☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May~~November 13, 2020, there were ~~55,493,235~~68,494,982 shares of Pacific Ethanol, Inc. common stock, $0.001 par value per share, and 896 shares of Pacific Ethanol, Inc. non-voting common stock, $0.001 par value per share, outstanding.

PACIFIC ETHANOL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except par value)

PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)

~~-5-~~PACIFIC ETHANOL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(unaudited, in thousands)

Organization and Business– The consolidated financial statements include, for all periods presented, the accounts of Pacific Ethanol, Inc., a Delaware corporation (“Pacific Ethanol”), and its direct and indirect subsidiaries (collectively, the “Company”), including its subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), Pacific Ag. Products, LLC, a California limited liability company (“PAP”), PE Op Co., a Delaware corporation (“PE Op Co.”) and all nine of the Company’s ~~ethanol~~ production ~~facilities as of March 31,~~distilleries through April 15, 2020. As discussed in Note 2, on April 15, 2020, the Company completed ~~its~~the sale of its ownership interests in Pacific Aurora, LLC (“Pacific Aurora”), thereby divesting ~~two of~~ the Company’s ~~ethanol~~two production ~~facilities.~~distilleries located in Nebraska.

The Company is a leading producer and marketer of ~~low-carbon renewable fuels~~specialty alcohols and essential ingredients in the United States. The Company’s production distilleries in Illinois are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and allow for access to many additional domestic markets. In addition, the Company’s ability to load unit trains and barges from these distilleries in the Midwest allows for greater access to international markets. The Company’s four ~~ethanol plants~~distilleries in California, Oregon and Idaho (together with their respective holding companies, the “Pacific Ethanol West Plants”) are located in close proximity to both feed and fuel-grade ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing. The Company’s ethanol plants in Illinois and Nebraska (together with their respective holding companies, the “Pacific Ethanol Central Plants”) are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional domestic markets. In addition, the Company’s ability to load unit trains from these facilities in the Midwest allows for greater access to international markets. On April 15, 2020, the Company sold its interests in the Nebraska facilities.

Following the Company’s sale of its interest in Pacific Aurora, the Company has a combined production capacity of 450 million gallons per ~~year, markets, on an annualized basis,~~year. In 2019, the Company marketed nearly 1.0 billion gallons combined of specialty alcohols and fuel-grade ethanol, and ~~specialty alcohols, based on historical volumes, and produces, on an annualized basis,~~ nearly 3.0 million tons of ~~co-products~~essential ingredients on a dry matter ~~basis, such~~basis.

The Company focuses 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 ~~wet~~well as corn germ used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and ~~dry~~ distillers grains ~~wet~~used in commercial animal feed and ~~dry~~pet foods. Renewable Fuels includes fuel-grade ethanol and distillers corn ~~gluten feed, condensed distillers solubles, corn gluten meal, corn germ, dried yeast and CO~~₂~~, based on historical volumes.~~

As of ~~March 31,~~September 30, 2020, the Company was operating at approximately ~~40%~~51% of its 450 million gallon annual production capacity. As market conditions change, the Company may increase, decrease or idle production at one or more operating ~~facilities~~distilleries or resume operations at any idled ~~facility.~~distillery.

Basis of Presentation–Interim Financial Statements – The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Results for interim periods should not be considered indicative of results for a full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The accounting policies used in preparing these consolidated financial statements are the same as those described in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation.

Liquidity – The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ~~As a result of ethanol industry conditions that have negatively affected~~During the ~~Company’s business,~~nine months ended September 30, 2020, the Company ~~does not currently have sufficient liquidity~~continued to ~~meet its anticipated working capital, debt service and other liquidity needs~~experience significant adverse conditions in the ~~near-term. The~~fuel-grade ethanol market as demand and pricing were at record lows due to reduced domestic transportation and resulting lower gasoline demand. In response, the Company ~~has~~ reduced fuel-grade ethanol production at its ~~facilities~~distilleries by more than ~~60% subsequent to quarter-end~~50% in an effort to conserve capital ~~in response to~~as a result of the substantial reduction in fuel-grade ethanol demand due to stay-at-home orders issued in response to the coronavirus pandemic. The Company, however, has ~~obtained additional liquidity~~not only continued producing and selling its specialty alcohols, but also converted a portion of its fuel-grade ethanol production to specialty alcohol production to respond to increased demand from the ~~completion~~sanitizer and disinfectant markets. These sales of specialty alcohols were at a mix of fixed and spot prices, both of which resulted in positive net income and cash flows from operations during the quarter. The Company expects current demand for its specialty alcohols to continue for at least the next twelve months as the Company continues to enter fixed-price contracts and hedge corn input costs, locking in profit margins on sales of specialty alcohols.

At September 30, 2020, the Company had $38.7 million in cash and $9.2 million available under Kinergy’s operating line of credit. During the first nine months of 2020, the Company generated $75.7 million in cash from its operations and realized $19.9 million in net cash proceeds from the sale of its interest in Pacific ~~Aurora and through government loan programs. The Company has also taken and expects to take additional steps to preserve liquidity. However, despite these efforts,~~Aurora. These positive cash flows have allowed the Company ~~does not believe that it has sufficient working capital~~ to ~~continue operations for the next twelve months, unless it successfully restructures~~make net payments totaling $91.6 million on its debt ~~sells additional assets, experiences a significant improvement in demand and margins for its products and/or obtains other sources~~during the first nine months of ~~liquidity. In addition, if demand and margins do not promptly and sustainably improve,~~2020. Further, subsequent to September 30, 2020, the Company ~~may be forced to further curtail or cease production at~~made an additional $25.3 million in payments on its ~~operating facilities. As a result~~term debt from proceeds of ~~these factors, there exists substantial doubt as to the Company’s ability to continue as a going concern.~~its offerings of common stock and warrants that generated net proceeds of approximately $70.0 million.

The Company believes that as ~~previously agreed~~of the date of this report, it is in compliance with all debt covenants contained in its ~~lenders, has presented and continues~~credit facilities, except the Company’s obligation to ~~negotiate~~obtain lender approval of a comprehensive plan to restructure its assets and ~~liabilities.~~liabilities with respect to its Pekin and ICP debt and a dispute over whether a portion of the Company’s principal payments originated from an approved source of funds. The Company has appointed a chief restructuring officer to facilitate the development of such a plan and has presented and continues to ~~assist~~negotiate the plan with its lenders. As a result, the Company is not in compliance with its obligations to its lenders, which could result in their acceleration of the Company’s ~~present strategic initiatives. The Company expects the negotiated plan will include additional assets sales, soliciting new investments in~~debt. Even though the Company doesn’t believe acceleration is probable, it has classified its related debt as current on the Company’s consolidated balance sheets.

In addition to the Company’s projected cash flows from operations, the Company recently raised net proceeds of $70.0 million in offerings of common stock and warrants, and has recently announced the sale of certain assets for $10.0 million, which is expected to close by November 30, 2020. In addition, the Company continues to evaluate its Western fuel-grade ethanol distilleries for either repurposing or sale, which may provide additional proceeds to repay debt. Given these factors, the Company believes it has alleviated substantial doubt about its ~~assets, further~~ability to continue as a going concern and has sufficient liquidity to meet its anticipated working capital, debt ~~payment deferrals and reductions, cutting overhead expenses~~service and other ~~cash preserving initiatives. The Company intends that the plan will provide the means to maintain sufficient~~ liquidity needs for the next twelve ~~months.~~months from the date of this report.

Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivable are presented at face value, net of the allowance for doubtful accounts. The Company sells fuel-grade ethanol to gasoline refining and distribution companies, sells distillers grains and other feed co-products to dairy operators and animal feedlots and sells corn oil to poultry and biodiesel customers generally without requiring collateral.

The Company maintains an allowance for doubtful accounts for balances that appear to have specific collection issues. The collection process is based on the age of the invoice and requires attempted contacts with the customer at specified intervals. If, after a specified number of days, the Company has been unsuccessful in its collection efforts, a bad debt allowance is recorded for the balance in question. Delinquent accounts receivable are charged against the allowance for doubtful accounts once uncollectibility has been determined. The factors considered in reaching this determination are the apparent financial condition of the customer and the Company’s success in contacting and negotiating with the customer. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of ability to make payments, additional allowances may be required.

Of the accounts receivable balance, approximately ~~$41,237,000~~$35,872,000 and $63,736,000 at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, were used as collateral under Kinergy’s operating line of credit. The allowance for doubtful accounts was ~~$58,000~~$16,000 and $39,000 as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. The Company recorded no bad debt expense for the three months ended September 30, 2020 and 2019. The Company recorded a bad debt expense of ~~$19,000~~$1,000 and ~~$26,000~~$27,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively. ~~The Company does not have any off-balance sheet credit exposure related to its customers.~~

Financial Instruments – The carrying values of cash and cash equivalents, accounts receivable, derivative assets, accounts payable, accrued liabilities and derivative liabilities are reasonable estimates of their fair values because of the short maturity of these items. The carrying value of the Company’s senior secured notes were recorded at fair value at December 31, 2019 and are considered Level 2 fair value measurements. The Company believes their carrying value approximates fair value at ~~March 31,~~September 30, 2020. The Company believes the carrying value of its notes receivable are not considered materially different than fair value due to their recent issuances, and other long-term debt ~~and assessment financing is~~instruments are not considered materially different than fair value because the interest rates on these instruments are variable, and are considered Level 2 fair value measurements.

Impairment of Long-Lived Assets – The Company assesses the impairment of long-lived assets, including property and equipment, internally developed software and purchased intangibles subject to amortization, when events or changes in circumstances indicate that the fair value of assets could be less than their net book value. In such event, the Company assesses long-lived assets for impairment by first determining the forecasted, undiscounted cash flows the asset group is expected to generate plus the net proceeds expected from the sale of the asset group. If this amount is less than the carrying value of the asset, the Company will then determine the fair value of the asset group. An impairment loss would be recognized when the fair value is less than the related asset group’s net book value, and an impairment expense would be recorded in the amount of the difference. An impairment loss may also occur to the extent that the Company determines long-lived assets as held-for-sale and sales prices are less than carrying value. Forecasts of future cash flows are judgments based on the Company’s experience and knowledge of its operations and the industries in which it operates. These forecasts could be significantly affected by future changes in market conditions, the economic environment, including inflation, and purchasing decisions of the Company’s customers. The Company performed an undiscounted cash flow analysis for its long-lived assets held-for-use, as of September 30, 2020, resulting in amounts in excess of carrying values.

Estimates and Assumptions – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are required as part of determining the allowance for doubtful accounts, net realizable value of inventory, estimated lives of property and equipment, long-lived asset impairments, valuation allowances on deferred income taxes and the potential outcome of future tax consequences of events recognized in the Company’s financial statements or tax returns, and the valuation of assets acquired and liabilities assumed as a result of business combinations. Actual results and outcomes may materially differ from management’s estimates and assumptions.

On December 19, 2019, Pacific Ethanol Central, LLC (“PE Central”) entered into a term sheet covering the proposed sale of its 73.93% ownership interest in Pacific Aurora to Aurora Cooperative Elevator Company (“ACEC”) for $52.8 million, and as a result, the Company determined that as of December 31, 2019, the long-lived assets of Pacific Aurora should be classified as held-for-sale.

The Company has the following assets and liabilities of Pacific Aurora that will be derecognized upon sale of PE Central’s interest in Pacific Aurora and as to which the Company will no longer consolidate any portion of Pacific Aurora (in thousands):

In addition to the above accounts, upon the sale, the Company will no longer have noncontrolling interests on its balance sheet and no longer record income (loss) of noncontrolling interests for the future periods.

For the three months ended March 31, 2020 and 2019, Pacific Aurora contributed $39.6 million and $36.5 million in net sales, $7.9 million and $4.9 million in pre-tax loss, and $2.1 million and $1.3 million in net loss attributed to noncontrolling interests, respectively.

On April 15, 2020, the Company closed the sale of its ownership interest in Pacific Aurora and preliminarily received total consideration of $52.8 million, subject to ~~certain~~ working capital adjustments of approximately $35.3 million, resulting in cash proceeds of ~~$20.2~~$19.9 million and the balance of $16.5 million in long-term ACEC promissory ~~notes.~~notes, resulting in a net loss on sale of approximately $1.4 million, recorded as other income (expense) in the Company’s consolidated statements of operations. Approximately $14.5 million of the cash proceeds were used to ~~pay principal on~~repay a portion of the Company’s term debt. In September 2020, the Company and ACEC agreed to certain post-closing adjustments to the purchase price, resulting in a decrease of $0.9 million, and a corresponding reduction in the aggregate principal amount owed under the long-term ACEC promissory notes.

In addition, upon the sale, the Company no longer had noncontrolling interests on its balance sheet and no longer records income (loss) of noncontrolling interests for future periods.

For the three months ended September 30, 2019, Pacific Aurora contributed approximately $40.1 million in net sales, $6.7 million in pre-tax loss and $1.7 million in net loss attributed to noncontrolling interests, respectively. For the nine months ended September 30, 2020 and 2019, Pacific Aurora contributed $39.6 million and $112.0 million in net sales, $8.4 million and $14.0 million in pre-tax loss, and $2.2 million and $3.7 million in net loss attributed to noncontrolling interests, respectively.

On July 28, 2020, the Company entered into a term sheet with Liberty Basin, LLC (“Liberty”) to sell 134 acres, the rail loop and grain handling assets at its Magic Valley plant in Burley, Idaho for $10.0 million in cash. The Company will retain the fuel-grade ethanol production facility and terminal on the remaining 25 acres and will enter into certain agreements with Liberty for delivery of grain to the plant, and as a result, the Company determined that as of September 30, 2020, these long-lived assets should be classified as held-for-sale. On November 9, 2020, the Company announced a definitive sales agreement with Liberty had been signed. The sale is expected to close on or before November 30, 2020, subject to customary and other closing conditions.

The Company reports its financial and operating performance in two segments: (1) ~~ethanol~~ production, which includes the production and sale of ~~ethanol, specialty~~ alcohols and ~~co-products,~~essential ingredients, with all of the Company’s production ~~facilities~~distilleries aggregated, and (2) marketing and distribution, which includes marketing and merchant trading for Company-produced ~~ethanol, specialty alcohols and co-products and~~products as well as third-party fuel-grade ethanol.

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

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

Inventories consisted primarily of bulk ~~ethanol,~~ specialty alcohols, fuel-grade ethanol, corn, co-products, low-carbon and Renewable Identification Number (“RIN”) credits and unleaded fuel, and are valued at the lower-of-cost-or-net realizable value, with cost determined on a first-in, first-out basis. Inventory is net of a ~~$5,514,000~~$32,000 and $1,290,000 valuation adjustment as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. Inventory balances consisted of the following (in thousands):

The business and activities of the Company expose it to a variety of market risks, including risks related to changes in commodity prices. The Company monitors and manages these financial exposures as an integral part of its risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results.

Commodity Risk – Cash Flow Hedges – The Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in commodity prices for periods of up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price volatility on fuel-grade ethanol sale and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating or index-based price for fuel-grade ethanol. In addition, the Company hedges anticipated sales of fuel-grade ethanol to minimize its exposure to the potentially adverse effects of price volatility. These derivatives may be designated and documented as cash flow hedges and effectiveness is evaluated by assessing the probability of the anticipated transactions and regressing commodity futures prices against the Company’s purchase and sales prices. Ineffectiveness, which is defined as the degree to which the derivative does not offset the underlying exposure, is recognized immediately in cost of goods sold. For the three and nine months ended September 30, 2020 and 2019, the Company did not designate any of its derivatives as cash flow hedges.

