million under a revolving term loan facility that matures on September 1, 2022, or the ICP Revolving Loan, and together with the ICP Term Loan, the ICP Credit Facility. The ICP Credit Facility is secured by a first-priority security interest in all of which were initially convertible intoICP’s assets.

The ICP Credit Facility and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers among ICP, its lenders and their agent, certain terms of the agreements are as follows:

ICP and Alto Pekin collectively agreed to pay ICP’s and Alto Pekin’s lenders an aggregate of 366 shares$40.0 million on or before September 30, 2020, the same amount referred to above as the September Paydown Amount, to reduce the outstanding balances of our common stock based on an initial preferred-to-common conversion ratio of approximately 1-for-0.03,ICP’s and warrants to purchase an aggregate of 184 shares of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $250,000. As a result of various anti-dilution adjustments, the conversion ratio of the Series B Preferred Stock has increased to approximately 1-for-0.68.

For the quarter ended March 31, 2019, we accrued and paid cash dividends in the amount of $4,315 in respect of shares of Series B Preferred Stock held by Mr. Jones.

For each of the years ended December 31, 2018 and 2017, we accrued and paid cash dividends in the amount of $17,500 in respect of shares of Series B Preferred Stock held by Mr. Jones.

Restricted Stock Grants

On June 14, 2018, we granted 48,966 shares of our restricted common stock to Mr. Jones in consideration of servicesAlto Pekin’s respective term loans, to be provided. The valueallocated between them. ICP, Alto Pekin, and their lenders contemplated funding the September Paydown Amount through asset sales, proceeds of the common stock was determined to be $150,815. The shares vest on the earlierany award, judgment or settlement of litigation, or, at our next annual meeting or July 1, 2019.

On June 15, 2017, we granted 23,279 shares of our restricted common stock to Mr. Jones in consideration of services to be provided. The value of the common stock was determined to be $139,674. The shares vested on June 14, 2018.

Michael D. Kandris and Bryon T. McGregor

Restricted Stock Grants

On April 22, 2019, we granted 57,500 shares of our restricted common stock to each of Messrs. Kandris and McGregor in consideration of services to be provided. The value of the common stock granted to each of Messrs. Kandris and McGregor was determined to be $64,400. The shares vest 50% on April 1, 2020 and vest 50% on April 1, 2021.

On June 14, 2018, we granted 47,508 shares of our restricted common stock to each of Messrs. Kandris and McGregor in consideration of services to be provided. The value of the common stock granted to each of Messrs. Kandris and McGregor was determined to be $146,325. The shares vested 33% on April 1, 2019 and vest 33% and 34% on April 1, 2020 and 2021, respectively.

On June 15, 2017, we granted 25,337 shares of our restricted common stock to each of Messrs. Kandris and McGregor in consideration of services to be provided. The value of the common stock granted to each of Messrs. Kandris and McGregor was determined to be approximately $171,030. The shares vested 33% on each of April 1, 2018 and 2019 and vest 34% on April 1, 2020.

Christopher W. Wright

Christopher W. Wright is employedelection, from funds contributed by us as Vice President, General Counsel and Secretary. Mr Wright’s base salary rate was $298,093 per year at the end of 2017 and was increased to $307,036 per year effective April 15, 2018. In addition, Mr. Wright received compensation of $21,816 for 2018 and $23,220 for 2017 in perquisitesICP or personal benefits relating to payment or reimbursement of commuting expenses from Mr. Wright’s home to our corporate offices in Sacramento, California, and housing and other living expenses.

Restricted Stock Grants

On April 22, 2019, we granted 57,500 shares of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock was determined to be $64,400. The shares vest 50% on April 1, 2020 and vest 50% on April 1, 2021.

On June 14, 2018, we granted 47,508 shares of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock granted was determined to be $146,325. The shares vested 33% on April 1, 2019 and vest 33% and 34% on April 1, 2020 and 2021, respectively.

