SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) OCTOBER 14, 2005
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PACIFIC ETHANOL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 000-21467 41-2170618
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5711 N. WEST AVENUE, FRESNO, CALIFORNIA 93711
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (559) 435-1771
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.02. TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.
MEMBERSHIP INTEREST PURCHASE AGREEMENT DATED AS OF AUGUST 1, 2005 BY AND
AMONG THE COMPANY AND THE HOLDERS OF THE MEMBERSHIP INTERESTS OF PHOENIX
BIO-INDUSTRIES, LLC
TERMINATION OF AGREEMENT
On October 15, 2005, the Membership Interest Purchase Agreement (the
"Agreement") dated as of August 1, 2005 by and among Pacific Ethanol, Inc. (the
"Company") and the Holders of the Membership Interests of Phoenix Bio-
Industries, LLC, a California limited liability company ("PBI"), terminated
automatically in accordance with its terms. The deadline for the closing of the
transaction contemplated by the Agreement was October 15, 2005. This deadline
was not met and was not waived by any party to the Agreement; accordingly, the
Agreement terminated automatically on October 15, 2005.
MATERIAL TERMS OF AGREEMENT
On August 10, 2005, the Company entered into the Agreement with certain
holders of the Membership Interests of PBI. PBI is the owner of a
newly-constructed ethanol production facility in Goshen, California that is
undergoing initial start-up testing.
The purchase price, subject to certain adjustments, was to be
approximately $47.5 million payable in approximately $30.5 million in cash, the
assumption or payoff of approximately $9.0 million in debt and the issuance by
the Company to the members of the limited liability company of an aggregate of
$8.0 million in convertible subordinated promissory notes. To the extent that
debt actually assumed by the Company was greater or less than $9.0 million, the
cash payment of approximately $30.5 million was to be reduced or increased,
respectively, by an equal amount.
The convertible subordinated promissory notes were to be convertible at
a rate of 120% of the lesser of (x) $10.00 or (y) the volume weighted average
price of the Company's shares of common stock over the five (5) trading day
period ending on August 10, 2005. The convertible subordinated promissory notes
were to be secured by a subordinated security interest in the form of a deed of
trust that encumbered PBI's ethanol production facility and the ground lease
upon which it is located, junior only to one or more deeds of trust that secured
an aggregate amount not to exceed $37.5 million.
In addition, and as additional consideration for the acquisition of the
membership interests, the Agreement contemplated the issuance by the Company, to
the holders of the membership interests of PBI, warrants to purchase, in the
aggregate, a maximum of 1.0 million shares of the Company's common stock at an
exercise price of $8.00 per share.
The Agreement also contemplated that the Company would execute a
Registration Rights Agreement with the holders of the membership interests of
PBI for the registration of the shares of common stock underlying the
convertible subordinated promissory notes and the warrants.
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The Agreement provided for the closing of the acquisition to occur
within 3 to 5 days after the day on which the last of the conditions to closing
had been satisfied or waived; provided, however, that the closing was to take
place on the date which is the sooner of (i) 60 days after the date on which at
least 5,000 gallons of ethanol had been produced in one day at PBI's facility
and (ii) October 15, 2005. The closing of the acquisition was subject to
numerous conditions in favor of the Company and the members of PBI including,
among others, (i) that PBI's ethanol production facility must have been
producing at a minimum rate of 25.0 million gallons of ethanol per year, (ii)
that PBI was in compliance with all applicable laws and ordinances, (iii) that
all members of PBI had signed the Agreement, (iv) that all permits necessary for
the continued operation of the ethanol production facility following the closing
date were in place and (v) that the Company secured all financing necessary for
payment of the purchase price.
ITEM 4.02. NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A
RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW.
On October 14, 2005, on management's recommendation, the Company,
in consultation with Hein & Associates LLP, the Company's independent auditors,
concluded that the Company's financial statements for the quarterly periods
ended March 31, 2005 and June 30, 2005 should no longer be relied upon because
of errors in such financial statements as addressed in Accounting Principles
Board Opinion No. 20. Management's conclusion regarding reliance upon these
previously issued financial statements was also discussed with and confirmed by
the Audit Committee of the Board of Directors of the Company. The accounting
errors were inadvertent and were not detected until they recently surfaced as
a result of the Company's investigation and analysis of its accounting practices
in connection with certain comments made by the Securities and Exchange
Commission to the Company's Registration Statement on Form S-1.