Commodity Risk – Non-Designated Hedges – The Company uses derivative instruments to lock in prices for certain amounts of corn and fuel-grade ethanol by entering into exchange-traded forward contracts for those commodities. These derivatives are not designated for hedge accounting treatment. The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of goods sold. The Company recognized gains of $1,582,000 and losses of $3,320,000 as the changes in the fair values of these contracts for the three months ended September 30, 2020 and 2019, respectively. The Company recognized gains of $1,582,000 and $1,565,000 as the changes in the fair values of these contracts for the nine months ended September 30, 2020 and 2019, respectively.

Non Designated Derivative Instruments – The classification and amounts of the Company’s derivatives not designated as hedging instruments, and related cash collateral balances, are as follows (in thousands):

The classification and amounts of the Company’s recognized gains (losses) for its derivatives not designated as hedging instruments are as follows (in thousands):

PE Pekin Credit Facilities – On March 20, 2020, Pacific Ethanol Pekin, LLC (“PE Pekin”) and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020. On that same date, the Company granted to the lender a security interest in all of the Company’s equity interests in PE Op Co., which indirectly owns the Company’s ~~plants~~distilleries located on the West Coast. The Company and certain subsidiaries also entered into intercreditor agreements with the PE Pekin and Illinois Corn Processing, LLC (“ICP”) lenders, and the agent for the Company’s senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales. ~~On April 15,~~In July 2020, ~~as part and upon the closing of the Company’s sale of its interests in Pacific Aurora,~~ the Company ~~made~~reached a confidential settlement of an outstanding dispute resulting in a gain and cash proceeds of approximately ~~$11.6~~$11.8 million. The Company used a portion of these funds to make approximately $7.4 million in additional principal payments on ~~the~~ PE ~~Pekin~~Pekin’s term debt.

ICP Credit Facilities – On March 20, 2020, ICP and its lender agreed to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020. On that same date, the Company granted to the lender a security interest in all of the Company’s equity interests in PE Op Co. The Company and certain of its subsidiaries also entered into intercreditor agreements with the PE Pekin and ICP lenders, and the agent for the Company’s senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales. ~~On April 15, 2020, as part and upon the closing~~The Company used a portion of the ~~Company’s sale of its interests~~proceeds from the settlement noted above, in ~~Pacific Aurora,~~July 2020, to make approximately $1.8 million in additional principal payments on ICP’s term debt.

Parent Notes Payable – On November 10, 2020, the Company ~~made approximately $2.9~~repaid an additional $25.3 million in principal ~~payments~~ on its parent notes payable from the ~~ICP term debt.~~net proceeds of its recent offerings of common stock and warrants.

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

Restrictions – At ~~March 31,~~September 30, 2020, there were approximately ~~$174.9~~$291.3 million of net assets at the Company’s subsidiaries that were not available to be transferred to Pacific Ethanol, Inc. in the form of dividends, loans or advances due to restrictions contained in the credit facilities of the Company’s subsidiaries.

Sales Commitments – At ~~March 31,~~September 30, 2020, the Company had entered into sales contracts with its major customers to sell certain quantities of fuel-grade ethanol and co-products. The Company had open fuel-grade ethanol indexed-price contracts for ~~174,527,000~~54,750,000 gallons of fuel-grade ethanol as of ~~March 31,~~September 30, 2020 and open fixed-price fuel-grade ethanol and specialty alcohol sales contracts totaling ~~$90,554,000~~$327,244,000 as of ~~March 31,~~September 30, 2020. The Company had open fixed-price co-product sales contracts totaling ~~$16,607,000~~$18,120,000 and open indexed-price co-product sales contracts for ~~220,000~~165,000 tons as of ~~March 31,~~September 30, 2020. These sales contracts are scheduled to be completed throughout ~~2020.~~2020 and 2021.

Purchase Commitments – At ~~March 31,~~September 30, 2020, the Company had indexed-price purchase contracts to purchase ~~23,295,000~~4,890,000 gallons of fuel-grade ethanol and fixed-price purchase contracts to purchase ~~$9,089,000~~$3,341,000 of fuel-grade ethanol from its suppliers. The Company had fixed-price purchase contracts to purchase ~~$11,541,000~~$9,525,000 of corn from its suppliers as of ~~March 31,~~September 30, 2020. These purchase commitments are scheduled to be satisfied throughout 2020.

Litigation – General –The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, environmental regulations, and others. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. While there can be no assurances, the Company does not expect that any of its pending legal proceedings will have a material impact on the Company’s financial condition or results of operations.

The Company sponsors a defined benefit pension plan (the “Retirement Plan”) and a health care and life insurance plan (the “Postretirement Plan”). The Company assumed the Retirement Plan and the Postretirement Plan as part of its acquisition of PE Central on July 1, 2015.

The Retirement Plan is noncontributory, and covers only “grandfathered” unionized employees at the Company’s Pekin, Illinois ~~facility~~distillery who fulfill minimum age and service requirements. Benefits are based on a prescribed formula based upon the employee’s years of service. The Retirement Plan, which is part of a collective bargaining agreement, covers only union employees hired prior to November 1, 2010.

The Company uses a December 31 measurement date for its Retirement Plan. The Company’s funding policy is to make the minimum annual contribution required by applicable regulations. As of December 31, 2019, the Retirement Plan’s accumulated projected benefit obligation was $21.6 million, with a fair value of plan assets of $15.7 million. The underfunded amount of $5.9 million is recorded on the Company’s consolidated balance sheet in other liabilities. For the three months ended March 31, 2020, the Retirement Plan’s net periodic expense was $48,000, comprised of $173,000 in interest cost and $101,000 in service cost, partially offset by $226,000 of expected return on plan assets. For the three months ended March 31, 2019, the Retirement Plan’s net periodic expense was $94,000, comprised of $190,000 in interest cost and $94,000 in service cost, partially offset by $190,000 of expected return on plan assets.

The Postretirement Plan provides postretirement medical benefits and life insurance to certain “grandfathered” unionized employees. Employees hired after December 31, 2000 are not eligible to participate in the Postretirement Plan. The Postretirement Plan is contributory, with contributions required at the same rate as active employees. Benefit eligibility under the plan reduces at age 65 from a defined benefit to a defined dollar cap based upon years of service. As of December 31, 2019, the Postretirement Plan’s accumulated projected benefit obligation was $5.3 million and is recorded on the Company’s consolidated balance sheet in other liabilities. The Company’s funding policy is to make the minimum annual contribution required by applicable regulations. For the three months ended March 31, 2020, the Postretirement Plan’s net periodic expense was $59,000, comprised of $38,000 of interest cost, $14,000 of service cost and $7,000 of amortization expense. For the three months ended March 31, 2019, the Postretirement Plan’s net periodic expense was $102,000, comprised of $55,000 of interest cost, $17,000 of service cost and $30,000 of amortization expense.

The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels, as follows:

Pooled separate accounts – Pooled separate accounts invest primarily in domestic and international stocks, commercial paper or single mutual funds. The net asset value is used as a practical expedient to determine fair value for these accounts. Each pooled separate account provides for redemptions by the Retirement Plan at reported net asset values per share, with little to no advance notice requirement, therefore these funds are classified within Level 2 of the valuation hierarchy.

Warrants– The Company’s warrants issued December 22, 2019, were valued using the Black-Scholes Valuation Model.

Significant assumptions used and related fair value for the warrants as of ~~March 31,~~August 5, 2020, the day on which they were fully exercised, were as follows:

Significant assumptions used and related fair value for the warrants as of December 31, 2019 were as follows:

The fair values of the warrants are based on unobservable inputs and are designated as Level 3 inputs.

Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair values of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 inputs.

The following table summarizes recurring and nonrecurring fair value measurements by level at ~~March 31,~~September 30, 2020 (in thousands):

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

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

There were an aggregate of ~~635,000~~844,000 and 634,000 potentially dilutive weighted-average shares from convertible securities outstanding for the three and nine months ended ~~March 31,~~September 30, 2020 and ~~2019.~~2019, respectively. These convertible securities were not considered in calculating diluted net ~~loss~~income (loss) per share for the ~~three months ended March 31, 2020 and 2019,~~periods presented, as their effect would have been anti-dilutive.

On October 28, 2020, the Company closed an underwritten public offering of 5,075,000 shares of its common stock at a public offering price of $8.42 per share and 5-year pre-funded warrants to purchase 3,825,493 shares of common stock at a public offering price of $8.42 per pre-funded warrant. In addition, in a concurrent private placement, the Company also issued to the investor, for a nominal price, warrants to purchase an additional 8,900,493 shares of common stock at an exercise price of $9.757 per share. The warrants will become exercisable after the six-month anniversary of the offering and will expire on the 18-month anniversary of the offering. The aggregate gross proceeds from the offerings of common stock, pre-funded warrants and warrants was approximately $75.0 million. The net offering proceeds were approximately $70.0 million after deducting underwriting discounts and commissions and other estimated offering expenses.

Restricted Net Assets –At ~~March 31,~~September 30, 2020, the Company had approximately ~~$174,900,000~~$291,300,000 of net assets at its subsidiaries that were not available to be transferred to Pacific Ethanol in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of these subsidiaries.

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. This report and our consolidated financial statements and notes to consolidated financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might earn if we are successful in implementing our business and growth strategies. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors, including:

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of a document incorporated by reference, as of the date of that document. We do not undertake to update, revise or correct any forward-looking statements, except as required by law.

Any of the factors described immediately above, or referenced from time to time in our filings with the Securities and Exchange Commission or in the “Risk Factors” section below could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

On February 28, 2020, we entered into a membership interest purchase agreement with Aurora Cooperative Elevator Company, or ACEC, to sell our 73.93% ownership interest in Pacific Aurora, LLC, or Pacific Aurora, to ACEC for total consideration of $52.8 million, subject to certain working capital adjustments, payable in cash and $16.5 million in ACEC promissory notes. ACEC owned the 26.07% balance of ownership interests in Pacific Aurora.

On April 15, 2020, we closed the sale of our ownership interest in Pacific Aurora and received total consideration of $52.8 million, subject to certain working capital adjustments, resulting in cash proceeds of $20.2 million and the balance of $16.5 million in ACEC promissory notes. Approximately $14.5 million of the net cash proceeds was used to repay principal on our term debt.

We are a leading United States producer and marketer of ~~low-carbon renewable fuels in the United States.~~specialty alcohols and essential ingredients.

We operate seven ~~strategically-located~~strategically located production ~~facilities. Four~~distilleries. Three of our ~~plants~~distilleries are located in the Midwestern state of Illinois and four of our distilleries are located in the Western states of California, Oregon and ~~Idaho, and three of our plants are located in the Midwestern state of Illinois. We are the seventh largest producer of ethanol in the United States based on annualized volumes.~~Idaho. Our ~~plants~~distilleries have a combined production capacity of 450 million gallons per year. We market all of the ~~ethanol, specialty~~ alcohols ~~and co-products~~ produced at our ~~plants~~distilleries as well as fuel-grade ethanol produced by third parties. In 2019, we marketed nearly 1.0 billion gallons combined of specialty alcohols and fuel-grade ethanol, and nearly 3.0 million tons of ~~co-products~~essential ingredients on a dry matter basis. Our business consists of two operating segments: a production segment and a marketing segment.

Our mission is to be a leading United States producer and marketer of ~~low-carbon renewable fuels, high-value animal feed~~specialty alcohols and ~~high-quality alcohol products in the United States.~~essential ingredients. We intend to accomplish this goal in part by investing in our ~~ethanol~~specialized and higher value production and distribution infrastructure, ~~lowering~~expanding production in high demand essential ingredients, expanding and extending the ~~carbon intensity~~sale of our ~~ethanol, extending our marketing business~~products into new regional and international markets, building efficiencies and ~~implementing new technologies to promote higher production yields~~economies of scale and by capturing a greater ~~efficiencies.~~portion of the value stream.

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

We produce ~~ethanol, specialty alcohols and co-products~~these products at our ~~production facilities~~distilleries described below. Our ~~plants~~distilleries located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our distilleries located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. Our plants located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional domestic markets. In addition, our ability to load unit trains and barges from our Pekin, Illinois plants, allows for greater access to international markets.

~~Currently, we~~We are currently operating at approximately ~~50%~~51% of production capacity. As market conditions change, we may increase, decrease or idle production at one or more operating ~~facilities~~distilleries or resume operations at any idled ~~facility.~~distillery.

We produce ethanol co-products at our production facilities such as wet distillers grains, or WDG, dried distillers grains with solubles, or DDGS, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, corn oil, dried yeast and CO₂.

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

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

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

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

See “Note 23 – Segments” to our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our business segments.

In the third quarter, we continued to experience an excellent margin environment for our specialty alcohols and essential ingredients. In addition, margins for our fuel-grade ethanol improved, and ethanol spot prices have now largely recovered to pre-pandemic levels. Our positive results for the quarter were mitigated, however, by significant logistical constraints due to closure of the Illinois River for lock repairs. Although we expected this closure, it nevertheless required greater use of less cost-effective modes of product transport such as via rail and truck, which resulted in higher costs. The Illinois River lock repairs are now complete – approximately thirty days past the completion date initially anticipated – and we do not expect similar logistical constraints going forward.

We have strategically realigned our business to focus on specialty alcohols and essential ingredients in the three key markets of Health, Home & Beauty, Food & Beverage and Essential Ingredients, in addition to our continued focus on renewable fuel. These three markets have experienced stable growth and represent strong demand for our specialty alcohols and essential ingredients that we sell to blue chip customers and well-known household brands. In the first ~~quarter~~nine months of 2020, we generated approximately 45% of our net sales from specialty alcohols as compared to only 15% for all of 2019, excluding sales of third-party fuel-grade ethanol. Our focus on specialty alcohols has also reduced our exposure to fuel-grade ethanol markets that have experienced ~~an acute negative margin environment resulting from continued excess ethanol supplies compounded by plummeting~~inventory over-supply challenges and demand from the impact of the coronavirus pandemic. The effects of the pandemic, including stay-at-home orders, significantly reduced ethanol demand by up to 50% or more in the markets we serve. Declining demand impacted the market price of ethanol, pushing prices to historically low levels. Although corn prices also declined, they moved less on a percentage basis, and did not fully mitigate the effects of lower ethanol prices, resulting in industry-wide negative production margins.destruction.

As a result, the ethanol industry as a whole reduced production to an unprecedented 50% of capacity. Over 75 production facilities were fully idled and many others reduced production to minimum levels. We initially reduced production levels and overall plant utilization to 40% of capacity, while seeking to balance our customer commitments with our need to minimize negative operating cash flow. Overall, we are currently producing at approximately 50% of total capacity, having gradually increased production based on higherRobust demand ~~and improving margins. Since early May, demand has improved by more than 20% and industry ethanol inventories have declined.~~

~~Our ICP production facility~~for specialty alcohols used in ~~Pekin, Illinois continues to produce and sell record amounts of high-quality alcohol, a key ingredient in the production of~~ sanitizers and disinfectants ~~validating one of our strategic objectives in acquiring the facility to diversify our products. In addition, we have benefitted from higher demand and prices for our high-protein animal feed products~~ as a result of ~~lower industry supplies due to reduced production of ethanol and co-products. We are encouraged by~~ the ~~performance of our Pekin operations, which we expect will make a materially positive contribution to~~coronavirus pandemic has positively impacted our results thus far in 2020. As demand vastly exceeded available supplies in the first months of the pandemic, spot prices for these specialty alcohols significantly exceeded prices for more premium products. While this market remains highly dynamic, spot demand has declined and spot prices have fallen from the peaks witnessed in the second quarter. Specialty alcohol premiums over fuel-grade ethanol still remain greater than historical averages, contributing to our optimistic outlook for 2021 and beyond. In fact, the majority of our specialty alcohol production for 2021 is already contracted for at fixed prices and for terms of up to one year or more.

