UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ		Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

o		Transition report under Section 13 or 15(d) of the Exchange Act.

Commission file number 000-52428

IOWA RENEWABLE ENERGY, LLC

(Name of small business issuer in its charter)

Iowa (State or other jurisdiction of		20-3386000 (I.R.S. Employer Identification No.)
incorporation or organization)
1701 East 7th Street, Washington, Iowa (Address of principal executive offices)		52353 (Zip Code)

(319) 653-2890
(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

26,331

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o Yes þ No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filed, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of March 31, 2010, the aggregate market value of the membership units held by non-affiliates (computed by reference to the issuer’s offering price of such membership units in its 2006 state registered offering, as no current trading market exists for such membership units) was $23,581,000.

As of December 28, 2010, there were 26,331 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report.

 

 

Table of Contents

PART I			3
ITEM 1. BUSINESS			3
ITEM 1A. RISK FACTORS			18
ITEM 2. PROPERTIES			27
ITEM 3. LEGAL PROCEEDINGS			27
ITEM 4. REMOVED AND RESERVED			28
PART II			28
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			28
ITEM 6. SELECTED FINANCIAL DATA			29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			39
ITEM 8. FINANCIAL STATEMENTS			F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			40
ITEM 9A. CONTROLS AND PROCEDURES			40
ITEM 9B. OTHER INFORMATION			40
PART III			41
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE			41
ITEM 11. EXECUTIVE COMPENSATION			41
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS			41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE			41
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			41
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES			41
SIGNATURES			42
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

AVAILABLE INFORMATION

Our website address is http://www.iowarenewableenergy.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are available, free of charge, on our website under the link “SEC Filings,” as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this annual report on Form 10-K.

PART I

ITEM 1.		BUSINESS.

Business Development

We began producing biodiesel on July 10, 2007. The plant was operating at full capacity until the end of September 2007; with only minor temporary shut downs for maintenance and a weather-related power outage. Since the beginning of October 2007, we have only been operating to produce biodiesel to satisfy existing contracts for the sale of our biodiesel and have not been producing biodiesel for speculation. This has allowed us to avoid excess inventory, but also resulted in several plant shutdowns. During the fourth quarter of fiscal year 2010, we did not operate our plant.

During the fourth quarter of fiscal year 2010, the Company was in a “warm shutdown” status, which means we maintained a minimal staff to allow for repairs and maintenance as well as performed load out function for “spot market” sales of our existing inventory. The Company did operate minimally to maintain our BQ-9000 certification. In the quarter ended June 30, 2010, the Company ran “black esters” product through the plant. Black esters are product that has previously been run through production and recaptured to create usable biodiesel. We anticipate the recaptured product, while meeting the ASTM standards, will be blended into new biodiesel when the plant is able to begin operating again, which we anticipate may occur in 2011 due to the renewal for 2011 of the biodiesel tax credit and the retroactive application of the biodiesel tax credit for 2010.

From July 1, 2010 through September 30, 2010 we did not produce new biodiesel and we did not have any revenues. We anticipate we may have operating interruptions throughout our 2011 fiscal year due to instability the biodiesel industry has experienced from government supports such as the Renewable Fuels Standard and the biodiesel tax credit. This biodiesel tax credit amounted to $1.00/gallon of biodiesel blended and allowed biodiesel to stay competitive with petroleum diesel. This tax credit expired on December 31, 2009, and was only recently reinstated in December 2010. This reinstatement was made retroactive to January 1, 2010 and will again expire on December 31, 2011. In addition, favorable RFS2 regulations were released in February 2010; however, application of the RFS2 has remained unclear. On December 21, 2010, however, a lawsuit challenging the RFS2 regulations was dismissed in full, which we anticipate may provide more certainty for the program. For more information on the RFS2 regulations, please see “Revenues” below. To the extent RFS2 and the biodiesel tax credit are not swiftly and effectively implemented, or if either of these supports are allowed to expire again, we will likely continue (or begin again) to experience lack of demand and instability in our business.

From October 1, 2009 through September 30, 2010 we produced approximately 2,300,000 gallons of biodiesel, which is only approximately 7.7% of our plant’s capacity. We anticipate operating the plant at increased levels during our fiscal year 2011, given the 800 million gallon requirement for biodiesel under RFS2 in 2011; however, our ability to operate depends upon many factors outside of our control, such as demand for biodiesel, price for biodiesel, cost of feedstock, possible expiration of the biodiesel tax credit in 2012, and the speed with which required parties begin to purchase biodiesel for their RFS2 requirements. If demand for biodiesel remains at its current low levels, or drops further during our 2011 fiscal year, we will likely operate our plant even less during our 2011 fiscal year than in our 2010 fiscal year. We do not anticipate speculatively producing biodiesel in the next 12 months. Therefore, if demand does not increase such that we can obtain contracts for at least the same number of gallons as produced during fiscal year 2010, then we may operate at a lower production rate than during fiscal year 2010. In addition, we have been experiencing liquidity difficulties since beginning operations and if these conditions do not improve, or get worse, during our 2011 fiscal year, then we will likely be unable to purchase sufficient feedstock to operate our plant at the levels we operated during fiscal year 2010.