On June 15, 2017, we granted 25,337 shares of our restricted common stock to Mr. Wright in consideration of services to be provided. The value of the common stock granted was determined to be approximately $171,030. The shares vested 33% on each of April 1, 2018 and 2019 and vest 34% on April 1, 2020.

Annual Cash Incentive Compensation

In April 2018, we paid Mr. Wright annual performance-based cash incentive compensation of $29,642 based on his 2017 performance.Alto Pekin.

In March 2017,2020, we paid Mr. Wright annual performance-based cash incentive compensationgranted to Alto Pekin’s lender a security interest in all of $28,779 based on his 2016 performanceour equity interests in Alto Op Co. We and a special discretionary cash bonuscertain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of $50,000.

James R. Sneed

James R. Sneed is employed by us as Vice Presidentpriority and the allocation of Supply and Trading. Mr Sneed’s base salary rate was $252,916 per year at the end of 2017 and was increased to $260,504 per year effective April 15, 2018.

Restricted Stock Grantsproceeds from asset sales.

On April 22, 2019, we granted 42,000 sharesDecember 18, 2020, ICP and its lender further amended the ICP Credit Facility to waive certain covenant defaults, including the covenant requiring ICP and Alto Pekin to pay the September Paydown Amount from an approved source of funds on or before September 30, 2020. The effect of this amendment was, in part, to deem the September Paydown Amount to have been timely paid. The parties also agreed to amend the ICP Credit Facility to provide for a payment to ICP’s and Alto Pekin’s lenders of an aggregate of $24.9 million, the same amount referred to above as the December Paydown Amount, on or prior to December 21, 2020, with $5.0 million allocated to ICP’s lenders and $19.9 million allocated to Alto Pekin’s lenders. On December 18, 2020, ICP and Alto Pekin paid the December Paydown Amount in full.

Following receipt of the December Paydown Amount, any additional proceeds arising from the sale of any of our restricted common stockmidwestern production facility assets will be allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively; and any additional proceeds arising from the sale of any of our western production facility assets will be allocated first to Mr. Sneed in consideration of servicesthe senior secured noteholders up to be provided. The value$20.0 million and then allocated 33/34/33% among Alto Pekin’s and ICP’s lenders, collectively, our senior secured noteholders, and us, respectively.

As of the common stock was determined to be $47,040. The shares vest 50% on April 1, 2020filing of this report, we believe we are in compliance with the terms and vest 50% on April 1, 2021.conditions of our ICP Credit Facility.

Senior Secured Notes

On June 14, 2018, we granted 34,722 shares of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined to be $106,944. The shares vested 33% on April 1, 2019 and vest 33% and 34% on April 1, 2020 and 2021, respectively.

On March 15, 2017, we granted 18,518 shares of our restricted common stock to Mr. Sneed in consideration of services to be provided. The value of the common stock was determined to be $124,997. The shares vested 33% on each of April 1, 2018 and 2019 and vest 34% on April 1, 2020.

Annual Cash Incentive Compensation

In April 2018, we paid Mr. Sneed annual performance-based cash incentive compensation of $20,121 based on his 2017 performance.

In March 2017, we paid Mr. Sneed annual performance-based cash incentive compensation of $19,534 based on hisDecember 12, 2016, performance and a special discretionary cash bonus of $25,000.

Terry L. Stone, John L. Prince, Douglas L. Kieta and Larry D. Layne

Restricted Stock Grants

On June 14, 2018, we granted 32,759 shares of our restricted common stock to each of our non-employee directors (except for the Chairman of our Board, Mr. Jones) in consideration of services to be provided. The value of the common stock granted to each of Messrs. Stone, Prince, Kieta and Layne was determined to be $100,898. The shares vest on the earlier of our next annual meeting or July 1, 2019.

On June 15, 2017, we granted 15,574 shares of our restricted common stock to each of our non-employee directors (except for the Chairman of our Board, Mr. Jones) in consideration of services to be provided. The value of the common stock granted to each of Messrs. Stone, Prince, Kieta and Layne was determined to be $93,444. The shares vested on June 14, 2018.