~~United States ethanol exports were strong~~Our optimistic outlook is also supported by two key market drivers. First, we expect an increase in the ~~first quarter with over 500 million gallons exported, representing a 30% increase over~~use of alcohol-based sanitizers and disinfectants. Demand has increased for specialty alcohols used in sanitizers and disinfectants such as GermX and Lysol for use in hospitals, restaurants, offices and schools. We believe that as the ~~comparable period in 2019. Although exports have slowed thus far in~~pandemic abates and the ~~second quarter due~~population begins to ~~reduced~~return to typical social and work environs, demand ~~caused by the coronavirus pandemic,~~for sanitizers and disinfectants will remain strong as individuals use these products to protect themselves and businesses use these products to protect their customers and employees. Second, we expect ~~exports to rebound as countries reopen their economies. China is~~continued growth in distilled spirits consumption. Demand for distilled spirits has increased every year for the ~~first country to emerge from the most significant effects of the coronavirus pandemic,~~past decade, and we are ~~optimistic that China may step~~working to add 30 million gallons of grain neutral spirits production capacity in ~~as a significant buyer~~the fourth quarter to meet this rising demand. Once completed, we will have increased our annual production capacity of specialty alcohols to 140 million gallons, the majority of which will meet or exceed United States ~~ethanol as part~~Pharmacopeia (USP) specifications, representing an increase of ~~China’s phase-one trade deal with the United States.~~65% in annual capacity compared to 85 million gallons in 2019.

~~The Environmental Protection Agency, or EPA, has elected not~~We are working to ~~appeal a 10th Circuit federal court decision limiting small refinery exemptions from~~broaden our addressable customers and markets by obtaining additional certifications. In October, we obtained our ISO9001 certification, the ~~national Renewable Fuel Standard, or RFS. While~~world’s most widely recognized quality management system certification. We are also pursuing two additional certifications, specifically, ICH Q7, which sets forth good manufacturing practices for active pharmaceutical ingredients, and EXCiPACT, which sets standards for excipient safety and quality. We expect final audits for these additional certifications by the court decision is geographically limited, subject to the appeals process, we expect the EPA to apply the decision nationally and substantially limit small refinery exemptions going forward. If applied nationally, we estimate that fewer small refinery exemptions would restore over 1.0 billion gallonsend of ~~annual demand for renewable fuels once the industry recovers from the coronavirus pandemic.~~2020.

We continue to evaluate many attractive investment opportunities in our asset portfolio. These opportunities are now available given our performance and strengthened balance sheet. For example, we are expanding annual production capacity of our yeast facility by 15%. Our yeast product is a high-value essential ingredient and we anticipate the full return of our investment of $5.5 million in less than two years. We expect to complete this capacity expansion by the third quarter of 2021.

We also continue to pursue ~~a number~~our strategic realignment plans to sell or repurpose our Western distilleries. We recently announced an agreement to sell our grain handling assets at our Magic Valley distillery in Burley, Idaho, comprising 134 acres of ~~strategic initiatives focused on~~land, the rail loop, and related grain handling assets, for $10.0 million. The sale is expected to close by the end of November and we intend to use the sale proceeds to repay term debt. We will retain our alcohol production distillery, terminal and 25 acres of additional production assets, a reduction of our debt levels, a strengthening of our cash and liquidity position, and opportunities for strategic partnerships and capital raising activities, positioning us to optimize our business performance. Our most significant challengeremaining land in ~~meeting these objectives would be a sustained adverse margin environment. See “-Liquidity and Capital Resources”.~~Burley, Idaho.

We remain focused on ~~implementing~~our transformation to a stable, higher-margin business. We have already successfully transitioned production to approximately 50% specialty alcohols and we are focusing on established markets that will continue to see long-term demand. Our initiatives around quality assurance and ~~investing~~certifications are directed at expanding our addressable customers and markets. Our financial performance and balance sheet have greatly improved year over year, enabling us to pursue investment opportunities in our assets to reduce costs, both at the operating and corporate levels; further diversifying our sales through additional high-protein animal feed and high-quality alcohol products; improving our production yields and other operating efficiencies; and reducing the carbon intensity of the ethanol we produce.asset portfolio. Overall, we ~~remain confident in the compelling cost, octane, carbon~~are encouraged that we will be able to deliver greater and ~~health benefits of ethanol, and its long-term demand as a valuable transportation fuel.~~more consistent profitability for our shareholders.

The preparation of our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, requires us to make judgments and estimates that may have a significant impact upon the portrayal of our financial condition and results of operations. We believe that of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management that can materially impact the portrayal of our financial condition and results of operations: revenue recognition; impairment of long-lived assets and held-for-sale classification; valuation of allowance for deferred taxes and derivative instruments. These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2019.

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:

The following table presents our net sales, cost of goods sold and gross profit (loss) in dollars and gross profit (loss) as a percentage of net sales (in thousands, except percentages):

The ~~decrease~~decline in our net sales for the three and nine months ended ~~March 31,~~September 30, 2020 as compared to the same ~~period~~periods in 2019 was primarily due to ~~both~~ a ~~decrease~~significant decline in our ~~total~~fuel-grade ethanol production gallons ~~sold and a decrease in our average ethanol sales price per gallon.~~sold.

We sold fewer ~~third party~~fuel-grade ethanol production gallons and co-products for the three and nine months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019, but sold more production gallons on a period-over-period comparison. Our production capacity utilization nevertheless declined to an average 77% for the three months ended March 31, 2020 compared to 82% for the same periodperiods in 2019. ~~For the three months ended March 31, 2020, we focused on selling our own production gallons and did not source third party gallons in typical volumes~~These declines are primarily due to significantly reduced transportation fuel demand from the effects of stay-at-home orders as a result of the coronavirus ~~pandemic~~pandemic. As a result, we reduced our production capacity utilization to 40% on a consolidated basis in the ~~transportation fuels sector.~~third quarter. Demand for our specialty alcohols, however, increased significantly in the sanitizer and disinfectant markets. These markets have historically, and even more so in the second and third quarters, provided a premium price over fuel-grade ethanol markets. Our third-party gallons sold declined slightly in the quarter, but significantly less than the decline in overall fuel-grade ethanol demand, as most of our fuel-grade ethanol commitments for the quarter were met through our third party marketing business.

On a consolidated basis, our average sales price per gallon ~~decreased 1.3%~~increased 6.2% to ~~$1.51~~$1.71 for the three months ended ~~March 31,~~September 30, 2020 compared to ~~our average sales price per gallon of $1.53~~$1.61 for the same period in 2019. The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, decreased ~~6.1%~~9.9% to ~~$1.24~~$1.27 for the three months ended ~~March 31,~~September 30, 2020 compared to ~~an average CBOT sales price per gallon of $1.32~~$1.41 for the same period in 2019. The increase in our average sales price per gallon, despite lower fuel-grade ethanol prices, is due to a change in our mix of sales, with a higher percentage of gallons sold of specialty alcohols as compared to fuel-grade ethanol.

Net sales of ~~ethanol~~alcohols from our production segment ~~increased~~declined by ~~$7.3~~$123.1 million, or 4%58%, to ~~$186.7~~$89.8 million for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~$179.4~~$212.9 million for the same period in 2019. Our total volume of production ~~ethanol~~ gallons sold ~~increased~~declined by ~~5.6~~86.6 million gallons, or 5%67%, to ~~122.5~~43.5 million gallons for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~116.9~~130.1 million gallons for the same period in 2019. Our production segment’s average sales price per gallon ~~declined 1%~~increased 25% to ~~$1.52~~$2.02 for the three months ended ~~March 31,~~September 30, 2020 compared to our production segment’s average sales price per gallon of ~~$1.53~~$1.62 for the same period in 2019. At our production segment’s average sales price per gallon of ~~$1.52~~$2.02 for the three months ended ~~March 31,~~September 30, 2020, we generated ~~$8.5~~$174.5 million less in ~~additional~~ net sales from our production segment from the ~~5.6~~86.6 million ~~additional~~fewer production gallons ~~of produced ethanol~~ sold in the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019. ~~The~~This decline was partially offset by the increase of ~~$0.01~~$0.40 in our production segment’s average sales price per gallon for the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019, ~~reduced~~which increased our net sales of ~~ethanol~~alcohols from our production segment by ~~$1.2~~$51.4 million.

Net sales of co-products ~~remained flat at $68.8~~declined $35.1 million, or 53%, to $30.6 million for the three months ended ~~March 31,~~September 30, 2020 ~~and~~as compared to $65.7 million for the same period in 2019. Our total volume of co-products sold declined by ~~12.2~~464.9 thousand tons, or 2%65%, to ~~671.9~~255.5 thousand tons for ~~the~~ three months ended ~~March 31,~~September 30, 2020 from ~~684.1~~720.4 thousand tons for the same period in 2019, and our average sales price per ton increased to ~~$102.40 per ton~~$119.57 for the three months ended ~~March 31,~~September 30, 2020 from ~~$100.58 per ton~~$91.19 for the same period in ~~2019.~~2019, due to a higher mix of more valuable essential ingredients sold from our wet mill. At our average sales price per ton of ~~$102.40~~$119.57 for the three months ended ~~March 31,~~September 30, 2020, we ~~generated $1.2~~realized $55.5 million less in net sales from the ~~12.2~~464.9 thousand ton decline in co-products sold in the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019. The increase in our average sales price per ton of ~~$1.82,~~$28.38, or 2%31%, for the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019 increased our net sales of co-products by ~~$1.2~~$20.4 million.

Net sales of ~~ethanol~~alcohols from our marketing segment, excluding intersegment sales, ~~decreased~~declined by ~~$51.7~~$2.3 million, or ~~48%~~3%, to ~~$55.9~~$84.3 million for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~$107.6~~$86.6 million for the same period in 2019. Our total volume of ~~ethanol~~ gallons sold by our marketing segment declined by ~~26.9~~90.1 million gallons, or ~~13%~~43%, to ~~184.9~~120.2 million gallons for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~211.8~~210.3 million gallons for the same period in 2019. The 90.1 million decline in gallons sold by our marketing segment is comprised of 86.6 million fewer production gallons sold and 3.5 million fewer third party gallons sold. The 3.5 million gallon decline in third party gallons sold is comprised of 0.3 million fewer gallons sold on a gross basis and 3.2 million fewer gallons sold on a net basis.

Our marketing segment’s average sales price per gallon ~~remained flat at $1.64~~declined 2% to $1.65 for the three months ended ~~March 31,~~September 30, 2020 ~~and~~compared to $1.61 for the same period in 2019.

At our marketing segment’s average sales price per gallon of ~~$1.64~~$1.65 for the three months ended ~~March 31,~~September 30, 2020, we generated ~~$51.4~~$5.7 million less in net sales from our marketing segment from the ~~26.9~~3.5 million fewer gallons in third party fuel-grade ethanol ~~gallons~~ sold in the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019. ~~A slight decline~~The increase of ~~less than $0.01~~$0.04 in our marketing segment’s average sales price per gallon for the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019 ~~reduced~~increased our net sales from ~~third-party~~third party fuel-grade ethanol sold by our marketing segment by ~~$0.3~~$3.4 million.

On a consolidated basis, our average sales price per gallon increased 0.6% to $1.60 for the nine months ended September 30, 2020 compared to $1.59 for the same period in 2019. The average CBOT fuel-grade ethanol price per gallon declined 13.0% to $1.20 for the nine months ended September 30, 2020 compared to $1.38 for the same period in 2019. The increase in our average sales price per gallon, despite lower fuel-grade ethanol production, is due to a change in our mix of sales, with a higher percentage of gallons sold of specialty alcohols as compared to fuel-grade ethanol.

Net sales of alcohols from our production segment declined by $206.9 million, or 35%, to $379.8 million for the nine months ended September 30, 2020 as compared to $586.7 million for the same period in 2019. Our total volume of production gallons sold declined by 142.6 million gallons, or 39%, to 223.0 million gallons for the nine months ended September 30, 2020 as compared to 365.6 million gallons for the same period in 2019. Our production segment’s average sales price per gallon increased 6% to $1.68 for the nine months ended September 30, 2020 compared to $1.59 for the same period in 2019. At our production segment’s average sales price per gallon of $1.68 for the nine months ended September 30, 2020, we generated $239.4 million less in net sales from our production segment from the 142.6 million fewer production gallons sold in the nine months ended September 30, 2020 as compared to the same period in 2019. The increase of $0.09 in our production segment’s average sales price per gallon for the nine months ended September 30, 2020 as compared to the same period in 2019 increased our net sales of alcohols from our production segment by $32.5 million.

Net sales of co-products declined $64.5 million, or 32%, to $134.7 million for the nine months ended September 30, 2020 as compared to $199.2 million for the same period in 2019. Our total volume of co-products sold decreased by 918.5 thousand tons, or 44%, to 1,177.5 thousand tons for nine months ended September 30, 2020 from 2,096.0 thousand tons for the same period in 2019. Our average sales price per ton increased to $114.38 for the nine months ended September 30, 2020 from $95.03 for the same period in 2019 due to a higher mix of more valuable essential ingredients. At our average sales price per ton of $114.38 for the nine months ended September 30, 2020, we generated $105.0 million less in net sales from the 918.5 thousand tons of fewer co-products sold in the nine months ended September 30, 2020 as compared to the same period in 2019. The increase of $19.35, or 20%, in our average sales price per ton for the nine months ended September 30, 2020 as compared to the same period in 2019 increased net sales of co-products by $40.5 million.

Net sales of alcohols from our marketing segment, excluding intersegment sales, declined by $67.7 million, or 24%, to $213.7 million for the nine months ended September 30, 2020 as compared to $281.4 million for the same period in 2019. Our total volume of gallons sold by our marketing segment declined by 188.0 million gallons, or 30%, to 435.9 million gallons for the nine months ended September 30, 2020 as compared to 623.9 million gallons for the same period in 2019. The 188.0 million decline in gallons sold by our marketing segment is comprised of 142.6 million fewer production gallons sold and 45.4 million fewer third party gallons sold. The 45.4 million decline in third party gallons sold is comprised of 32.2 million fewer gallons sold on a gross basis and 13.2 million fewer gallons sold on a net basis.

Our marketing segment’s average sales price per gallon increased less than 1% to $1.53 for the nine months ended September 30, 2020 as compared to $1.52 for the same period in 2019. At our marketing segment’s average sales price per gallon of $1.53 for the nine months ended September 30, 2020, we generated $69.3 million less in net sales from our marketing segment from the 45.4 million fewer gallons in third party fuel-grade ethanol sold in the nine months ended September 30, 2020 as compared to the same period in 2019. The increase of $0.01 in our marketing segment’s average sales price per gallon for the nine months ended September 30, 2020 as compared to the same period in 2019 increased our net sales from third party fuel-grade ethanol sold by our marketing segment by $1.6 million.

