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SEC
FILE NUMBER: 000-21467
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UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, DC
20549
FORM 12b-25
NOTIFICATION OF LATE
FILING
(Check
one): þ Form 10-K ¨ Form 20-F ¨ Form 11-K ¨
Form 10-Q ¨
Form 10D
¨ Form N-SAR
¨ Form N-CSR
For
Period Ended: December
31,
2007
¨ Transition Report on
Form 10-K
¨ Transition Report on
Form 20-F
¨ Transition Report on
Form 11-K
¨ Transition Report on
Form 10-Q
¨ Transition Report on
Form N-SAR
For the
Transition Period Ended:
Read
Instructions (on back page) Before Preparing Form. Please Print or
Type.
Nothing
in this form shall be construed to imply that the Commission has verified any
information contained herein.
If the
notification relates to a portion of the filing checked above, identify the
item(s) to which the notification relates:
PART
I
REGISTRANT
INFORMATION
Pacific Ethanol,
Inc.
Full name
of registrant
N/A
Former
name if applicable
400 Capitol Mall, Suite
2060
Address
of Principal Executive Office (Street and
number)
Sacramento, CA
95814
City,
state and zip code
PART
II
RULES
12b-25(b) AND (c)
If the
subject report could not be filed without unreasonable effort or expense and the
registrant seeks relief pursuant to Rule 12b-25(b), the following should be
completed. (Check box if appropriate)
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(a)
The reasons described in reasonable detail in Part III of this form could
not be eliminated without unreasonable effort or
expense;
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(b)
The subject annual report, semi-annual report, transition report on
Form 10-K, Form 20-F, Form 11-K, Form N-SAR or Form N-CSR,
or portion thereof, will be filed on or before the fifteenth calendar day
following the prescribed due date; or the subject quarterly report or
transition report on Form 10-Q or subject distribution report on Form
10-D, or portion thereof, will be filed on or before the fifth calendar
day following the prescribed due date; and
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(c)
The accountant’s statement or other exhibit required by Rule 12b-25(c) has
been attached if applicable.
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PART
III
NARRATIVE
State
below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-SAR, N-CSR,
or the transition report or portion thereof, could not be filed within the
prescribed time period.
Introductory
Note: Please see the information under the caption “Cautionary
Statements” below which sets forth important disclosure regarding
forward-looking statements contained in this Form.
General. Pacific
Ethanol, Inc. and its subsidiaries (collectively referred to as the “Company,” “we,” “us” or similar terms
unless the context otherwise requires) are engaged in the business of marketing
and producing ethanol and its co-products. As previously disclosed,
our capital needs have historically been provided to a significant extent by our
existing debt financing facilities, and our continued expansion as well as the
funding of our operations will require additional sources of
capital. We are presently unable to complete our consolidated
financial statements for the year ended December 31, 2007, and thereby to file
our Annual Report on Form 10-K for this period, because (i) a pending waiver
from the lenders under our Credit Agreement, dated as of February 27, 2007 (as
amended, the “Credit
Agreement”), among Pacific Ethanol Madera LLC, Pacific Ethanol Columbia,
LLC, Pacific Ethanol Stockton, LLC, Pacific Ethanol Magic Valley, LLC, Pacific
Ethanol Holding Co. LLC, WestLB AG, New York Branch, as administrative agent,
and the lenders and other parties thereto from time to time, has not yet been
obtained (the “Pending
Bank Waiver”) and (ii) a pending $40 million equity financing has not yet
been completed (the “Pending Equity
Financing”). Each of these pending transactions is described
in further detail below.
Our independent registered public
accounting firm, Hein & Associates LLP, has advised us that failure to
complete the Pending Bank Waiver and the Pending Equity Financing will result in
a “going concern” qualification being included in their audit opinion regarding
our consolidated financial statements for the year ended December 31, 2007
thereby potentially requiring adjustments to those financial statements,
including, among other things, recording our obligations under our Credit
Agreement as current liabilities if the Pending Bank Waiver is not
obtained. Failure to obtain the Pending Bank Waiver will permit the
lenders under the Credit Agreement to pursue their remedies thereunder,
including acceleration of the maturity date of the underlying
borrowings. Receipt of the Pending Equity Financing is necessary to
provide adequate liquidity to fund our business.
As further described below, we are
diligently pursuing the completion of the Pending Bank Waiver and the Pending
Equity Financing with a view towards completing those transactions and filing
our Annual Report on Form 10-K at the earliest date practicable.
