UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedMarch 31, ~~2020~~2021

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

For the transition period from ______ to _______

Commission File Number:000-21467

~~PACIFIC ETHANOL,~~ALTO INGREDIENTS, INC.

(Exact name of registrant as specified in its charter)

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~~1300 South Second Street, Pekin, Illinois		~~95814~~61554
~~(Address~~(Address of principal executive offices)		~~(zip~~(zip code)

(916) 403-2123

(Registrant’s telephone number, including area code)

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

Title of each Class

Trading Symbol

Name of Exchange on Which Registered

Common Stock, $0.001 par value

~~PEIX~~ALTO

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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 ~~13, 2020,~~14, 2021, there were ~~55,493,235~~72,707,703 shares of ~~Pacific Ethanol,~~Alto Ingredients, Inc. common stock, $0.001 par value per share, and 896 shares of ~~Pacific Ethanol,~~Alto Ingredients, Inc. non-voting common stock, $0.001 par value per share, outstanding.

PART I

FINANCIAL INFORMATION

		Page

	~~PART I~~ ~~FINANCIAL INFORMATION~~

ITEM 1.	FINANCIAL STATEMENTS.	1

	Consolidated Balance Sheets as of March 31, ~~2020~~2021 (unaudited) and December 31, ~~2019~~2020	1

	Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4

	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	1718

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	30

ITEM 4.	CONTROLS AND PROCEDURES.	31

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

~~ITEM 1.~~	~~LEGAL PROCEEDINGS.~~	3230

~~ITEM 1A.~~	~~RISK FACTORS.~~PART II	32
	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	31

ITEM 1A.	RISK FACTORS.	31

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	4441

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	4441

ITEM 4.	MINE SAFETY DISCLOSURES.	4441

ITEM 5.	OTHER INFORMATION.	4441

ITEM 6.	EXHIBITS.	4542

SIGNATURES	46	43

~~-i-~~i

PART I - FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS.~~

ITEM 1. FINANCIAL STATEMENTS.

~~PACIFIC ETHANOL,~~ALTO INGREDIENTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

	March 31,		December 31,
	2020		2019		March 31,		December 31,
ASSETS	(unaudited)		*		2021		2020
					(unaudited)		*
Current Assets:
Cash and cash equivalents	$	26,779	$	18,997	$	44,146	$	47,667
Accounts receivable, net (net of allowance for doubtful accounts of $58 and $39, respectively)		52,264		74,307
Accounts receivable (net of allowance for doubtful accounts of $351 and $260, respectively)						56,458		43,491
Inventories		45,532		60,600		55,216		37,925
Prepaid inventory		1,709		1,528		1,021		891
Derivative instruments						22,355		17,149
Assets held-for-sale		68,140		69,764		57,053		58,295
Derivative instruments		—		2,438
Other current assets		4,873		4,430		5,339		8,628
Total current assets		199,297		232,064		241,588		214,046
Property and equipment, net		324,814		332,526		226,183		229,486
Other Assets:
Right of use operating lease assets, net		23,543		24,346		11,704		11,046
Assets held-for-sale		16,500		16,500
Notes receivable						13,556		14,337
Intangible asset		2,678		2,678		2,678		2,678
Other assets		4,277		4,381		5,407		5,225
Total other assets		46,998		47,905		33,345		33,286
Total Assets	$	571,109	$	612,495	$	501,116	$	476,818

Amounts derived from the audited financial statements for the year ended December 31, ~~2019.~~2020.

See accompanying notes to consolidated financial statements.

~~-1-~~-1-

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

	March 31,			December 31,
	2020			2019			March 31,			December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	(unaudited)			*			2021			2020
							(unaudited)			*
Current Liabilities:
Accounts payable – trade	$	24,658		$	29,277		$	23,171		$	13,047
Accrued liabilities		23,368			22,331			13,623			11,101
Current portion – operating leases		3,214			3,457			2,581			2,180
Current portion – long-term debt		86,682			63,000			37,581			25,533
Derivative instruments								4,741			—
Liabilities held-for-sale		43,783			34,413			19,231			19,542
Derivative instruments		—			1,860
Other current liabilities		6,470			6,060			11,822			15,524
Total current liabilities		188,175			160,398			112,750			86,927

Long-term debt, net of current portion		139,339			180,795			64,396			71,807
Operating leases, net of current portion		20,675			21,171			8,956			8,715
Other liabilities		22,200			23,086			13,332			13,134

Total Liabilities		370,389			385,450			199,434			180,583

Commitments and Contingencies (Note 6)

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		—			—
Alto Ingredients, 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, 2021 and December 31, 2020; Series B: 1,581 shares authorized; 927 shares issued and outstanding as of March 31, 2021 and December 31, 2020; liquidation preference of $19,975 as of March 31, 2021								1			1
Common stock, $0.001 par value; 300,000 shares authorized; 73,161 and 72,487 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively								73			72
Non-voting common stock, $0.001 par value; 3,553 shares authorized; 1 share issued and outstanding as of March 31, 2021 and December 31, 2020								—			—
Additional paid-in capital		943,453			942,307			1,037,718			1,036,638
Accumulated other comprehensive loss		(2,370	)		(2,370	)		(3,878	)		(3,878	)
Accumulated deficit		(745,629	)		(720,214	)		(732,232	)		(736,598	)
Total Pacific Ethanol, Inc. Stockholders’ Equity		195,511			219,780
Noncontrolling interests		5,209			7,265
Total Stockholders’ Equity		200,720			227,045			301,682			296,235
Total Liabilities and Stockholders’ Equity	$	571,109		$	612,495		$	501,116		$	476,818

Amounts derived from the audited financial statements for the year ended December 31, ~~2019.~~2020.

See accompanying notes to consolidated financial statements.

~~-2-~~-2-

~~PACIFIC ETHANOL,~~ALTO INGREDIENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

	Three Months Ended March 31,						Three Months Ended March 31,
	2020			2019			2021			2020
Net sales	$	311,404		$	355,803		$	218,734		$	311,404
Cost of goods sold		324,294			358,092			204,897			324,294
Gross loss		(12,890	)		(2,289	)
Gross profit (loss)								13,837			(12,890	)
Selling, general and administrative expenses		10,212			8,235			7,014			10,212
Loss from operations		(23,102	)		(10,524	)
Asset impairment								1,200			—
Income (loss) from operations								5,623			(23,102	)
Fair value adjustments		673			—			—			673
Interest expense, net		(5,307	)		(4,736	)		(1,885	)		(5,307	)
Other income, net		580			1,099			940			580
Loss before benefit for income taxes		(27,156	)		(14,161	)
Income (loss) before benefit for income taxes								4,678			(27,156	)
Benefit for income taxes		—			—			—			—
Consolidated net loss		(27,156	)		(14,161	)
Consolidated net income (loss)								4,678			(27,156	)
Net loss attributed to noncontrolling interests		2,056			1,271			—			2,056
Net loss attributed to Pacific Ethanol, Inc.	$	(25,100	)	$	(12,890	)
Net income (loss) attributed to Alto Ingredients, Inc.							$	4,678		$	(25,100	)
Preferred stock dividends	$	(315	)	$	(312	)	$	(312	)	$	(315	)
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
Net income (loss) available to common stockholders							$	4,366		$	(25,415	)
Net income (loss) per share, basic							$	0.06		$	(0.47	)
Net income (loss) per share, diluted							$	0.06		$	(0.47	)
Weighted-average shares outstanding, basic								70,351			53,828
Weighted-average shares outstanding, diluted								72,464			53,828

See accompanying notes to consolidated financial statements.

~~-3-~~-3-

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

	Three Months Ended March 31,						Three Months Ended March 31,
	2020			2019			2021			2020
Operating Activities:
Consolidated net loss	$	(27,156	)	$	(14,161	)
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities:
Consolidated net income (loss)							$	4,678		$	(27,156	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
Depreciation		9,759			12,126			5,860			9,759
Amortization (accretion) of debt discount (premium)		(57	)		178
Asset impairment								1,200			—
Gains (losses) on derivative instruments								(10,543	)		—
Non-cash compensation		865			800			804			865
Amortization of deferred financing fees		305			135			190			305
Fair value adjustments		(673	)		—			—			(673	)
Inventory valuation		4,223			—			—			4,223
Interest added to debt		133			—			—			133
Loss on derivatives		—			86
Bad debt expense		19			26			91			19
Changes in operating assets and liabilities:
Accounts receivable		22,024			(9,970	)		(13,057	)		22,024
Inventories		10,845			(4,911	)		(17,291	)		10,845
Prepaid expenses and other assets		(339	)		5,117			3,832			(396	)
Prepaid inventory		(181	)		(2,050	)		(129	)		(181	)
Operating leases		(2,348	)		(2,676	)		(1,037	)		(2,348	)
Assets held-for-sale		1,624			—			1,241			1,624
Liabilities held-for-sale		9,370			—			(312	)		9,370
Accounts payable and accrued liabilities		(1,512	)		273			20,391			(1,512	)
Net cash provided by (used in) operating activities		26,901			(15,027	)		(4,082	)		26,901
Investing Activities:
Additions to property and equipment		(1,245	)		(1,112	)		(4,411	)		(1,245	)
Net cash used in investing activities		(1,245	)		(1,112	)		(4,411	)		(1,245	)
Financing Activities:
Net proceeds (payments) from Kinergy’s line of credit		(18,156	)		13,153			13,042			(18,156	)
Proceeds from stock option exercises								462			—
Proceeds from issuance of common stock		282			3,670			—			282
Principal payments on borrowings		—			(5,248	)		(8,532	)		—
Preferred stock dividends paid		—			(312	)
Net cash provided by (used in) financing activities		(17,874	)		11,263			4,972			(17,874	)
Net increase (decrease) in cash and cash equivalents		7,782			(4,876	)		(3,521	)		7,782
Cash and cash equivalents at beginning of period		18,997			26,627			47,667			18,997
Cash and cash equivalents at end of period	$	26,779		$	21,751		$	44,146		$	26,779

Supplemental Information:
Interest paid	$	1,968		$	4,260		$	1,825		$	1,968
Accrued preferred stock dividends	$	315		$	—		$	312		$	315
Initial right of use assets and liabilities recorded under ASC 842	$	—		$	43,753

See accompanying notes to consolidated financial statements.

~~-4-~~-4-

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

	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, 2021		927	$	1		72,487		$	72		$	1,036,638	$	(736,598	)	$	(3,878	)	$	—		$	296,235
Stock-based compensation expense – restricted stock issued to employees and directors, net of cancellations and tax		—		—		550			1			618		—			—			—			619
Stock option exercises		—		—		124			—			462		—			—			—			462
Preferred stock dividends		—		—		—			—			—		(312	)		—			—			(312	)
Net loss		—		—		—			—			—		4,678			—			—			4,678
Balances, March 31, 2021		927	$	1		73,161		$	73		$	1,037,718	$	(732,232	)	$	(3,878	)	$	—		$	301,682
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

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

~~See accompanying notes to consolidated financial statements.~~

~~-5-~~-5-

~~PACIFIC ETHANOL,~~ALTO INGREDIENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

~~ORGANIZATIONAND BASIS OF PRESENTATION.~~

1. ORGANIZATION AND BASIS OF PRESENTATION.

Organization and Business– The consolidated financial statements include, for all periods presented, the accounts of ~~Pacific Ethanol,~~Alto Ingredients, Inc., a Delaware corporation (“~~Pacific Ethanol”~~Alto Ingredients”), and its direct and indirect subsidiaries (collectively, the “Company”), including its wholly-owned subsidiaries, Kinergy Marketing LLC, an Oregon limited liability company (“Kinergy”), ~~Pacific Ag. Products,~~Alto Nutrients LLC, a California limited liability company (“~~PAP”~~Alto Nutrients”), PEAlto Op Co., a Delaware corporation (“PEAlto Op Co.”) and all ~~nine~~seven of the Company’s ~~ethanol~~ production facilities as of March 31, 2020. As discussed in Note 2, on April 15, 2020, the Company completed its sale of its ownership interests in Pacific Aurora, LLC (“Pacific Aurora”), thereby divesting two of the Company’s ethanol production facilities.2021.

The Company is a leading producer and marketer of ~~low-carbon renewable fuels in the United States.~~specialty alcohols and essential ingredients. The Company also produces and markets fuel-grade ethanol. The Company’s ~~four ethanol plants~~production facilities 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 ethanol customers and thus enjoy unique advantages in efficiency, logistics and product pricing. The Company’s ethanol plants inPekin, 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 and barges from these facilities ~~in the Midwest~~ allows for greater access to international markets. ~~On April 15, 2020, the Company sold its interests~~The Company’s four production facilities in ~~the Nebraska facilities.~~California, Oregon and Idaho, located in close proximity to both feed and fuel-grade ethanol customers, enjoy unique advantages in efficiency, logistics and product pricing.

~~Following the Company’s sale of its interest in Pacific Aurora, the~~The Company ~~has~~had a combined production capacity of 450 million gallons per year, as of March 31, 2021, markets, on an annualized basis, ~~nearly 1.0 billion~~over 500 million gallons of ~~ethanol and specialty~~ alcohols, ~~based on historical volumes,~~ and produces, on an annualized basis, nearly ~~3.0~~1.5 million tons of ~~co-products~~essential ingredients on a dry matter basis, such as ~~wet and dry distillers grains, wet and dry corn gluten feed, condensed distillers solubles,~~dried yeast, corn gluten meal, corn gluten feed, and distillers grains and liquid feed used in commercial animal feed and pet foods.

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 well as corn germ ~~dried~~used for corn oils. Products for Essential Ingredients markets include yeast, corn gluten and CO₂~~, based on historical volumes.~~

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.

As of March 31, ~~2020,~~2021, the Company was operating at approximately ~~40%~~64% of its then-450 million gallon annual production capacity. As market conditions change, the Company may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

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.~~2020. 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.~~2020. 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 the Company’s business, the Company does not currently have sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs in the near-term. The Company has reduced production at its facilities by more than 60% subsequent to quarter-end in an effort to conserve capital in response to a substantial reduction in demand due to stay-at-home orders issued in response to the coronavirus pandemic. The Company has obtained additional liquidity from the completion of 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, the Company does not believe that it has sufficient working capital to continue operations for the next twelve months, unless it successfully restructures its debt, sells additional assets, experiences a significant improvement in demand and margins for its products and/or obtains other sources of liquidity. In addition, if demand and margins do not promptly and sustainably improve, the Company may be forced to further curtail or cease production at its operating facilities. As a result of these factors, there exists substantial doubt as to the Company’s ability to continue as a going concern.

~~-6-~~

The Company, as previously agreed with its lenders, has presented and continues to negotiate a comprehensive plan to restructure its assets and liabilities. The Company has appointed a chief restructuring officer to facilitate the development of such a plan and to assist in the Company’s present strategic initiatives. The Company expects the negotiated plan will include additional assets sales, soliciting new investments in the Company or its assets, further debt payment deferrals and reductions, cutting overhead expenses and other cash preserving initiatives. The Company intends that the plan will provide the means to maintain sufficient liquidity for the next twelve months.

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 specialty alcohols to large consumer products companies, sells fuel-grade ethanol to gasoline refining and distribution companies, sells essential ingredients to animal feed customers, including 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.

