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

The Company is a leading producer and marketer of high quality alcohol products and low-carbon renewable fuels in the United States. The Company's plants in Illinois and Nebraska (together with their respective holding companies, the "Pacific Ethanol Central Plants") are located in the heart of the Corn Belt, benefit from low-cost and abundant feedstock production and allow for access to many additional domestic markets. In addition, the Company's ability to load unit trains from these facilities in the Midwest allows for greater access to international markets. The Company's four ethanol plants 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.

Following the Company's sale of its interest in Pacific Aurora, the Company has a combined production capacity of 450 million gallons per year, markets, on an annualized basis, nearly 1.0 billion gallons combined of high quality alcohol and ethanol, based on historical volumes, and produces, on an annualized basis, nearly 3.0 million tons of co-products on a dry matter basis, such as wet and dry distillers grains, wet and dry corn gluten feed, condensed distillers solubles, corn gluten meal, corn germ, dried yeast and CO₂, based on historical volumes.

As of June 30, 2020, the Company was operating at approximately 50% of its 450 million gallon annual production capacity. As market conditions change, the Company may increase, decrease or idle production at one or more operating facilities or resume operations at any idled facility.

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. During the three months ended June 30, 2020, the Company continued to experience significant adverse conditions in the ethanol fuel market as demand and pricing were at record lows due to reduced domestic transportation and resulting lower gasoline demand. In response, the Company reduced production at its facilities by more than 50% 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, however, has not only continued producing and selling its high quality alcohol, but also converted a portion of its fuel-grade ethanol production to higher quality alcohol to respond to increased demand from the sanitizer and disinfectant markets. These sales of high quality alcohol were at a mix of fixed and spot pricing, both of which resulted in positive net income and cash flows from operations during the quarter. The Company expects robust demand for its high quality alcohol to continue for at least the next twelve months as the Company continues to enter fixed-price contracts and hedge corn input costs, locking in profit margins on sales of high quality alcohol.

At June 30, 2020, the Company had $29.8 million in cash and $10.0 million available under Kinergy's operating line of credit. During the first half of 2020, the Company generated $45.7 million in cash from its operations and realized $19.9 million in net cash proceeds from the sale of its interest in Pacific Aurora. These positive cash flows have allowed the Company to make net payments totaling $52.3 million on its debt. Further, subsequent to June 30, 2020, the Company made an additional $9.2 million in payments on its term debt.

The Company believes that as of the date of this report, it is in compliance with all debt covenants contained in its credit facilities, except the Company's obligation to obtain lender approval of 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 has presented and continues to negotiate the plan with its lenders. As a result, the Company is not in compliance with its obligations to its lenders, which could result in their acceleration of the Company's debt. Although the Company does not expect such an outcome, especially in light of its financial performance and debt prepayments during the second quarter and thereafter, the Company does not have sufficient liquidity or capital resources to immediately repay our debt if accelerated. Even though the Company doesn't believe acceleration is probable, it has classified its related debt as current on the Company's consolidated balance sheets. Given the above noted projected cash flows from operations and debt repayments, the Company believes it has overcome any doubt about its ability to continue as a going concern. Therefore, the Company believes it has sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs for the next twelve months.

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