Lyles United, LLC

On March 27, 2008, we sold to Lyles United, LLC an aggregate of 2,051,282 shares of our Series B Preferred Stock, all of which were initially convertible into an aggregate of 58,608 shares of our common stock based on an initial preferred-to-common conversion ratio of approximately 1-for-0.03, and warrants to purchase an aggregate of 29,304 shares of our common stock at a split-adjusted exercise price of $735 per share, for an aggregate purchase price of $40,000,000. As a result of various anti-dilution adjustments, the conversion ratio of the Series B Preferred Stock has increased to approximately 1-for-0.68.

For the quarter ended March 31, 2019, we accrued and paid cash dividends in the amount of $172,603 in respect of shares of Series B Preferred Stock held by Lyles United, LLC.

For each of the years ended December 31, 2018 and 2017, we accrued and paid cash dividends in the amount of $700,000 in respect of shares of Series B Preferred Stock held by Lyles United, LLC.

Frank P. Greinke

For the quarter ended March 31, 2019, we accrued and paid cash dividends in the amount of $28,669 in respect of 85,180 shares of Series B Preferred Stock held by the Greinke Personal Living Trust Dated April 20, 1999 (“Greinke Trust”).

For each of the years ended December 31, 2018 and 2017, we accrued and paid cash dividends in the amount of $86,964 in respect of shares of Series B Preferred Stock held by the Greinke Trust.

Frank P. Greinke is one of our former directors and the trustee of the Greinke Trust. The Greinke Trust acquired its shares of Series B Preferred Stock from Lyles United, LLC in December 2009. The preferred-to-common conversion ratio of the Series B Preferred Stock is approximately 1-for-0.68.

Black Rock, Inc.

On June 26, 2017, we entered into a Note Purchase Agreement with five accredited investors. On June 30, 2017, under the terms of the Note Purchase Agreement, weinvestors and sold $13.9$55.0 million in aggregate principal amount of our senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold.

The notes mature on December 15, 2019. Interest on the notes accrues at an annual rate equal to (i) the greater of 1% On June 26, 2017, we entered into a second Note Purchase Agreement with five accredited investors and the three-month LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and LIBOR, plus 9% between December 15, 2017 and December 14, 2018, and (iii) the greater of 1% and LIBOR plus 11% between December 15, 2018 and the maturity date. The interest rate increases bysold an additional 2% per annum above$13.9 million in aggregate principal amount of senior secured notes to the interest rate otherwise applicable uponinvestors in a private offering for aggregate gross proceeds of 97% of the occurrence and during the continuance of an event of default until cured. Interest is payable in cash in arrears on the 15th calendar day of each March, June, September and December. We are required to pay all outstanding principal and any accrued and unpaid interest on the notes on the maturity date. We may, at our option, prepay the outstanding principal amount of the notes at any time without premium or penalty. Pacific Ethanol, Inc. issuedsold, and collectively with the notes whichpreviously sold, the Notes. The Notes are secured by a first-priority security interest in theall of our equity interest held by Pacific Ethanol, Inc.interests in its wholly-owned subsidiary, PE Op.Alto Op Co., which indirectly owns our plants located on the West Coast.

The five accredited investors include Orange 2015 DisloCredit Fund, L.P., which purchased $5,154,639Notes and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers with the senior secured note holders and their agent, certain terms of the agreements are as follows:

The Notes also contain a variety of limitations, including a prohibition on parent company indebtedness; restrictions on redemption, repurchase or payment of any dividend or distribution in respect of our or our subsidiaries’ equity interests; restrictions on asset sales and other dispositions; and restrictions on our or our subsidiaries’ ability to issue equity for purposes other than to pay down a portion of the outstanding balance of the Notes.