-6-

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~~$51,301,000 and ~~$63,736,000~~$35,839,000 at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, were used as collateral under Kinergy’s operating line of credit. The allowance for doubtful accounts was ~~$58,000~~$351,000 and ~~$39,000~~$260,000 as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company recorded a bad debt expense of ~~$19,000~~$91,000 and ~~$26,000~~$19,000 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, 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~~are 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, 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’ carrying values 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.

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, fair value of warrants, 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.

2. ASSETS AND LIABILITIES HELD-FOR-SALE.

In October 2020, the Company’s Board of Directors approved a plan to sell the Company’s fuel-grade ethanol production facilities located in Madera and Stockton, California. As a result, the Company determined the related long-lived asset groups should be classified as held-for-sale at December 31, 2020. During the three months ended March 31, 2021, the Company provided for an additional impairment charge of $1.2 million based on revised fair value estimates. On April 23, 2021, the Company entered into an asset purchase agreement to sell its Madera facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities. On May 14, 2021, the Company closed the sale.

~~-7-~~-7-

~~PACIFIC AURORA.~~

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~~classified the following assets and liabilities as held-for-sale as 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~~March 31, 2021 (in thousands):

Stockton Madera
Property and equipment, net $ 19,535 $ 27,813
Right of use operating lease assets, net 9,705 -
Assets held-for-sale $ 29,240 $ 27,813
Stockton Madera
Operating lease obligations $ 10,456 $ —
Assessment financing — 8,775
Liabilities held-for-sale $ 10,456 $ 8,775
The Company classified the following assets and liabilities as held-for-sale as of December 31, 2020 (in thousands):

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
Stockton Madera
Property and equipment, net $ 19,535 $ 29,013
Right of use operating lease assets, net 9,747 -
Assets held-for-sale $ 29,282 $ 29,013

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.
Stockton Madera
Operating lease obligations $ 10,435 $ —
Assessment financing — 9,107
Liabilities held-for-sale $ 10,435 $ 9,107

For the three months ended March 31, ~~2020~~2021, net sales attributed to the results of operations for Stockton and ~~2019, Pacific Aurora contributed $39.6~~Madera were $0.2 million and ~~$36.5~~less than $0.1 million, inrespectively. For the three months ended March 31, 2020, net sales ~~$7.9~~attributed to the results of operations for Stockton and Madera were $21.9 million and ~~$4.9~~$21.5 million, inrespectively. For the three months ended March 31, 2021, pre-tax ~~loss, and $2.1 million and $1.3 million in net~~ loss attributed to ~~noncontrolling interests,~~the results of operations for Stockton and Madera was $0.8 million and $1.6 million, respectively. For the three months ended March 31, 2020, pre-tax loss attributed to the results of operations for Stockton and Madera was $2.3 million and $1.8 million, 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, resulting in cash proceeds of $20.2 million and the balance of $16.5 million in long-term ACEC promissory notes. Approximately $14.5 million of the cash proceeds were used to pay principal on the Company’s term debt.3. SEGMENTS.

~~-8-~~
3. ~~SEGMENTS.~~
The Company reports its financial and operating performance in ~~two~~three segments: (1) ~~ethanol production, which includes the production and sale of ethanol, specialty alcohols and co-products, with all of the Company’s production facilities aggregated, and (2)~~ marketing and distribution, which includes marketing and merchant trading for Company-produced ~~ethanol, specialty~~ alcohols and ~~co-products~~essential ingredients on an aggregated basis, and third-party ~~ethanol.~~fuel-grade ethanol (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at the Company’s Pekin, Illinois campus (“Pekin Campus”), and (3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of the Company’s other production facilities on an aggregated basis (“Other production”), none of which are individually so significant as to be considered a reportable segment.
-8-

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

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
Three Months Ended
March 31,
Net Sales 2021 2020
Marketing and distribution:
Alcohol sales, gross $ 57,010 $ 57,506
Alcohol sales, net 452 429
Intersegment sales 2,244 4,315
Total marketing and distribution sales 59,706 62,250
Pekin Campus production, recorded as gross:
Alcohol sales $ 95,083 $ 84,132
Essential ingredient sales 45,077 39,870
Intersegment sales 9,985 2,332
Total Pekin Campus sales 150,145 126,334
Other production, recorded as gross:
Alcohol sales $ 15,969 $ 99,230
Essential ingredient sales 5,143 30,237
Intersegment sales 305 291
Total Other production sales 21,417 129,758

Intersegment eliminations (12,534 ) (6,938 )
Net sales as reported $ 218,734 $ 311,404

Cost of goods sold:
Marketing and distribution $ 53,957 $ 57,139
Pekin Campus production 137,376 128,683
Other production 24,118 142,310
Intersegment eliminations (10,554 ) (3,838 )
Cost of goods sold as reported $ 204,897 $ 324,294
Income (loss) before benefit for income taxes:
Marketing and distribution $ 3,973 $ 2,930
Pekin Campus production 9,691 (6,849 )
Other production (5,137 ) (16,621 )
Corporate activities (2,904 ) (2,562 )
$ 5,623 $ (23,102 )
Depreciation:
Pekin Campus production $ 4,345 $ 5,130
Other production 1,498 4,530
Corporate activities 17 99
$ 5,860 $ 9,759
Interest expense:
Marketing and distribution $ 202 $ 627
Pekin Campus production 519 2,084
Other production 136 32
Corporate activities 1,028 2,564
$ 1,885 $ 5,307
~~-9-~~-9-

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

March 31, 2020 December 31, 2019 March 31,
December 31,
Total assets: 2021 2020
Production $ 471,891 $ 492,060
Marketing and distribution 82,288 106,863 $ 119,546 $ 89,337
Pekin Campus production 238,370 234,439
Other production 120,351 102,409
Corporate assets 16,930 13,572 22,849 50,633
$ 571,109 $ 612,495 $ 501,116 $ 476,818

4. ~~INVENTORIES.~~
4. INVENTORIES.

Inventories consisted primarily of bulk ethanol, specialty alcohols, corn, ~~co-products, low-carbon and Renewable Identification Number (“RIN”) credits~~essential ingredients and unleaded fuel, and are valued at the ~~lower-of-cost-or-net~~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 and $1,290,000~~$1,033,000 valuation adjustment as of ~~March 31, 2020 and~~ December 31, ~~2019, respectively.~~2020. Inventory balances consisted of the following (in thousands):

March 31, 2020 December 31, 2019 March 31, 2021 December 31,
2020
Finished goods $ 29,892 $ 38,194 $ 39,654 $ 25,154
Work in progress 3,509 7,426 4,965 4,333
Raw materials 6,457 7,890 9,233 7,074
Low-carbon and RIN credits 4,274 5,690
Other 1,400 1,400 1,364 1,364
Total $ 45,532 $ 60,600 $ 55,216 $ 37,925

5. ~~DEBT.~~
5. DERIVATIVES.
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.
-10-
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 alcohol sales and purchase commitments where the prices are set at a future date and/or if the contracts specify a floating or index-based price. In addition, the Company hedges anticipated sales of alcohol 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 months ended March 31, 2021 and 2020, 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 alcohols by entering into exchange-traded forward contracts or options 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 net gains of $10,543,000 and $0 as the change in the fair value of these contracts for the three months ended March 31, 2021 and 2020, 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):
As of March 31, 2021
Assets Liabilities
Type of Instrument Balance Sheet Location Fair
Value Balance Sheet Location Fair
Value
Commodity contracts Derivative assets $ 22,355 Derivative liabilities $ 4,741
As of December 31, 2020
Assets Liabilities
Type of Instrument Balance Sheet Location Fair
Value Balance Sheet Location Fair
Value
Cash collateral balance Other current assets $ 520
Commodity contracts Derivative assets $ 17,149 Derivative liabilities $ —
The classification and amounts of the Company’s recognized gains for its derivatives not designated as hedging instruments are as follows (in thousands):
Realized Gains
For the three months Ended
March 31,
Type of Instrument Statements of Operations Location 2021 2020
Commodity contracts Cost of goods sold $ 6,185 $ —
$ 6,185 $ —
Unrealized Gains
For the three months Ended
March 31,
Type of Instrument Statements of Operations Location 2021 2020
Commodity contracts Cost of goods sold $ 4,358 $ —
$ 4,358 $ —
-11-
6. DEBT.

Long-term borrowings are summarized as follows (in thousands):

March 31, 2020 December 31, 2019 March 31,
2021 December 31,
2020
Kinergy line of credit $ 60,182 $ 78,338 $ 45,554 $ 32,512
Pekin term loan 39,500 39,500
Pekin revolving loan 32,000 32,000 17,580 20,580
ICP term loan 12,000 12,000
ICP revolving loan 18,000 18,000 9,384 9,384
Parent notes payable 65,782 65,649 20,001 25,533
CARES Act loans 9,860 9,860
227,464 245,487 102,379 97,869
Less unamortized debt premium 404 461 174 230
Less unamortized debt financing costs (1,847 ) (2,153 ) (576 ) (759 )
Less short-term portion (86,682 ) (63,000 ) (37,581 ) (25,533 )
Long-term debt $ 139,339 $ 180,795 $ 64,396 $ 71,807

~~PE Pekin Credit Facilities~~Parent Notes Payable – 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 located on the West Coast. The Company and certain subsidiaries also entered into intercreditor agreements14, 2021, 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, 2020, as part and upon the closing of~~ the Company’s sale of its ~~interests in Pacific Aurora, the Company made approximately $11.6~~Madera, California facility, it repaid $19.3 million inof principal ~~payments~~ on ~~the PE Pekin term debt.~~its notes payable, with $0.7 million remaining.
~~-10-~~
~~ICP Credit Facilities~~Maturities of Long-term Debt – 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 theThe 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,long-term debt matures as ~~part and upon the closing of the Company’s sale of its interests in Pacific Aurora, the Company made approximately $2.9 million in principal payments on the ICP term debt.~~follows (in thousands):

~~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.
December 31:

2021 $ 20,001
2022 82,378
$ 102,379

Restrictions– At March 31, ~~2020,~~2021, there were approximately ~~$174.9~~$231.9 million of net assets at the Company’s subsidiaries that were not available to be transferred to ~~Pacific Ethanol,~~Alto Ingredients, Inc. in the form of dividends, loans or advances due to restrictions contained in the credit facilities of the Company’s subsidiaries.

6. ~~COMMITMENTS AND CONTINGENCIES.~~
7. COMMITMENTS AND CONTINGENCIES.

Sales Commitments – At March 31, ~~2020,~~2021, the Company had entered into sales contracts with its major customers to sell certain quantities of ~~ethanol~~alcohol and ~~co-products.~~essential ingredients. The Company had open ~~ethanol~~alcohol indexed-price contracts for ~~174,527,000~~102,526,000 gallons ~~of ethanol~~ as of March 31, ~~2020~~2021 and open fixed-price ~~ethanol~~alcohol sales contracts totaling ~~$90,554,000~~$207,687,000 as of March 31, ~~2020.~~2021. The Company had open fixed-price ~~co-product~~ sales contracts for essential ingredients totaling ~~$16,607,000~~$18,170,000 and open indexed-price ~~co-product~~ sales contracts of essential ingredients for ~~220,000~~146,000 tons as of March 31, ~~2020.~~2021. These sales contracts are scheduled to be completed throughout ~~2020.~~2021.

Purchase Commitments – At March 31, ~~2020,~~2021, the Company had indexed-price purchase contracts to purchase ~~23,295,000~~15,626,000 gallons of ~~ethanol~~alcohol and fixed-price purchase contracts to purchase ~~$9,089,000~~$1,238,000 of ~~ethanol~~alcohol from its suppliers. The Company had fixed-price purchase contracts to purchase ~~$11,541,000~~$33,883,000 of corn from its suppliers as of March 31, ~~2020.~~2021. These purchase commitments are scheduled to be satisfied throughout ~~2020.~~2021.
-12-

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.

7. ~~PENSION PLANS.~~
8. PENSION PLANS.

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 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.

~~-11-~~
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,~~2020, the Retirement Plan’s accumulated projected benefit obligation was ~~$21.6~~$24.6 million, with a fair value of plan assets of ~~$15.7~~$17.6 million. The underfunded amount of ~~$5.9~~$7.0 million is recorded on the Company’s consolidated balance sheet in other liabilities. For the three months ended March 31, 2021, the Retirement Plan’s net periodic expense was $22,000, comprised of $151,000 in interest cost and $109,000 in service cost, partially offset by $238,000 of expected return on plan assets. 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,~~2020, 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, 2021, the Postretirement Plan’s net periodic expense was $42,000, comprised of $10,000 of interest cost, $26,000 of service cost and $6,000 of amortization expense. 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.

8. ~~FAIR VALUE MEASUREMENTS.~~
-13-
9. FAIR VALUE MEASUREMENTS.

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

● Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;

● Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and

● Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.

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~~Long-Lived Assets Held-for-Sale– The ~~Company’s warrants issued December 22, 2019, were valued using the Black-Scholes Valuation Model.~~
~~Significant assumptions used~~Company recorded its long-lived assets associated with its property and ~~related~~equipment held-for-sale at fair value ~~for the warrants as of~~at March 31, ~~2020 were as follows:~~
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
~~-12-~~
~~Significant assumptions used~~2021 and ~~related fair value for the warrants as of~~ December 31, ~~2019 were as follows:~~
Original Issuance Exercise Price Volatility Risk Free Interest Rate Term (years) Warrants Outstanding Fair Value
12/22/19 $ 1.00 76.0 % 1.66 % 3.00 5,500,000 $ 977,000
2020 of $47,348,000 and $48,548,000, respectively. The fair values of ~~the warrants~~these assets are based on ~~unobservable inputs~~observable values for the assets through corroboration with market data 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, ~~2020~~2021 (in thousands):

Fair
Fair Value Level 1 Level 2 Level 3 Value Level 1 Level 2 Level 3
Assets:
Derivative financial instruments $ 22,355 $ 22,355 $ — $ —
Long-lived assets held-for-sale $ 70,400 $ — $ — $ 70,400 57,053 — — 57,053
$ 70,400 $ — $ — $ 70,400 $ 79,408 $ 22,355 $ — $ 57,053
Liabilities:
Warrants $ (304 ) $ — $ — $ (304 )
Derivative financial instruments $ (4,741 ) $ (4,741 ) $ — $ —
$ (304 ) $ — $ — $ (304 ) $ (4,741 ) $ (4,741 ) $ — $ —
-14-

The following table summarizes recurring and nonrecurring fair value measurements by level at December 31, ~~2019~~2020 (in thousands):

Benefit Plan
Fair Percentage
Value Level 1 Level 2 Level 3 Allocation
Assets:
Derivative financial instruments $ 17,149 $ 17,149 $ — $ —
Long-lived assets held-for-sale 58,295 — — 58,295
Defined benefit plan assets(1)
(pooled separate accounts): ��
Large U.S. Equity(2) 5,470 — 5,470 — 31 %
Small/Mid U.S. Equity(3) 2,605 — 2,605 — 15 %
International Equity(4) 2,921 — 2,921 — 17 %
Fixed Income(5) 6,592 — 6,592 — 37 %
$ 93,032 $ 17,149 $ 17,588 $ 58,295