Since our start-up of operations we have been dealing with short term liquidity issues. We haven’t had any contracts to sell any biodiesel since our third quarter. We do not currently have any executed contracts for our second quarter in our fiscal year 2011, however; we anticipate that we will execute contracts for our biodiesel in the near future and will then re-start operations at our plant.

We are currently in compliance with our revised loan agreement (see “Short and Long Term Debt Obligations” below for details on the amendments to our loan agreement). However, our revised loan agreement requires that we maintain an equity level described in the revised agreement which is set at $7,000,000. With our current sales experience and our high fixed costs structure we believe we will fall below the $7,000,000 threshold in our first quarter of fiscal year 2011. We are currently in discussions with our lead bank regarding the possibility of waiving or modifying this required equity level.

As discussed in the accompanying financial statements, we have generated accumulated losses of $15,256,097 since inception and undertaken significant borrowings to finance the construction of our biodiesel plant. These liquidity issues raise doubts about our ability to continue as a going concern (See Note 6 to the financial statements). We are uncertain how often we will be able to operate the plant, or if we will be able to operate at all as our operations will depend largely on how long it takes for obligated parties to begin to purchase biodiesel under RFS2.

General Demand

The biodiesel industry is still relatively new and unknown especially when compared to the ethanol industry. In 2009, the Renewable Fuels Association reported that a record 10.6 billion gallons of ethanol were produced in the United States. However, the biodiesel industry produced only approximately 545 million gallons of biodiesel in 2009, constituting only a small part of the U.S. diesel fuel market and a fraction of the amount of 2009 ethanol production. Total 2009 biodiesel production is also significantly less than that produced in 2008, which was approximately 700 million gallons. Biodiesel production overall is currently less than current national biodiesel production capacity. The Biodiesel Magazine website estimates that as of December 12, 2010, national biodiesel production capacity totaled approximately 2.83 billion gallons per year. According to the Biodiesel Magazine website there are 167 plants already operational, of these 58 are currently not producing biodiesel, and some do not currently operate at full capacity due to this excess production capacity and other economic factors.

While there has been some uncertain or negative public opinion regarding biodiesel, in July 2008 there was a change to the ASTM standards which allows up to 5% biodiesel to be blended in with petroleum diesel and the product to still be labeled as petroleum diesel. This may continue to provide demand for biodiesel, especially in conjunction with the renewed biodiesel tax credit and RFS2, and offset some of the negative public opinions the biodiesel industry has faced.

Principal Products and Markets

The principal products produced at our plant are biodiesel and crude glycerin. Iowa Renewable Energy’s biodiesel facility is able to pre-treat crude vegetable oils and animal fats. Our plant, however, does not have a soybean crushing facility and we are not capable of producing pharmaceutical grade glycerin. The plant is capable of having an annual capacity to process approximately 160,000,000 pounds of soybean oil and 70,000,000 pounds of animal fats and grease into approximately 30 million gallons of biodiesel and 3 million gallons of crude glycerin per year. Our equipment does, however, allow a variance from this ratio to compensate for changes in feedstock cost and availability. During the fiscal year ended September 30, 2010 we processed approximately 14,000,000 pounds of soybean oil and 2,000,000 pounds of animal fats and grease into 2,300,000 gallons of biodiesel and 1,900,000 pounds of crude glycerin.

We anticipate that we will continue to operate the plant at a similar ratio in the upcoming fiscal year, so long as feedstock costs remain at similar levels. If feedstock costs fluctuate, we will adjust what feedstocks we use accordingly so as to produce our biodiesel in the most cost-effective manner.

Primary Product- Biodiesel

Biodiesel is a clean-burning alternative fuel produced from domestic, renewable resources. Biodiesel is primarily used in compression ignition (diesel) engines and biodiesel can also be used as home heating oil. Biodiesel is comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, that can be used as feedstock for our facility. A chemical process called transesterification removes the free fatty acids from the base oil and creates the desired esters. Transesterification is the reaction of vegetable oil or animal fat with an alcohol, such as methanol or ethanol, in the presence of a catalyst. The process yields four products: mono-alkyl ester (biodiesel), glycerin, feed quality fat, and methanol. The methanol can be used again in the process. Biodiesel can then be used in neat (pure) form, or blended with petroleum diesel.

Biodiesel that is in neat (pure) form is typically designated in the marketplace as B100. The 100 indicates that the fuel is 100% biodiesel. Biodiesel is frequently blended with petroleum based diesel. When biodiesel is blended, it is typically identified in the marketplace according to the percentage of biodiesel in the blend. For instance, B20 indicates that 20% of the fuel is biodiesel and 80% is petroleum-based diesel.

