Edgar Filing: Pacific Ethanol, Inc.

FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION FILE NO. 333-127714

PACIFIC ETHANOL, INC.

PROSPECTUS SUPPLEMENT NO. 1 DATED MAY 3, 2006
TO FINAL PROSPECTUS DATED APRIL 24, 2006

The final prospectus of Pacific Ethanol, Inc. dated April 24, 2006 is
supplemented to include the following updated information:

Selling Security Holder Table
-----------------------------

The fourth and fifth paragraphs under the "Selling Security Holders"
section are amended and restated in their entirety to read as follows:

"The following entities or persons are NASD-registered broker-dealers,
or affiliates of NASD-registered broker-dealers, who initially acquired
their shares of common stock offered for resale hereunder, or warrants, the
underlying shares of common stock of which are offered for resale
hereunder, from PEI California, or from placement agents who received them
from PEI California, as compensation for transaction-based investment
banking services relating to one or more private placement transactions of
PEI California that occurred prior the consummation of the Share Exchange
Transaction:

o Laird Q. Cagan, Registered Representative of Chadbourn
Securities, Inc., an NASD-registered broker-dealer;
o Chadbourn Securities, Inc. is an NASD-registered broker-dealer;
o William P. Behrens and Stephan H. Kim are each officers of
Northeast Securities, Inc., an NASD-registered broker-dealer; and
o UBS AG owns both UBS Securities LLC and UBS Financial Services
Inc., both of whom are NASD-registered broker-dealers.

The following entities or persons are affiliates of NASD-registered
broker-dealers who initially acquired their shares of common stock offered
for resale hereunder, or warrants, the underlying shares of common stock of
which are offered for resale hereunder, in certain private placement
transactions of PEI California that occurred prior the consummation of the
Share Exchange Transaction, or from entities or persons who initially
acquired them in certain private placement transactions of PEI California
that occurred prior the consummation of the Share Exchange Transaction,
each of whom may be deemed underwriters with respect to their respective
shares of common stock offered for resale hereunder:

o Lorraine DiPaolo is President of Benchmark Capital Advisors, a
subsidiary of Northeast Securities, Inc., an NASD-registered
broker-dealer;
o W. Denman Zirkle is registered as an agent with First Dominion
Capital Corp., an NASD-registered broker dealer;
o James George is a Senior Vice President, Institutional Bond Sales
of Countrywide Securities, an NASD-registered broker dealer; and
o Hudson Bay Fund LP is affiliated with XTF Market Making LLC and
XTF Capital LLC, both of whom are NASD-registered broker-dealers.
Sander Gerber is Managing Member of XTF Market Making LLC and XTF
Capital LLC and is also a Managing Member of Hudson Bay Capital
Associates LLC, which is the general partner of Hudson Bay Fund
LP."

The "Selling Security Holder" table contained in the final prospectus dated
April 24, 2006 is updated as follows (1) to reflect a transfer of warrants to
purchase 51,000 shares of common stock of Pacific Ethanol, Inc. from Western
Milling, LLC to Hudson Bay Fund LP, (2) to reflect a transfer of warrants to
purchase 15,000 shares of common stock of Pacific Ethanol, Inc. from Craton
Capital, LP to Hudson Bay Fund LP, (3) to reflect a transfer of warrants to
purchase 1,400 shares of common stock of Pacific Ethanol, Inc. from Michael T.
Bock, Trustee of the Michael T. Bock Revocable Trust dated November 10, 2003 to
Berglioth Matthews, and (4) to reflect a transfer of warrants to purchase
198,740 shares of common stock of Pacific Ethanol, Inc. from Laird Q. Cagan to
UBS AG. Percentage of beneficial ownership is based on 31,441,931 shares of
common stock outstanding as of May 2, 2006.

Shares of Shares of
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering Shares of After Offering
Name of ------------------------- Common Stock ---------------------
Beneficial Owner Number Percentage Being Offered Number Percentage
-------------------------------------- ----------- ------------ --------------- -------- ----------

Western Milling, LLC.................. 20,000 (6) * 20,000 (a)(6) -- --
Craton Capital, LP.................... -- -- -- -- --
Michael T. Bock, Trustee of the
Michael T. Bock Revocable Trust
dated November 10, 2003............ 18,933 (35) * 18,933 (d)(35) -- --
Laird Q. Cagan........................ -- -- -- -- --
Hudson Bay Fund LP.................... 209,526 (51) * 66,000 (t)(51) 143,526 *
Berglioth Matthews.................... 1,400 (52) * 1,400 (u)(52) -- --
UBS AG................................ 198,740 (53) * 198,740 (v)(53) -- --