Liabilities:

$ — $ — $ — $ —
Benefit Plan
Percentage
Fair Value Level 1 Level 2 Level 3 Allocation
Assets:
Derivative financial instruments $ 2,438 $ 2,438 $ — $ —
Long-lived assets held-for-sale 70,400 — — 70,400
Defined benefit plan assets(1) (pooled separate accounts):
Large U.S. Equity(2) 4,654 — 4,654 — 30 %
Small/Mid U.S. Equity(3) 2,348 — 2,348 — 15 %
International Equity(4) 2,596 — 2,596 — 17 %
Fixed Income(5) 6,056 — 6,056 — 38 %
$ 88,492 $ 2,438 $ 15,654 $ 70,400
Liabilities:
Derivative financial instruments $ (1,860 ) $ (1,860 ) $ — $ —
Warrants (977 ) — — (977 )
$ (2,837 ) $ (1,860 ) $ — $ (977 )

(1) Included in ~~derivative instruments~~other assets in the consolidated balance sheets.
(2) This category includes investments in funds comprised of equity securities of large U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.
(3) This category includes investments in funds comprised of equity securities of small- and medium-sized U.S. companies. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.
(4) This category includes investments in funds comprised of equity securities of foreign companies including emerging markets. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.
(5) This category includes investments in funds comprised of U.S. and foreign investment-grade fixed income securities, high-yield fixed income securities that are rated below investment-grade, U.S. treasury securities, mortgage-backed securities, and other asset-backed securities. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

10. EARNINGS PER SHARE.
~~-13-~~
9. ~~EARNINGS PER SHARE.~~

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

Three Months Ended
March 31, 2021
Income Numerator Shares Denominator Per-Share Amount
Net income attributed to Alto Ingredients, Inc. $ 4,678
Less: Preferred stock dividends (312 )
Basic income per share:
Income available to common stockholders $ 4,366 70,351 $ 0.06
Add: Dilutive securities — 2,113
Diluted income per share:
Income available to common stockholders $ 4,366 72,464 $ 0.06
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 )
-15-

Three Months Ended March 31, 2019
Loss
Numerator Shares Denominator Per-Share Amount
Net loss attributed to Pacific Ethanol, Inc. $ (12,890 )
Less: Preferred stock dividends (312 )
Basic and diluted loss per share:
Net loss available to common stockholders $ (13,202 ) 45,517 $ (0.29 )
Three Months Ended
March 31, 2020
Loss
Numerator Shares Denominator Per-Share Amount
Net loss attributed to Alto Ingredients, 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 )

There were an additional aggregate ~~of 635,000~~ potentially dilutive weighted-average shares of 3,265,000 and 964,000 from convertible securities outstanding for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. These ~~convertible~~ securities were not considered in calculating diluted net ~~loss~~income (loss) per share for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, as their effect would have been anti-dilutive.

11. PARENT COMPANY FINANCIALS.
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~~10.~~ ~~PARENT COMPANY FINANCIALS.~~

Restricted Net Assets –At March 31, ~~2020,~~2021, the Company had approximately ~~$174,900,000~~$231.9 million of net assets at its subsidiaries that were not available to be transferred to ~~Pacific Ethanol~~Alto Ingredients 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):

March 31, December 31,

ASSETS 2020 2019

Current Assets:
Cash and cash equivalents $ 9,721 $ 4,985
Receivables from subsidiaries 12,934 13,057
Other current assets 2,336 2,349
Total current assets 24,991 20,391

Property and equipment, net 235 269
Other Assets:
Investments in subsidiaries 195,597 218,464
Pacific Ethanol West plant receivable 49,937 55,750
Right of use operating lease assets, net 3,187 3,253
Other assets 1,451 1,452
Total other assets 250,172 278,919
Total Assets $ 275,398 $ 299,579
Current Liabilities:
Accounts payable and accrued liabilities $ 4,721 $ 5,907
Accrued PE Op Co. purchase 3,829 3,829
Current portion of long-term debt 10,000 10,000
Other current liabilities 3,128 659
Total current liabilities 21,678 20,395

Long-term debt, net of current portion 54,931 56,110
Other liabilities 3,278 3,294
Total Liabilities 79,887 79,799
Stockholders’ Equity:
Preferred stock 1 1
Common and non-voting common stock 56 56
Additional paid-in capital 943,453 942,307
Accumulated other comprehensive loss (2,370 ) (2,370 )
Accumulated deficit (745,629 ) (720,214 )
Total Pacific Ethanol, Inc. stockholders’ equity 195,511 219,780
Total Liabilities and Stockholders’ Equity $ 275,398 $ 299,579

Three Months Ended
March 31,

2020 2019
Management fees from subsidiaries $ 3,253 $ 3,330
Selling, general and administrative expenses 5,377 4,729
Loss from operations (2,124 ) (1,399 )
Fair value adjustments 673 —
Interest income 1,042 1,159
Interest expense (2,640 ) (2,456 )
Loss before benefit for income taxes (3,049 ) (2,696 )
Benefit for income taxes — —
Loss before equity in losses of subsidiaries (3,049 ) (2,696 )
Equity in losses of subsidiaries (22,051 ) (10,194 )
Consolidated net loss $ (25,100 ) $ (12,890 )
ASSETS
March 31, 2021

December 31,
2020

Current Assets:
Cash and cash equivalents $ 16,534 $ 25,632
Receivables from subsidiaries 16,412 15,548
Other current assets 2,188 1,836
Total current assets 35,134 43,016

Property and equipment, net 125 142
Other Assets:
Investments in subsidiaries 257,547 246,518
Alto West, LLC receivable 42,649 42,649
Right of use operating lease assets, net 2,915 2,985
Other assets 1,087 1,088
Total other assets 304,198 293,240
Total Assets $ 339,457 $ 336,398
Current Liabilities:
Accounts payable and accrued liabilities $ 4,961 $ 2,001
Accrued Alto Op Co. purchase 3,829 3,829
Current portion of long-term debt 20,001 25,533
Other current liabilities 394 473
Total current liabilities 29,185 31,836

Long-term debt, net of current portion 5,665 5,564
Other liabilities 2,925 2,763
Total Liabilities 37,775 40,163
Stockholders’ Equity:
Preferred stock 1 1
Common and non-voting common stock 73 72
Additional paid-in capital 1,037,718 1,036,638
Accumulated other comprehensive loss (3,878 ) (3,878 )
Accumulated deficit (732,232 ) (736,598 )
Total Alto Ingredients, Inc. stockholders’ equity 301,682 296,235
Total Liabilities and Stockholders’ Equity $ 339,457 $ 336,398

~~-15-~~-16-

Three Months Ended
March 31,

2021

2020

Management fees from subsidiaries $ 2,526 $ 3,253
Selling, general and administrative expenses 4,651 5,377
Loss from operations (2,125 ) (2,124 )
Fair value adjustments — 673
Interest expense, net (1,028 ) (1,598 )
Other income 807 —
Loss before benefit for income taxes (2,346 ) (3,049 )
Benefit for income taxes — —
Loss before equity in losses of subsidiaries (2,346 ) (3,049 )
Equity in income (losses) of subsidiaries 7,024 (24,107 )
Consolidated net income (loss) $ 4,678 $ (27,156 )

For the Three Months
Ended March 31,
For the Three Months Ended
March 31,
2020 2019 2021 2020
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
Consolidated net income (loss) $ 4,678 $ (27,156 )
Adjustments to reconcile net income (loss) to cash used in operating activities:
Equity in (income) losses of subsidiaries (7,024 ) 24,107
Fair value adjustments (673 ) — — (673 )
Depreciation 33 75 17 33
Amortization (accretion) of debt discount (premium) (57 ) 178 101 (57 )
Changes in operating assets and liabilities:
Receivables from subsidiaries 123 1,778 (864 ) 123
Other assets 29 (264 ) (281 ) 29
Accounts payable and accrued expenses — 45 (765 ) —
Accounts payable with subsidiaries 2,235 797 110 2,235
Net cash used in operating activities $ (1,359 ) $ (87 ) $ (4,028 ) $ (1,359 )
Investing Activities:
Additions to property and equipment $ — $ — $ — $ —
Net cash used in investing activities $ — $ — $ — $ —
Financing Activities:
Proceeds from issuances of common stock $ 282 $ 3,670 $ 462 $ 282
Proceeds from plant receivable 5,813 — — 5,813
Payments on senior notes — (3,748 ) (5,532 ) —
Preferred stock dividend payments — (312 ) — —
Net cash provided by (used in) financing activities $ 6,095 $ (390 ) $ (5,070 ) $ 6,095
Net increase (decrease) in cash and cash equivalents 4,736 (477 ) (9,098 ) 4,736
Cash and cash equivalents at beginning of period 4,985 6,759 25,632 4,985
Cash and cash equivalents at end of period $ 9,721 $ 6,282 $ 16,534 $ 9,721
12. SUBSEQUENT EVENT.
Agreement to sell Madera facility – On April 23, 2021, the Company entered into an asset purchase agreement with Seaboard Energy California, LLC, for the purchase and sale of the Company’s Madera, California production facility for total consideration of $28.3 million, comprised of $19.5 million in cash and $8.8 million in assumption of liabilities. The Company closed the sale on May 14, 2021, and using net cash proceeds, repaid $19.3 million on its parent notes payable.

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

● fluctuations in the market ~~price~~prices of ~~ethanol~~alcohols and ~~its co-products;~~essential ingredients;

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

● the projected growth or contraction in the ~~ethanol~~alcohol and ~~co-product~~essential ingredients 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.

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.

Recent Developments

On ~~February 28, 2020,~~April 23, 2021, we entered into ~~a membership interest~~an asset purchase agreement with ~~Aurora Cooperative Elevator Company, or ACEC, to sell~~Seaboard Energy California, LLC, for the purchase and sale of our ~~73.93% ownership interest in Pacific Aurora, LLC, or Pacific Aurora, to ACEC~~Madera, California production facility for total consideration of ~~$52.8~~$28.3 million, ~~subject to certain working capital adjustments, payable~~comprised of $19.5 million in cash and ~~$16.5~~$8.8 million in ~~ACEC promissory notes. ACEC owned the 26.07% balance~~assumption of ~~ownership interests in Pacific Aurora.~~
~~On April 15, 2020, we~~liabilities. We closed the ~~sale of our ownership interest in Pacific Aurora~~transaction on May 14, 2021, and ~~received total consideration of $52.8 million, subject to certain working capital adjustments, resulting in cash~~with the net proceeds, ~~of $20.2 million and the balance of $16.5~~repaid $19.3 million in ~~ACEC promissory notes. Approximately $14.5 million of the net cash proceeds was used to repay~~ principal on our ~~term debt.~~senior notes.

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Overview

We are a leading producer and marketer of ~~low-carbon renewable fuels~~specialty alcohols and essential ingredients, and the largest producer of specialty alcohols in the United ~~States.~~States based on annualized volumes.
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We operate ~~seven strategically-located~~six alcohol production facilities. ~~Four~~Three of our ~~plants~~production facilities are located in the Midwestern state of Illinois and three of our facilities are located in the Western states of California, Oregon and ~~Idaho, and three of our plants~~Idaho. Our facility in California is held-for-sale as we are ~~located~~ in the ~~Midwestern state~~process of ~~Illinois.~~marketing the Stockton facility for sale. We ~~are the seventh largest producer of ethanol in the United States based on annualized volumes. Our plants~~ have ~~a combined~~an annual alcohol production capacity of ~~450~~410 million ~~gallons per year.~~gallons. We market all of the ~~ethanol, specialty~~ alcohols ~~and co-products~~ produced at our ~~plants~~facilities as well as fuel-grade ethanol produced by third parties. In ~~2019,~~2020, we marketed ~~nearly 1.0 billion~~over 500 million gallons combined of our own alcohols as well as fuel-grade ethanol produced by third parties, and nearly ~~3.0~~1.5 million tons of ~~co-products~~essential ingredients on a dry matter basis. Our business consists of three reportable segments: two ~~operating segments: a~~ production ~~segment~~segments and a marketing segment.
We report our financial and operating performance in three segments: (1) marketing and distribution, which includes marketing and merchant trading for Company-produced alcohols and essential ingredients on an aggregated basis, and third party fuel-grade ethanol (2) Pekin production, which includes the production and sale of alcohols and essential ingredients produced at our Pekin, Illinois campus, and (3) Other production, which includes the production and sale of fuel-grade ethanol and essential ingredients produced at all of our other production facilities on an aggregate basis, none of which are individually so significant as to be considered a reportable segment.

Our mission is to beexpand our business as a leading 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 specialty alcohol 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.
Production Segments

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

We produce ~~ethanol, specialty~~our alcohols and ~~co-products~~essential ingredients at our production facilities described below. Our ~~plants~~production facilities located in the Midwest are in the heart of the Corn Belt, benefit from low-cost and abundant feedstock and enjoy logistical advantages that enable us to provide our products to both domestic and international markets via truck, rail or barge. Our production facilities located on the West Coast are near their respective fuel and feed customers, offering significant timing, transportation cost and logistical advantages. 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%~~64% of our estimated maximum annual production capacity. Our Magic Valley and Stockton facilities are currently idled. As market conditions change, we may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

~~Facility Name~~ ~~Facility Location~~ ~~Estimated Annual Capacity~~
~~(gallons)~~
~~Magic Valley~~ ~~Burley, ID~~ ~~60,000,000~~
~~Columbia~~ ~~Boardman, OR~~ ~~40,000,000~~
~~Stockton~~ ~~Stockton, CA~~ ~~60,000,000~~
~~Madera~~ ~~Madera, CA~~ ~~40,000,000~~
~~Pekin Wet~~ ~~Pekin, IL~~ ~~100,000,000~~
~~Pekin Dry~~ ~~Pekin, IL~~ ~~60,000,000~~
~~Pekin ICP~~ ~~Pekin, IL~~ ~~90,000,000~~
Annual Production Capacity
(estimated, in gallons)
Production Facility Location Fuel-Grade Ethanol Specialty Alcohol
Pekin Campus Pekin, IL 110,000,000 140,000,000
Magic Valley Burley, ID 60,000,000 —
Columbia Boardman, OR 40,000,000 —
Stockton Stockton, CA 60,000,000 —

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.
~~-18-~~
Marketing Segment
We market ~~ethanol, specialty~~all of the alcohols and ~~co-products produced by~~essential ingredients we produce at our ~~facilities and~~facilities. We also market fuel-grade ethanol produced by third parties.
We have extensive and long-standing customer relationships, both domestic and international, for our specialty alcohols and essential ingredients. These customers include producers and distributors of ingredients for cosmetics, sanitizers and related products, distilled spirits producers, food products manufacturers, producers of personal health/consumer health and personal care hygiene products, and global trading firms.
Our fuel-grade ethanol customers are located throughout the Western and Midwestern United ~~States. 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. 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.

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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.~~production facilities. 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.