Our consolidated gross ~~loss increased~~profit improved to ~~$12.9~~$20.9 million, representing a gross profit margin of 10.2%, for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~$2.3~~a gross loss of $14.8 million, ~~for the same period in 2019,~~ representing a ~~negative~~ gross profit margin of ~~4.1% for the three months ended March 31, 2020 as compared to a~~ negative ~~gross profit margin of 0.6%~~4.1% for the same period in 2019. Our consolidated gross profit improved to $39.2 million, representing a gross profit margin of 5.4%, for the nine months ended September 30, 2020 compared to a gross loss ~~increased~~of $13.1 million, representing a gross profit margin of negative 1.2%, for the same period in 2019. Our gross profit and gross profit margin improved primarily due to significantly ~~lower crush~~higher margins ~~resulting~~ from ~~lower ethanol prices from reduced transportation fuel demand and higher corn costs.~~sales of our specialty alcohols.

Our production segment’s gross ~~loss~~profit from external sales ~~increased~~improved by ~~$5.6~~$36.3 million to ~~$15.6~~$20.4 million for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~$10.0~~a loss of $15.9 million for the same period in 2019. Of this ~~increase, $4.9~~improvement, $77.0 million is attributable to ~~lower margins and $0.7 million is attributable to~~our production segment’s higher production volumes ~~at negative~~and margins of specialty alcohols for the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019, partially offset by $40.7 million in lower gross profit attributable to lower production volumes and margins of fuel-grade ethanol for the three months ended September 30, 2020 as compared to the same period in 2019.

Our marketing segment’s gross profit declined by ~~$5.0~~$0.6 million to ~~$2.6~~$0.5 million for the three months ended ~~March 31,~~September 30, 2020 as compared to ~~$7.6~~$1.1 million for the same period in 2019. This decline primarily relates to our marketing segment’s lower margins per gallon for fuel-grade ethanol for the three months ended September 30, 2020 as compared to the same period in 2019.

Our production segment’s gross profit from external sales improved by $56.4 million to $32.8 million for the nine months ended September 30, 2020 as compared to a gross loss of $23.6 million for the same period in 2019. Of this improvement, $77.4 million is attributable to our production segment’s higher production volumes and margins of specialty alcohols for the nine months ended September 30, 2020 as compared to the same period in 2019, partially offset by $21.0 million in lower gross profit attributable to production volumes and margins of fuel-grade ethanol for the nine months ended September 30, 2020 as compared to the same period in 2019.

Our marketing segment’s gross profit declined by $4.1 million to $6.4 million for the nine months ended September 30, 2020 as compared to $10.5 million for the same period in 2019. Of this decline, ~~$2.6~~$2.7 million is attributable to our marketing segment’s lower margins per gallon for fuel-grade ethanol and ~~$2.4~~$1.4 million is attributable to lower third-party marketing volumes for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 as compared to the same period in ~~2019, respectively.~~2019.

The following table presents our selling, general and administrative, or SG&A, expenses in dollars and as a percentage of net sales (in thousands, except percentages):

Our SG&A expenses ~~increased~~decreased for the three months ended ~~March 31,~~September 30, 2020 as compared to the same period in 2019. The ~~$2.0 million~~decrease in SG&A expenses is primarily due to reduced legal and consulting expenses. Our SG&A expenses increased for the nine months ended September 30, 2020 as compared to the same period ~~over period~~in 2019. The increase in SG&A expenses is primarily due to ~~increased~~increases in professional fees ~~related to~~associated with the sale of our interest in Pacific Aurora, LLC, or Pacific Aurora, and our other strategic initiatives.

The following table presents our net ~~loss~~income (loss) available to common stockholders in dollars and as a percentage of net sales (in thousands, except percentages):

The ~~increase~~improvement in net ~~loss~~income (loss) available to common stockholders is primarily due to significantly higher margins from our ~~higher gross loss and increased SG&A expenses, as discussed above,~~specialty alcohol sales for the three and nine months ended ~~March 31,~~September 30, 2020 as compared to the same ~~period~~periods in ~~2019.~~

2019 and a gain on settlement of litigation of $11.8 million, partially offset by higher fair value adjustments resulting from higher market prices of our common stock.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we funded our operations primarily from ~~monetization of working capital,~~ cash generated by our operations and cash on hand. These funds were ~~also~~ used to make payments on our term debt and under our other credit facilities, and for capital expenditures and to make lease payments.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ~~We, and~~During the ~~ethanol industry as a whole, experienced~~nine months ended September 30, 2020, we continued to experience significant adverse conditions ~~throughout most of 2018~~in the fuel-grade ethanol market as demand and ~~2019, and thus far into 2020, as a result of industry-wide~~pricing were at record ~~low ethanol prices~~lows due to reduced ~~demand~~domestic transportation and ~~high industry inventory levels. These factors, which are compounded by the impact of the coronavirus pandemic, resulted and continue to result in negative operating margins, significantly~~resulting lower ~~cash flow from operations and substantial net losses.~~gasoline demand. In response, ~~to the low-margin environment,~~ we have reduced production and continue to pursue strategic initiatives focused on the sale of certain additional production assets, a reduction of our debt levels, a strengthening of our cash and liquidity position, and opportunities for strategic partnerships and capital raising activities, positioning us to optimize our business performance. Our most significant challenges in meeting these objectives would be a sustained adverse margin environment and insufficient cash flow to fund operations or make our scheduled debt payments.

We do not expect to have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell additional assets, experience a significant improvement in margins and/or obtain other sources of liquidity. We previously reduced production at our ~~facilities~~distilleries by more than ~~60% due to market conditions and~~50% in an effort to conserve capital as a result of a substantial reduction in demand due to stay-at-home orders issued in response to the coronavirus pandemic. We have, however, not only continued producing and ~~are currently operating at 50% capacity. If margins do not promptly and sustainably improve from current levels, we may be forced to further curtail or cease production at one or more~~selling specialty alcohols, but also converted a portion of our fuel-grade ethanol production to specialty alcohol production to respond to increased demand from the sanitizer and disinfectant markets. These sales of specialty alcohols were at a mix of fixed and spot pricing, both of which resulted in positive net income and cash flows from operations during the second and third quarters. We expect robust demand for our specialty alcohols to continue for at least the next twelve months as we continue to enter fixed price contracts and hedge corn input costs, locking in profit margins on sales of specialty alcohols.

At September 30, 2020, we had $38.7 million in cash and $9.2 million available under our operating ~~facilities. See “Risk Factors”.~~line of credit for our marketing subsidiary, Kinergy Marketing LLC, or Kinergy. During the nine months ended September 30, 2020, we generated $75.7 million in cash from our operations and realized $19.9 million in net cash from the sale of our interest in Pacific Aurora. These positive cash flows have allowed us to make net payments totaling $91.6 million on our debt. Further, subsequent to September 30, 2020, we made an additional $25.3 million in payments on our term debt using the proceeds of an equity offering described below.

On October 28, 2020, we closed an underwritten public offering of 5,075,000 shares of our common stock at a public offering price of $8.42 per share and 5-year pre-funded warrants to purchase 3,825,493 shares of common stock at a public offering price of $8.42 per pre-funded warrant. In addition, in a concurrent private placement, we also issued to the investor, for a nominal price, warrants to purchase an additional 8,900,493 shares of common stock at an exercise price of $9.757 per share. The warrants will become exercisable after the six-month anniversary of the offering and will expire on the 18-month anniversary of the offering. The aggregate gross proceeds from the offerings of common stock, pre-funded warrants and warrants was approximately $75.0 million. The net offering proceeds to us were approximately $70.0 million after deducting underwriting discounts and commissions and other estimated offering expenses.

Our current available capital resources consist of cash on hand and amounts available for borrowing under our credit facilities. We expect that our future available capital resources will consist primarily of any cash generated from our ~~current~~operations, cash balances, any availability under our lines of credit ~~any cash generated from operations,~~and net cash proceeds from any sale of our production ~~assets and net cash proceeds from any equity sales or debt financing transactions.~~assets.

~~As of March 31, 2020, on a consolidated basis, we had an aggregate of $26.8 million in cash.~~

~~As of March 31, 2020, our current assets of $199.3 million exceeded our current liabilities of $188.2 million, resulting in working capital of $11.1 million.~~ We believe that as of the date of this report, we are in compliance with all debt covenants contained in our credit ~~facilities.~~facilities, except our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities with respect to our Pekin and ICP debt and a dispute over whether a portion of our principal payments originated from an approved source of funds. As noted above, we appointed a chief restructuring officer to facilitate the development of such a plan and we have presented and continue to negotiate the plan with our lenders. As a result, we are not in compliance with our obligations to our lenders, which could result in their acceleration of our debt. Even though we do not believe acceleration is probable, we have classified our related debt as current on our consolidated balance sheets.

In addition to our projected cash flows from operations, we recently raised net proceeds of $70.0 million in offerings of common stock and warrants, and have recently announced the sale of certain assets for $10.0 million, which is expected to close by November 30, 2020. We continue to evaluate our Western fuel-grade ethanol distilleries for either repurposing or sale, which may provide additional proceeds to repay debt. Given these factors, we believe we have alleviated substantial doubt about our ability to continue as a going concern and we will have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs for the next twelve months from the date of this report.

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):

At ~~March 31,~~September 30, 2020, we had approximately ~~$174.9~~$291.3 million of net assets at our subsidiaries that were not available to be transferred to Pacific Ethanol, Inc. in the form of dividends, loans or advances due to restrictions contained in the credit facilities of our subsidiaries.

Our working capital declined to ~~$11.1~~$22.6 million at ~~March 31,~~September 30, 2020 from $71.7 million at December 31, 2019 as a result of a decrease of ~~$32.8~~$94.3 million in current assets, ~~and an increase~~partially offset by a decrease of ~~$27.8~~$45.3 million in current liabilities.

Current assets decreased primarily due to a decrease in assets held-for-sale associated with the completed sale of our interest in Pacific Aurora, and decreases in accounts receivable and inventories, due to the timing of collections, and lower ~~sales~~fuel-grade ethanol production and ~~production near quarter-end.~~sales.

Our current liabilities ~~increased~~decreased primarily due to ~~an increase~~a decrease in liabilities held-for-sale associated with the ~~pending~~completed sale of our interest in Pacific Aurora, ~~which closed after quarter-end.~~partially offset by an increase in the current portion of our long-term debt primarily due to our failure to obtain lender approval of a comprehensive plan to restructure our assets and liabilities.

Our cash and cash equivalents increased by ~~$7.8~~$19.7 million at ~~March 31,~~September 30, 2020 as compared to December 31, 2019 primarily due to ~~$26.9~~$75.7 million in cash provided by our operating activities and $15.0 million in cash provided by our investing activities, partially offset by ~~$17.9~~$71.0 million in cash used in our financing ~~activities to repay amounts owed under Kinergy’s credit facility.~~activities.

Cash provided by our operating activities increased by ~~$41.9~~$102.9 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, as compared to the same period in 2019. We generated ~~$26.9~~$75.7 million ofin cash from our operating activities during the ~~first quarter of~~nine months ended September 30, 2020. Specific factors that contributed to the increase in cash provided by our operating activities include:

Cash ~~used in~~provided by our investing activities ~~remained relatively flat at $1.2~~was $15.0 million for the ~~three~~nine months ended ~~March 31, 2020. We continued~~September 30, 2020, which included $19.9 million in net proceeds from the sale of Pacific Aurora, partially offset by $4.9 million of additions to ~~reduce spending on capital projects during the low margin environment.~~property and equipment.

Cash used in our financing activities ~~increased by $29.1~~was $71.0 million for the ~~three~~nine months ended ~~March 31, 2020 as compared to the same period in 2019.~~September 30, 2020. The increase in cash used in our financing activities iswas primarily due to ~~a $31.3~~$39.5 million ~~change~~ in ~~our~~ net ~~borrowings~~payments under Kinergy’s line of credit ~~as we repaid amounts owed under the facility,~~ and ~~a reduction of $3.4~~$52.1 million in ~~sales~~principal payments on our other borrowings, partially offset by $9.9 million in proceeds under our CARES Act loans, $5.5 million in proceeds from warrant exercises and $5.3 million from the issuance of ~~our~~ common ~~stock in the first quarter of 2020 as compared to the same period in 2019.~~stock.

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 Pacific Ethanol as reimbursement for management and other services provided by Pacific Ethanol to Kinergy are limited under the terms of the credit facility to $1.5 million per fiscal quarter. The credit facility also includes the accounts receivable of Pacific Ag. Products, LLC, or PAP, as additional collateral. Payments that may be made by PAP to Pacific Ethanol as reimbursement for management and other services provided by Pacific Ethanol to PAP are limited under the terms of the credit facility to $0.5 million per fiscal quarter. PAP, one of our indirect wholly-owned subsidiaries, markets our co-products and also provides raw material procurement services to our subsidiaries.

For all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and PAP must collectively maintain a fixed-charge coverage ratio (calculated as a twelve-month rolling earnings before interest, taxes, depreciation and amortization (EBITDA) divided by the sum of interest expense, capital expenditures, principal payments of indebtedness, indebtedness from capital leases and taxes paid during such twelve-month rolling period) of at least 2.0 and are prohibited from incurring certain additional indebtedness (other than specific intercompany indebtedness). Kinergy’s and PAP’s obligations under the credit facility are secured by a first-priority security interest in all of their assets in favor of the lender. We believe Kinergy and PAP are in compliance with this covenant. The following table summarizes Kinergy’s financial covenants and actual results for the periods presented:

Pacific Ethanol has guaranteed all of Kinergy’s obligations under the credit facility. As of ~~March 31,~~September 30, 2020, Kinergy had an outstanding balance of ~~$60.2~~$41.4 million with no additional borrowing availability under the credit ~~facility.~~facility of $9.2 million.

On December 15, 2016, Pacific Ethanol Pekin, LLC, or PE Pekin, entered into term and revolving credit facilities. PE Pekin borrowed $64.0 million under a term loan facility that matures on August 20, 2021 and $32.0 million under a revolving credit facility that matures on February 1, 2022. The PE Pekin credit facilities are secured by a first-priority security interest in all of PE Pekin’s assets. Interest initially accrued under the PE Pekin credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly. PE Pekin is required to make quarterly principal payments in the amount of $3.5 million on the term loan beginning on May 20, 2017, with the remaining principal balance payable at maturity on August 20, 2021. PE Pekin is required to pay monthly in arrears a fee on any unused portion of the revolving credit facility at a rate of 0.75% per annum. Prepayment of these facilities is subject to a prepayment penalty. Under the initial terms of the credit facilities, PE Pekin was required to maintain not less than $20.0 million in working capital and an annual debt service coverage ratio of not less than 1.25 to 1.0.