Biodiesel’s physical and chemical properties, as they relate to operations of diesel engines, are similar to petroleum-based diesel fuel. As a result, biodiesel, in its pure form or blended with petroleum diesel, may be used in most standard diesel engines without making any engine modifications. Biodiesel demonstrates greater lubricating properties, referred to as lubricity, than petroleum-based diesel. This could lead to less engine wear in the long-run as biodiesel creates less friction in engine components than petroleum-based diesel. Biodiesel also demonstrates greater solvent properties. With higher percentage blends of biodiesel, this could lead to break downs in certain rubber engine components such as seals. The solvent properties of biodiesel also can cause accumulated deposits from petroleum-based diesel in fuel systems to break down. This could lead to clogged fuel filters in the short-term. Fuel filters should initially be checked more frequently when using biodiesel blends. These problems are less prevalent in blends that utilize lower concentrations of biodiesel compared to petroleum-based diesel.

Glycerin

Glycerin is the primary co-product of biodiesel production. Glycerin is produced at a rate of approximately 10% of the quantity of biodiesel produced. Glycerin possesses a unique combination of physical and chemical properties that make it suitable for use in a wide variety of products. It is highly stable under typical storage conditions, compatible with a wide variety of other chemicals and comparatively non-toxic. Glycerin has many applications, including as an ingredient or processing aid in cosmetics, toiletries, personal care, drugs, and food products. Our glycerin, however, cannot be used in pharmaceutical products without further processing, and we do not have the capabilities to refine our glycerin into pharmaceutical quality.

Biodiesel Markets

Biodiesel is primarily used as fuel for compression ignition (diesel) engines. It is produced using renewable resources and provides environmental advantages over petroleum-based diesel fuel, such as reduced vehicle emissions. Our ability to market our biodiesel is heavily dependent upon the price of petroleum-based diesel fuel as compared to the price of biodiesel, in addition to the availability of economic incentives to produce and use biodiesel.

Biodiesel is frequently used as fuel in transport trucks, ships, trains, in farming activities and in many government vehicles. Government legislation that seeks to encourage the use of renewable fuels could lead to an expansion of the market for biodiesel in the future. Biodiesel has been identified as a potentially good substitute for diesel fuel in underground mining operations because it burns cleaner and leads to less air pollution, a feature that is very important in confined places such as mines. Further, biodiesel may be safer to handle in a mine setting where fire can be disastrous. Additional markets may become available as a result of growing environmental concerns by American consumers as well as an increased awareness of energy security and the United States’ ability to supply its own fuel needs. However, biodiesel still only accounts for a very small percentage of the diesel fuel market as a whole. The biodiesel industry will need to continue to grow demand in order to sustain the price of biodiesel into the future.

Wholesale Market / Biodiesel Marketers

The wholesale market involves selling biodiesel directly to fuel blenders or through biodiesel marketers. Fuel blenders purchase neat (B100) biodiesel from biodiesel production plants, mix it with petroleum diesel fuel according to specifications, and deliver a final product to retailers. There are few wholesale biodiesel marketers in the United States. Three examples are World Energy of Chelsea, Massachusetts, Eco-Energy, Inc. of Franklin, Tennessee, and REG, Inc. of Ames, Iowa. These companies use their existing marketing relationships to market the biodiesel of individual plants to end users for a fee. On June 30, 2010, our management and operational services agreement with Renewable Energy Group, Inc. (“REG”) terminated, and the term of our management services agreement (“Management Agreement”) with WMG Services LLC (“WMG”) began. The Management Agreement provides that WMG will provide certain facility administration services; accounting services; and marketing, sales, feedstock sourcing and logistic services for IRE in exchange for a monthly asset utilization fee and a monthly performance fee. The Management Agreement shall continue for a term of twenty-four (24) months from the Effective Date. Thereafter, the Agreement shall automatically renew for additional successive terms of twelve (12) months, unless either party gives ninety (90) days notice of its desire not to renew. The Management Agreement may also be terminated for a failure to cure a material breach of the Agreement thirty (30) days after receipt of notice of the breach, or for a change of control. If WMG cannot sell our biodiesel, or sell it at profitable prices, we will likely continue to experience losses.

Retail Market

The retail market consists of biodiesel distribution primarily through fueling stations to transport trucks and jobbers, which are individuals that buy products from manufacturers and sell them to retailers, for the purpose of supplying farmers, maritime customers and home heating oil users. Retail level distributors include oil companies, independent station owners, marinas and railroad operators. The biodiesel retail market is still in its very early stages as compared to other types of fuel. If demand for biodiesel were to increase, then the present marketing and transportation network must expand significantly in order for our company to effectively market our biodiesel to retail users. Areas that would require expansion include, but are not limited to:

•

additional storage facilities for biodiesel;

•

expansion in refining and blending facilities to handle biodiesel; and

•

growth in service stations equipped to handle biodiesel fuels.

With greater consumer awareness of renewable fuels, we anticipate that the availability of biodiesel may increase in the future. However, substantial investments required for these infrastructure changes and expansions may not be made or they may not occur on a timely basis. Any delay or failure in making the changes to or expansion of infrastructure could hurt the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise have a material adverse effect on our results of operations or financial position. Our business is dependent on the continuing availability of infrastructure and any infrastructure disruptions could have a material adverse effect on our business.