Current Initiatives and Outlook

~~In the~~We had a solid first quarter, selling 19 million gallons of ~~2020, we experienced an acute negative margin environment resulting from continued excess ethanol supplies compounded by plummeting demand from~~specialty alcohols through a combination of contracted volumes, spot sales and exports. The first quarter also represented our fourth consecutive quarter of gross profit, reflecting the ~~impact~~benefits of our new business focus on specialty alcohols and essential ingredients. Our new business focus is more sustainable and profitable than our prior focus on fuel-grade ethanol.
We are now the ~~coronavirus pandemic. The effects~~largest producer of ~~the pandemic, including stay-at-home orders, significantly reduced ethanol demand by up to 50% or more~~specialty alcohols 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.
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 productionUnited States based on ~~higher demand and improving margins. Since early May, demand has improved by more than 20% and industry ethanol inventories~~annualized volumes. We have ~~declined.~~
Our ICP production facility 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 our results for the second quarter.
~~United States ethanol exports were strong in the first quarter with over 500~~410 million gallons exported, representing a 30% increase over the comparable period in 2019. Although exports have slowed thus far in the second quarter due to reduced demand caused by the coronavirus pandemic, we expect exports to rebound as countries reopen their economies. China is the first country to emerge from the most significant effects of the coronavirus pandemic, and we are optimistic that China may step in as a significant buyer of United States ethanol as part of China’s phase-one trade deal with the United States.
The Environmental Protection Agency, or EPA, has elected not to appeal a 10th Circuit federal court decision limiting small refinery exemptions from the national Renewable Fuel Standard, or RFS. While 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 gallons of annual ~~demand for renewable fuels once~~production capacity, of which approximately 140 million gallons, or 34%, is specialty alcohols and the ~~industry recovers from the coronavirus pandemic.~~
balance is fuel-grade ethanol. We ~~continue to pursue a number~~are currently operating production facilities with 290 million gallons of ~~strategic initiatives focused on the sale~~annual capacity, of ~~additional production assets, a reduction~~which nearly 50% is specialty alcohols. All of our ~~debt levels, a strengthening of our cash~~operating facilities are running at break-even or better on an earnings before interest, taxes, depreciation and liquidity position, and opportunities for strategic partnerships and capital raising activities, positioning us to optimize our business performance. Our most significant challenge in meeting these objectives would be a sustained adverse margin environment. See “-Liquidity and Capital Resources”.amortization basis.

We remain ~~focused~~ on ~~implementing initiatives~~track for sales of our specialty alcohols to contribute a minimum of $60 million in gross profit for the full year based on 70 million gallons of specialty alcohols contracted in the fall of 2020 at fixed volumes and ~~investing~~prices. Many variables could materially impact our results, including export conditions, the ability of our customers to take all of their contracted volumes for 2021, market demand for sanitizers and disinfectants, our ability to timely sell our Stockton, California production facility, and fuel-grade ethanol crush margins. We are optimistic that we can add additional contracted specialty alcohol volumes in 2022 and future years, improving utilization over time from our ~~assets~~expanded specialty alcohol production capacity and our ISO 9001, ICH Q7 and EXCiPACT certifications.
As noted above, we have completed the sale of our idled fuel-grade ethanol production facility in Madera, California for total consideration of $28.3 million. We expect to ~~reduce~~save approximately $0.7 million per quarter in interest expense and approximately $0.4 million per quarter in carrying costs ~~both~~associated with the idled facility.
We have capital improvement projects totaling $18.0 million in process or scheduled for 2021. We expect these projects to expand revenue and increase efficiencies and plant reliability. For example, we are increasing our yeast facility’s annual production capacity by approximately 15%. We will also have the ability to further expand production of even higher value yeast derivatives with similar payback profiles. In addition, we are upgrading our feed dryers at ~~the operating and corporate levels; further diversifying~~ our ~~sales through additional high-protein animal~~Pekin Campus that will produce even higher value feed and ~~high-quality alcohol products; improving~~improve overall plant efficiency and reliability. These two projects are scheduled for completion by the third quarter with an expected payback in less than two years, or approximately $5.0 million in additional annual earnings before interest, taxes, depreciation and amortization.
Our Pekin Campus sits on the Mt. Simon sandstone formation, considered one of the most significant potential carbon storage resources in the United States. As a member of the Carbon Capture Coalition, we are actively engaged in discussions to develop a carbon capture and sequestration program at our Pekin site, which generates over 600,000 tons of CO₂ annually, and expect to be an active player in the carbon capture space.
Finally, among many other projects under development is our plan to expand protein production at our dry-mill production facilities, which collectively represent 250 million gallons of annual production capacity. We believe the economics of expanded protein production are compelling and would expect to achieve protein concentrations in excess of 50% and an improvement in corn oil production by 50%.
Over the past twelve months, we have improved operations and our production ~~yields~~footprint, and ~~other operating efficiencies;~~reduced controllable expenses and ~~reducing~~our overall cost of capital, to build a strong foundation for the ~~carbon intensity of the ethanol we produce. Overall, we remain confident~~future which will enable us to aggressively pursue organic opportunities to reinvest in ~~the compelling cost, octane, carbon and health benefits of ethanol, and its long-term demand~~quality, proven high-value projects, as ~~a valuable transportation fuel.~~well as pursue accretive strategic acquisitions.

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Critical Accounting Policies

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.~~2020.
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Results of Operations

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:

Three Months Ended
March 31, Percentage
2020 2019 Change
Production gallons sold (in millions) 122.5 116.9 4.8 %
Third party gallons sold (in millions) 62.4 94.9 (34.2 )%
Total gallons sold (in millions) 184.9 211.8 (12.7 )%

Total gallons produced (in millions) 116.2 122.5 (5.1 )%
Production capacity utilization 77 % 82 % (6.1 )%
Average sales price per gallon $ 1.51 $ 1.53 (1.3 )%
Corn cost per bushel—CBOT equivalent $ 3.79 $ 3.73 1.6 %
Average basis⁽¹⁾ 0.44 0.38 15.8 %
Delivered cost of corn $ 4.23 $ 4.11 2.9 %

Total co-product tons sold (in thousands) 671.9 684.1 (1.8 )%
Co-product revenues as % of delivered cost of corn⁽²⁾ 37.0 % 38.8 % (4.6 )%

Average CBOT ethanol price per gallon $ 1.24 $ 1.32 (6.1 )%
Average CBOT corn price per bushel $ 3.74 $ 3.73 0.3 %
Three Months Ended
March 31, Percentage
2021 2020 Change
Fuel-grade ethanol production gallons sold (in millions) 39.0 100.2 (61.1 )%
Specialty alcohol production gallons sold (in millions) 19.0 22.3 (14.8 )%
Third party fuel-grade ethanol gallons sold (in millions) 54.0 62.4 (13.5 )%
Total gallons sold (in millions) 112.0 184.9 (39.4 )%

Total gallons produced (in millions) 58.0 116.2 (50.1 )%
Production capacity utilization 52 % 77 % (32.5 )%

Average sales price per gallon $ 1.94 $ 1.51 28.5 %

Corn cost per bushel—CBOT equivalent $ 4.98 $ 3.79 31.4 %
Average basis⁽¹⁾ 0.29 0.44 (34.1 )%
Delivered cost of corn $ 5.27 $ 4.23 24.6 %

Total essential ingredients tons sold (in thousands) 276.9 671.9 (58.8 )%
Essential ingredients revenues as % of delivered cost of corn⁽²⁾ 40.0 % 37.0 % 8.1 %

Average CBOT ethanol price per gallon $ 1.60 $ 1.24 29.0 %
Average CBOT corn price per bushel $ 5.40 $ 3.74 44.4 %

(1) Corn basis represents the difference between the immediate cash price of delivered corn and the future price of corn for Chicago delivery.
(2) ~~Co-product~~Essential ingredients revenues as a percentage of delivered cost of corn shows our yield based on sales of ~~co-products,~~essential ingredients, including ~~WDG~~wet distillers grains and corn oil, generated from ~~ethanol~~alcohol we produced.

Net Sales, Cost of Goods Sold and Gross Profit (Loss)

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):

Three Months Ended
March 31,
Change in

Three Months Ended
March 31,
Change in 2021 2020 Dollars Percent
2020 2019 Dollars Percent
Net sales $ 311,404 $ 355,803 $ (44,399 ) (12.5 )% $ 218,734 $ 311,404 $ (92,670 ) (29.8 )%
Cost of goods sold 324,294 358,092 (33,798 ) (9.4 )% 204,897 324,294 (119,397 ) (36.8 )%
Gross loss $ (12,890 ) $ (2,289 ) $ (10,601 ) 463.1 %
Gross profit (loss) $ 13,837 $ (12,890 ) $ 26,727
NM*

Percentage of net sales (4.1 )% (0.6 )% 6.3 % (4.1 )%
* Not meaningful

Net Sales

The decrease in our consolidated net sales for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019~~2020 was primarily due to ~~both~~ a decrease in our total ~~ethanol~~ gallons sold, ~~and a decrease~~partially offset by an increase in our average ~~ethanol~~ sales price per gallon.

We
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Our production gallons sold ~~fewer third party gallons~~ and ~~co-products~~our volume of essential ingredients sold declined for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019, but~~2020. Our third-party gallons sold ~~more~~also declined. Our production gallons ~~on a period-over-period comparison. Our production capacity utilization nevertheless~~and essential ingredients sold declined primarily due to an ~~average 77% for~~intentional reduction in our production of fuel-grade ethanol due to adverse market conditions as well as the ~~three months ended March 31, 2020 compared to 82% for the same period~~sale of our Nebraska facilities in ~~2019. For the three months ended March 31, 2020,~~April 2020. Our third-party gallons sold declined as we focused our efforts on selling our own ~~production gallons and did not source third party gallons in typical volumes due to reduced demand from the effects of the coronavirus pandemic on the transportation fuels sector.~~fuel-grade ethanol production.
~~-20-~~
On a consolidated basis, our average sales price per gallon ~~decreased 1.3%~~increased 28.5% to ~~$1.51~~$1.94 for the three months ended March 31, ~~2020~~2021 as compared to ~~our average sales price per gallon of $1.53~~$1.51 for the same period in ~~2019.~~2020. The average Chicago Board of Trade, or CBOT, fuel-grade ethanol price per gallon, ~~decreased 6.1%~~increased 29.0% to ~~$1.24~~$1.60 for the three months ended March 31, ~~2020~~2021 as compared to ~~an average CBOT sales price per gallon of $1.32~~$1.24 for the same period in ~~2019.~~2020.

~~Production~~Marketing Segment

Net sales of fuel-grade ethanol from our ~~production~~marketing segment, ~~increased~~excluding intersegment sales, decreased by ~~$7.3~~$0.5 million, or 4%1%, to ~~$186.7~~$57.4 million for the three months ended March 31, ~~2020~~2021 as compared to ~~$179.4~~$57.9 million for the same period in ~~2019.~~ 2020.
Our ~~total~~ volume of ~~production~~third party fuel-grade ethanol gallons sold ~~increased~~reported gross by ~~5.6~~our marketing segment decreased by 7.2 million gallons, or 5%21%, to ~~122.5~~26.7 million gallons for the three months ended March 31, ~~2020~~2021 as compared to ~~116.9~~33.9 million gallons for the same period in ~~2019. Our production~~2020. At our marketing segment’s average sales price per gallon ~~declined 1% to $1.52~~of $2.14 for the three months ended March 31, ~~2020~~2021, we generated $15.3 million less in net sales from our marketing segment from the 7.2 million fewer gallons of third-party fuel-grade ethanol sold gross in the three months ended March 31, 2021 as compared to the same period in 2020.
Our volume of third party fuel-grade ethanol gallons sold reported net by our marketing segment decreased by 1.2 million gallons, or 4%, to 27.3 million gallons for the three months ended March 31, 2021 as compared to 28.5 million gallons for the same period in 2020. The decrease in third-party fuel-grade ethanol gallons sold reported net reduced net sales by less than $0.1 million.
The $0.44 per gallon, or 26%, increase in our marketing segment’s average sales price per gallon for the three months ended March 31, 2021 as compared to the same period in 2020 resulted in a $14.8 million increase in our net sales from third-party fuel-grade ethanol sold by our marketing segment.
Pekin Campus Production Segment
Net sales of alcohol from our Pekin Campus production segment increased by $11.0 million, or 13%, to $95.1 million for the three months ended March 31, 2021 as compared to $84.1 million for the same period in 2020. Our total volume of production gallons sold decreased by 7.4 million gallons, or 13%, to 50.6 million gallons for the three months ended March 31, 2021 as compared to 58.0 million gallons for the same period in 2020. At our Pekin Campus production segment’s average sales price per gallon of ~~$1.53~~$1.88 for the three months ended March 31, 2021, we generated $13.9 million less in net sales from our Pekin Campus production segment from the 7.4 million fewer gallons of alcohol sold in the three months ended March 31, 2021 as compared to the same period in 2020. The increase of $0.43, or 30%, in our Pekin Campus production segment’s average sales price per gallon in the three months ended March 31, 2021 as compared to the same period in 2020 improved our net sales from our Pekin Campus production segment by $24.9 million.
Net sales of essential ingredients increased $5.2 million, or 13%, to $45.1 million for the three months ended March 31, 2021 as compared to $39.9 million for the same period in ~~2019.~~2020. Our total volume of essential ingredients sold decreased by 27,000 tons, or 11%, to 211,000 tons for the three months ended March 31, 2021 from 238,000 tons for the same period in 2020. At our average sales price per ton of $213.18 for the three months ended March 31, 2021, we generated $5.6 million less in net sales from the 27,000 fewer tons of essential ingredients sold in the three months ended March 31, 2021 as compared to the same period in 2020. The increase of $45.59, or 27%, in our average sales price per ton for the three months ended March 31, 2021 as compared to the same period in 2020 increased our net sales from our Pekin Campus production segment by $10.8 million.
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Other Production Segment
Net sales of alcohol from our other production segment decreased by $83.3 million, or 84%, to $16.0 million for the three months ended March 31, 2021 as compared to $99.3 million for the same period in 2020. Our total volume of gallons sold decreased by 57.1 million gallons, or 89%, to 7.4 million gallons for the three months ended March 31, 2021 as compared to 64.5 million gallons for the same period in 2020. At our other production segment’s average sales price per gallon of ~~$1.52~~$2.16 for the three months ended March 31, ~~2020,~~2021, we generated ~~$8.5~~$123.2 million less in ~~additional~~ net sales from our other production segment from the ~~5.6~~57.1 million ~~additional~~fewer gallons of ~~produced ethanol~~alcohol sold in the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019.~~2020. The ~~decline~~increase of ~~$0.01~~$0.62, or 40%, in our other production segment’s average sales price per gallon for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019 reduced~~2020 improved our net sales ~~of ethanol~~ from our other production segment by ~~$1.2~~$39.9 million.