On August 7, 2017, PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 25 basis points to an annual rate equal to the 30-day LIBOR plus 4.00%. PE Pekin and its lender also agreed that PE Pekin is required to maintain working capital of not less than $17.5 million from August 31, 2017 through December 31, 2017 and working capital of not less than $20.0 million from January 1, 2018 and continuing at all times thereafter. In addition, the required debt service coverage ratio was reduced to 0.15 to 1.00 for the fiscal year ended December 31, 2017. PE Pekin’s actual debt service coverage ratio was 0.17 to 1.00 for the fiscal year ended December 31, 2017, 0.02 in excess of the required 0.15 to 1.00. For the month ended January 31, 2018, PE Pekin was not in compliance with its working capital requirement due to larger than anticipated repair and maintenance expenses to replace faulty equipment. PE Pekin received a waiver from its lender for this noncompliance. Further, the lender decreased PE Pekin’s working capital covenant requirement to $13.0 million for the month ended February 28, 2018, excluding from the calculation a $3.5 million principal payment previously due in May 2018.

On March 30, 2018, PE Pekin further amended its term loan facility by reducing the amount of working capital it is required to maintain to not less than $13.0 million from March 31, 2018 through November 30, 2018 and not less than $16.0 million from December 1, 2018 and continuing at all times thereafter. In addition, a principal payment in the amount of $3.5 million due for May 2018 was deferred until the maturity date of the term loan.

At December 31, 2018 and January 31, 2019, PE Pekin experienced certain covenant violations under its term and revolving credit facilities. In February 2019, PE Pekin reached an agreement with its lender to forbear until March 11, 2019 and to defer a $3.5 million principal payment until that date.

On March 21, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to increase the interest rate under the facilities by 125 basis points to an annual rate equal to the 30-day LIBOR plus 5.00%. PE Pekin and its lender also agreed that it is required to maintain working capital of not less than $15.0 million from March 21, 2019 through July 15, 2019 and working capital of not less than $30.0 million from July 15, 2019 and continuing at all times thereafter. On July 15, 2019, PE Pekin and its lender agreed to a further amendment extending the aforementioned July 15, 2019 dates to November 15, 2019. On August 6, 2019, PE Pekin paid its ~~$3,500,000~~$3.5 million principal payment scheduled for August 20, 2019.

Under these amendments, the lender agreed to temporarily waive financial covenant violations, working capital maintenance violations and intercompany accounts receivable collections violations that occurred with respect to the credit agreement. The lenders also agreed to defer all scheduled principal payments, including further deferral of principal payments in the amount of $3.5 million each due on February 20, 2019 and May 20, 2019.

The waivers and principal deferral expired on November 15, 2019, at which time the waivers were to become permanent if PE Pekin’s parent, Pacific Ethanol Central, LLC, or PE Central, made a contribution to PE Pekin in an amount equal to $30.0 million, minus the then-existing amount of PE Pekin’s working capital, plus the amount of any accounts receivable owed by PE Central to PE Pekin, plus $12.0 million, or the Parent Contribution Amount. In addition, if the Parent Contribution Amount was timely received, the lender agreed to waive PE Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019. If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically expire.

PE Pekin was also required to pay by November 15, 2019 the aggregate amount of $10.5 million representing all deferred and unpaid scheduled principal payments and all additional scheduled principal payments for the remainder of 2019.

On November 15, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to extend the temporary waiver of violations of financial and other covenants relating to working capital maintenance, intercompany accounts receivable collections, financial projections, cash flow forecasts, and sales reports. The lender also agreed to extend the deferral of all scheduled principal payments payable on February 20, 2019, May 20, 2019 and November 15, 2019 to December 15, 2019. The amendment also made a payment default of $250,000 or more under Kinergy’s credit facility or the senior secured notes, or any acceleration of indebtedness, or any termination of any commitment to lend or termination of any forbearance or other accommodation, an event of default.

The waivers and principal deferral expired on December 15, 2019. On December 15, 2019, the waivers were to become permanent if PE Central made a contribution to PE Pekin in an amount equal to the Parent Contribution Amount. In addition, if the Parent Contribution Amount was timely received, the lender agreed to waive PE Pekin’s debt service coverage ratio financial covenant for the year ended December 31, 2019. If the Parent Contribution Amount was not timely made, then the temporary waivers would automatically expire.

On December 16, 2019, PE Pekin amended its term and revolving credit facilities by agreeing to extend the deferral of all scheduled principal payments payable on February 20, 2019, May 20, 2019 and November 20, 2019 to December 20, 2019.

On December 20, 2019, PE Pekin’s lender agreed to temporarily waive working capital covenant violations, debt service coverage ratio covenant violations, reporting covenant violations and certain other covenant violations that occurred under the PE Pekin credit agreement, and replaced those covenants with new EBITDA and production volume covenants. PE Pekin’s lender also agreed to defer all scheduled principal installments payable under the term note on February 20, 2019, May 20, 2019 and November 20, 2019 until August 20, 2021. In addition, PE Pekin was not required to make its prior scheduled quarterly principal payments of $3.5 million until September 30, 2020, at which time $3.5 million will be due, with the same amount due quarterly thereafter until maturity.

Under the amendment, PE Pekin, collectively with Illinois Corn Processing, LLC, or ICP, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce the outstanding balances of the term loans under the PE Pekin credit agreement and the ICP credit agreement. The $40.0 million is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them. The $40.0 million is to be funded through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed to PE Pekin by us. Following receipt by the lenders under the ICP credit agreement and the PE Pekin credit agreement, collectively, of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, additional proceeds from the sale of any of our midwestern ~~plant~~distillery assets will generally be allocated 33/34/33% among ICP’s lender and PE Pekin’s lender, collectively, the selling security holders, and us, respectively. Proceeds from the sale of any of our western assets will generally be allocated 33/34/33% among PE Pekin’s lender and ICP’s lender, collectively, the selling security holders, and us, respectively.

PE Pekin’s lender also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive $40.0 million, a default under the ICP credit agreement would constitute a default under the PE Pekin credit agreement. PE Pekin agreed to provide additional collateral security to support its obligations under the PE Pekin credit agreement, including second lien positions in our western ~~plants,~~distilleries, which will terminate and be released upon PE Pekin’s lender’s receipt of $40.0 million.

On December 29, 2019, PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional guarantee of the payment of up to an aggregate $40.0 million to satisfy the obligations of ICP to ICP’s lender under the ICP credit agreement.

On March 20, 2020, PE Pekin and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020. On that same date, we granted to the lender a security interest in all of our equity interests in our wholly-owned subsidiary, PE Op Co., which indirectly owns our ~~plants~~distilleries located on the West Coast. We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On April 15, 2020, upon the closing of the sale of our interests in Pacific Aurora, we repaid approximately $11.6 million in principal on our PE Pekin term debt.

At the end of the second quarter and during the third quarter of 2020, we repaid an aggregate of approximately $19.4 million in additional principal on our PE Pekin term debt.

As of the filing of this report, we believe we are in compliance with all debt covenants under our PE Pekin credit facilities, except our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities and a dispute over whether a portion of our principal payments originated from an approved source of funds. See “Risk Factors”.

On September 15, 2017, ICP entered into term and revolving credit facilities. ICP borrowed $24.0 million under a term loan facility that matures on September 20, 2021 and $18.0 million under a revolving credit facility that matures on September 1, 2022. The ICP credit facilities are secured by a first-priority security interest in all of ICP’s assets. Interest accrues under the ICP credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly. ICP is required to make quarterly consecutive principal payments in the amount of $1.5 million. ICP is required to pay monthly in arrears a fee on any unused portion of the revolving credit facility at a rate of 0.75% per annum. Prepayment of these facilities is subject to a prepayment penalty. Under the terms of the credit facilities, ICP is required to maintain not less than $8.0 million in working capital and an annual debt service coverage ratio of not less than 1.5 to 1.0, beginning for the year ended December 31, 2018. As of September 30, 2019, ICP had no additional borrowing availability under its revolving credit facility. As of September 30, 2019, ICP did not meet its minimum working capital requirement, however, ICP’s lender subsequently waived the minimum working capital deficiency.

On December 20, 2019, ICP amended its term and revolving credit facilities under which ICP’s lender granted waivers for certain ICP covenant defaults and replaced those covenants with new EBITDA and production volume covenants. ICP’s lender also imposed cross-default terms such that, until ICP’s lender and PE Pekin’s lender receive an aggregate of $40.0 million, a default under the PE Pekin credit agreement would constitute a default under the ICP credit agreement. ICP agreed to provide additional collateral security to support its obligations under the ICP credit agreement, including second lien positions in our western ~~plants,~~distilleries, which will terminate and be released upon ICP’s lender’s receipt of an aggregate of $40.0 million. ICP’s prior scheduled principal payment of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September 20, 2021. Scheduled quarterly principal payments of $1.5 million will resume March 20, 2020.

Under the amendment, ICP, collectively with PE Pekin, agreed to pay the lenders an aggregate of $40.0 million on or before September 30, 2020 to reduce the outstanding balances of the term loans under the ICP credit agreement and the PE Pekin credit agreement. The $40.0 million is an aggregate amount payable to ICP’s lender and PE Pekin’s lender, and allocated between them. The $40.0 million is to be funded through asset sales, proceeds of any award, judgment or settlement of litigation, or, at our election, from funds contributed to ICP by us. Following receipt by the lenders under the ICP credit agreement and the PE Pekin credit agreement, collectively, of $40.0 million in full, and once any loans corresponding to the particular midwestern asset sold are repaid, any additional proceeds from a sale of our midwestern ~~plant~~distillery assets will generally be allocated 33/34/33% among ICP’s lender and PE Pekin’s lender, collectively, the selling security holders, and us, respectively. Proceeds from the sale of any of our western assets will generally be allocated 33/34/33% among PE Pekin’s lender and ICP’s lender, collectively, the selling security holders, and us, respectively.

On December 29, 2019, ICP agreed to amend the secured obligations under its security agreement to include ICP’s unconditional guarantee of the payment of up to an aggregate $40.0 million to satisfy the obligations of PE Pekin to PE Pekin’s lender under the PE Pekin credit agreement.

On March 20, 2020, ICP and its lender agreed to defer a $1.5 million principal payment due March 20, 2020 and $0.3 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020. On that same date, we granted to the lender a security interest in all of our equity interests in PE Op Co. We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On April 15, 2020, upon the closing of the sale of our interests in Pacific Aurora, we repaid approximately $2.9 million in principal on our ICP term debt.

At the end of the second quarter and during the third quarter of 2020, we repaid an aggregate of approximately $9.7 million in additional principal on our ICP revolving debt.

As of the filing of this report, we believe we are in compliance with all debt covenants under our ICP credit facilities, except our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities and a dispute over whether a portion of our principal payments originated from an approved source of funds. See “Risk Factors”.

On December 12, 2016, we entered into a Note Purchase Agreement with five accredited investors. On December 15, 2016, under the terms of the Note Purchase Agreement, we sold $55.0 million in aggregate principal amount of our senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold. On June 26, 2017, we entered into a second Note Purchase Agreement with five accredited investors. On June 30, 2017, under the terms of the second Note Purchase Agreement, we sold an additional $13.9 million in aggregate principal amount of our senior secured notes to the investors in a private offering for aggregate gross proceeds of 97% of the principal amount of the notes sold, for a total of $68.9 million in aggregate principal amount of senior secured notes.

The notes had an original maturity date of December 15, 2019. Interest on the notes accrued at an annual rate equal to (i) the greater of 1% and the three-month LIBOR, plus 7.0% from the closing through December 14, 2017, (ii) the greater of 1% and three-month LIBOR, plus 9% between December 15, 2017 and December 14, 2018, and (iii) the greater of 1% and three-month LIBOR plus 11% between December 15, 2018 and the maturity date. The interest rate would increase by an additional 2% per annum above the interest rate otherwise applicable upon the occurrence and during the continuance of an event of default until cured. Interest was payable in cash in arrears on the 15th calendar day of each March, June, September and December. We are required to pay all outstanding principal and any accrued and unpaid interest on the notes on the maturity date. We may, at our option, prepay the outstanding principal amount of the notes at any time without premium or penalty. Pacific Ethanol, Inc. issued the notes, which are secured by a first-priority security interest in the equity interest held by Pacific Ethanol, Inc. in PE Op. Co.

On December 16, 2019, we amended the notes to extend the maturity date from December 15, 2019 to December 23, 2019 and amended the interest rate from the greater of 1% and the three-month LIBOR, plus 11% between December 15, 2018 through December 14, 2019 to 15% commencing on September 15, 2019. Under the amendment, we also agreed to pay the December 15, 2019 interest payment 50% in cash and 50% in-kind through the issuance of an additional note in the principal amount equal thereto.

On December 22, 2019, we amended and restated the notes which extended the maturity date from December 23, 2019 to December 15, 2021. Interest on the Notes accrues at a rate of 15% per annum, payable quarterly.

On March 20, 2020, we and the noteholders agreed to defer a $2.5 million aggregate interest payment due March 15, 2020 until May 20, 2020. On that same date, ICP granted a junior lien in certain of its personal property to the noteholders, and PE Central granted a junior lien in certain of its personal property to the noteholders. PE Central also pledged its equity interests in Pacific Aurora, PE Pekin and ICP in favor of the noteholders. In addition, PE Op Co. and Pacific Ethanol West, LLC, which directly owns our ~~plants~~distilleries located on the West Coast, granted a security interest in certain of their personal property to the noteholders. We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

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

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

As of the filing of this report, we believe we are in compliance with all debt covenants under our senior secured notes.

On May 4, 2020, Pacific Ethanol, Inc. and PE Pekin received loan proceeds from Bank of America, NA under the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, through the Paycheck Protection Program administered by the U.S. Small Business Administration. Pacific Ethanol, Inc. received $6.0 million and PE Pekin received $3.9 million in loan proceeds. 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 ~~have~~previously established an “at-the-market” equity distribution program under which we ~~may~~could offer and sell shares of common stock to, or through, sales agents by means of ordinary brokers’ transactions on ~~the~~The NASDAQ Capital Market, in block transactions, or as otherwise agreed to between us and the sales agent at prices we deem appropriate. We ~~are~~were under no obligation to offer and sell shares of common stock under the program. For the three months ended ~~March 31,~~September 30, 2020, we sold ~~421,147~~1,000,000 shares of common stock through our “at-the-market” equity program that resulted in net proceeds of ~~$282,320~~$5,013,741 and fees paid to our sales agent of ~~$12,102.~~$159,048. We terminated our “at-the-market” equity program on October 22, 2020.

The impact of inflation was not significant to our financial condition or results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019.

We conducted an evaluation under the supervision and with the participation of our management, including our ~~Chief~~Co-Chief Executive ~~Officer~~Officers and Chief Financial Officer, of the effectiveness 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 Exchange Act of 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~~Co-Chief Executive ~~Officer~~Officers and Chief Financial Officer concluded as of ~~March 31,~~September 30, 2020 that our disclosure controls and procedures were effective at a reasonable assurance level.

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.

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.

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.

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

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

As a result of ethanol industry conditions that have negatively affected our business, we do not expect to have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell additional assets, experience a significant improvement in margins and/or obtain other sources of liquidity. As a result, our 2019 financial statements include an explanatory paragraph by our independent registered public accounting firm describing the substantial doubt as to our ability to continue as a going concern.

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

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

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

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

The effects of the ~~novel~~ coronavirus pandemic, or its abatement, may ~~further~~ materially and adversely affect our business, results of operations and liquidity.

