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Pacific Ethanol (PEIX) gave no information a week ago when it said it would be delaying the report of its fourth quarter and the release of its annual 10-K. When I called the company for more detail while working on my ethanol piece for the Wall Street Journal and MarketWatch, I was told there would be more information Tuesday.

And, boy, was there.

Turns out, according to an NT-10-K SEC filing: There was an “unauthorized deviation” of $3.9 million was taken from the company’s credit line “for the purpose of optimizing our cash position.” (In other words, they robbed Peter to pay Paul.) Unfortunately, by doing that, the company created an automatic violation of “a number” of loan covenants.

Meanwhile, another $3.4 million earmarked for a debt service account related to the construction of two plants never arrived at their designated destination, resulting in an automatic “default of the credit agreement.”

Oh, and according to that credit agreement, the company can only have seven Eurodollar loans outstanding. It has eight. Oops.

The company says it’s hoping to get a waiver from its lenders. If it can’t, it says its auditors will have to formally question the company’s status as a going concern.

But wait, there’s more: Thanks to loopy ethanol economics, the company says it expects to report that revenue last quarter rose 62% to $130.4 million. However (and this is where it gets to be a real bummer), its gross profit margin slumped to 1.3% from 14.6% a year earlier as its loss ballooned to $14.7 million from $3.1 million.

Oh, and almost forgot: The company said the loss includes a non-cash expense of about $4.4 million “from interest rate derivatives related to future periods and approximately $2 million from write-downs of deferred financing fees associated with the company’s suspension of construction” of a plant in California.

That’s what happens when the price of something you sell is considerably less than the cost of making it, especially when you thought it would be the other way around. The business of ethanol, in the end, isn’t really any more complicated than that.

Source: Pacific Ethanol: Juicy Details From Tuesday's 10-K