Net sales of ~~co-products remained flat at $68.8~~essential ingredients decreased $25.1 million, or 83%, to $5.1 million for the three months ended March 31, ~~2020 and 2019.~~2021 as compared to $30.2 million for the same period in 2020. Our total volume of ~~co-products~~essential ingredients sold ~~declined~~decreased by ~~12.2 thousand~~369,000 tons, or 2%85%, to ~~671.9 thousand~~65,000 tons for the three months ended March 31, ~~2020~~2021 from ~~684.1 thousand~~434,000 tons for the same period in ~~2019 and~~2020. At our average sales price per ton ~~increased~~of $78.64 for the three months ended March 31, 2021, we generated $29.0 million less in net sales from the 369,000 fewer tons of essential ingredients sold in the three months ended March 31, 2021 as compared to ~~$102.40~~the same period in 2020. The increase of $8.97, or 12.9%, in our average sales price per ton for the three months ended March 31, 2020 from $100.58 per ton for the same period in 2019. At our average sales price per ton of $102.40 for the three months ended March 31, 2020, we generated $1.2 million less in net sales from the 12.2 thousand ton decline in co-products sold in the three months ended March 31, 20202021 as compared to the same period in ~~2019. The increase in our average sales price per ton of $1.82, or 2%, for the three months ended March 31,~~ 2020 ~~as compared to the same period in 2019~~ increased our net sales ~~of co-products~~from our other production segment by ~~$1.2~~$3.9 million.

~~Marketing Segment~~Cost of Goods Sold and Gross Profit (Loss)

~~Net sales~~Our consolidated gross profit (loss) improved to a gross profit of ~~ethanol from our marketing segment, excluding intersegment sales, decreased by $51.7 million, or 48%, to $55.9~~$13.8 million for the three months ended March 31, ~~2020 as compared to $107.6~~2021 from a gross loss of $12.9 million for the same period in ~~2019. Our total volume~~2020, representing a gross profit margin of ~~ethanol gallons sold by our marketing segment declined by 26.9 million gallons, or 13%, to 184.9 million gallons~~6.3% for the three months ended March 31, ~~2020 as~~2021 compared to ~~211.8 million gallons~~negative 4.1% for the same period in ~~2019.~~2020. Our consolidated gross profit (loss) improved due to significantly higher margin sales of our specialty alcohols and a substantial reduction in negative margin sales of fuel-grade ethanol as we have idled a significant amount of our fuel-grade ethanol production.
Marketing Segment

Our marketing segment’s ~~average sales price per gallon remained flat at $1.64 for the three months ended March 31, 2020 and 2019.~~
~~At our marketing segment’s average sales price per gallon of $1.64 for the three months ended March 31, 2020, we generated $51.4~~gross profit improved by $2.0 million ~~less in net sales from our marketing segment from the 26.9 million fewer ethanol gallons sold in the three months ended March 31, 2020 as compared~~ to the same period in 2019. A slight decline of less than $0.01 in our average sales price per gallon for the three months ended March 31, 2020 as compared to the same period in 2019 reduced our net sales from third-party ethanol sold by our marketing segment by $0.3 million.
~~Cost of Goods Sold and Gross Loss~~
~~Our consolidated gross loss increased to $12.9~~$3.5 million for the three months ended March 31, ~~2020~~2021 as compared to ~~$2.3~~$1.5 million for the same period in ~~2019, representing~~2020. Of this improvement, $3.0 million is attributable to higher margins from sales of third-party fuel-grade ethanol, partially offset by a ~~negative gross profit margin~~reduction of ~~4.1%~~$1.0 million attributable to lower marketing volumes of third-party fuel-grade ethanol for the three months ended March 31, ~~2020~~2021 as compared to ~~a negative gross profit margin of 0.6% for~~ the same period in ~~2019. Our consolidated gross loss increased primarily due to significantly lower crush margins resulting from lower ethanol prices from reduced transportation fuel demand and higher corn costs.~~2020.

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Pekin Campus Production Segment

Our Pekin Campus production segment’s gross ~~loss from external sales increased~~profit improved by ~~$5.6~~$15.2 million to ~~$15.6~~a gross profit of $13.2 million for the three months ended March 31, ~~2020~~2021 as compared to ~~$10.0~~a gross loss of $2.0 million for the same period in ~~2019.~~2020. Of this ~~increase, $4.9~~improvement, $17.1 million is attributable to ~~lower~~increased margins ~~and $0.7~~from our specialty alcohols, partially offset by $1.9 million isless in gross profit attributable to ~~higher production~~decreased sales volumes ~~at negative margins for~~in the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019.~~2020.

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~~Marketing~~Other Production Segment

Our ~~marketing~~other production segment’s gross profit ~~declined~~improved by ~~$5.0~~$9.5 million to ~~$2.6~~a gross loss of $2.9 million for the three months ended March 31, ~~2020~~2021 as compared to ~~$7.6~~a gross loss of $12.4 million for the same period in ~~2019.~~2020. Of this ~~decline, $2.6~~improvement, $22.6 million is attributable to lower sales volumes at negative margins, ~~and $2.4~~partially offset by $13.1 million isin lower gross profit attributable to ~~lower third-party marketing volumes~~a negative margin environment for fuel-grade ethanol for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019, respectively.~~2020.

Selling, General and Administrative Expenses

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):

Three Months Ended
March 31,
Change in
Three Months Ended
March 31,
Change in
2020 2019 Dollars Percent 2021 2020 Dollars Percent
Selling, general and administrative expenses $ 10,212 $ 8,235 $ 1,977 24.0 % $ 7,014 $ 10,212 $ (3,198 ) (31.3 )%
Percentage of net sales 3.3 % 2.3 % 3.2 % 3.3 %

Our SG&A expenses ~~increased~~decreased for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019.~~2021. The ~~$2.0~~$3.2 million period over period ~~increase~~decrease in SG&A expenses is primarily due to ~~increased~~higher professional fees ~~related~~incurred in the three months ended March 31, 2021 in connection with our debt restructuring and asset sale efforts. We anticipate SG&A expenses of $20.0 million to ~~our strategic initiatives.~~$25.0 million for all of 2021.

Interest Expense, net
The following table presents our interest expense, net in dollars and as a percentage of net sales (in thousands, except percentages):

Three Months Ended
March 31,
Change in
2021 2020 Dollars Percent
Interest expense, net $ 1,885 $ 5,307 $ (3,422 ) (64.5 )%
Percentage of net sales 0.9 % 1.7 %
Our interest expense, net decreased for the three months ended March 31, 2021 as compared to the same period in 2021. The $3.4 million period over period decrease in interest expense, net is primarily due to lower average borrowings outstanding as a result of our significant principal payments on outstanding debt over the past year.
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Net ~~Loss~~Income (Loss) Available to Common Stockholders

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):

Three Months Ended
March 31,
Change in
Three Months Ended
March 31,
Change in
2020 2019 Dollars Percent 2021 2020 Dollars Percent
Net loss available to Common Stockholders $ 25,415 $ 13,202 $ 12,213 92.5 %
Net income (loss) available to Common Stockholders $ 4,366 $ (25,415 ) $ 29,781
NM

Percentage of net sales 8.2 % 3.7 % 2.0 % (8.2 )%

The increase in net ~~loss~~income available to common stockholders is primarily due to our higher gross ~~loss~~profit and ~~increased~~lower SG&A expenses ~~as discussed above,~~and interest expense, for the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019.~~2020.
~~-22-~~

Liquidity and Capital Resources

During the three months ended March 31, ~~2020,~~2021, we funded our operations primarily from ~~monetization of working capital,~~ cash generated by our operations, proceeds from lines of credit and cash on hand. These funds were also used to make payments ~~under~~on our term debt and 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~~expenditures. As of ~~assets and the satisfaction of liabilities~~March 31, 2021, we had $44.1 million in the normal course of business. We, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and 2019, and thus far into 2020, as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors, which are compounded by the impact of the coronavirus pandemic, resulted and continue to result in negative operating margins, significantly lower cash flow from operations and substantial net losses. In response to the low-margin environment, we have reduced production and 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,~~cash equivalents and ~~opportunities~~$4.7 million available 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.
borrowing under Kinergy’s operating line of credit. We ~~do not expect to~~believe we 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 by more than 60% due to market conditions and in an effort to conserve capital, and are currently operating at 50% capacity. If margins do not promptly and sustainably improvefor the next twelve months from ~~current levels, we may be forced to further curtail or cease production at one or more of our operating facilities. See “Risk Factors”.~~
Our current available capital resources consist of cash on hand and amounts available for borrowing under our credit facilities. We expect that our future available capital resources will consist primarily of our current cash balances, any availability under our lines of credit, any cash generated from operations, net cash proceeds from any sale of our production assets and net cash proceeds from any equity sales or debt financing transactions.
~~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.~~report.

~~-23-~~
Quantitative ~~Quarter-End~~Year-End Liquidity Status

We believe that the following amounts provide insight into our liquidity and capital resources. The following selected financial information should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report, and the other sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report (dollars in thousands):.

March 31,
2020 December 31,
2019 Change March 31, 2021 December 31, 2020 Change
Cash and cash equivalents $ 26,779 $ 18,997 41.0 % $ 44,146 $ 47,667 (7.4 )%
Current assets $ 199,297 $ 232,064 (14.1 )% $ 241,588 $ 214,046 12.9 %
Property and equipment, net $ 324,814 $ 332,526 (2.3 )% $ 226,183 $ 229,486 (1.4 )%
Current liabilities $ 188,175 $ 160,398 17.3 % $ 112,750 $ 86,927 29.7 %
Long-term debt, net of current portion $ 139,339 $ 180,795 (22.9 )%
Long-term debt, noncurrent portion $ 64,396 $ 71,807 (10.3 )%
Working capital $ 11,122 $ 71,666 (84.5 )% $ 128,838 $ 127,119 1.4 %
Working capital ratio 1.06 1.45 (26.9 )% 2.14 2.46 (13.0 )%

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Restricted Net Assets

At March 31, ~~2020,~~2021, we had approximately ~~$174.9~~$231.9 million of net assets at our subsidiaries that were not available to be transferred to ~~Pacific Ethanol,~~Alto Ingredients, Inc. in the form of dividends, distributions, loans or advances due to restrictions contained in the credit facilities of ~~our~~the subsidiaries.

Changes in Working Capital and Cash Flows

~~Our working~~Working capital ~~declined~~improved to ~~$11.1~~$128.8 million at March 31, ~~2020~~2021 from ~~$71.7~~$127.1 million at December 31, ~~2019~~2020 as a result of ~~a decrease~~an increase of ~~$32.8~~$27.5 million in current assets, ~~and~~partially offset by an increase of ~~$27.8~~$25.8 million in current liabilities.

Current assets ~~decreased~~increased primarily due to ~~a decrease~~an increase in accounts receivable and ~~inventories,~~higher inventory values due to increased commodity prices for both alcohol and corn from the ~~timing of collections and lower sales and production near quarter-end.~~prior period.

Our current liabilities increased primarily due to an increase in ~~liabilities held-for-sale associated with the pending sale~~accounts payable due to timing of ~~our interest~~payments and an increase in ~~Pacific Aurora, which closed after quarter-end.~~current portion of long-term debt as amounts due within one year increased.

Our cash and cash equivalents ~~increased~~declined by ~~$7.8~~$3.5 million atprimarily due to $4.1 million in cash used in our operating activities and $4.4 million in cash used in our investing activities, partially offset by $5.0 million in cash provided by our financing activities.
Cash used in our Operating Activities
We used $4.1 million in cash in our operating activities during the three months ended March 31, ~~2020~~2021, as compared ~~to December 31, 2019 primarily due~~ to $26.9 million in cash provided by our ~~operating activities, partially offset by $17.9 million in cash used in our financing activities to repay amounts owed under Kinergy’s credit facility.~~
~~Cash provided by our Operating Activities~~
~~Cash provided by our operating activities increased by $41.9 million~~operations for ~~the three months ended March 31, 2020, as compared to~~ the same period in ~~2019. We generated $26.9 million of cash from our operating activities during the first quarter of~~ 2020. Specific factors that contributed to the ~~increase~~change in cash ~~provided by~~from our operating activities include:

● a decrease of ~~$32.0~~$35.1 million related to higher accounts receivable ~~primarily~~balances due to the timing of ~~collections;~~payments
● a decrease of ~~$15.8~~$28.1 million related to higher inventories ~~as we reduced production near the end of the period;~~due to increased commodity prices; and
● ~~an increase~~a decrease of ~~$9.4~~$10.5 million ~~related~~from losses on derivative instruments due to ~~liabilities held-for-sale.~~the recent rise in corn prices.

These amounts were partially offset by:

● an increase of ~~$13.0~~$31.8 million in our consolidated net ~~loss;~~income due to higher margins from our sales of specialty alcohols; and
● ~~a decrease~~an increase of ~~$2.4 million in depreciation expense; and~~
● ~~a decrease of $5.5~~$21.9 million related to ~~prepaid expenses and other assets~~accounts payable due to ~~the~~ timing of payments.

~~-24-~~
Cash used in our Investing Activities

~~Cash~~We used $4.4 million of cash in our investing activities ~~remained relatively flat at $1.2~~for the three months ended March 31, 2021 for additions to property and equipment resulting from our capital expenditure projects.
Cash provided by our Financing Activities
Cash provided by our financing activities was $5.0 million for the three months ended March 31, ~~2020. We continued to reduce spending on capital projects during the low margin environment.~~
~~Cash used in our Financing Activities~~
~~Cash used in our financing activities increased by $29.1~~2021, which reflected net proceeds of $13.0 million for the three months ended March 31, 2020 as compared to the same period in 2019. The increase in cash used in our financing activities is primarily due to a $31.3 million change in our net borrowings underfrom Kinergy’s operating line of credit ~~as we repaid amounts owed under the facility,~~ and ~~a reduction of $3.4~~$0.5 million in ~~sales of~~stock option exercises, partially offset by $8.5 million in principal payments on our ~~common stock in the first quarter of 2020 as compared to the same period in 2019.~~other indebtedness.

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~~Kinergy~~
Kinergy’s Operating Line of Credit

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

For all monthly periods in which excess borrowing availability falls below a specified level, Kinergy and ~~PAP~~Alto Nutrients 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~~The obligations of Kinergy and ~~PAP’s obligations~~Alto Nutrients under the credit facility are secured by a first-priority security interest in all of their respective assets in favor of the lender.
We believe Kinergy and ~~PAP~~Alto Nutrients are in compliance with the fixed-charge coverage ratio covenant as of the filing of this ~~covenant.~~report. The following table ~~summarizes Kinergy’s~~sets forth the fixed-charge coverage ratio financial ~~covenants~~covenant and the actual results for the periods presented:

Three Months Ended
March 31, Years Ended
December 31,
Three Months Ended
March 31, Years Ended
December 31, 2021 2020 2020 2019
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 7.71 4.05 5.35 5.71
Excess 2.05 14.35 3.71 17.06 5.71 2.05 3.35 3.71

~~Pacific Ethanol~~Alto Ingredients, Inc. has guaranteed all of Kinergy’s obligations under the credit facility. As of March 31, ~~2020,~~2021, Kinergy had an outstanding balance of ~~$60.2~~$45.5 million ~~with no additional~~and $4.7 million of unused borrowing availability under the credit facility.