-------------------
* Less than 1.0%.
(a) The shares of common stock and the warrants exchanged by the selling
security holder in connection with the Share Exchange Transaction for the
shares of common stock offered hereunder, including shares of common stock
that underlie warrants, were initially acquired from PEI California in a
private placement transaction in March 2005 under which PEI California
raised an aggregate of $21.0 million at $3.00 per share and issued 7.0
million shares of common stock and warrants to purchase an aggregate of
700,000 and 1.4 million shares of common stock at an exercise price of
$5.00 and $3.00 per share, respectively. PEI California also issued
placement agent warrants to acquire up to an aggregate of 678,000 shares of
common stock at an exercise price of $3.00 per share. In aggregate,
1,938,914 shares of common stock resulting from this private placement
transaction are being offered hereunder for resale.
(d) The shares of common stock and the warrants exchanged by the selling
security holder in connection with the Share Exchange Transaction for the
shares of common stock offered hereunder were initially acquired from PEI
California in a private placement transaction in December 2004 under which
PEI California raised an aggregate of approximately $300,000 at $3.00 per
share and issued 103,666 shares of common stock and warrants to purchase an
aggregate of 31,100 shares of common stock at an exercise price of $3.00
per share. In aggregate, 74,541 shares of common stock resulting from this
private placement transaction are being offered hereunder for resale.
(t) Of the shares of common stock offered by the selling security holder
hereunder 51,000 shares underlie warrants transferred to the holder by
Western Milling, LLC and 15,000 shares underlie warrants transferred to the
holder by Craton Capital, LP, all of which were initially acquired from PEI
California in connection with the private placement offering described in
footnote (a) above.
(u) The shares of common stock offered by the selling security holder hereunder
underlie warrants transferred to the holder by Michael T. Bock, Trustee of
the Michael T. Bock Revocable Trust dated November 10, 2003 that were
initially acquired from PEI California in connection with the private
placement offering described in footnote (d) above.

(v) The shares of common stock offered by the selling security holder hereunder
underlie warrants transferred to the holder by Laird Q. Cagan who acquired
the warrants from Chadbourn Securities, Inc. and that were initially
acquired from PEI California in connection with the private placement
offering described in footnote (a) above. Chadbourn Securities, Inc. acted
as a placement agent and initially received these warrants as compensation
for services performed in connection with the private placement offering
described in footnote (a) above. In connection with its March 2005
offering, PEI California entered into an agreement with Chadbourn
Securities, Inc. for placement agent services. Under this agreement, PEI
California agreed to pay to Chadbourn Securities, Inc. 2% of gross proceeds
plus a 1% non-accountable expense allowance as well as warrants exercisable
at the offering price in an amount equal to 3% of the aggregate number of
shares of common stock sold in the private offering. Under this agreement,
PEI California paid to Chadbourn Securities, Inc. approximately $625,000
and issued warrants to Chadbourn Securities, Inc. to purchase 212,700
shares of common stock at $3.00 per share. In April 2004, PEI California
entered into an agreement with Cagan-McAfee Capital Partners, LLC for
advisory services. Under this agreement, PEI California agreed to pay to
Cagan-McAfee Capital Partners, LLC 3% of any equity amount raised through
the efforts of Cagan-McAfee Capital Partners, LLC. In connection with its
March 2005 private placement, PEI California paid to Cagan-McAfee Capital
Partners, LLC $235,000 and in connection with the Share Exchange
Transaction, we paid approximately $85,000 to Cagan-McAfee Capital
Partners, LLC. Differences between us, on the one hand, and Cagan-McAfee
Capital Partners, LLC and Chadbourn Securities, Inc., on the other, arose
as to what fees, if any, we would owe to Cagan-McAfee Capital Partners, LLC
and/or Chadbourn Securities, Inc., under the advisory agreement in the
event that our sale of Series A Cumulative Redeemable Convertible Preferred
Stock to Cascade Investment, L.L.C., as described in one or more reports
incorporated by reference into this prospectus., is completed. Under a
Settlement Agreement and Release with Cagan-McAfee Capital Partners, LLC
and Chadbourn Securities, Inc. dated November 1, 2005, we terminated the
advisory agreement with Cagan-McAfee Capital Partners, LLC and made a
payment of $150,000 in accelerated monthly consulting fees under the
advisory agreement. In addition, in connection with the termination of the
advisory agreement, we agreed that, in the event that our transaction with
Cascade Investment, L.L.C. was completed, we would pay to Cagan-McAfee
Capital Partners, LLC $960,000 within five business days of the closing. We
paid this amount on April 13, 2006. Also, certain founders of PEI
California agreed to sell an aggregate of 500,000 shares of common stock
owned by them to Cagan-McAfee Capital Partners, LLC for a purchase price of
$0.01 per share for securing financing to close the Share Exchange
Transaction. Immediately prior to the consummation of the Share Exchange
Transaction, these founders sold these shares to Cagan-McAfee Capital
Partners, LLC at the agreed upon price. Prior to the aforementioned
transactions, PEI California paid fees of $100,000 to Cagan-McAfee Capital
Partners, LLC in connection with other private placement offerings and
issued warrants to Cagan-McAfee Capital Partners, LLC to purchase 50,000
shares of common stock at $2.00 per share.
(6) Power to vote or dispose of the shares is held by Ejnar Knudsen as
Executive Vice President of Western Milling LLC.
(35) Includes 8,600 shares underlying warrants.
(51) Includes 66,000 shares underlying warrants. Power to vote or dispose of the
shares is shared by Yoav Roth, Principal and Portfolio Manager, and John
Doscas, President, of Hudson Bay Fund LP. Messrs. Roth and Doscas disclaim
beneficial ownership of the securities held by Hudson Bay Fund LP. The
address for Messrs. Roth and Doscas is c/o Hudson Bay Fund LP, 120
Broadway, 40th Floor, New York, New York, 10271.
(52) Represents shares underlying warrants.
(53) Represents shares underlying warrants. Power to vote or dispose of the
shares is held by Shane Finemore as Managing Director of UBS AG. The
address for Mr. Finemore is c/o UBS AG, 1285 6th Avenue, New York, New
York, 10019.

(End of Prospectus Supplement No. 1.)