International Markets

Through our marketer, WMG, we expect that a portion of our biodiesel may be sold abroad to international markets, particularly Canada. In some instances, we believe that international biodiesel sales may return greater profits than domestic biodiesel sales. However, demand for international sales have been greatly reduced as a result of anti-dumping and anti-subsidy tariffs imposed by the European Commission on all biodiesel produced in the United States. The tariffs went into effect March 13, 2009 and the European Commission determined in July 2009, that the tariffs would be extended through 2014. According to the May 2009 issue of the Biodiesel Magazine, the tariffs could result in an additional charge of $30 to $265 per metric ton of biodiesel. Because of these tariffs, we do not anticipate any sales to Europe.

Government/Public Sector

The government has increased its use of biodiesel since the implementation of the Energy Policy Act (EPACT) of 1992, amended in 1998, which authorized federal, state and public agencies to use biodiesel to meet the alternative fuel vehicle requirements of EPACT. Although it is possible that individual plants could sell directly to various government entities, it is unlikely our plant could successfully market our biodiesel through such channels. Government entities have very long sales cycles based on the intricacies of their decision making and budgetary processes.

Glycerin Markets and Demand

In 2006, excess production of glycerin caused the price of crude glycerin to decline dramatically, to the point that some producers had to pay to dispose of their glycerin. Since then glycerin prices have been experiencing an increase. As of mid December 2010, according to the Jacobsen Biodiesel Bulletin, average crude glycerin prices were approximately 14 to 16 cents per pound. WMG currently markets the glycerin produced at our plant pursuant to our Management Agreement. If oversupply of glycerin and low glycerin prices occurs it may limit our ability to generate revenues through the sale of our primary co-product. This may negatively affect the profitability of our business.

Relatively higher refined glycerin prices, averaging approximately 40 to 42 cents per pound according to the Jacobsen Biodiesel Bulletin in December 2010, have prompted some of our competitors, such as Cargill Inc. (Cargill) and Archer Daniels Midland Co. (ADM) to expand their glycerin refining capacities. These biodiesel producers may therefore have a competitive advantage over plants like ours that do not have glycerin refining capabilities.

Additional uses for glycerin are being researched. Research has been underway to develop technology that converts glycerin, a byproduct of biodiesel production, into ethanol. Ethanol made from glycerin may be cheaper to produce than ethanol made from corn, as glycerin does not require the extensive pre-processing steps required for corn. Research has also been underway to develop methods of converting glycerin into propylene glycol, which is a compound used in a variety of industrial products, including paints, polyester resins, lubricants, antifreeze and cosmetics. Accordingly, development of these technologies could increase the demand for glycerin. However, such technologies are still currently under development and there is no assurance that such technologies will become readily available or that they would increase demand for glycerin. Moreover, there is no assurance that our glycerin would work to be processed into ethanol, and taking advantage of such technology may require additional equipment or equipment modification. If we did not have the resources to purchase additional equipment or make equipment modifications, such technology developments could result in our glycerin being at a competitive disadvantage.

Distribution of Principal Products

Our Management Agreement with WMG requires WMG to provide certain facility administration services; accounting services; and marketing, sales, feedstock sourcing and logistic services for IRE in exchange for a monthly asset utilization fee and a monthly performance fee. The Management Agreement shall continue for a term of twenty-four (24) months from the Effective Date. Thereafter, the Agreement shall automatically renew for additional successive terms of twelve (12) months, unless either party gives ninety (90) days notice of its desire not to renew. The Management Agreement may also be terminated for a failure to cure a material breach of the Agreement thirty (30) days after receipt of notice of the breach, or for a change of control. If WMG cannot sell our biodiesel, or sell it at profitable prices, we will likely continue to experience losses.

Our products can be delivered by truck or rail. Our property is located approximately thirty-five miles from Interstate 80 and thirty miles from the Mississippi River. We have established rail service directly to the plant so that we are able to ship biodiesel to our customers by rail. Rail service is provided by the Iowa, Chicago and Eastern Railroad, and WMG coordinates all of our transportation services pursuant to our Management Agreement.

Sources and Availability of Raw Materials

Feedstock Cost and Supply

The cost of feedstock is the largest single component of the cost of biodiesel production, accounting for 70% to 90% of the overall cost of producing biodiesel. As a result, increased prices for feedstock greatly impact the biodiesel industry. Our plant is capable of pretreating crude vegetable oil, including soybean oil and corn oil, and animal fats and utilizing the same to produce biodiesel. Animal fat has been less expensive to acquire than soybean oil and, accordingly, we attempt to use as much animal fat feedstock as possible so long as producing our biodiesel from animal fat would return greater profit margins. Animal fat biodiesel demand, however, does typically decline in the colder fall and winter months and, accordingly, our use of animal fats have been declining during such months. We anticipate that we will continue to use corn oil as a feedstock source for so long as its use returns greater profit margins as compared to soybean oil. The USDA December 13, 2010 Oil Crops Outlook report provides that the average November 2010 price for corn oil was 51.00 cents per pound, which was slightly higher than the November 2010 price for soybean oil of 47.62 cents per pound and more than the November 2010 prices for lard and edible tallow, which were 37.32 and 41.75 cents per pound, respectively