In March 2020, ICP granted to the senior secured noteholders a security interest in certain of its personal property. In addition, Alto Central granted to the senior secured noteholders a security interest in certain of its personal property. Alto Central also pledged its equity interests in Alto Pekin and ICP in favor of the senior secured noteholders as additional collateral securing our obligations to the noteholders. Alto Op. Co also granted to the senior secured noteholders a security interest in certain of its personal property. We and certain subsidiaries also entered into intercreditor agreements with the ICP’s and Alto Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

In November 2020, we repaid $35.3 million in principal under the Notes using a portion of the net proceeds of our then-recent offerings of common stock and warrants and the sale of certain real property assets at our Magic Valley production facility.

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

CARES Act Loans

On May 4, 2020, Alto Ingredients, Inc. and Alto Pekin received loan proceeds from Bank of America, NA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), through the Paycheck Protection Program administered by the U.S. Small Business Administration. Alto Ingredients, Inc. received $6.0 million and Alto Pekin received $3.9 million in loan proceeds. The loans mature in two years and bear interest at a rate of 1.00% per annum. Under the terms of the loans, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act, but we can provide no assurance that we will be able to obtain forgiveness of all or any portion of the loans. We are in the process of applying for loan forgiveness.

Effects of Inflation

The impact of inflation was not significant to our financial condition or results of operations for 2020 or 2019.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Revenue Recognition

We recognize revenue primarily from sales of alcohols and essential ingredients.

We have seven alcohol production facilities from which we produce and sell alcohols to our customers through our subsidiary Kinergy. Kinergy enters into sales contracts with customers under exclusive intercompany sales agreements with each of our seven production facilities. Kinergy also acts as a principal when it purchases third party fuel-grade ethanol which it resells to its customers. Finally, Kinergy has exclusive sales agreements with other third-party owned fuel-grade ethanol plants under which it sells their fuel-grade ethanol production for a fee plus the costs to deliver the ethanol to Kinergy’s customers. These sales are referred to as third-party agent sales. Revenue from these third-party agent sales is recorded on a net basis, with Kinergy recognizing its predetermined fees and any associated delivery costs.

We have seven production facilities from which we produce and sell essential ingredients to our customers through our subsidiary Alto Nutrients. Alto Nutrients enters into sales contracts with essential ingredient customers under exclusive intercompany sales agreements with each of our seven production facilities.

We recognize revenue from sales of alcohols and essential ingredients at the point in time when the customer obtains control of the products, which typically occurs upon delivery depending on the terms of the underlying contracts. In some instances, we enter into contracts with customers that contain multiple performance obligations to deliver volumes of alcohols or essential ingredients over a contractual period of less than 12 months. We allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognize the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance obligations.

When we are the agent, the supplier controls the products before they are transferred to the customer because the supplier is primarily responsible for fulfilling the promise to provide the product, has inventory risk before the product has been transferred to a customer and has discretion in establishing the price for the product. When we are the principal, we control the products before they are transferred to the customer because we are primarily responsible for fulfilling the promise to provide the products, we have inventory risk before the product has been transferred to a customer and we have discretion in establishing the price for the product.

See “Note 4 – Segments” of the Notes to Consolidated Financial Statements commencing on page F-21 of this report for our revenue-breakdown by type of contract.

Impairment of Long-Lived Assets and Held-for-Sale Classification

Our long-lived assets have been primarily associated with our production facilities, reflecting their original cost, adjusted for depreciation and any subsequent impairment.

We assess the impairment of long-lived assets, including property and equipment, when events or changes in circumstances indicate that the fair value of an asset could be less than the net book value of the asset. Generally, we assess long-lived assets for impairment by first determining the forecasted, undiscounted cash flows each asset is expected to generate plus the net proceeds expected from the sale of the asset. If the total amount of the notes, adding to its existing $10,309,278 in principal amount of notesundiscounted cash flows is less than the carrying value of the same termsasset, we then determine the fair value of the asset. An impairment loss would be recognized when the fair value is less than the related net book value, and maturity acquiredan impairment expense would be recorded in a prior transaction that closed in December 2016; Co-Investment Income Fund, L.P. - US Tax-Exempt Series, which purchased $1,697,479 in principalthe amount of the notes;difference. Forecasts of future cash flows are judgments based on our experience and Co-Investment Income Fund, L.P. - US Taxable Series,knowledge of our operations and the industry in which purchased $364,376we operate. These forecasts could be significantly affected by future changes in principal amountmarket conditions, the economic environment, including inflation, and the purchasing decisions of our customers.