The Company previously accounted for its acquisition of ReEnergy, LLC,
a California limited liability company, that resulted from the share exchange
transaction that occurred in March 2005, by recording the $972,250 purchase
price for ReEnergy as goodwill. Upon further examination of its purchase
accounting methodology for the acquisition of ReEnergy, the Company determined
that it made an error in its application of the relevant accounting principles
under SFAS 141, paragraph 9 (with reference to EITF No. 98-3) and determined
that it should have expensed $852,250 and capitalized $120,000 of the $972,250
purchase price for ReEnergy. The Company has determined the effect of the
correction on its previously issued financial statements and will restate its
financial statements for the three months ended March 31, 2005 and for the six
months ended June 30, 2005. Of the $972,250 purchase price for ReEnergy,
$852,250 will be recorded as an expense for services rendered in connection with
a feasibility study that was conducted with respect to real property that was
subject to a purchase option held by ReEnergy and $120,000 will be recorded as
an intangible asset for the fair value of favorable option.
The effects of the restatement on net sales, cost of goods sold, gross
profit, services rendered in connection with feasibility study, net loss, basic
and diluted net loss per common share, intangible assets (net), total assets and
stockholders' equity as of and for the three months ended March 31, 2005 and as
of and for the six months ended June 30, 2005 are as follows:
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THREE MONTHS ENDED MARCH 31, 2005
AS ORIGINALLY RESTATEMENT
REPORTED ADJUSTMENTS AS RESTATED
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Net sales .............................. $ 2,301,997 $ -- $ 2,301,997
Cost of goods sold ..................... 2,254,370 -- 2,254,370
Gross profit ........................... 47,627 -- 47,627
Services rendered in connection with
feasibility study .................. -- 852,250 852,250
Net loss ............................... $ (805,059) $ (852,250) $ (1,657,309)
NET LOSS PER COMMON SHARE:
Basic and diluted ................... $ (0.05) $ (0.05) $ (0.10)
Intangible assets, net ................. 11,788,000 (852,250) 10,935,750
Total assets ........................... 42,511,232 (852,250) 41,658,982
Stockholders' equity ................... $ 33,597,995 $ (852,250) $ 32,745,745
SIX MONTHS ENDED JUNE 30, 2005
AS ORIGINALLY RESTATEMENT
REPORTED ADJUSTMENTS AS RESTATED
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Net sales .............................. $ 25,116,430 $ -- $ 25,116,430
Cost of goods sold ..................... 24,917,278 -- 24,917,278
Gross profit ........................... 199,152 -- 199,152
Services rendered in connection with
feasibility study ................... -- 852,250 852,250
Net loss ............................... $ (3,031,511) $ (852,250) $ (3,883,761)
NET LOSS PER COMMON SHARE:
Basic and diluted ................... $ (0.14) $ (0.04) $ (0.18)
Intangible assets, net ................. 11,562,666 (852,250) 10,710,416
Total assets ........................... 41,537,605 (852,250) 40,685,355
Stockholders' equity ................... $ 33,604,133 $ (852,250) $ 32,751,883
As noted above, the Company has determined the effect of the correction
on its previously issued financial statements, will restate its financial
statements for the three months ended March 31, 2005 and for the three and six
months ended June 30, 2005 and will file with the Securities and Exchange
Commission amended Forms 10-QSB for the quarterly periods ended March 31, 2005
and June 30, 2005, which will include its restated financial statements.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
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Not applicable.
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(b) Pro Forma Financial Information.
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Not applicable.
(c) Exhibits.
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Number Description
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10.1 Form of Membership Interest Purchase Agreement
between the Company and the Holders of the Membership
Interests of Phoenix Bio-Industries, LLC*
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* Filed with the Securities and Exchange Commission on
August 16, 2005 as an exhibit to the initial filing
of this Report on Form 8-K and incorporated herein by
reference.
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SIGNATURE
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 hereunto duly authorized.
Date: October 20, 2005 PACIFIC ETHANOL, INC.
By: /S/ WILLIAM G. LANGLEY
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William G. Langley
Chief Financial Officer
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