The Pending Bank
Waiver. We are aware of several events or circumstances which
constitute defaults under the Credit Agreement and for which we are seeking
waivers from our lenders, including:
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When
filed, we expect that our Annual Report on Form 10-K will disclose the
existence of a material weakness in our internal control over financial
reporting due to an error our auditors discovered related to the accrual
of construction-related invoices in the fourth quarter of
2007. Amounts totaling $8.2 million were incorrectly recorded
in January 2008 for purposes of our internal financial statements when
they should have been accrued in December 2007. The error,
which constituted a material weakness, involved accruals to the CIP
(construction in progress) account and corresponding accruals to current
liabilities. The error affected the consolidated balance sheet
only. There was no income statement or statement of cash flows
effect, nor was there any impact on the construction
budgets. We have instituted actions designed to remediate this
material weakness. Unless waived, the Company’s disclosure of
any “material weakness in its internal controls” in our Annual Report on
Form 10-K will be a default under the Credit
Agreement.
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Pursuant
to the terms of the Credit Agreement, we are generally required to deposit
all revenues related to the production facilities financed under this
agreement in segregated revenue accounts which are controlled by our
lenders. The Credit Agreement includes specific covenants
governing our use of those funds. On Wednesday, March 12, 2008,
our senior management was informed that an unauthorized deviation from the
Credit Agreement requirements related to the segregated revenue accounts
had occurred. These actions were apparently undertaken for the
purpose of optimizing our cash position but without regard to the
covenants in the Credit Agreement. Our review to date has
established that these actions took place beginning in August
2007. Remedial actions have been taken to rectify this control
deficiency and prevent its recurrence, including the reassignment of cash
management responsibilities to our chief financial
officer. Since at all times the misdirected funds remained
within our consolidated financial group, we do not believe that these
unauthorized internal cash transfers caused our consolidated results of
operations to be misstated. However, unless waived, these
actions resulted in a violation of a number of covenants in the Credit
Agreement and the conditions which permitted these actions to occur may
involve one or more additional material weaknesses in our internal control
over financial reporting. Based on the analysis completed to
date, we believe that the net amount of cash which was diverted from the
segregated revenue accounts to other internal uses was approximately $3.9
million as of February 29, 2008 (the “Deposit
Shortfall”), which constitutes a default of the Credit
Agreement.
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The Credit Agreement required
that, on the dates of the initial fundings for the Madera and Boardman
plants, a designated debt service reserve related to the loans for such
borrower should have been deposited into the debt service reserve account
controlled by the lenders. This amount, $3.4 million in the aggregate (the
“DSR
Shortfall”), has not
been deposited as required by the Credit Agreement, which constitutes a
default of the Credit
Agreement.
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Unless
waived, the Credit Agreement limits us to no more than seven separate
Eurodollar loans outstanding at any time. There are presently
eight such loans outstanding.
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The Credit Agreement provides that
the “final completion” of the Madera plant and Boardman plant should
already have occurred. One of the conditions to “final
completion” is that the borrowers pay all remaining project costs related
to the construction of the particular plant. We are still in
the process of negotiating final payments with our
contractors. We are proposing to agree with our lenders to
achieve “final completion” on or prior to May 16, 2008. As
previously disclosed, both plants have been put into operation
notwithstanding the failure to achieve “final completion” on time, however
that failure constitutes a default of the Credit
Agreement.
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The agent bank for the Credit Agreement
is aware of the foregoing and has advised us and the other lenders party to the
Credit Agreement that it supports a waiver of the defaults described
above. A written waiver request was presented to our bank lending
group on March 16, 2008 and we are awaiting the approval of this waiver by the
requisite lenders, representing lenders of at least a majority of the amounts
committed under the Credit Agreement. If the waiver is approved, we
will be obligated to pay the lenders under the Credit Agreement a consent fee in
an amount that has not yet been finalized, but which we are estimating to be
approximately $500,000. As of March 17, 2008, there was $129.5
million principal amount outstanding under the Credit Agreement.
We have also advised our lenders under
the Credit Agreement that we will deposit the Deposit Shortfall and the DSR
Shortfall, aggregating $7.3 million, in the proper accounts. Funding
this payment will further significantly strain our present extremely limited
liquidity position.
The Pending Equity
Financing. On March 18, 2008, we entered into a Securities
Purchase Agreement (the “Purchase Agreement”)
with Lyles United, LLC (the “Purchaser”). The
Purchase Agreement provides for the sale by us and the purchase by the Purchaser
of (i) 2,051,282 shares of our Series B Cumulative Convertible Preferred Stock
(the “Series B
Preferred Stock”) at $19.50 per share, all of which would initially be
convertible into an aggregate of 6,153,846 shares of our common stock based on
an initial three-for-one conversion ratio, and (ii) a warrant (the “Warrant”) to purchase
an aggregate of 3,076,923 shares of the our common stock at an exercise price of
$7.00 per share, for an aggregate purchase price of $40 million. The
Warrant is to be exercisable at any time during the period commencing on the
date that is six months and one day from the date of the Warrant and ending ten
years from the date of the Warrant. The form of Warrant contains
customary anti-dilution provisions for stock splits, stock dividends and the
like and other customary terms and conditions.