We review our intangible assets with indefinite lives at least annually or more frequently if impairment indicators arise. In our review, we determine the fair value of these assets using market multiples and discounted cash flow modeling and compare it to the net book value of the notes.acquired assets.

Assets held-for-sale are assessed for impairment by comparing the carrying value to their expected net sales proceeds. We entered into a term sheet dated December 19, 2019 with Aurora Cooperative Elevator Company for the sale of our interest in two fuel-grade ethanol production facilities in Nebraska. We reviewed the criteria for held-for-sale classification of the long-lived assets associated with the pending transaction. Our analysis concluded that these long-lived assets should be classified as held-for-sale with a related impairment of $29.3 million to fair value. We did not recognize any other asset impairment charges in 2019.

In addition,October 2020, our Board of Directors approved a plan to sell our fuel-grade ethanol production facilities in Madera and Stockton, California. Consequently, we determined the long-lived asset groups should be classified as held-for-sale at December 31, 2020. The analysis of these potential sales resulted in an aggregate asset impairment of $22.3 million. We further reviewed indicators of impairment for our other production facilities, resulting in an additional asset impairment of $2.1 million in 2020.

Valuation Allowance for Deferred Taxes

We account for income taxes under the asset and liability approach, where deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

We evaluate our deferred tax asset balance for realizability. To the extent we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized, we will establish a valuation allowance against the deferred tax assets. Realization of our deferred tax assets is dependent upon future taxable income during the periods in which the associated temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a prior transaction that closedreduction in December 2016, CIF Income Partners (A), LLC purchased $9,962,010net income or an increase in principal amount of notes and Sainsbury’s Credit Opportunities Fund, Ltd. purchased $1,288,660 in principal amount of notes, in each case of the same terms and maturity as the notes issuednet loss in the June 2017 transaction.period when such determinations are made.

We believe these investors are affiliates of BlackRock, Inc. BlackRock, Inc. is reported as beneficially owning more than 5% of the outstanding shares of our common stock.

The following table presents fees for professional audit services rendered by RSM US LLPOur pre-tax consolidated losses were $17.3 million and $101.3 million for the years ended December 31, 20182020 and 2017.2019, respectively. Based on our current and prior results, we do not have significant evidence to support a conclusion that we will more likely than not be able to benefit from our remaining deferred tax assets. As such, we have recorded a valuation allowance against our net deferred tax assets.

Derivative Instruments

Audit Fees. ConsistWe evaluate our contracts to determine whether the contracts are derivative instruments. Management may elect to exempt certain forward contracts that meet the definition of amounts billed for professional services rendereda derivative from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the auditpurchase or sale of our annual consolidatedsomething other than a financial statements includedinstrument or derivative instrument that will be delivered in our Annual Reports on Form 10-K, reviewsquantities expected to be used or sold over a reasonable period in the normal course of our interim consolidated financial statements included in our Quarterly Reports on Form 10-Qbusiness. Contracts that meet the requirements of normal purchases or sales are documented as normal and our Registration Statements on Form S-3 and S-8, andexempted from the review of our internalfair value accounting and reporting controlsrequirements of derivative accounting.

We enter into short-term cash, option and futures contracts as requireda means of securing purchases of corn, natural gas and sales of fuel-grade ethanol and managing exposure to changes in commodity prices. All of our exchange-traded derivatives are designated as non-hedge derivatives for accounting purposes, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated or accounted for as hedging instruments.

Realized and unrealized gains and losses related to exchange-traded derivative contracts are included as a component of cost of goods sold in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative assets or liabilities. The selection of normal purchase or sales contracts, and use of hedge accounting, are accounting policies that can change the timing of recognition of gains and losses in the statement of operations.