In the event we cannot obtain adequate supplies of feedstock at affordable prices, our ability to operate profitably may be materially impaired. We may be forced to shut down the plant temporarily or even permanently. Due to the increased prices for our inputs, decreased demand for biodiesel and our liquidity issues, we have experienced temporary shutdowns and are currently operating well below our capacity. For the fourth quarter of the year ended September 30, 2010, our plant did not operate, but averaged 7.7% capacity production during the twelve months ended September 30, 2010. Continued plant shutdowns and increased feedstock costs may reduce our revenues and the value of your investment.

Soybean Oil

The ten-year average price for soybean oil is approximately 28 cents per pound. However, soybean oil prices have been extremely volatile, reaching record highs in the summer of 2008 and sharply declining thereafter. The USDA December 13, 2010 Oil Crops Outlook report provides that the average November 2010 soybean oil price was approximately 47.62 cents per pound, which is below the July 2008 peak prices of 62.54. The drop in soybean oil prices was likely caused by the changing global economic conditions triggered by the recent failure of various major U.S. financial institutions, the passage of the federal government’s $700 billion bailout plan, the tightening of credit markets and the economic downturn experienced by the U.S. and other countries. According to the USDA’s National Weekly Ag Energy Round-Up report, crude soybean oil prices in Iowa for the week of December 10, 2010 ranged from 49.90 to 51.15 cents per pound. The USDA forecasted that these soybean oil prices will remain in this range during the 2009/2010 marketing season, with a predicted price range of 45 to 49 cents per pound. The charts below show U.S. soybean oil prices over the past ten years and for each month from the beginning of the 2009/2010 marketing year to November 2010:

U.S. Soybean Oil Average Prices for the Past 10 Years
Marketing Year		Price (cents)
1999/00			15.60
2000/01			14.15
2001/02			16.46
2002/03			22.04
2003/04			29.97
2004/05			23.01
2005/06			23.41
2006/07			31.02
2007/08			52.03
2008/09			32.16
2009/10			35.95
2010/11			45.0-49.0	(1)

U.S. Soybean Oil Average Prices for 2009-2010
Marketing Year
Month		Price (cents)
October 2009			33.15
November 2009			36.59
December 2009			36.81
January 2010			34.88
February 2010			34.69
March 2010			36.39
April 2010			37.11
May 2010			35.41
June 2010			34.47
July 2010			35.07
August 2010			37.57
September 2010			39.21
October 2010			44.02
November 2010(1)			47.62

Data provided by USDA, Oil Crops Outlook Report, December 13, 2010

Because it takes more than seven pounds of soybean oil to make a gallon of biodiesel, increases in soybean oil costs significantly reduce the potential profit margin on each gallon of biodiesel produced from soybean oil and sold. Any increase in the cost of soybean oil will negatively impact our ability to generate revenues and profits. Conversely, if the soybean oil price drops, this would have a positive impact on our revenues. Due to high soybean oil costs throughout most of the 2010 fiscal year, we have been using alternative forms of feedstock as substitutes for soybean oil to the greatest extent possible. These substitutes include animal fat and used cooking oil. Used cooking oil tends to have a reduced yield due to a higher water content and other particles in the raw stock. However, prices for these alternative feedstocks have tended to increase along with the cost of soybean oil. Accordingly, we will continue to explore additional low-cost feedstocks and utilize soybean oil to the extent it remains a profitable and marketable option.

Increased competition with other biodiesel plants for soybean oil may result in prices again increasing to 2008 prices for soybean oil. Accordingly, the number of acres of soybeans planted and harvested can impact the price of and competition for soybean oil. In its December 13, 2010 Oil Crops Outlook report, the USDA reported that 76.8 million soybean acres were harvested in the 2010-2011 crop year. The portion of that used to make biodiesel is not expected to increase significantly due to the competition from other vegetable oils and animal fats being used as alternative sources of feedstock.

Animal Fats and Other Alternative Feedstocks

Our plant is also capable of utilizing animal fats to produce biodiesel and, like soybean oil, animal fat costs have also increased over the past several years. Animal fat costs peaked in the summer of 2008, and have since fallen as domestic and global economic conditions have worsened. Although prices for animal fats have declined from their recent peak, animal fat costs are nonetheless higher than their historical average. The USDA December 13, 2010 Oil Crops Outlook report provides that the average November 2010 prices for lard and edible tallow were 37.32 and 41.75 cents per pound, respectively. The USDA predicted lard and edible tallow prices could increase slightly for 2010/2011, ranging from 41 to 45 cents per pound for lard and 38.5 to 42.5 cents per pound for edible tallow. If animal fat prices increase such that it is not profitable to use this feedstock, we may again increase our use of soybean oil.