The
Purchase Agreement includes customary representations and warranties on the part
of both the Company and the Purchaser and other customary terms and
conditions. The closing under the Purchase Agreement is subject to
numerous customary closing conditions, as well as the following
conditions:
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the
Company shall have received any and all consents, waivers or approvals
from the holders of its Series A Cumulative Redeemable Convertible
Preferred Stock necessary to issue and deliver the Series B Preferred
Stock, the Warrant, and the related dividend shares, conversion shares and
warrant shares and to consummate the transactions contemplated under the
proposed certificate of designations and the related transaction
documents;
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the
Borrower’s (as defined in the Credit Agreement, and who are indirect
subsidiaries of the Company) receipt of waivers from a sufficient number
of lenders party to the Credit Agreement waiving all defaults under the
Credit Agreement existing as of March 17, 2008, in a form substantially
satisfactory to the Purchaser;
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after
giving effect to the waivers described above, on the closing date there
shall be no Defaults or Events of Default (as defined in the Credit
Agreement) under the Credit Agreement, nor any defaults or events of
default under any other loan agreement to which the Company or any of its
affiliates are party;
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the
filing of the Company’s Form 10-K for the year ended December 31, 2007 on
or prior to March 31, 2008 with an audit opinion from the Company’s
independent registered public accounting firm contained therein
unqualified as to the Company’s ability to continue as a “going
concern”;
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the
Company shall not have restated any of the Company’s financial statements
nor shall the Company have filed a Form 8-K with the Securities and
Exchange Commission pursuant to Item 4.02 thereunder with respect to any
of the Company’s financial statements filed with the Securities and
Exchange Commission;
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no
class action securities litigation shall have been commenced against the
Company; and
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the
Company’s common stock shall be listed for trading on The NASDAQ Global
Market.
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While our
intention is to close Pending Equity Financing as soon as practicable, the
closing conditions must in any event be met (or waived) in full prior to April
30, 2008, otherwise the Purchaser shall not be required to proceed with the
closing and the Purchase Agreement will terminate and be of no further force or
effect.
Form
8-K. Concurrently with the filing of this form, we are filing
a Current Report on Form 8-K to, among other things,
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Report
the presently unwaived defaults under the Credit Agreement as summarized
above; and
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Further
describe the terms of the Purchase Agreement, the Series B Preferred
Stock, the Warrant and related
matters
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PART
IV
OTHER
INFORMATION
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(1)
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Name and telephone number of
person to contact in regard to this notification
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Christopher
W. Wright
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(916)
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403-2123
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(Name)
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(Area
Code)
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(Telephone
Number)
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(2)
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Have all other periodic reports
required under Section 13 or 15(d) of the Securities Exchange Act of
1934 or Section 30 of the Investment Company Act of 1940 during the
preceding 12 months or for such shorter period that the registrant
was required to file such report(s) been filed? If the answer is no,
identify report(s).
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Yes
x No
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(3)
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Is it anticipated that any
significant change in results of operations from the corresponding period
for the last fiscal year will be reflected by the earnings statements to
be included in the subject report or portion
thereof?
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Yes x No ¨
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If so: attach an explanation of
the anticipated change, both narratively and quantitatively, and, if
appropriate, state the reasons why a reasonable estimate of the results
cannot be made.
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Unaudited Preliminary Results of
Operations
The following results of operations are
preliminary and have not been audited or otherwise reviewed by our independent
auditors. The Company’s final, audited results of operations could be
materially different from the unaudited preliminary results of operations set
forth below.
Three
Months Ended December 31, 2007
The
Company anticipates reporting net sales of approximately $130.4 million for the
fourth quarter of 2007 as compared to net sales of $80.6 million for the same
period in 2006. The increase in net sales resulted primarily from an
increase in the volume of ethanol sold by the Company and was partially offset
by lower average sales prices. The volume of ethanol sold by the
Company in the fourth quarter of 2007 increased by approximately 82% as compared
to the same period in 2006 and by approximately 16% as compared to the third
quarter of 2007. The Company’s average sales price of ethanol
decreased by $0.29 per gallon, or 13%, to $1.97 per gallon in the fourth quarter
of 2007 from an average sales price of $2.26 per gallon in the same period in
2006.