Impact of New Accounting Pronouncements

Not applicable.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Reference is made to the financial statements, which begin at page F-1 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

We conducted an evaluation under Section 404the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the Sarbanes-Oxleyeffectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 2002.1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2020 that our disclosure controls and procedures were effective at a reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Audit-Related Fees. Audit-Related Fees consistOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.” Such fees would include amounts billed for professional services performed in connection with mergersreporting and acquisitions, audits of 401(k) plans, pension plans and RIN audits.

Tax Fees. Tax Fees consist of fees for professional services for tax compliance activities, including the preparation of federal and state tax returns and related compliance matters.

All Other Fees. Consists of amounts billedfinancial statements for services other than those noted above.

Our Audit Committee considered all non-audit services provided by RSM US LLP and determined that the provision of such services was compatible with maintaining such firm’s audit independence.

Audit Committee Pre-Approval Policy

Our Audit Committee is responsible for approving all audit, audit-related, tax and other services. The Audit Committee pre-approves all auditing services and permitted non-audit services, including all fees and terms to be performed for us by our independent auditor at the beginning of the fiscal year. Non-audit services are reviewed and pre-approved by project at the beginning of the fiscal year. Any additional non-audit services contemplated by us after the beginning of the fiscal year are submitted to the Chairman of our Audit Committee for pre-approval prior to engaging our independent auditor for such services. These interim pre-approvals are reviewed with the full Audit Committee at its next meeting for ratification. During 2018 and 2017, all services performed by RSM US LLP were pre-approved by our Audit Committeeexternal purposes in accordance with thesegenerally accepted accounting principles. Our internal control over financial reporting includes those policies and applicable Securities and Exchange Commission regulations.

PART IVprocedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is defined by the Public Company Accounting Oversight Board’s Audit Standards AS 2201 as being a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information under the captions “Information about our Board of Directors, Board Committees and Related Matters” appearing in the Proxy Statement, is hereby incorporated by reference.

Item 11. Executive Compensation.

The information under the caption “Executive Compensation and Related Information,” appearing in the Proxy Statement, is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” appearing in the Proxy Statement, is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information under the captions “Certain Relationships and Related Transactions” and “Information about our Board of Directors, Board Committees and Related Matters—Director Independence” appearing in the Proxy Statement, is hereby incorporated by reference.

Item 14. Principal Accounting Fees and Services.

The information under the caption “Audit Matters—Principal Accountant Fees and Services,” appearing in the Proxy Statement, is hereby incorporated by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements.Statements

SeeReference is made to the financial statements listed on and attached following the Index to Consolidated Financial Statements in Item 8contained on page F-1 of the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2019.this report.

(a)(2) Financial Statement Schedules.Schedules

None.

(a)(3) Exhibits.Exhibits

Reference is made to the exhibits listed on the Index to Exhibits.

Item 16. Form 10-K Summary.

None.

INDEX TO EXHIBITSIndex to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
Alto Ingredients, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Alto Ingredients, Inc. and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Long-Lived Asset Impairment

As discussed in Note 1 to the financial statements, the Company assesses the impairment of long-lived assets, including property and equipment, internally developed software and purchased intangibles subject to amortization, when events or circumstances exist that indicate that the fair value of assets may be less than their net book value. The Company’s model includes forecasted undiscounted cash flows and estimated net proceeds expected from the sale of the asset group used for the determination of any impairment of the Company’s long-lived assets. The projections used for analysis are judgmental and based on circumstances and future plans as determined by management.

We identified the assessment of the Company’s impairment of long-lived assets as a critical audit matter because auditor judgment was required in evaluating significant assumptions related to the Company’s estimate, including the estimated residual value of the asset group.

Our audit procedures related to the Company’s long-lived asset impairment assessment included the following, among others:

/s/ RSM US LLP

We have served as the Company’s auditor since 2015.

Rochester, Minnesota

March 26, 2021 

ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value)

The accompanying notes are an integral part of these consolidated financial statements.

ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except shares and par value)