The charts below show U.S. lard and edible tallow prices over the past ten years and for each month from the beginning of the 2009/2010 marketing year to November 2010:

Lard & Edible Tallow Average Prices for Past Ten Years
Marketing Year		Lard				Edible Tallow
		(cents)				(cents)
1999/00			13.64				13.21
2000/01			14.61				13.43
2001/02			13.55				13.87
2002/03			18.13				17.80
2003/04			26.13				22.37
2004/05			21.80				18.48
2005/06			21.74				18.16
2006/07			28.43				27.32
2007/08			40.85				41.68
2008/09			26.72				25.47
2009/2010			31.99				32.26
2010/11			41.0-45.0	(1)			38.5-42.5	(1)

Lard & Edible Tallow Average Prices for 2009-2010
Marketing Year
Month		Lard				Edible Tallow
		(cents)				(cents)
October 2009			25.75				27.63
November 2009			30.07				29.65
December 2009			28.75				29.99
January 2010			28.60				29.48
February 2010			28.25				29.42
March 2010			32.95				33.73
April 2010			33.95				35.14
May 2010			34.24				35.33
June 2010			32.98				35.72
July 2010			31.42				32.50
August 2010			33.33				33.54
September 2010			43.59				35.02
October 2010			46.64				37.00
November 2010			37.32	(1)			41.75	(1)

Data provided by USDA, Oil Crops Outlook Report, December 13, 2010

We have also been using corn oil that we obtain from ethanol plants as an alternative feedstock from time to time. We expect that, like animal fats, corn oil may be a less costly feedstock alternative to soybean oil. The National Weekly Ag Energy Round-Up for the week of December 10, 2010 indicates that crude corn oil costs in the Midwest ranged from 53 cents to 54 cents per pound. Corn oil-based biodiesel has cold flow properties similar to those of soybean oil-based biodiesel and accordingly, we may be able to continue to use corn oil as feedstock in the fall and winter months when demand for animal fat-based biodiesel could decrease. Corn oil, however, tends to cause a waxy substance to build-up during the production process. Due to this build-up, we expect that we will not be able to produce any biodiesel blends containing greater than 5% corn oil. The unique characteristic of corn oil could cause it to be a less desirable feedstock then other feedstocks. The amount of corn oil that we will be able to acquire will likely depend upon the rate in which ethanol plants begin installing corn oil extraction equipment at their plants and the extent to which they market their corn oil. Production of corn oil at ethanol plants may be inhibited due to a patent lawsuit related to certain technology used by some ethanol plants to extract corn oil.

In the event we cannot obtain adequate supplies of feedstock at affordable costs for sustained periods of time, then we may be forced to shut down the plant temporarily or permanently. Shut downs and increased feedstock costs may reduce our revenues from operations which could decrease or eliminate the value of our units.

Feedstock Cold Flow Properties

Because biodiesel has different cold flow properties depending on the type of feedstock used in its manufacture, cold flow also becomes a primary factor in determining the type of feedstock to use. “Cold flow” refers to a fuel’s ability to flow easily at colder temperatures and is an important consideration in producing and blending biodiesel for use in colder climates and in colder seasons. The pour point for a fuel is the temperature at which the flow of the fuel stops. Therefore, a lower pour point temperature means the fuel is usable in colder temperatures. The following table represents the pour points for different types of fuels:

Type of Fuel		Pour Point
Soy-based Biodiesel (B100)			30ºF
Tallow-based Biodiesel (B100)			61ºF
No. 2 Petro Diesel (B0)			-30ºF
B2 Soy Blend with No. 2 Diesel			-25ºF

To provide biodiesel with an acceptable pour point in cold weather, we will need to blend our biodiesel with petroleum-based diesel. Generally, biodiesel that is used in blends of 2% to 20% will provide an acceptable pour point for the Iowa market. We expect that our marketer will sell our biodiesel throughout the nation and abroad. Cold flow additives can also be used seasonally to provide a higher level of cold weather protection, similar to the current practice with conventional diesel fuel. Demand for our biodiesel may diminish in colder climates and during the colder months as a result of cold flow concerns. We are capable of producing biodiesel from soybean oil, corn oil, and animal fats. Approximately 14% of our biodiesel production for fiscal year 2010 was animal fat or other alternative feedstock biodiesel blends, which is a significant decrease from the 86% in fiscal year 2009.

Hedging

Due to fluctuations in the price and supply of feedstock, we have utilized forward contracting and hedging strategies to manage our commodity risk exposure and optimize finished product pricing and supply, however; as of the date of this report we do not have any forward contracts. Hedging means protecting the price at which we buy feedstock and the price at which we will sell our products in the future. It is a way to attempt to reduce the risk caused by price fluctuations. The effectiveness of such hedging activities is dependent upon, among other things, the cost of feedstock and our ability to sell sufficient amounts of biodiesel. Although we attempt to link hedging activities to sales plans and pricing activities, such hedging activities can themselves result in costs because price movements in feedstock contracts are highly volatile and are influenced by many factors that are beyond our control. We may incur such costs and they may be significant. The market for soybean oil trades 18 months into the future. The animal fats market has no futures trade. However, there is a quoting system through the USDA that provides for price discovery for animal grease. There is not enough volume of biodiesel produced to currently justify a futures market. As such, there is no spot biodiesel price, making current price discovery limited. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Commodity Price Risk Protection.”