The
Company anticipates reporting gross profit of approximately $1.7 million for the
fourth quarter of 2007 as compared to gross profit of $11.7 million for the same
period in 2006. The Company anticipates reporting that its gross
profit margin was approximately 1.3% for the fourth quarter of 2007 as compared
to a gross profit margin of 14.6% for the same period in 2006. The
decline in the Company’s gross profit and gross profit margins was primarily due
to a lower average sales price of ethanol, as discussed above, and significantly
higher corn costs.
The
Company anticipates reporting a net loss of approximately $14.7 million for the
fourth quarter of 2007 as compared
to a net loss of $3.1 million for the same period in 2006. The
Company anticipates that its net loss will include non-cash expenses of
approximately $4.4 million from interest rate derivatives related to future
periods and approximately $2.0 million from write-downs of deferred financing
fees associated with the Company’s suspension of construction at its
Imperial Valley facility near Calipatria, California. The Company also
anticipates its net loss will include a gain of approximately $0.9 million from
mark-to-market adjustments for commodity derivatives related to future
periods.
The
Company anticipates reporting loss available to common stockholders of
approximately $15.8 million for the fourth quarter of 2007, net of preferred
stock dividends, as compared to a loss available to common stockholders of $4.2
million for the fourth quarter of 2006.
The
Company anticipates reporting a diluted net loss per common share of
approximately $0.39 for the fourth quarter of 2007 as compared to a net loss per
common share of $0.11 for the same period in 2006. The Company had
40.1 million weighted-average basic and diluted shares outstanding for the
fourth quarter of 2007.
Year
Ended December 31, 2007
The
Company anticipates reporting net sales of approximately $461.5 million for the
year ended December 31, 2007 as compared to net sales of $226.4 million for
2006. The increase in net sales resulted primarily from an increase
in the volume of ethanol sold by the Company and was partially offset by lower
average sales prices. The volume of ethanol sold by the Company in
year ended December 31, 2007 increased by approximately 87% as compared to
2006. The Company’s average sales price of ethanol decreased by $0.13
per gallon, or 6%, to $2.15 per gallon in the year ended December 31, 2007 from
an average sales price of $2.28 per gallon in 2006.
The
Company anticipates reporting gross profit of approximately $32.9 million for
the year ended December 31, 2007 as compared to gross profit of $24.8 million
for 2006. The Company anticipates reporting that its gross profit
margin was approximately 7.1% for the year ended December 31, 2007 as compared
to a gross profit margin of 11.0% for 2006. The decline in the
Company’s gross profit and gross profit margins were primarily due to a lower
average sales price of ethanol, as discussed above, significantly higher corn
costs and derivative losses from locking in margins during the
year.
The
Company anticipates reporting a net loss of approximately $14.4 million for the
year ended December 31, 2007 as compared to a net loss of $0.1 million for
2006. The Company anticipates that its net loss will include a
non-cash expense of approximately $5.4 million from interest rate derivatives
related to future periods,
approximately $3.0 million from mark-to-market adjustments for commodity
derivatives related to future periods, approximately $2.9 million from
amortization of intangible assets related to the Company’s acquisition of Front
Range Energy, LLC, and approximately $2.0 million from write-downs of
deferred financing fees associated with the Company’s suspension of construction
at its Imperial Valley facility near Calipatria, California.
The
Company anticipates reporting loss available to common stockholders of
approximately $18.6 million for the year ended December 31, 2007, net of
preferred stock dividends, as compared to a loss available to common
stockholders of $87.1 million for 2006, of which $84.0 million was a non-cash
deemed dividend resulting from the Company’s issuance of its Series A Cumulative
Redeemable Convertible Preferred Stock in the second quarter of
2006.
The Company anticipates reporting a
diluted net loss per common share of approximately $0.47 for the year ended
December 31, 2007 as compared to a net loss per common share of $2.50 for 2006,
the latter of which included the non-cash deemed dividend described
above. The Company had 39.9 million weighted-average basic and
diluted shares outstanding for the year ended December 31, 2007.
Liquidity and Capital
Resources
The Company presently has extremely
limited liquidity and requires substantial additional financing to
conduct its operations and achieve its business objectives. If the
Company is unable to obtain substantial additional financing, it will be unable
to achieve its business objectives, will be forced to delay or abandon the
construction of one or more plants and may be forced to delay or abandon its
plant expansion program in its entirety. The Company’s inability to
raise substantial additional financing will also materially hamper its ongoing
operations and have a material adverse effect on the Company’s results of
operations, liquidity and cash flows. In addition to the $40.0
million Pending Equity Financing described above, the Company is presently
exploring other potential sources of new financing to provide additional working
capital for its business and for the repayment of liabilities.