~~Last year’s novel strain of~~The coronavirus ~~(COVID-19),~~pandemic has resulted in businesses suspending or substantially curtailing global operations and travel, quarantines, and an overall substantial slowdown of economic activity. Federal, state and foreign governments have implemented measures to contain the virus, including social distancing requirements, travel restrictions, border closures, limitations on public gatherings, work-from-home orders, and closure of non-essential businesses. Transportation fuels in particular, including fuel-grade ethanol, have experienced significant price declines and reduced demand. A further or extended ongoing downturn in global economic ~~growth,~~activity, or recessionary conditions in major geographic regions, will lead to ~~reduced~~poor demand for, ~~ethanol~~ and negatively affect the ~~market~~ prices of, ~~our products, further~~fuel-grade ethanol, materially and adversely affecting our business, results of operations and liquidity.

Furthermore, to protect the health and well-being of our employees and customers, we have implemented work-from-home requirements, made substantial modifications to employee travel policies, and cancelled or shifted 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 or more of our employees or customers becomes ill from coronavirus and attributes their infection to us, including through exposure at one of our offices or distilleries, we could be subject to allegations of failure to adequately mitigate the risk of exposure. Such allegations could harm our reputation and expose us to the risks of litigation and liability.

Our ~~plant~~specialty alcohols business has benefitted significantly from the coronavirus pandemic due to a substantial increase in demand for alcohol-based sanitizers and disinfectants. As the 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 will 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 indebtedness exposes us to many risks that could negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.

Our ~~plants~~distilleries 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 ~~plant~~ loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our ~~plant~~revolving credit facilities periodically and automatically declines through the maturity dates of those facilities. Our ~~plant~~ indebtedness could:

Our term loans and credit facilities also require compliance with numerous financial and other covenants.

We are not in compliance with our obligation to obtain lender approval of a comprehensive plan to restructure our assets and liabilities, which could result in their acceleration of our debt. In addition, although we paid an aggregate of $40.0 million to our ~~plant~~Pekin and ICP lenders by September 30, 2020, a portion of that amount is disputed as originating from an approved source of funds. A failure to timely pay the required amount from an approved source of funds could be a default under the terms of our debt obligations to our lenders, which could result in their acceleration of our debt. We do not have sufficient liquidity or capital resources to immediately repay our debt if accelerated.

Our distillery indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.

Our ability to generate sufficient cash to make all principal and interest payments when due ~~including a $25.5 million remaining balance of a payment due on September 30, 2020 under our PE Pekin and ICP credit facilities,~~ depends on our business performance, which is subject to a variety of factors beyond our control, including the supply of and demand for ~~ethanol~~our alcohols and ~~co-products, ethanol and co-product~~other products, product prices, the cost of key production inputs, and many other factors incident to the ~~ethanol~~alcohol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations. Our failure to timely satisfy our debt obligations could have a material adverse effect on our business, business prospects, liquidity, cash flows and results of ~~operations.~~operations, and could force us to seek protection under the U.S. Bankruptcy Code.

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 ~~three~~nine months ended ~~March 31, 2020 and~~September 30, 2019, we incurred consolidated net losses of ~~$27.2 million and $14.2 million, respectively.~~$51.5 million. For the years ended December 31, 2019 and 2018, we incurred consolidated net losses of approximately $101.3 million and $68.0 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. ~~Continued~~Additional losses and negative operating cash flow may hamper our operations and impede us from expanding our business.

Our results of operations and our ability to operate at a profit isare largely dependent on ~~managing~~our ability to manage the costs of corn, ~~and~~ natural gas and other production inputs, with the prices of ~~ethanol, distillers grains~~our alcohols and ~~other ethanol co-products,~~essential ingredients, all of which are subject to ~~significant~~ volatility and uncertainty.

Our results of operations are highly impacted by commodity prices, including the cost of corn, ~~and~~ natural gas and other production inputs that we must purchase, and the prices of ~~ethanol, distillers grains~~alcohols and ~~other ethanol co-products~~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 ~~around~~throughout the world.

~~As a result of price~~Price volatility of corn, natural gas ~~ethanol, distillers grains~~ and other ~~ethanol co-products,~~production inputs, and alcohols and essential ingredients, may cause our results of operations ~~may~~to fluctuate substantially. ~~In addition, increases~~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 ~~corn~~consumer products. Our customers may not pay us timely or ~~natural gas~~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 decreases in ethanol, distillers grains or other ethanol co-product prices may make it unprofitable to operate. In fact, some of our marketing activities will likely be unprofitable in a market of generally declining ethanol prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory outside the context of a marketing arrangement and therefore must buy ethanol at ahigh price established at the time of purchase and sell ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of ethanol. As a result, our margins for ethanol sold in these transactions generally decline and may turn negative as the market price of ethanol declines.volatility.

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

Over the past several years, for example, the spread between ~~ethanol~~corn and ~~corn~~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 ~~ethanol~~alcohol or essential ingredient prices, would adversely affect our results of operations and financial position. ~~Further, combined revenues~~Revenues from sales of alcohols, particularly fuel-grade ethanol, ~~distillers grains~~ and ~~other ethanol co-products~~essential ingredients could decline below the marginal cost of production, which may force us to suspend production, ofparticularly fuel-grade ethanol ~~distillers grains and other ethanol co-products~~production, at some or all of our ~~plants.~~distilleries.

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 the context of a marketing arrangement 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 ~~ethanol~~alcohol or essential ingredient production or higher inventory levels may cause a decline in ~~ethanol~~ prices ~~or prevent ethanol prices from rising,~~for those products, and may have other negative effects, adversely impacting our results of operations, cash flows and financial condition.

WeThe prices of our alcohols, in particular fuel-grade ethanol, 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 ~~ethanol~~ 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 ~~ethanol~~ production ~~facilities~~distilleries operating at below capacity, or owners of idled distilleries, will increase production levels, thereby resulting in more abundant fuel-grade ethanol supplies and inventories. ~~Any increase~~Increases in the supply of fuel-grade ethanol may not be commensurate with increases in ~~the~~ demand for fuel-grade ethanol, thus leading to lower fuel-grade ethanol prices. Also, ~~demand~~higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of specialty alcohols for ~~ethanol could be impaired due to a number of factors, including regulatory developments~~sanitizers and reduced United States gasoline consumption. Reduced gasoline consumption has occurred in the past and could occur in the future as a result of increased gasoline or oil prices or other factors such as increased automobile fuel efficiency.disinfectants will 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 ~~market price~~prices of ~~ethanol is~~our products are volatile and subject to large fluctuations, which may cause our ~~profitability or losses~~results of operations to fluctuate significantly.

The ~~market price~~prices of ~~ethanol is~~our products are volatile and subject to large fluctuations. ~~The~~For example, the market price of fuel-grade ethanol is dependent upon many factors, including the supply of fuel-grade ethanol and the price of gasoline, which is in turn dependent upon the price of petroleum which is highly volatile and difficult to forecast. For ~~example,~~instance, fuel-grade ethanol prices, as reported by the ~~CBOT,~~Chicago Board of Trade, ranged from ~~$0.86~~$0.81 to ~~$1.37~~$1.61 per gallon for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, from $1.25 to $1.70 per gallon in 2019 and from $1.20 to $1.53 per gallon in 2018. In addition, even under longer-term, fixed-price contracts for our specialty alcohols, our customers may seek to renegotiate prices under those contracts during ~~2018.~~periods of falling prices or high price volatility. Fluctuations in the ~~market price~~prices of ~~ethanol~~our products may cause our ~~profitability or losses~~results of operations to fluctuate significantly.

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

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

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

Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. In particular, due to limited storage capacity at our ~~plants~~distilleries and other considerations related to production efficiencies, our ~~plants~~distilleries depend on just-in-time delivery of corn. The production of ~~ethanol and specialty~~ alcohols also requires a significant and uninterrupted supply of other raw materials and energy, primarily water, electricity and natural gas. Local water, electricity and gas utilities may not be able to reliably supply the water, electricity and natural gas that our ~~plants~~distilleries need or may not be able 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 ~~plants~~distilleries 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, ~~infrastructure,~~ whether caused by labor difficulties, ~~earthquakes, storms,~~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 ~~plants,~~distilleries, 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 be adequate to fully cover the potential hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

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, datacenters, cloud datacenters, corporate computers, manufacturing systems, and/or access to accounts we have at our suppliers, vendors, and customers. They 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 user account policies. However, there can be no assurance these measures will be sufficient to avoid cyberattacks. If any of these types of security breaches were to occur and we were unable to protect 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 risk of litigation and possible significant liability.

Further, if we fail to adequately maintain our 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 and solutions. 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 personal 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 notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal 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.

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

~~Operational difficulties at~~gasoline may adversely affect our ~~plants could negatively impact sales volumes and could cause us to incur substantial losses.~~

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

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

~~-36-~~

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 ~~critics~~ contend that corn supplies are redirected from international food markets to domestic fuel markets. If negative views of corn-based ethanol production gain acceptance, support for existing measures promoting use and domestic production of corn-based ethanol could decline, leading to reduction or repeal of federal mandates, which could adversely affect the demand for fuel-grade ethanol. These views could also negatively impact public perception of the fuel-grade ethanol industry and acceptance of fuel-grade ethanol as an alternative fuel.

There are limited markets for fuel-grade ethanol beyond those established by federal mandates. Discretionary blending and E85 blending are important secondary markets. Discretionary blending is often determined by the price of fuel-grade ethanol versus the price of gasoline. In periods when discretionary blending is financially unattractive, the demand for fuel-grade ethanol may be reduced. 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 the fuel economy of vehicles. ~~Market acceptance of E15 may partially offset the effects of decreases in transportation fuel demand.~~ A reduction in the demand for fuel-grade ethanol and ~~ethanol~~ co-products ~~may~~ depress the value of our fuel-grade ethanol and related products, erode our overall margins and reduce our ability to generate revenue or to operate profitably. ~~Consumer~~In addition, consumer acceptance of E15 and E85 fuels is needed 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 certain federal and state legislation and regulation and any changes in legislation or regulation could have a material adverse effect on our results of operations, cash flows and financial condition.

The Environmental Protection Agency, or EPA, has implemented the Renewable Fuel Standard, or RFS, pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the quantity of renewable fuels (such as 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 fuel-grade ethanol) required to be blended with gasoline. Future demand for fuel-grade ethanol will be largely dependent upon incentives to blend fuel-grade ethanol into motor fuels, including the price of fuel-grade ethanol relative to the price of gasoline, the relative octane value of fuel-grade ethanol, constraints in the ability of vehicles to use higher fuel-grade ethanol blends, the RFS, and other applicable environmental requirements. Any significant increase in production capacity above the RFS minimum requirements may have an adverse impact on fuel-grade ethanol prices.

Legislation aimed at reducing or limiting the renewable fuel use required by the RFS has been introduced in the United States Congress. On January 3, 2019, a bill (H.R. 104) was introduced into the House of Representatives aiming to repeal certain amendments to the Clean Air Act relating to the expansion of the renewable fuel program, and for other purposes. This bill revises the renewable fuel program, including the RFS. Under current law, the RFS specifies the minimum volume of renewable fuel, such as fuel-grade ethanol, that must be contained in gasoline sold in the United States, except in noncontiguous states or territories. The RFS annually increases until 2022 when a minimum of 36 billion gallons of renewable fuel must be blended into gasoline. This bill decreases the volume of renewable fuel that must be contained in gasoline to 7.5 billion gallons each year. The bill also revises the RFS to eliminate separate volume requirements for the following renewable fuel categories: advanced biofuels, cellulosic biofuel, and biomass-based diesel. The bill was referred to a congressional subcommittee where it awaits further consideration. On May 7, 2019, the Food and Fuel Consumer Protection Act of 2019 (H.R. 2540), was introduced in the House of Representatives. The bill aims to prevent RFS blending obligations from requiring fuel-grade ethanol to make up more than 9.7 percent of the total volume of gasoline projected to be sold or introduced into commerce in the United States for a given calendar year. The bill was referred to a congressional committee, which will consider it before possibly sending the bill to the House of Representatives as a whole. On June 21, 2019, a bill (H.R. 3427) was introduced in the House of Representatives aiming to repeal the EPA’s Renewable Fuel Standard program, which requires transportation fuel to contain a minimum volume of renewable fuel. The bill was referred to a congressional committee, which will consider it before possibly sending the bill to the House of Representatives as a whole. On July 25, 2019, a bill (S.2298) was introduced in the United States Senate, to amend the Clean Air Act to eliminate the corn ethanol mandate for renewable fuel. The bill was read twice and referred to the Committee on Environment and Public Works. Our results of operations, cash flows and financial condition could be adversely impacted if any legislation is enacted that reduces or limits the RFS volume requirements.

~~-37-~~

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

The ~~ethanol production and marketing industry is~~industries in which we operate are extremely competitive. Many of our significant competitors have greater production and financial resources and ~~one or more~~any of ~~these competitors~~them could use their greater resources to gain market share at our expense.

The ~~ethanol production and marketing industry is~~industries in which we operate are extremely competitive. Many of our significant competitors ~~in the ethanol production and marketing industry, including Archer-Daniels-Midland Company, POET, LLC, Green Plains, Inc. and Valero Renewable Fuels Company, LLC,~~ have substantially greater production ~~and/or~~and financial ~~resources.~~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 ~~marketing and customer service and support.~~production facility maintenance. Our limited resources relative to many significant competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and cause a decline in market share, sales and profitability. Even if sufficient funds are available, we may not be able to make the modifications and improvements necessary to compete successfully.

We also face competition from international ~~suppliers. Currently, international~~ suppliers, ~~produce ethanol primarily from sugar cane and~~many of whom have cost structures that are ~~generally~~ substantially lower than our cost ~~structures. Any~~structure. An increase in domestic or foreign competition could ~~cause~~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.

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

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

~~-38-~~

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

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

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

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

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

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

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

~~-39-~~

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

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

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

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

The majority of our fuel-grade ethanol sales are generated from a small number of customers. During 2019 and 2018, two customers accounted for an aggregate of approximately $336 million and $367 million in net sales of our fuel-grade ethanol, representing 24% and 25% of our total net sales, respectively, for those periods. ~~We expect that we will continue to depend for the foreseeable future upon a small number of customers for a significant portion of our sales.~~ Our agreements with these customers generally do not require them to purchase any specified volume or dollar value of fuel-grade ethanol, ~~or co-products,~~ or to make any purchases whatsoever. Therefore, in any future period, our sales generated from these customers, individually or in the aggregate, may not equal or exceed historical levels. If sales to any of these customers cease or decline, we may be unable to replace these sales with sales to either existing or new customers in a timely manner, or at all. A cessation or reduction of sales to one or more of these customers could cause a significant decline in our overall sales and profitability.

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

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

~~-40-~~

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

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

~~There are limitations on~~Our independent registered public accounting firm’s report for the year ended December 31, 2019 includes an explanatory note describing a substantial doubt as to our ability to ~~receive distributions from our subsidiaries.~~continue as a going concern.

~~We conduct most~~As a result of fuel-grade ethanol industry conditions that negatively affected our ~~operations through subsidiaries~~business, our independent registered public accounting firm included in its report on our audited consolidated financial statements as of and ~~are dependent upon dividends or other intercompany transfers of funds from~~for the year ended December 31, 2019 an explanatory note describing a substantial doubt as to our ~~subsidiaries to generate free cash flow. Moreover, some of our subsidiaries are limited in their~~ ability to ~~pay dividends~~continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities, that may result if we do not continue as a going concern. The presence of a going concern note to our financial statements may have an adverse impact on our business relationships with third parties, and could make ~~distributions, loans or advances to~~it more difficult for us by the terms of their financing arrangements. At March 31, 2020, we had approximately $174.9 million of net assets at our subsidiaries that were not available to be distributed in the form of dividends, distributions, loans or advances due to restrictions contained in their financing arrangements.