Pretreatment Costs

Crude soybean oil and all animal fats need to be pretreated before being processed into biodiesel. Pretreatment takes crude soybean oil, corn oil and any animal fat or grease, removes the impurities and prepares the feedstock to go through the biodiesel production process. Some types of feedstock need more treatment than others. For example, virgin soybean oil can be easier and cheaper to pretreat than turkey fat, and turkey fat can be easier and cheaper to pretreat than beef tallow. The cost of the process is driven by the structure of the feedstock and the impurities in the feedstock.

For soybean oil, the pretreatment process results in refined and bleached (RB) oil. The price differential between RB oil and crude soy oil is ordinarily 5 cents per pound. Our processing plant has pretreatment capabilities allowing us to utilize crude vegetable oil and many types of fat or grease as feedstock in our facility. This added flexibility allows us to choose the feedstock that will produce biodiesel in the most cost-effective manner possible. Transitioning between feedstocks or to new feedstocks, however, does require our employees to spend time adjusting our equipment and determining the specific process to most profitably use a different feedstock takes time and resources.

Feedstock Procurement

We entered into the Management Agreement with WMG to provide marketing services for our products. The inability of WMG to obtain adequate feedstock for our facility at economical prices, or at all, could have significant negative impacts on our ability to produce biodiesel and on our revenues.

Utilities

Our biodiesel plant requires a significant and uninterrupted supply of electricity, natural gas and water to operate. We do not have any long term agreements for our utilities but receive them on a monthly invoice basis.

Electricity. We require a significant supply of electricity to operate our plant. Alliant Energy supplies us with our electricity needs, on a monthly basis at variable rates.

Water and Sewer. We require a significant supply of water to operate our plant. The City of Washington supplies us with water, on a monthly basis at variable rates. We have entered into an agreement to have our wastewater handled by the Cities of Cedar Rapids, Muscatine and Des Moines until the City of Washington has the capacity to handle our wastewater.

Natural Gas. We require a significant supply of natural gas. Alliant Energy supplies us with natural gas on a monthly basis at variable rates.

Rail. Our rail access is complete and we are capable of shipping our biodiesel by both rail and truck. The Iowa, Chicago & Eastern Railroad supplies our plant with rail service and WMG makes all of our transportation arrangements.

New Products and Services

We have not introduced any new products or services during the fiscal year ended September 30, 2010.

Government Regulation and Federal Biodiesel Supports

Federal Biodiesel Supports

We expect demand for biodiesel in the United States to grow due to the demand for cleaner air, an emphasis on energy security, and the Renewable Fuels Standard and other government support of renewable fuels. The Energy Policy Act of 2005 and Jobs Bill established the groundwork for biodiesel market development. The Energy Independence and Security Act of 2007 was designed to further encourage the production and use of biodiesel in the United States.

Renewable Fuels Standard

The Energy Policy Act of 2005 created the Renewable Fuel Standard (RFS) which required refiners to use 7.5 billion gallons of renewable fuels by 2012. The Energy Independence and Security Act of 2007 (EISA) expanded the existing RFS to require the use of 9 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons of renewable fuel by 2022 (RFS2). The RFS2 requires that 600 million gallons of renewable fuel used in 2009 must come from advanced biofuels other than corn-based ethanol, such as ethanol derived from cellulose, sugar or crop residue and biomass-based diesel (which includes biodiesel and renewable diesel), increasing to 21 billion gallons in 2022. The RFS2 further includes a requirement that 500 million gallons of biodiesel and biomass-based diesel fuel be blended into the national diesel pool in 2009, gradually increasing to one billion gallons by 2012. However, in November 2008, the EPA announced that the RFS2 program in 2009 would continue to be applicable to producers and importers of gasoline only. This meant that the 500 million gallons of biomass-based diesel required by the RFS2 did not have to be blended into U.S. fuel supplies in 2009. This is due to the fact that the regulatory structure of the original RFS program did not provide a mechanism for implementing the EISA requirement for the use of 500 million gallons of biomass-based diesel. On February 3, 2010 the EPA issued final rules under RFS2. The final rules addressed this issue by combining the 2010 biomass-based diesel requirement of 0.65 billion gallons with the 2009 biomass-based diesel requirement of 0.5 billion gallons to require that obligated parties meet a combined 2009/2010 requirement of 1.15 billion gallons by the end of the 2010 compliance year. We anticipate that there will again be a roll-over of some of the 2010 requirement into 2011 and also that some of the cellulosic requirements that cannot be achieved due to lack of technology may be allowed to be filled by biodiesel. Thus, we anticipate that biodiesel requirements under the 2011 RFS2 may exceed the standard 800 million gallon requirement.