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Alto Pekin Credit Facilities

On December 15, 2016, ~~Pacific Ethanol~~Alto Pekin, LLC, or PEAlto Pekin, one of our indirect wholly-owned subsidiaries and the entity that holds two of our production facilities in Pekin, Illinois, entered into ~~term~~a Credit Agreement, or the Pekin Credit Agreement, with 1^st Farm Credit Services, PCA and ~~revolving credit facilities. PE~~CoBank, ACB, or CoBank. Under the terms of the Pekin Credit Agreement, Alto Pekin borrowed from 1^st Farm Credit Services $64.0 million under a term loan facility that matures on August 20, 2021, or the Pekin Term Loan, and up to $32.0 million under a revolving ~~credit~~term loan facility that matures on February 1, ~~2022.~~2022, or the Pekin Revolving Loan, and together with the Pekin Term Loan, the Pekin Credit Facility. The PE Pekin ~~credit facilities are~~Credit Facility is secured by a first-priority security interest in all of PEAlto 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 principal payment scheduled for August 20, 2019.

~~-26-~~-27-

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

● Interest accrues under the Pekin Credit Facility at an annual rate equal to the 30-day LIBOR plus 5.00%.
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.
● Alto Pekin is required to pay a monthly fee on any unused portion of the Pekin Revolving Loan at a rate of 0.75% per annum.
● Alto Pekin and Alto ICP, LLC, or ICP, one of our indirect wholly-owned subsidiaries and the entity that holds one of our production facilities in Pekin, Illinois, are collectively required to maintain working capital of not less than 50% of the combined outstanding revolving lines of credit, which was $27.0 million at March 31, 2021; and an annual debt service coverage ratio of not less than 1.25 to 1.00, in addition to various other affirmative and negative covenants.

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 madeNet proceeds arising from 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.
~~-27-~~
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~~production facility assets will ~~generally~~ be allocated 33/34/33% among Alto Pekin’s and ICP’s ~~lender and PE Pekin’s lender,~~lenders, collectively, ~~the selling security holders,~~our senior secured noteholders, and us, respectively. ~~Proceeds~~Net proceeds arising from the sale of any of our western production facility assets will ~~generally~~ be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among PEAlto Pekin’s ~~lender~~ and ICP’s ~~lender,~~lenders, collectively, ~~the selling security holders,~~our senior secured noteholders, and us, respectively.

PE Pekin’s lender also imposed cross-default terms such that, until PE Pekin’s lender and ICP’s lender receive $40.0 million, a default under the ICP credit agreement would constitute a default under the PE Pekin credit agreement. PE Pekin agreed to provide additional collateral security to support its obligations under the PE Pekin credit agreement, including second lien positions in our western plants, which will terminate and be released upon PE Pekin’s lender’s receipt of $40.0 million.
~~On December 29, 2019, PE Pekin agreed to amend the secured obligations under its security agreement to include PE Pekin’s unconditional guarantee~~As of the ~~payment~~filing of ~~up to an aggregate $40.0 million to satisfy~~this report, we believe we are in compliance with the ~~obligations of ICP to ICP’s lender under the ICP credit agreement.~~
~~On March 20, 2020, PE Pekin~~terms and its lender agreed to defer $1.0 million in aggregate interest payments due March 20, 2020 and April 20, 2020 until May 20, 2020. On that same date, we granted to the lender a security interest in all of our equity interests in our wholly-owned subsidiary, PE Op Co., which indirectly owns our plants located on the West Coast. We also entered into intercreditor agreements with our PE Pekin and ICP lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.
~~On April 15, 2020, upon the closing~~conditions of the ~~sale of our interests in Pacific Aurora, we repaid approximately $11.6 million in principal on our PE Pekin term debt.~~Notes.

ICP Credit Facilities

On September 15, 2017, ICP, Compeer Financial, PCA, or Compeer, and CoBank as agent, entered into ~~term and revolving credit facilities.~~a Credit Agreement, or the ICP Credit Agreement. Under the terms of the ICP Credit Agreement, ICP borrowed from Compeer $24.0 million under a term loan facility that matures on September 20, 2021, or the ICP Term Loan, and up to $18.0 million under a revolving ~~credit~~term loan facility that matures on September 1, ~~2022.~~2022, or the ICP Revolving Loan, and together with the ICP Term Loan, the ICP Credit Facility. The ICP ~~credit facilities are~~Credit Facility is secured by a first-priority security interest in all of ICP’s assets. ~~Interest accrues under the~~
The ICP ~~credit facilities at an annual rate equal to the 30-day LIBOR plus 3.75%, payable monthly.~~Credit Facility and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers among ICP, 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 theits lenders and their agent, certain 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.agreements are as follows:

● Interest accrues under the ICP Credit Facility at an annual rate equal to the 30-day LIBOR plus 3.75%.
On December 20, 2019, ICP amended its term and revolving credit facilities under which ICP’s lender granted waivers for certain ICP covenant defaults and replaced those covenants with new EBITDA and production volume covenants. ICP’s lender also imposed cross-default terms such that, until ICP’s lender and PE Pekin’s lender receive an aggregate of $40.0 million, a default under the PE Pekin credit agreement would constitute a default under the ICP credit agreement. ICP agreed to provide additional collateral security to support its obligations under the ICP credit agreement, including second lien positions in our western plants, which will terminate and be released upon ICP’s lender’s receipt of an aggregate of $40.0 million. ICP’s prior scheduled principal payment of $1.5 million, originally due on December 20, 2019, was deferred to the maturity date of September 20, 2021. Scheduled quarterly principal payments of $1.5 million will resume March 20, 2020.
● ICP is required to pay an annual nonrefundable commitment fee, calculated as 0.75% multiplied by the average daily positive difference between (i) the ICP Revolving Loan commitment (which may be reduced by ICP from time to time in increments of $0.5 million), minus (ii) the aggregate principal amounts outstanding under the ICP Revolving Loan.
● ICP and Alto Pekin are collectively required to maintain working capital of not less than 50% of the combined outstanding revolving lines of credit, which was $27.0 million at March 31, 2021; and an annual debt service coverage ratio of not less than 1.50 to 1.00, in addition to various other affirmative and negative covenants.

~~-28-~~-28-

~~Under~~Net proceeds arising from the ~~amendment, ICP, collectively with PE Pekin, agreed to pay the lenders an aggregate~~sale 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~~production facility assets will ~~generally~~ be allocated 33/34/33% among Alto Pekin’s and ICP’s ~~lender and PE Pekin’s lender,~~lenders, collectively, ~~the selling security holders,~~our senior secured noteholders, and us, respectively. ~~Proceeds~~Net proceeds arising from the sale of any of our western production facility assets will ~~generally~~ be allocated first to the senior secured noteholders up to $20.0 million and then allocated 33/34/33% among PEAlto Pekin’s ~~lender~~ and ICP’s ~~lender,~~lenders, collectively, ~~the selling security holders,~~our senior secured noteholders, and us, respectively.

~~On December 29, 2019, ICP agreed to amend the secured obligations under its security agreement to include ICP’s unconditional guarantee~~As of the ~~payment~~filing of ~~up to an aggregate $40.0 million to satisfy~~this report, we believe we are in compliance with the ~~obligations of PE Pekin to PE Pekin’s lender under the PE Pekin credit agreement.~~
~~On March 20, 2020, ICP~~terms 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 allconditions 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.~~Credit Facility.
~~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.~~

~~Pacific Ethanol, Inc.~~Senior Secured Notes ~~Payable~~

On December 12, 2016, we entered into a Note Purchase Agreement with five accredited ~~investors. On December 15, 2016, under the terms of the Note Purchase Agreement, we~~investors and 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~~investors and 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~~and collectively with the notes ~~accrued at an annual rate equal to (i)~~previously sold, 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.Notes. 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, whichNotes are secured by a first-priority security interest in ~~the~~all of our equity ~~interest held by Pacific Ethanol, Inc.~~interests in ~~PE Op.~~Alto Op Co.

The Notes and related agreements contain a variety of representations, warranties, covenants and events of default. Following a series of amendments and waivers with the holders of our Notes, or the senior secured noteholders, and their agent, certain terms of the agreements are as follows:
~~-29-~~

● The Notes mature on December 15, 2021.
● Payments due under the Notes rank senior to all other indebtedness of Alto Ingredients, Inc. other than permitted senior indebtedness.
● Interest on the Notes accrues at a rate of 15% per annum.
● Any voluntary prepayments must be made at 102% of the principal amount prepaid.

~~On December 16, 2019, we amended the notes~~The Notes also contain a variety of limitations, including a prohibition on parent company indebtedness; restrictions on redemption, repurchase or payment of any dividend or distribution in respect of our or our subsidiaries’ equity interests; restrictions on asset sales and other dispositions; and restrictions on our or our subsidiaries’ ability to 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 agreedissue equity for purposes other than to pay down a portion of the ~~December 15, 2019 interest payment 50% in cash and 50% in-kind through~~outstanding balance of the ~~issuance of an additional note in the principal amount equal thereto.~~Notes.

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.
OnIn 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 to the senior secured noteholders a ~~junior lien~~security interest in certain of its personal ~~property~~property. In addition, Alto Central granted to the senior secured noteholders ~~and PE Central granted~~ a ~~junior lien~~security interest in certain of its personal ~~property to the noteholders. PE~~property. Alto Central also pledged its equity interests in ~~Pacific Aurora, PE~~Alto Pekin and ICP in favor of the senior secured noteholders as additional collateral securing our obligations to the senior secured noteholders. ~~In addition, PE Op Co. and Pacific Ethanol West, LLC, which directly owns our plants located on~~Alto Op. Co also granted to the ~~West Coast, granted~~senior secured noteholders a security interest in certain of ~~their~~its personal ~~property to the noteholders.~~property. We and certain subsidiaries also entered into intercreditor agreements with ~~our PE Pekin~~the ICP’s and ~~ICP~~Alto Pekin’s lenders, and the agent for our senior secured noteholders, to address issues of priority and the allocation of proceeds from asset sales.

On May 14, 2021, in connection with the sale of our Madera, California fuel-grade ethanol production facility, we repaid $19.3 million in principal on these Notes.
As of the filing of this report, we believe we are in compliance with the terms and conditions of the Notes.
-29-
CARES Act Loans

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

Effects of Inflation

The impact of inflation was not significant to our financial condition or results of operations for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.
~~ITEM 3.~~ ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.
~~-30-~~
~~ITEM 4.~~ ~~CONTROLS AND PROCEDURES.~~
ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer 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 Executive Officer and Chief Financial Officer concluded as of March 31, ~~2020~~2021 that our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

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

Inherent Limitations on the Effectiveness of Controls

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

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

~~-31-~~-30-

PART II - OTHER INFORMATION
~~ITEM 1.~~ ~~LEGAL PROCEEDINGS.~~
ITEM 1. LEGAL PROCEEDINGS.

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible that the outcome of those legal proceedings, claims and litigation could adversely affect our quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not adversely affect in any material respect our financial position, results of operations or cash flows.
~~ITEM 1A.~~ ~~RISK FACTORS.~~
ITEM 1A. RISK FACTORS.

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,~~Alto Ingredients, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment.

Risks Related to our Business

~~There is substantial doubt as to our ability to continue as a going concern.~~
As a result of ethanol industry conditions that have negatively affected our business, we do not expect to have sufficient liquidity to meet our anticipated working capital, debt service and other liquidity needs unless we successfully restructure our debt, sell 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.
~~-32-~~
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. Many of these measures remain or have been curtailed only partially. 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~~general, would likely 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.

~~Our plant indebtedness exposes us~~Furthermore, to ~~many risks that~~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 ~~impact~~affect our ~~business,~~sales and marketing efforts, delay and lengthen our ~~business prospects,~~sales cycles, or create operational or other challenges, any of which could harm our ~~liquidity and our cash flows~~business and results of operations.

~~Our plants located in the Midwest have significant indebtedness. The terms~~In addition, if one or more of our ~~plant loans require amortizing payments~~employees or customers becomes ill from coronavirus and attributes their infection to us, including through exposure at one of ~~principal over~~our offices or production facilities, we could be subject to allegations of failure to adequately mitigate the ~~lives~~risk of exposure. Such allegations could harm our reputation and expose us to the ~~loans~~risks of litigation and ~~our borrowing availability under our plant credit facilities periodically and automatically declines through the maturity dates of those facilities. Our plant indebtedness could:~~
● make it more difficult to pay or refinance our debts as they become due during adverse economic and industry conditions because any decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled debt payments;
● limit our flexibility to pursue strategic opportunities or react to changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to our competitors who have less debt;
● require a substantial portion of our cash flows from operations to be used for debt service payments, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions, dividend payments and other general corporate purposes; and/or
● ~~limit our ability to procure additional financing for working capital or other purposes.~~
Our term loans and credit facilities also require compliance with numerous financial and other covenants. In addition, our plant indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.liability.

~~-33-~~-31-

Our ~~ability~~specialty alcohols business has benefitted significantly from the coronavirus pandemic due to ~~generate sufficient cash~~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 ~~make all principal~~the coronavirus pandemic and ~~interest payments when due, including a $25.5 million remaining balance~~any resulting oversupply of ~~a payment due~~specialty alcohols for sanitizers and disinfectants would also exert downward pressure on ~~September 30, 2020 under~~prices. Reduced demand and prices for our ~~PE Pekin~~specialty alcohols used in sanitizers and ~~ICP credit facilities, depends on~~disinfectants, or industry oversupply of those specialty alcohols, may materially and adversely affect our business, performance, which is subject to a variety of factors beyond our control, including the supply of and demand for ethanol and co-products, ethanol and co-product prices, the cost of key production inputs, and many other factors incident to the ethanol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations. Our failure to timely satisfy our debt obligations could have a material adverse effect on our business, business prospects, liquidity, cash flows and results of ~~operations.~~
~~We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our~~ operations and ~~impede us from expanding our business.~~liquidity.

We have incurred significant losses and negative operating cash flow in the past. For the three months ended March 31, 2020 and 2019, we incurred consolidated net losses of $27.2 million and $14.2 million, respectively. 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 future financing activities, if any, to fund all of the cash requirements of our business. Continued losses and negative operating cash flow may hamper our operations and impede us from expanding our business.
Our results of operations and our ability to operate at a profit 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.
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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 further suspend production, ofparticularly fuel-grade ethanol ~~distillers grains and other ethanol co-products~~production, at some or all of our ~~plants.~~facilities.
In addition, some of our fuel-grade ethanol marketing activities will likely be unprofitable in a market of generally declining prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of fuel-grade ethanol inventory for subsequent resale. Moreover, we procure much of our fuel-grade ethanol inventory outside of third-party marketing arrangements and therefore must buy fuel-grade ethanol at a price established at the time of purchase and sell fuel-grade ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of fuel-grade ethanol. As a result, our margins for fuel-grade ethanol sold in these transactions generally decline and may turn negative as the market price of fuel-grade ethanol declines.
We can provide no assurance that corn, natural gas or other production inputs can be purchased at or near current or any particular prices, or that our alcohols or essential ingredients will sell at or near current or any particular prices. Consequently, our results of operations and financial position may be adversely affected by increases in the prices of corn, natural gas and other production inputs or decreases in the prices of our alcohols and essential ingredients.

Increased ~~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.