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

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

~~-41-~~

Risks Related to Ownership of our Common Stock

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

The quantitative listing standards of The NASDAQ Stock Market, or NASDAQ, require, among other things, that listed companies maintain a minimum closing bid price of $1.00 per share. We failed to satisfy this threshold for 30 consecutive trading days and on July 17, 2019, we received a letter from NASDAQ indicating that we had an initial period of 180 calendar days, or until January 13, 2020, in which to regain compliance. On January 15, 2020, we received a letter from NASDAQ granting us a 180-day extension period, or until July 13, 2020, in which to regain compliance. On April 17, 2020, we received a third letter from NASDAQ stating that NASDAQ filed an immediately effective rule change with the Securities and Exchange Commission on April 16, 2020. Under the rule change, NASDAQ tolled the compliance periods for bid price and market value of publicly held shares requirements, or the Price-based Requirements, through June 30, 2020. As a result, companies presently in compliance periods for any Price-based Requirements will remain at that same stage of the process and will not be subject to delisting for failure to satisfy these requirements. Starting on July 1, 2020, companies will receive the balance of any pending compliance period in effect at the start of the tolling period to regain compliance. Accordingly, since we had 88 calendar days remaining in our compliance period as of April 16, 2020, we will, upon reinstatement of the Price-based Requirements, still have 88 calendar days from July 1, 2020, or until September 28, 2020, to regain compliance.

We can regain compliance either during the suspension or during the compliance period resuming after the suspension, by meeting the minimum closing bid price of $1.00 per share for ten consecutive business days. If we do not regain compliance by September 28, 2020, the NASDAQ staff will provide written notice that our common stock is subject to delisting. Given the increased market volatility and the effects of the Coronavirus, including an acute negative margin environment in the biofuels industry, and our lack of liquidity, we may be unable to regain compliance with the closing bid price requirement by September 28, 2020. A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise additional financing and may also materially and adversely impact our credit terms with our vendors.

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

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

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

Sales of a substantial number of shares of common stock issued upon conversion of our Series B Preferred Stock and upon exercise of our Warrants and options, or even the perception that these sales could occur, could adversely affect the market price of our common stock. ~~As a result, you~~

Future sales of substantial amounts of our common stock, or securities convertible or exchangeable into shares of our common stock, into the public market, including shares of our common stock issued upon exercise of options and warrants, or perceptions that those sales could ~~experience a substantial decline~~occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital in the ~~value of your investment as a result of both the actual and potential conversion of our outstanding shares of Series B Preferred Stock and exercise of our outstanding Warrants or options.~~future.

~~-42-~~48

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:

●

our ability to ~~continue as~~effectively transition from a ~~going concern;~~predominantly fuel-grade ethanol company to a company focused on the production and sale of specialty alcohols and essential ingredients;

●

fluctuations in the market prices of ~~ethanol and its co-products;~~our products;

●

fluctuations in the ~~cost~~costs of key ~~inputs to the~~ production ~~of ethanol, including~~input commodities such as corn and natural gas;

●

the volume and timing of the receipt of orders for ~~ethanol~~our products from major customers;

●

competitive pricing pressures;

	●	anticipated trends in our ~~ability to timely~~financial condition and ~~cost-effectively produce, sell and deliver ethanol;~~results of operations;
	●	~~the announcement, introduction and market acceptance of one or more alternatives to ethanol;~~

●

changes in market valuations of companies similar to us;

●

stock market price and volume fluctuations generally;

●

regulatory developments or increased enforcement;

●

fluctuations in our quarterly or annual operating results;

	●	additions or departures of key personnel;
	●	~~the timing and results of our strategic initiatives;~~

●

our ~~inability~~ability to obtain any necessary financing;

●

our financing activities and future sales of our common stock or other ~~securities, as well as stockholder dilution;~~securities; and

●

our ability to maintain contracts that are critical to our operations.

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

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

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

~~-43-~~49

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, the 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.

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 bylaws provide that, unless we consent in writing to the selection of an alternative forum, the 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 claim 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 Delaware 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 Securities Act, or the Securities Exchange Act of 1934, as amended, or 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 suits 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 Court of Chancery the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the 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 bylaws 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.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Dividends

Our current and future debt financing arrangements may limit or prevent cash distributions from our subsidiaries to us, depending upon the achievement of specified financial and other operating conditions and our ability to properly service our debt, thereby limiting or preventing us from paying cash dividends.

For the three and nine months ended ~~March 31,~~September 30, 2020, we accrued an aggregate of $0.3 million and $0.9 million, respectively, in dividends on our Series B Cumulative Convertible Preferred Stock, or Series B Preferred Stock, but did not declare or pay cash dividends, as permitted under an agreement with the holders of our Series B Preferred Stock, in an effort to preserve liquidity. For the three and nine months ended ~~March 31,~~September 30, 2019, we declared and paid in cash an aggregate of $0.3 million and $0.9 million, respectively, in dividends on our Series B Preferred Stock.

We have never declared or paid cash dividends on our common stock and do not currently intend to pay cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain any earnings for use in the continued development of our business.

The holders of our outstanding Series B Preferred Stock are entitled to dividends of 7% per annum, payable quarterly. Accrued and unpaid dividends in respect of our Series B Preferred Stock must be paid prior to the payment of any dividends in respect of shares of our common stock.

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES.~~

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

~~ITEM 5.~~

~~OTHER INFORMATION.~~

ITEM 5. OTHER INFORMATION.

Not applicable.

~~-44-~~

~~ITEM 6.~~

~~EXHIBITS.~~

ITEM 6. EXHIBITS.

Exhibit Number		Description ~~(**)~~(#)

10.1		~~Membership Interest Purchase~~Second Amended and Restated Employment Agreement dated ~~as of February 28,~~August 7, 2020 ~~by and among~~between Pacific Ethanol, ~~Central, LLC, Pacific Aurora, LLC~~Inc. and ~~Aurora Cooperative Elevator Company~~Michael D. Kandris (1)
10.2		~~Amendment No. 2 to Credit~~At Market Issuance Sales Agreement dated as of ~~March 20, 2020 by and among Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB (2)~~
~~10.3~~		~~Amendment No. 8 to Credit Agreement dated as of March 20, 2020 by and among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB (2)~~
~~10.4~~		~~Note Amendment No. 5 dated as of March 20, 2020 by and among Pacific Ethanol, Inc. and the noteholders named therein (2)~~
~~10.5~~		~~Security Agreement dated March 20, 2020 by Illinois Corn Processing, LLC in favor of Cortland Products Corp. (2)~~
~~10.6~~		~~Security Agreement dated March 20, 2020 by and between Pacific Ethanol Central, LLC and Cortland Products Corp. (2)~~
~~10.7~~		~~Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and Cortland Products Corp. (2)~~
~~10.8~~		~~Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and Cortland Products Corp. (2)~~
~~10.9~~		~~Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and Cortland Products Corp. (2)~~
~~10.10~~		~~Security Agreement dated March 20, 2020 by and among Pacific Ethanol West, LLC, PE Op Co. and Cortland Products Corp. (2)~~
~~10.11~~		Third Amendment to Security Agreement effective as of March 20, 2020 by and among Pacific Ethanol, Inc., each of the holders and new holders named therein, Cortland Products Corp. as successor agent and Cortland Capital Market Services LLC as existing collateral agent (2)
~~10.12~~		~~Security Agreement effective as of March 20,~~August 13, 2020 by and between Pacific Ethanol, Inc. and ~~CoBank, ACB~~H.C. Wainwright & Co., LLC (2)
~~10.13~~		~~Intercreditor Agreement dated as of March 20, 2020 by and among Cortland Products Corp., CoBank, ACB, Pacific Ethanol, Inc. and the grantors named therein (2)~~
~~10.14~~		~~Intercreditor Agreement dated as of March 20, 2020 between the Pekin Lenders and the ICP Lenders named therein (2)~~
31.1		Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
31.2		Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)
101.INS		XBRL Instance Document (*)
101.SCH		XBRL Taxonomy Extension Schema (*)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (*)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (*)
101.LAB		XBRL Taxonomy Extension Label Linkbase (*)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (*)

(*)

Filed herewith.

~~(**)~~(#)

~~Certain~~All of the agreements filed as exhibits to this report contain representations and warranties made by the parties thereto. The assertions embodied in such representations and warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate risk. Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of facts or for any other purpose at the time they were made or otherwise.

(1)

Filed as an exhibit to the ~~registrant’s~~Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~March 5,~~August 7, 2020.

(2)

Filed as an exhibit to the ~~registrant’s~~Registrant’s Current Report on ~~Form8-K~~Form 8-K filed with the Securities and Exchange Commission on ~~March 26,~~August 13, 2020.

~~-45-~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PACIFIC ETHANOL, INC.

Dated: ~~May 14,~~November 16, 2020	By:	/S/ BRYON T. MCGREGOR
		Bryon T. McGregor
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

~~-46-~~53

Delaware		41-2170618
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer
~~incorporation or organization)~~		Identification No.)

400 Capitol Mall, Suite 2060, Sacramento, California		95814
~~(Address~~(Address of principal executive offices)		~~(zip~~(zip code)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

		Page

			PART I
FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.

~~ITEM 1.~~	~~FINANCIAL STATEMENTS.~~Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	1

	~~Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019~~	1

	Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019 (unaudited)	3

	Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020 and 2019 (unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	67

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1720

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	3038

ITEM 4.	CONTROLS AND PROCEDURES.	3138

	~~PART II~~ ~~OTHER INFORMATION~~
PART II
OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	3239

ITEM 1A.	RISK FACTORS.	3239

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	4451

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	4451

ITEM 4.	MINE SAFETY DISCLOSURES.	4451

ITEM 5.	OTHER INFORMATION.	4451

ITEM 6.	EXHIBITS.	4552

SIGNATURES		4653

					September 30,		December 31,
	March 31,		December 31,		2020		2019
	2020		2019		(unaudited)		*
ASSETS	(unaudited)		*
Current Assets:
Cash and cash equivalents	$	26,779	$	18,997	$	38,730	$	18,997
Accounts receivable, net (net of allowance for doubtful accounts of $58 and $39, respectively)		52,264		74,307
Accounts receivable, net (net of allowance for doubtful accounts of $16 and $39, respectively)						44,465		74,307
Inventories		45,532		60,600		37,706		60,600
Prepaid inventory		1,709		1,528		1,215		1,528
Assets held-for-sale		68,140		69,764		6,920		69,764
Derivative instruments		—		2,438		5,792		2,438
Other current assets		4,873		4,430		2,887		4,430
Total current assets		199,297		232,064		137,715		232,064
Property and equipment, net		324,814		332,526		306,251		332,526
Other Assets:
Right of use operating lease assets, net		23,543		24,346		21,710		24,346
Notes receivable						15,624		—
Assets held-for-sale		16,500		16,500		—		16,500
Intangible asset		2,678		2,678
Intangible assets						2,678		2,678
Other assets		4,277		4,381		5,484		4,381
Total other assets		46,998		47,905		45,496		47,905
Total Assets	$	571,109	$	612,495	$	489,462	$	612,495

							September 30,			December 31,
	March 31,			December 31,			2020			2019
	2020			2019			(unaudited)			*
LIABILITIES AND STOCKHOLDERS’ EQUITY	(unaudited)			*
Current Liabilities:
Accounts payable – trade	$	24,658		$	29,277		$	17,582		$	29,277
Accrued liabilities		23,368			22,331			11,721			22,331
Current portion – operating leases		3,214			3,457			2,541			3,457
Current portion – long-term debt		86,682			63,000			74,900			63,000
Liabilities held-for-sale		43,783			34,413			—			34,413
Derivative instruments		—			1,860			—			1,860
Other current liabilities		6,470			6,060			8,361			6,060
Total current liabilities		188,175			160,398			115,105			160,398

Long-term debt, net of current portion		139,339			180,795			87,989			180,795
Operating leases, net of current portion		20,675			21,171			19,659			21,171
Other liabilities		22,200			23,086			21,493			23,086
Total Liabilities		370,389			385,450			244,246			385,450
Commitments and Contingencies (Note 6)
Commitments and Contingencies (Note 7)
Stockholders’ Equity:
Pacific Ethanol, Inc. Stockholders’ Equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; Series A: 1,684 shares authorized; no shares issued and outstanding as of March 31, 2020 and December 31, 2019; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of March 31, 2020 and December 31, 2019; liquidation preference of $18,710 as of March 31, 2020		1			1
Common stock, $0.001 par value; 300,000 shares authorized; 55,890 and 55,508 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		56			56
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of March 31, 2020 and December 31, 2019		—			—
Preferred stock, $0.001 par value; 10,000 shares authorized; Series A: 1,684 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of September 30, 2020 and December 31, 2019; liquidation preference of $19,344 as of September 30, 2020								1			1
Common stock, $0.001 par value; 300,000 shares authorized; 63,483 and 55,508 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively								63			56
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of September 30, 2020 and December 31, 2019								—			—
Additional paid-in capital		943,453			942,307			963,606			942,307
Accumulated other comprehensive loss		(2,370	)		(2,370	)		(2,370	)		(2,370	)
Accumulated deficit		(745,629	)		(720,214	)		(716,084	)		(720,214	)
Total Pacific Ethanol, Inc. Stockholders’ Equity		195,511			219,780			245,216			219,780
Noncontrolling interests		5,209			7,265			—			7,265
Total Stockholders’ Equity		200,720			227,045			245,216			227,045
Total Liabilities and Stockholders’ Equity	$	571,109		$	612,495		$	489,462		$	612,495


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

	Three Months Ended March 31,
	2020			2019
Net sales	$	311,404		$	355,803
Cost of goods sold		324,294			358,092
Gross loss		(12,890	)		(2,289	)
Selling, general and administrative expenses		10,212			8,235
Loss from operations		(23,102	)		(10,524	)
Fair value adjustments		673			—
Interest expense, net		(5,307	)		(4,736	)
Other income, net		580			1,099
Loss before benefit for income taxes		(27,156	)		(14,161	)
Benefit for income taxes		—			—
Consolidated net loss		(27,156	)		(14,161	)
Net loss attributed to noncontrolling interests		2,056			1,271
Net loss attributed to Pacific Ethanol, Inc.	$	(25,100	)	$	(12,890	)
Preferred stock dividends	$	(315	)	$	(312	)
Net loss available to common stockholders	$	(25,415	)	$	(13,202	)
Net loss per share, basic and diluted	$	(0.47	)	$	(0.29	)
Weighted-average shares outstanding, basic and diluted		53,828			45,517