As discussed above, the Company
recently raised $30.0 million in debt financing from Lyles United, LLC and has
signed an agreement with this investor in respect of the Pending Equity
Financing. However, the closing of the Pending Equity Financing is
subject to numerous customary closing conditions as well as closing conditions
distinct to that transaction, many of which are beyond the Company’s
control. Accordingly, the Company may be unable to successfully close
the Pending Equity Financing.
The Company is currently in default
under its Credit Agreement for the construction and financing of ethanol
facilities. The Company is endeavoring to obtain the Pending Bank
Waiver in respect of its defaults from its lenders. Failure to obtain
the Pending Bank Waiver would permit the lenders under the Credit Agreement to
pursue remedies thereunder, including acceleration of the maturity date of the
underlying borrowings. In addition, if the Company is unable to
obtain these waivers, it will be required to reclassify a substantial amount of
long-term debt as short-term. Obtaining the Pending Bank Waiver is a
condition to the closing of the Pending Equity Financing.
The Company’s need for additional
capital is due to numerous factors that arose or that the Company identified in
the fourth quarter of 2007. The Company experienced higher than
forecast construction costs at its Burley, Idaho and Stockton, California
facilities as a result of unanticipated change orders. The Company
also incurred higher costs related to the completion of “punch list” items at
the Company’s Boardman, Oregon facility and costs related to the suspension of
the Company’s Imperial Valley facility near Calipatria,
California. In aggregate, the cost overruns that arose or that were
identified in the fourth quarter of 2007 were approximately $27
million. In addition, funding under the construction loan facility of
the Credit Agreement will occur later than previously
anticipated. Consequently, the Company expects to fund approximately
$29 million for the ongoing construction of its Burley and Stockton
facilities. A significant portion of the $29 million is expected to
be recovered upon completion of the Burley and Stockton facilities, at which
time the Company expects to draw additional loan proceeds under the terms of its
existing Credit Agreement. In addition to the above factors, the
Company also continued to experience adverse ethanol market conditions in the
fourth quarter of 2007 and extending into 2008 resulting in cash generated from
operations being lower than originally forecast.
Stockholders
Equity.
As of December 31, 2007, the Company
had stockholders equity of approximately $282,286,000 and 40,606,214 shares were
outstanding.
Cautionary
Statements
This Form includes
forwarding looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 regarding Pacific Ethanol,
Inc. and its business that are not historical facts and are indicated by words
such as “anticipates,” “expected,” “believes” and similar terms. Such
forward looking statements involve risks and uncertainties including, in
particular, whether or on what terms we will be able to obtain the Pending Bank
Waiver, complete the Pending Equity Financing and complete and file our Annual
Report on Form 10-K, as well as whether or not our final audited financial
results as of, and for the year ended December 31, 2007, will comport with the
preliminary information summarized herein. Receipt of the Pending
Bank Waiver requires the consent of the requisite percentage of our lenders and
we may be required to make financial concessions beyond the waiver fee presently
contemplated in order to obtain the waiver. The Pending Equity
Financing is subject to conditions to closing which must be satisfied before
those funds are released and over which we do not have control. Also,
during the finalization of our Annual Report on Form 10-K we may identify
further events which constitute material weaknesses in our internal control over
financial reporting or other events which would constitute further breaches of
the Credit Agreement requiring the receipt of one or more additional waivers
from our lenders. We can not assure you that any such waivers could
be obtained or, if obtained, the terms thereof, or that we will not receive a
qualified audit opinion from our independent registered public accounting
firm. In the absence of the waiver we will be required to reclassify
the obligations under the Credit Agreement as short-term debt in our financial
statements. Further, the receipt of the Pending Equity Financing is
necessary to stabilize our liquidity position. Material risks and
uncertainties exist regarding these matters, and we can not assure you that
these transactions and filings will be completed on the terms described herein,
or at all. In addition, investors should also
review the factors contained in the “Risk Factors” section of Pacific Ethanol’s
Form 10-K filed with the Securities and Exchange Commission on March 12,
2007.
Pacific Ethanol,
Inc.
(Name
of Registrant as Specified in Charter)
has
caused this notification to be signed on its behalf by the undersigned thereunto
duly authorized.
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Date:
March 18,
2008
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By:
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/s/ Christopher W.
Wright
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Name:
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Christopher
W. Wright
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Title:
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Vice
President, General Counsel & Secretary
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