We
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The prices of our alcohols and essential ingredients are impacted by competing third-party supplies of those products. For example, we believe that the most significant factor influencing the price of fuel-grade ethanol has been the substantial increase in ~~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 operating at below capacity, or owners of idled production facilities, will increase production levels, thereby resulting in more abundant fuel-grade ethanol supplies and inventories. ~~Any increase~~Increases in the supply of ~~ethanol~~alcohols and essential ingredients may not be commensurate with increases in ~~the~~ demand for ~~ethanol,~~alcohols and essential ingredients, thus leading to lower ~~ethanol~~ prices. ~~Also, demand~~Moreover, higher industry production levels in response to the coronavirus pandemic and any resulting oversupply of alcohols for ~~ethanol could be impaired due to a number~~sanitizers and disinfectants, and corresponding oversupply of factors, including regulatory developments and reduced United States gasoline consumption. Reduced gasoline consumption has occurred in the past and could occur in the future as a result of increased gasoline or oil prices or other factors such as increased automobile fuel efficiency.essential ingredient co-products, may also exert downward pressure on prices. Any of these outcomes could have a material adverse effect on our results of operations, cash flows and financial condition.

The ~~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 ethanol and the price of gasoline, which is in turn dependent upon the price of petroleum which itself is highly volatile and difficult to forecast. ~~For example,~~Our fuel-grade ethanol sales are tied to prevailing spot market prices rather than long-term, fixed-price contracts. Fuel-grade ethanol prices, as reported by the CBOT, ranged from ~~$0.86~~$0.81 to ~~$1.37~~$1.62 per gallon ~~for the three months ended March 31,~~in 2020 and from $1.25 to $1.70 per gallon in ~~2019 and from $1.20~~2019. In addition, even under longer-term, fixed-price contracts for our specialty alcohols, our customers may seek to ~~$1.53 per gallon~~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~~production facilities and other considerations related to production efficiencies, our ~~plants~~facilities 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~~fail to reliably supply the water, electricity and natural gas that our ~~plants~~production facilities need or may ~~not be able~~fail to supply those resources on acceptable terms. In the past, poor weather has caused disruptions in rail transportation, which slowed the delivery of fuel-grade ethanol by rail, the principle manner by which fuel-grade ethanol from our ~~plants~~facilities located in the Midwest is transported to market. In addition, in 2020, we 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,~~production facilities, any of which could have a material adverse effect on our business, results of operations and financial condition.
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Some of these operational hazards may also cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not fully cover the potential hazards described above or we may be unable to renew our insurance on commercially reasonable terms or at all.

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

In an attempt to partially offset the effects of volatility of ~~ethanol~~our product prices, ~~and~~in particular fuel-grade ethanol, 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.~~gasoline may adversely affect our results of operations, financial condition and liquidity.
~~Operational difficulties~~The industries in which we operate are extremely competitive. Many of our significant competitors have greater production and financial resources and could use their greater resources to gain market share at our ~~plants could negatively impact sales volumes and could cause us to incur substantial losses.~~expense.

~~Operations at~~The industries in which we operate are extremely competitive. Many of our ~~plants are subject~~significant competitors have substantially greater production and financial resources than we do. As a result, our competitors may be able to ~~labor disruptions, unscheduled downtimes~~compete more aggressively and sustain that competition over a longer period of time. Successful competition will require a continued high level of investment in facility maintenance. We may fail to anticipate or respond adequately to new industry developments and other ~~operational hazards inherent~~competitive pressures due to our limited resources relative to many significant competitors. This failure could reduce our competitiveness and cause a decline in ~~the ethanol production industry, including equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents~~market share, sales 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 orprofitability. Even if sufficient funds are available, we may not be able to ~~renew this insurance on commercially reasonable terms or at all.~~make the modifications and improvements necessary to compete successfully.

~~Moreover,~~We also face competition from international suppliers, particularly of fuel-grade ethanol, many of whom have cost structures substantially lower than ours. An increase in domestic or foreign competition could force us to reduce our ~~plants may not~~prices and take other steps to compete effectively, which could adversely affect our business, financial condition and results of operations.
We incur significant expenses to maintain and upgrade our production facilities and operating equipment, and any interruption in our operations would harm our operating performance.
We regularly incur significant expenses to maintain and upgrade our production facilities and operating equipment. The machines and equipment we use to produce our alcohols and manufacture our essential ingredients are complex, have many parts, and some operate on a continuous basis. We must perform routine equipment maintenance and must periodically replace a variety of parts such as ~~planned or expected. All of these~~motors, pumps, pipes and electrical parts. In addition, our production facilities ~~are designed~~require periodic shutdowns to ~~operate at or above~~perform major maintenance and upgrades. These scheduled shutdowns result in lower sales and increased costs in the periods during which a ~~specified production capacity. The operation of these facilities is~~shutdown occurs and ~~will be, however, subject to various uncertainties. As~~could result in unexpected operational issues in future periods as a result ~~these facilities may not produce ethanol, specialty alcohols~~of changes to equipment 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~~operational and ~~financial condition may be materially and adversely affected.~~mechanical processes made during shutdown.
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Risks Related to our Finances
We have incurred significant losses and negative operating cash flow in the past and we may incur losses and negative operating cash flow in the future, which may hamper our operations and impede us from expanding our business.
We have incurred significant losses and negative operating cash flow in the past. For the years ended December 31, 2020 and 2019, we incurred consolidated net losses of approximately $17.3 million and $101.3 million, respectively. For the three months ended March 31, 2021 and for the year ended December 31, 2019, we incurred negative operating cash flow of approximately $4.1 million and $23.4 million, respectively. We may incur losses and negative operating cash flow in the future. We expect to rely on cash on hand, cash, if any, generated from our operations, borrowing availability under our lines of credit and proceeds from our future financing activities, if any, to fund all of the cash requirements of our business. Additional losses and negative operating cash flow may hamper our operations and impede us from expanding our business.
Our indebtedness exposes us to many risks that could negatively impact our business, our business prospects, our liquidity and our cash flows and results of operations.

Our production facilities located in the Midwest have significant indebtedness. In addition, we have significant indebtedness under our senior secured notes issued at the parent-company level. The terms of our loans require amortizing payments of principal over the lives of the loans and our borrowing availability under our revolving credit facilities periodically and automatically declines through the maturity dates of those facilities. Our indebtedness could:
● make it more difficult to pay or refinance our debts as they become due during adverse economic and industry conditions because those conditions could result in insufficient cash flows from operations to make our scheduled debt payments;
● limit our flexibility to pursue strategic opportunities or react to changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to our competitors who have less debt;
● require a substantial portion of our cash flow from operations, if any, to be used for debt service payments, thereby reducing our ability to fund working capital, capital expenditures, new business ventures, dividend payments and other general corporate purposes; and/or
● limit our ability to procure additional financing for working capital or other purposes.
Our term loans and credit facilities also require compliance with numerous financial and other covenants, the violation of which could result in an acceleration of our indebtedness.
Much of our indebtedness bears interest at variable rates. An increase in prevailing interest rates would likewise increase our debt service obligations and could materially and adversely affect our cash flows and results of operations.
Our ability to generate sufficient cash to make all principal and interest payments when due depends on our business performance, which is subject to a variety of factors beyond our control, including the supply of and demand for our alcohols and other products, product prices, the cost of key production inputs, and many other factors incident to the alcohol production and marketing industry. We cannot provide any assurance that we will be able to timely satisfy such obligations.
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Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.
Federal and state income tax laws impose restrictions on our use of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership change occurs when stockholders owning 5% or more of a corporation entitled to use NOL or other loss carryforwards have increased their ownership by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months. Our ability to utilize our NOL and other loss carryforwards may be substantially limited. These limitations could result in increased future tax obligations, which could have a material adverse effect on our financial condition and results of operations.
Risks Related to Legal and Regulatory Matters
Future demand for fuel-grade ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel, any of which could negatively affect demand for fuel-grade ethanol and our results of operations.

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

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

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The United States fuel-grade ethanol industry is highly dependent upon ~~certain~~various federal and state ~~legislation and regulation~~laws and any changes in ~~legislation or regulation~~those laws 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~~under the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the quantity of renewable fuels (such as fuel-grade ethanol) that must be blended into motor fuels consumed in the United States. The domestic market for fuel-grade ethanol is significantly impacted by federal mandates under the RFS program for volumes of renewable fuels (such as ethanol) required to be blended with gasoline. Future demand for fuel-grade ethanol will be largely ~~dependent upon~~depend on incentives to blend ethanol into motor fuels, including the price of ethanol relative to the price of gasoline, the relative octane value of ethanol, constraints in the ability of vehicles to use higher ethanol blends, the RFS, and other applicable environmental requirements. ~~Any significant increase in production capacity above the RFS minimum requirements may have an adverse impact on ethanol prices.~~
Legislation aimed at reducing or 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 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 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.
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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.~~States in general. Our results of operations, cash flows and financial condition could be adversely impacted if the EPA reduces the RFS requirements from the statutory levels specified in the RFS.
~~The ethanol production and marketing industry is extremely competitive. Many~~Various bills in Congress introduced from time to time are also directed at altering existing renewable fuels energy legislation, but none has passed in recent years. Some legislative bills are directed at halting or reversing expansion of, ~~our significant competitors have greater production~~or even eliminating, the renewable fuel program, while other bills are directed at bolstering the program or enacting further mandates or grants that would support the renewable fuels industry. Our results of operations, cash flows and financial ~~resources and one or more of these competitors~~condition could ~~use their greater resources to gain market share at our expense.~~be adversely impacted if any legislation is enacted that reduces the RFS volume requirements.

The ethanol production and marketing industry is extremely competitive. Many of our significant competitors in the ethanol production and marketing industry, including Archer-Daniels-Midland Company, POET, LLC, Green Plains, Inc. and Valero Renewable Fuels Company, LLC, have substantially greater production and/or financial resources. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time. Successful competition will require a continued high level of investment in marketing and customer service and support. Our limited resources relative to many significant competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and cause a decline in market share, sales and profitability. Even if sufficient funds are available, we may not be able to make the modifications and improvements necessary to compete successfully.
We also face competition from international suppliers. Currently, international suppliers produce ethanol primarily from sugar cane and have cost structures that are generally substantially lower than our cost structures. Any increase in domestic or foreign competition could cause us to reduce our prices and take other steps to compete effectively, which could adversely affect our business, financial condition and results of operations.
~~Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.~~
Federal and state income tax laws impose restrictions on the utilization of net operating loss, or NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code, or Code. In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the loss corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the Internal Revenue Service in the month of the ownership change or the two preceding months.
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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 production facility shutdowns. In addition, we have made, and expect to make, significant capital expenditures on an ongoing basis to comply with increasingly stringent environmental laws, regulations and permits.

We may be liable for the investigation and cleanup of environmental contamination at each of our ~~plants~~production facilities and at off-site locations where we arrange for the disposal of hazardous substances or wastes. If these substances or wastes have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or other environmental laws for all or part of the costs of 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.

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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~~will likely result in increased future investments for environmental controls at our ~~plants.~~production facilities. 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.
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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.~~coverages. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could have a material adverse effect on our results of operations and financial condition.
If we are unable to attract or retain key personnel, our ability to operate effectively may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to operate our business and implement strategies depends, in part, on the efforts of our executive officers and other key personnel. Our future success will depend on, among other factors, our ability to retain our current key personnel and attract and retain qualified future key personnel, particularly executive management. If we are unable to attract or retain key personnel, our ability to operate effectively may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
~~We depend on a small number of customers for the majority of our sales. A reduction in business from any of these customers could cause a significant decline in our overall sales and profitability.~~
The majority of our sales are generated from a small number of customers. During 2019 and 2018, two customers accounted for an aggregate of approximately $336 million and $367 million in net sales, representing 24% and 25% of our net sales, respectively, for those periods. We expect that we will continue to depend for the foreseeable future upon a small number of customers for a significant portion of our sales. Our agreements with these customers generally do not require them to purchase any specified volume or dollar value of ethanol or co-products, or to make any purchases whatsoever. Therefore, in any future period, our sales generated from these customers, individually or in the aggregate, may not equal or exceed historical levels. If sales to any of these customers cease or decline, we may be unable to replace these sales with sales to either existing or new customers in a timely manner, or at all. A cessation or reduction of sales to one or more of these customers could cause a significant decline in our overall sales and profitability.
~~We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operation of our facilities may harm our operating performance.~~
We regularly incur significant expenses to maintain and upgrade our equipment and facilities. The machines and equipment we use to produce our products are complex, have many parts and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes and electrical parts. In addition, our facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled facility shutdowns result in decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues in future periods as a result of changes to equipment and operational and mechanical processes made during the shutdown period.
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~~Our lack of long-term ethanol orders and commitments by our customers could lead to a rapid decline in our sales and profitability.~~
We cannot rely on long-term ethanol orders or commitments by our customers for protection from the negative financial effects of a decline in the demand for ethanol or a decline in the demand for our marketing services. The limited certainty of ethanol orders can make it difficult for us to forecast our sales and allocate our resources in a manner consistent with our actual sales. Moreover, our expense levels are based in part on our expectations of future sales and, if our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. Furthermore, because we depend on a small number of customers for a significant portion of our sales, the ramifications of these risks are greater in magnitude than if our sales were less concentrated. As a result of our lack of long-term ethanol orders and commitments, we may experience a rapid decline in our sales and profitability.
~~There are limitations on our ability to receive distributions from our subsidiaries.~~
We conduct most of our operations through subsidiaries and are dependent upon dividends or other intercompany transfers of funds from our subsidiaries to generate free cash flow. Moreover, some of our subsidiaries are limited in their ability to pay dividends or make distributions, loans or advances to us by the terms of their financing arrangements. At 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 on a more timely and cost effective basis than through other means, such as registration of a securities offering under a Form S-1 registration statement. Our current and future ability to raise additional capital through the sale and issuance of our equity securities may be limited by, among other things, current Securities and Exchange Commission, or the SEC, rules and regulations. Under current SEC rules and regulations, to be eligible to use a Form S-3 registration statement for primary offerings without restriction as to the amount of securities to be sold and issued, the aggregate market value of our common equity held by non-affiliates (i.e., our “public float”) must be at least $75.0 million at the time we file the Form S-3 (calculated pursuant to the General Instructions to Form S-3). Furthermore, with respect to our effective Form S-3 registration statement, the SEC’s rules and regulations require that we periodically re-evaluate the value of our public float (typically when we file our Annual Report on Form 10-K) to determine whether we continue to satisfy the foregoing public float requirement. As of the date of this report, we do not satisfy the $75.0 million public float requirement. As a result, the amount we can raise through primary offerings of our securities in any 12-month period using a Form S-3 registration statement is limited to an aggregate of one-third of our public float. Moreover, the market value of all securities sold by us under our Form S-3 registration statements during the 12-month period prior to any intended sale will be subtracted from that amount to determine the amount we can then raise under our Form S-3 registration statements. If our public float increases to $75.0 million or more, this limitation would cease to apply until we conduct our next re-evaluation.
~~-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,~~perceptions 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 could experience a~~stock and our ability to raise capital.

Future sales of substantial ~~decline in the value of your investment as a result of both the actual and potential conversion~~amounts of our ~~outstanding~~common stock into the public market, including up to 8.9 million shares of ~~Series B Preferred Stock and~~our common stock that may be issued upon the exercise of outstanding warrants, or perceptions that those sales could occur, could adversely affect the prevailing market price of our ~~outstanding Warrants or options.~~common stock and our ability to raise capital.