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net sales	$	204,727		$	365,160		$	728,205		$	1,067,264
Cost of goods sold		183,797			379,976			688,983			1,080,398
Gross profit (loss)		20,930			(14,816	)		39,222			(13,134	)
Selling, general and administrative expenses		(6,404	)		(8,687	)		(25,245	)		(23,630	)
Gain on litigation settlement		11,750			—			11,750			—
Income (loss) from operations		26,276			(23,503	)		25,727			(36,764	)
Interest expense, net		(4,199	)		(5,163	)		(14,153	)		(15,014	)
Fair value adjustments		(6,856	)		—			(7,497	)
Other income (expense), net		(6	)		(407	)		(1,164	)		254
Income (loss) before benefit for income taxes		15,215			(29,073	)		2,913			(51,524	)
Benefit for income taxes		—			—			—			—
Consolidated net income (loss)		15,215			(29,073	)		2,913			(51,524	)
Net loss attributed to noncontrolling interests		—			1,747			2,166			3,662
Net income (loss) attributed to Pacific Ethanol, Inc.	$	15,215		$	(27,326	)	$	5,079		$	(47,862	)
Preferred stock dividends	$	(319	)	$	(319	)	$	(949	)	$	(946	)
Net income (loss) available to common stockholders	$	14,896		$	(27,645	)	$	4,130		$	(48,808	)
Net income (loss) per share, basic	$	0.25		$	(0.58	)	$	0.07		$	(1.04	)
Net income (loss) per share, diluted	$	0.24		$	(0.58	)	$	0.07		$	(1.04	)
Weighted-average shares outstanding, basic		58,503			47,777			55,620			47,030
Weighted-average shares outstanding, diluted		61,699			47,777			57,958			47,030

	Preferred Stock				Common Stock						Additional Paid-In		Accumulated			Accum. Other Comprehensive			Non- Controlling
	Shares		Amount		Shares			Amount			Capital		Deficit			Income (Loss)			Interests			Total
Balances, January 1, 2020		927	$	1		55,508		$	56		$	942,307	$	(720,214	)	$	(2,370	)	$	7,265		$	227,045
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax		—		—		(38	)		(4	)		868		—			—			—			864
Issuances of common stock		—		—		421			4			278		—			—			—			282
Preferred stock dividends		—		—		—			—			—		(315	)		—			—			(315	)
Net loss		—		—		—			—			—		(25,100	)		—			(2,056	)		(27,156	)
Balances, March 31, 2020		927	$	1		55,891		$	56		$	943,453	$	(745,629	)	$	(2,370	)	$	5,209		$	200,720
Balances, January 1, 2019		927	$	1		45,771		$	46		$	932,179	$	(630,000	)	$	(2,459	)	$	19,598		$	319,365
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax		—		—		(24	)		—			797		—			—			—			797
Issuances of common stock		—		—		3,137			3			3,667		—			—			—			3,670
Preferred stock dividends		—		—		—			—			—		(312	)		—			—			(312	)
Net loss		—		—		—			—			—		(12,890	)		—			(1,271	)		(14,161	)
Balances, March 31, 2019		927	$	1		48,884		$	49		$	936,643	$	(643,202	)	$	(2,459	)	$	18,327		$	309,359

	March 31, 2020		December 31, 2019
Cash and equivalents	$	50	$	103
Inventories		1,328		2,079
Other current assets		314		341
Property and equipment		70,400		70,400
Other assets		12,548		13,341
Total Assets Held-for-Sale	$	84,640	$	86,264

Accounts payable and accrued expenses	$	30,688	$	20,711
Other current liabilities		5,380		5,497
Other noncurrent liabilities		7,715		8,205
Total Liabilities Held-for-Sale	$	43,783	$	34,413

	Three Months Ended March 31,
Net Sales		2020			2019
Production, recorded as gross:
Ethanol/alcohol sales	$	186,696		$	179,388
Co-product sales		68,802			68,806
Intersegment sales		594			364
Total production sales		256,092			248,558

Marketing and distribution:
Ethanol/alcohol sales, gross	$	55,477		$	107,154
Ethanol/alcohol sales, net		429			455
Intersegment sales		1,892			1,818
Total marketing and distribution sales		57,798			109,427

Intersegment eliminations		(2,486	)		(2,182	)
Net sales as reported	$	311,404		$	355,803

Cost of goods sold:
Production	$	271,690		$	258,594
Marketing and distribution		57,119			101,829
Intersegment eliminations		(4,515	)		(2,331	)
Cost of goods sold, as reported	$	324,294		$	358,092

Income (loss) before benefit for income taxes:
Production	$	(24,593	)	$	(17,566	)
Marketing and distribution		941			6,119
Corporate activities		(3,504	)		(2,714	)
	$	(27,156	)	$	(14,161	)
Depreciation and amortization:
Production	$	9,614		$	12,005
Corporate activities		99			121
	$	9,713		$	12,126
Interest expense:
Production	$	2,116		$	1,706
Marketing and distribution		627			588
Corporate activities		2,564			2,442
	$	5,307		$	4,736

	March 31, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Total assets:
Production	$	471,891	$	492,060	$	403,358	$	492,060
Marketing and distribution		82,288		106,863		69,174		106,863
Corporate assets		16,930		13,572		16,930		13,572
	$	571,109	$	612,495	$	489,462	$	612,495

		Realized Gains (Losses)
		Three Months Ended September 30,
Type of Instrument	Statements of Operations Location	2020			2019
Commodity contracts	Cost of goods sold	$	(531	)	$	2,262

		Unrealized Gains (Losses)
		Three Months Ended September 30,
Type of Instrument	Statements of Operations Location	2020		2019
Commodity contracts	Cost of goods sold	$	2,113	$	(5,582	)

Original Issuance		Exercise Price				Volatility				Risk Free Interest Rate				Term (years)				Warrants Outstanding				Fair Value
12/22/19		$	1.00				106.0	%			0.21	%			2.75				5,500,000			$	304,000

	March 31, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Finished goods	$	29,892	$	38,194	$	23,179	$	38,194
Work in progress		3,509		7,426		2,503		7,426
Raw materials		6,457		7,890		6,873		7,890
Low-carbon and RIN credits		4,274		5,690		3,751		5,690
Other		1,400		1,400		1,400		1,400
Total	$	45,532	$	60,600	$	37,706	$	60,600

	Fair Value			Level 1		Level 2		Level 3
Assets:
Long-lived assets held-for-sale	$	70,400		$	—	$	—	$	70,400
	$	70,400		$	—	$	—	$	70,400
Liabilities:
Warrants	$	(304	)	$	—	$	—	$	(304	)
	$	(304	)	$	—	$	—	$	(304	)

	Fair
	Value		Level 1		Level 2		Level 3
Assets:
Derivative financial instruments	$	5,792	$	5,792	$	—	$	—

												Benefit Plan														Benefit Plan
												Percentage			Fair											Percentage
	Fair Value			Level 1			Level 2		Level 3			Allocation			Value			Level 1			Level 2		Level 3			Allocation
Assets:
Derivative financial instruments	$	2,438		$	2,438		$	—	$	—
Derivative financial instruments															$	2,438		$	2,438		$	—	$	—

Long-lived assets held-for-sale		70,400			—			—		70,400						70,400			—			—		70,400
Defined benefit plan assets(1) (pooled separate accounts):
Defined benefit plan assets(1)
(pooled separate accounts):
Large U.S. Equity(2)		4,654			—			4,654		—			30	%		4,654			—			4,654		—			30	%
Small/Mid U.S. Equity(3)		2,348			—			2,348		—			15	%		2,348			—			2,348		—			15	%
International Equity(4)		2,596			—			2,596		—			17	%		2,596			—			2,596		—			17	%
Fixed Income(5)		6,056			—			6,056		—			38	%		6,056			—			6,056		—			38	%
	$	88,492		$	2,438		$	15,654	$	70,400					$	88,492		$	2,438		$	15,654	$	70,400

Liabilities:
Derivative financial instruments	$	(1,860	)	$	(1,860	)	$	—	$	—					$	(1,860	)	$	(1,860	)	$	—	$	—
Warrants		(977	)		—			—		(977	)					(977	)		—			—		(977	)
	$	(2,837	)	$	(1,860	)	$	—	$	(977	)				$	(2,837	)	$	(1,860	)	$	—	$	(977	)

	Three Months Ended March 31, 2020
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Pacific Ethanol, Inc.	$	(25,100	)
Less: Preferred stock dividends		(315	)
Basic and diluted loss per share:
Net loss available to common stockholders	$	(25,415	)		53,828	$	(0.47	)

	Three Months Ended September 30, 2020
	Income Numerator			Shares Denominator		Per-Share Amount
Net income attributed to Pacific Ethanol, Inc.	$	15,215
Less: Preferred stock dividends		(319	)
Basic income per share:
Income available to common stockholders	$	14,896			58,503	$	0.25
Add: Dilutive securities		—			3,196
Diluted income per share:
Income available to common stockholders	$	14,896			61,699	$	0.24

	Three Months Ended March 31, 2019								Three Months Ended September 30, 2019
	Loss Numerator			Shares Denominator		Per-Share Amount			Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Pacific Ethanol, Inc.	$	(12,890	)						$	(27,326	)
Less: Preferred stock dividends		(312	)							(319	)
Basic and diluted loss per share:
Net loss available to common stockholders	$	(13,202	)		45,517	$	(0.29	)
Loss available to common stockholders									$	(27,645	)		47,777	$	(0.58	)

	Nine Months Ended September 30, 2020
	Income Numerator			Shares Denominator		Per-Share Amount
Net income attributed to Pacific Ethanol, Inc.	$	5,079
Less: Preferred stock dividends		(949	)
Basic income per share:
Income available to common stockholders	$	4,130			55,620	$	0.07
Add: Dilutive securities		—			2,338
Diluted income per share:
Income available to common stockholders	$	4,130			57,958	$	0.07

	Nine Months Ended September 30, 2019
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Pacific Ethanol, Inc.	$	(47,862	)
Less: Preferred stock dividends		(946	)
Basic and diluted loss per share:
Loss available to common stockholders	$	(48,808	)		47,030	$	(1.04	)

	For the Nine Months Ended September 30,
	2020			2019
Operating Activities:
Net income (loss)	$	5,079		$	(47,862	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Equity in (income) losses of subsidiaries		(21,628	)		42,509
Fair value adjustments		7,497			—
Depreciation		97			227
Amortization of debt discounts		(173	)		539
Changes in operating assets and liabilities:
Accounts receivable		(288	)		(114	)
Other assets		1,184			173
Accounts payable and accrued expenses		(19	)		1,950
Accounts payable with subsidiaries		—			(502	)
Net cash used in operating activities	$	(8,251	)	$	(3,080	)
Investing Activities:
Additions to property and equipment	$	—		$	(13	)
Net cash used in investing activities	$	—		$	(13	)
Financing Activities:
Proceeds from issuances of common stock	$	5,296		$	3,670
Proceeds from warrant exercises		5,500			—
Proceeds from long-term debt		5,973			—
Proceeds from Pacific Ethanol West		5,813			3,016
Payments on senior notes		(5,500	)		(3,748	)
Preferred stock dividend payments		—			(946	)
Net cash provided by financing activities	$	17,082		$	1,992
Net increase (decrease) in cash and cash equivalents		8,831			(1,101	)
Cash and cash equivalents at beginning of period		4,985			6,759
Cash and cash equivalents at end of period	$	13,816		$	5,658

	For the Three Months Ended March 31,
	2020			2019
Operating Activities:
Net loss	$	(25,100	)	$	(12,890	)
Adjustments to reconcile net loss to cash used in operating activities:
Equity in losses of subsidiaries		22,051			10,194
Fair value adjustments		(673	)		—
Depreciation		33			75
Amortization (accretion) of debt discount (premium)		(57	)		178
Changes in operating assets and liabilities:
Receivables from subsidiaries		123			1,778
Other assets		29			(264	)
Accounts payable and accrued expenses		—			45
Accounts payable with subsidiaries		2,235			797
Net cash used in operating activities	$	(1,359	)	$	(87	)
Investing Activities:
Additions to property and equipment	$	—		$	—
Net cash used in investing activities	$	—		$	—
Financing Activities:
Proceeds from issuances of common stock	$	282		$	3,670
Proceeds from plant receivable		5,813			—
Payments on senior notes		—			(3,748	)
Preferred stock dividend payments		—			(312	)
Net cash provided by (used in) financing activities	$	6,095		$	(390	)
Net increase (decrease) in cash and cash equivalents		4,736			(477	)
Cash and cash equivalents at beginning of period		4,985			6,759
Cash and cash equivalents at end of period	$	9,721		$	6,282


	●	fluctuations in the costs of key production input commodities such as corn and natural gas;


	●	the projected growth or contraction in the ~~ethanol and co-product~~ markets in which we operate;


	●	our strategies for expanding, maintaining or contracting our presence in these markets;


	●	anticipated trends in our financial condition and results of operations; and


	●	our ability to distinguish ourselves from our current and future competitors.

~~Facility~~Distillery Name	~~Facility~~ Location	~~Estimated~~ Annual Production Capacity ~~(gallons)~~(est. gallons)		Operating Status
Magic Valley	Burley, ID		60,000,000	Idled
Columbia	Boardman, OR		40,000,000	Operating
Stockton	Stockton, CA		60,000,000	Idled
Madera	Madera, CA		40,000,000	Idled
Pekin Wet	Pekin, IL		100,000,000	Operating
Pekin Dry	Pekin, IL		60,000,000	Idled*
Pekin ICP	Pekin, IL		90,000,000	Operating

													Three Months Ended September 30,						Variance in						Nine Months Ended September 30,						Variance in
	Three Months Ended March 31,						Change in						2020			2019			Dollars			Percent			2020			2019			Dollars			Percent
	2020			2019			Dollars			Percent
Net sales	$	311,404		$	355,803		$	(44,399	)		(12.5	)%	$	204,727		$	365,160		$	(160,433	)		(43.9	)%	$	728,205		$	1,067,264		$	(339,059	)		(31.8	)%
Cost of goods sold		324,294			358,092			(33,798	)		(9.4	)%		183,797			379,976			(196,179	)		(51.6	)%		688,983			1,080,398			(391,415	)		(36.2	)%
Gross loss	$	(12,890	)	$	(2,289	)	$	(10,601	)		463.1	%
Gross profit (loss)													$	20,930		$	(14,816	)	$	35,746			NM		$	39,222		$	(13,134	)	$	52,356			NM
Percentage of net sales		(4.1	)%		(0.6	)%								10.2	%		(4.1	)%								5.4	%		(1.2	)%

	March 31, 2020		December 31, 2019		Change			September 30, 2020		December 31, 2019		Change
Cash and cash equivalents	$	26,779	$	18,997		41.0	%	$	38,730	$	18,997		103.9	%
Current assets	$	199,297	$	232,064		(14.1	)%	$	137,715	$	232,064		(40.7	)%
Property and equipment, net	$	324,814	$	332,526		(2.3	)%	$	306,251	$	332,526		(7.9	)%
Current liabilities	$	188,175	$	160,398		17.3	%	$	115,105	$	160,398		(28.2	)%
Long-term debt, net of current portion	$	139,339	$	180,795		(22.9	)%	$	87,989	$	180,795		(51.3	)%
Working capital	$	11,122	$	71,666		(84.5	)%	$	22,610	$	71,666		(68.5	)%
Working capital ratio		1.06		1.45		(26.9	)%		1.20		1.45		(17.2	)%

	Three Months Ended March 31,				Years Ended December 31,				Three Months Ended September 30,				Years Ended December 31,
	2020		2019		2019		2018		2020		2019		2019		2018
Fixed-Charge Coverage Ratio Requirement		2.00		2.00		2.00		2.00		2.00		2.00		2.00		2.00
Actual		4.05		16.35		5.71		19.06		5.66		5.62		5.71		19.06
Excess		2.05		14.35		3.71		17.06		3.66		3.62		3.71		17.06