~~-42-~~

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:

●

fluctuations in the market prices of our ~~ability to continue as a going concern;~~products;

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

●

the coronavirus pandemic, including governmental and public response to the pandemic;

●

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;

-38-

●

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

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

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

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

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

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 Delaware Court of Chancery shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of us, (b) any action asserting a 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 the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

~~-43-~~-39-

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

General Risk Factors

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

Security vulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining access to our networks, data centers, cloud data centers, corporate computers, manufacturing systems, and/or access to accounts we have at our suppliers, vendors, and customers. External parties may gain access to our data or our customers’ data, or attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account security practices such as failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and 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 information technology infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently deliver products to customers or develop new products. Such disruptions and data loss may adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.

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

-40-

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.

~~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 months ended March 31, 2021 and 2020, we accrued an aggregate of $0.3 million 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 months ended March 31, 2019, we declared and paid in cash an aggregate of $0.3 million 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-~~-41-

~~ITEM 6.~~

~~EXHIBITS.~~

ITEM 6. EXHIBITS.

Exhibit Number		Description ~~(**)~~
~~10.1~~3.1		~~Membership Interest Purchase Agreement dated as~~Certificate of ~~February 28, 2020 by and among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and Aurora Cooperative Elevator Company (1)~~Incorporation (*)
~~10.2~~3.2		~~Amendment No. 2 to Credit Agreement dated as~~Certificate of ~~March 20, 2020 by~~Designations, Powers, Preferences and ~~among Illinois Corn Processing, LLC, Compeer Financial, PCA and CoBank, ACB (2)~~Rights of the Series A Cumulative Redeemable Convertible Preferred Stock (*)
~~10.3~~3.3		~~Amendment No. 8 to Credit Agreement dated as~~Certificate of ~~March 20, 2020 by~~Designations, Powers, Preferences and ~~among Pacific Ethanol Pekin, LLC, Compeer Financial, PCA and CoBank, ACB (2)~~Rights of the Series B Cumulative Convertible Preferred Stock (*)
~~10.4~~3.4		~~Note~~Certificate of Amendment ~~No. 5~~to Certificate of Incorporation dated ~~as of March 20, 2020 by and among Pacific Ethanol, Inc. and the noteholders named therein (2)~~June 3, 2010 (*)
~~10.5~~3.5		~~Security Agreement dated March 20, 2020 by Illinois Corn Processing, LLC in favor~~Certificate of ~~Cortland Products Corp. (2)~~Amendment to Certificate of Incorporation effective June 8, 2011 (*)
~~10.6~~3.6		~~Security Agreement dated March 20, 2020 by and between Pacific Ethanol Central, LLC and Cortland Products Corp. (2)~~Certificate of Amendment to Certificate of Incorporation effective May 14, 2013 (*)
~~10.7~~3.7		~~Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Illinois Corn Processing, LLC and Cortland Products Corp. (2)~~Certificate of Amendment to Certificate of Incorporation effective July 1, 2015 (*)
~~10.8~~3.8		~~Pledge Agreement dated March 20, 2020 by and among Pacific Ethanol Central, LLC, Pacific Ethanol Pekin, LLC and Cortland Products Corp. (2)~~Certificate of Amendment to Certificate of Incorporation effective January 12, 2021 (*)
~~10.9~~3.9		~~Pledge Agreement dated March 20, 2020 by~~Second Amended and ~~among Pacific Ethanol Central, LLC, Pacific Aurora, LLC and Cortland Products Corp. (2)~~Restated Bylaws (*)
~~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, 2020 by and between Pacific Ethanol, Inc. and CoBank, ACB (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 of the agreements filed as exhibits 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 Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2020.~~

~~(2)~~

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

~~-45-~~-42-

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,~~ALTO INGREDIENTS, INC.

Dated: May ~~14, 2020~~17, 2021	By:	/S/ BRYON T. MCGREGOR
		Bryon T. McGregor
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

~~-46-~~-43-

	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

	Stockton		Madera
Property and equipment, net	$	19,535	$	27,813
Right of use operating lease assets, net		9,705		-
Assets held-for-sale	$	29,240	$	27,813

	Stockton		Madera
Operating lease obligations	$	10,456	$	—
Assessment financing		—		8,775
Liabilities held-for-sale	$	10,456	$	8,775

	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

Cost of goods sold:
Marketing and distribution	$	53,957		$	57,139
Pekin Campus production		137,376			128,683
Other production		24,118			142,310
Intersegment eliminations		(10,554	)		(3,838	)
Cost of goods sold as reported	$	204,897		$	324,294

Income (loss) before benefit for income taxes:
Marketing and distribution	$	3,973		$	2,930
Pekin Campus production		9,691			(6,849	)
Other production		(5,137	)		(16,621	)
Corporate activities		(2,904	)		(2,562	)
	$	5,623		$	(23,102	)
Depreciation:
Pekin Campus production	$	4,345		$	5,130
Other production		1,498			4,530
Corporate activities		17			99
	$	5,860		$	9,759

	March 31, 2020		December 31, 2019		March 31,		December 31,
Total assets:					2021		2020
Production	$	471,891	$	492,060
Marketing and distribution		82,288		106,863	$	119,546	$	89,337
Pekin Campus production						238,370		234,439
Other production						120,351		102,409
Corporate assets		16,930		13,572		22,849		50,633
	$	571,109	$	612,495	$	501,116	$	476,818

	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Finished goods	$	29,892	$	38,194	$	39,654	$	25,154
Work in progress		3,509		7,426		4,965		4,333
Raw materials		6,457		7,890		9,233		7,074
Low-carbon and RIN credits		4,274		5,690
Other		1,400		1,400		1,364		1,364
Total	$	45,532	$	60,600	$	55,216	$	37,925

		Realized Gains
		For the three months Ended
		March 31,
Type of Instrument	Statements of Operations Location	2021		2020
Commodity contracts	Cost of goods sold	$	6,185	$	—
		$	6,185	$	—

		Unrealized Gains
		For the three months Ended March 31,
Type of Instrument	Statements of Operations Location	2021		2020
Commodity contracts	Cost of goods sold	$	4,358	$	—
		$	4,358	$	—

	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Kinergy line of credit	$	60,182		$	78,338		$	45,554		$	32,512
Pekin term loan		39,500			39,500
Pekin revolving loan		32,000			32,000			17,580			20,580
ICP term loan		12,000			12,000
ICP revolving loan		18,000			18,000			9,384			9,384
Parent notes payable		65,782			65,649			20,001			25,533
CARES Act loans								9,860			9,860
		227,464			245,487			102,379			97,869
Less unamortized debt premium		404			461			174			230
Less unamortized debt financing costs		(1,847	)		(2,153	)		(576	)		(759	)
Less short-term portion		(86,682	)		(63,000	)		(37,581	)		(25,533	)
Long-term debt	$	139,339		$	180,795		$	64,396		$	71,807

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

											Fair
	Fair Value			Level 1		Level 2		Level 3			Value			Level 1			Level 2		Level 3
Assets:
Derivative financial instruments											$	22,355		$	22,355		$	—	$	—
Long-lived assets held-for-sale	$	70,400		$	—	$	—	$	70,400			57,053			—			—		57,053
	$	70,400		$	—	$	—	$	70,400		$	79,408		$	22,355		$	—	$	57,053
Liabilities:
Warrants	$	(304	)	$	—	$	—	$	(304	)
Derivative financial instruments											$	(4,741	)	$	(4,741	)	$	—	$	—
	$	(304	)	$	—	$	—	$	(304	)	$	(4,741	)	$	(4,741	)	$	—	$	—

									Benefit Plan
	Fair								Percentage
	Value		Level 1		Level 2		Level 3		Allocation
Assets:
Derivative financial instruments	$	17,149	$	17,149	$	—	$	—
Long-lived assets held-for-sale		58,295		—		—		58,295
Defined benefit plan assets(1)
(pooled separate accounts):						��		��
Large U.S. Equity(2)		5,470		—		5,470		—		31	%
Small/Mid U.S. Equity(3)		2,605		—		2,605		—		15	%
International Equity(4)		2,921		—		2,921		—		17	%
Fixed Income(5)		6,592		—		6,592		—		37	%
	$	93,032	$	17,149	$	17,588	$	58,295

Liabilities:

	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2021
	Income Numerator			Shares Denominator		Per-Share Amount
Net income attributed to Alto Ingredients, Inc.	$	4,678
Less: Preferred stock dividends		(312	)
Basic income per share:
Income available to common stockholders	$	4,366			70,351	$	0.06
Add: Dilutive securities		—			2,113
Diluted income per share:
Income available to common stockholders	$	4,366			72,464	$	0.06

	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 March 31, 2019
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Pacific Ethanol, Inc.	$	(12,890	)
Less: Preferred stock dividends		(312	)
Basic and diluted loss per share:
Net loss available to common stockholders	$	(13,202	)		45,517	$	(0.29	)

	Three Months Ended March 31, 2020
	Loss Numerator			Shares Denominator		Per-Share Amount
Net loss attributed to Alto Ingredients, 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	)

ASSETS	March 31, 2021			December 31, 2020
Current Assets:
Cash and cash equivalents	$	16,534		$	25,632
Receivables from subsidiaries		16,412			15,548
Other current assets		2,188			1,836
Total current assets		35,134			43,016

Property and equipment, net		125			142
Other Assets:
Investments in subsidiaries		257,547			246,518
Alto West, LLC receivable		42,649			42,649
Right of use operating lease assets, net		2,915			2,985
Other assets		1,087			1,088
Total other assets		304,198			293,240
Total Assets	$	339,457		$	336,398
Current Liabilities:
Accounts payable and accrued liabilities	$	4,961		$	2,001
Accrued Alto Op Co. purchase		3,829			3,829
Current portion of long-term debt		20,001			25,533
Other current liabilities		394			473
Total current liabilities		29,185			31,836

Long-term debt, net of current portion		5,665			5,564
Other liabilities		2,925			2,763
Total Liabilities		37,775			40,163
Stockholders’ Equity:
Preferred stock		1			1
Common and non-voting common stock		73			72
Additional paid-in capital		1,037,718			1,036,638
Accumulated other comprehensive loss		(3,878	)		(3,878	)
Accumulated deficit		(732,232	)		(736,598	)
Total Alto Ingredients, Inc. stockholders’ equity		301,682			296,235
Total Liabilities and Stockholders’ Equity	$	339,457		$	336,398

	For the Three Months Ended March 31,						For the Three Months Ended March 31,
	2020			2019			2021			2020
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
Consolidated net income (loss)							$	4,678		$	(27,156	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Equity in (income) losses of subsidiaries								(7,024	)		24,107
Fair value adjustments		(673	)		—			—			(673	)
Depreciation		33			75			17			33
Amortization (accretion) of debt discount (premium)		(57	)		178			101			(57	)
Changes in operating assets and liabilities:
Receivables from subsidiaries		123			1,778			(864	)		123
Other assets		29			(264	)		(281	)		29
Accounts payable and accrued expenses		—			45			(765	)		—
Accounts payable with subsidiaries		2,235			797			110			2,235
Net cash used in operating activities	$	(1,359	)	$	(87	)	$	(4,028	)	$	(1,359	)
Investing Activities:
Additions to property and equipment	$	—		$	—		$	—		$	—
Net cash used in investing activities	$	—		$	—		$	—		$	—
Financing Activities:
Proceeds from issuances of common stock	$	282		$	3,670		$	462		$	282
Proceeds from plant receivable		5,813			—			—			5,813
Payments on senior notes		—			(3,748	)		(5,532	)		—
Preferred stock dividend payments		—			(312	)		—			—
Net cash provided by (used in) financing activities	$	6,095		$	(390	)	$	(5,070	)	$	6,095
Net increase (decrease) in cash and cash equivalents		4,736			(477	)		(9,098	)		4,736
Cash and cash equivalents at beginning of period		4,985			6,759			25,632			4,985
Cash and cash equivalents at end of period	$	9,721		$	6,282		$	16,534		$	9,721

~~Facility Name~~	~~Facility Location~~	~~Estimated Annual Capacity~~ ~~(gallons)~~
~~Magic Valley~~	~~Burley, ID~~		~~60,000,000~~
~~Columbia~~	~~Boardman, OR~~		~~40,000,000~~
~~Stockton~~	~~Stockton, CA~~		~~60,000,000~~
~~Madera~~	~~Madera, CA~~		~~40,000,000~~
~~Pekin Wet~~	~~Pekin, IL~~		~~100,000,000~~
~~Pekin Dry~~	~~Pekin, IL~~		~~60,000,000~~
~~Pekin ICP~~	~~Pekin, IL~~		~~90,000,000~~

		Annual Production Capacity (estimated, in gallons)
Production Facility	Location	Fuel-Grade Ethanol		Specialty Alcohol
Pekin Campus	Pekin, IL		110,000,000		140,000,000
Magic Valley	Burley, ID		60,000,000		—
Columbia	Boardman, OR		40,000,000		—
Stockton	Stockton, CA		60,000,000		—

													Three Months Ended March 31,						Change in
	Three Months Ended March 31,						Change in						2021			2020			Dollars			Percent
	2020			2019			Dollars			Percent
Net sales	$	311,404		$	355,803		$	(44,399	)		(12.5	)%	$	218,734		$	311,404		$	(92,670	)		(29.8	)%
Cost of goods sold		324,294			358,092			(33,798	)		(9.4	)%		204,897			324,294			(119,397	)		(36.8	)%
Gross loss	$	(12,890	)	$	(2,289	)	$	(10,601	)		463.1	%
Gross profit (loss)													$	13,837		$	(12,890	)	$	26,727			NM*
Percentage of net sales		(4.1	)%		(0.6	)%								6.3	%		(4.1	)%

	March 31, 2020		December 31, 2019		Change			March 31, 2021		December 31, 2020		Change
Cash and cash equivalents	$	26,779	$	18,997		41.0	%	$	44,146	$	47,667		(7.4	)%
Current assets	$	199,297	$	232,064		(14.1	)%	$	241,588	$	214,046		12.9	%
Property and equipment, net	$	324,814	$	332,526		(2.3	)%	$	226,183	$	229,486		(1.4	)%
Current liabilities	$	188,175	$	160,398		17.3	%	$	112,750	$	86,927		29.7	%
Long-term debt, net of current portion	$	139,339	$	180,795		(22.9	)%
Long-term debt, noncurrent portion								$	64,396	$	71,807		(10.3	)%
Working capital	$	11,122	$	71,666		(84.5	)%	$	128,838	$	127,119		1.4	%
Working capital ratio		1.06		1.45		(26.9	)%		2.14		2.46		(13.0	)%

	●	~~a decrease~~an increase of ~~$2.4 million in depreciation expense; and~~
	●	~~a decrease of $5.5~~$21.9 million related to ~~prepaid expenses and other assets~~accounts payable due to ~~the~~ timing of payments.

									Three Months Ended March 31,				Years Ended December 31,
	Three Months Ended March 31,				Years Ended December 31,				2021		2020		2020		2019
	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		7.71		4.05		5.35		5.71
Excess		2.05		14.35		3.71		17.06		5.71		2.05		3.35		3.71