Part of RFS2 required that advanced biofuels reduce life cycle greenhouse gas emissions by 50% relative to gasoline sold or distributed in transportation. In May 2009, the EPA proposed rules that took into account indirect land use changes when calculating greenhouse gas emissions. Based on the EPA’s preliminary findings, soy-based biodiesel was found to reduce greenhouse gas emissions by only 22%, which would disqualify it from counting towards the RFS2. Biodiesel from animal fat was found to reduce greenhouse gas emissions by approximately 80%. The EPA did not measure biodiesel produced from corn oil. However, when the EPA issued its final determinations under the RFS2, it found that soy oil complies with the 50% greenhouse gas emission reduction requirements.

The RFS2 program recently gained additional certainty when on December 21, 2010, a lawsuit challenging the RFS2 regulations was dismissed. We anticipate that the RFS2 may increase demand for biodiesel in the long-term, as it sets a minimum usage requirement for biodiesel and other types of biomass-based diesel. However, there can be no assurances that demand for biodiesel will be increased by the RFS2. As of December 12, 2010, the Biodiesel Magazine website estimated that national biodiesel production capacity was approximately 2.83 billion gallons per year, which already exceeds the 2012 biodiesel and biomass-based diesel use mandate contained in the EISA. Accordingly, there is no assurance that additional production of biodiesel and biomass-based diesel will not continually outstrip any additional demand for biodiesel that might be created by this new law. We also anticipate that the expanded RFS2 will be primarily satisfied by ethanol, including both corn-based and other types of ethanol. The amount of corn-based ethanol that may be used to satisfy the RFS2 requirements is capped at 15 million gallons starting in 2015 and, accordingly, other types of ethanol, including cellulose-based ethanol, will likely be used to satisfy any requirements over and above the 15 million gallon corn-based ethanol cap. Furthermore, we have not yet significantly benefited from RFS2 because the biodiesel tax credit was expired when the final RFS2 regulations were released. Because the biodiesel tax credit was only recently reinstated and extended, we are still not certain if this measure will be enough to re-stimulate the biodiesel market.

Biodiesel Tax Credit

The American Jobs Creation Act of 2004 originally created the biodiesel blender’s excise tax credit under the Volumetric Ethanol Excise Tax Credit (“VEETC”). Known as the biodiesel tax credit, it provided a tax credit of $1.00 per gallon for biodiesel. The biodiesel credit may be claimed in both taxable and nontaxable markets, including exempt fleet fuel programs and off-road diesel markets. The desired effect of the biodiesel tax credit was to streamline the use of biodiesel and encourage petroleum blenders to blend biodiesel as far upstream as possible, which will allow more biodiesel to be used in the marketplace. The biodiesel tax credit also streamlined the tax refund system for below-the-rack blenders to allow a tax refund of the biodiesel tax credit on each gallon of biodiesel blended with diesel (dyed or undyed) to be paid within 20 days of blending. Below-the-rack blenders are those blenders that market fuel that is for ground transportation engines and is not in the bulk transfer system. The biodiesel credit expired on December 31, 2009. Only in December 2010 was the biodiesel tax credit reinstated retroactively for 2010 and extended through December 31, 2011. Due to the recent nature of this change, it remains uncertain whether a one year extension of the biodiesel tax credit will be sufficient to stimulate demand for biodiesel. Moreover, we do not anticipate to benefit very much from the retroactive application of the biodiesel tax credit in 2010, because of our limited number of sales during the year.

Commodity Credit Corporation Bioenergy Program

The Farm, Nutrition and Bioenergy Act of 2008 reauthorized the Commodity Credit Corporation, or CCC, Bioenergy Program. The program provides $55.0 million in funding in both 2009 and 2010, $85.0 million in funding in 2011 and $105.0 million in funding in 2012 for producers of advanced biofuels derived from renewable biomass, including biodiesel, other than corn kernel. Biodiesel producers must apply for this credit and will be paid based on the quantity and duration of advanced biofuels production and on net nonrenewable energy content of the advanced biofuel. Funding to a single eligible producer may be limited to ensure equitable distribution of funding. Producers with production capacity of less than 150 million gallons will be eligible for 95% of the funds provided under the program. We received approximately $216,000 in funds pursuant to the CCC Bioenergy Program in 2009 and approximately $280,000 during 2010.

State Legislation

Several states, including Iowa, are currently researching and considering legislation to increase the amount of biodiesel used and produced in their states. Minnesota was the first state to mandate biodiesel use. The Minnesota legislation, which became effective in September 2005, required that all diesel fuel sold in the state contain a minimum of 2% biodiesel. In 2008, Minnesota passed additional legislation to increase biodiesel content of diesel fuel sold in the state from 2% to 20%, which is the highest in the nation, by 2015. In 2009, Minnesota increased its biodiesel blend requirements to mandate all diesel fuel contain a minimum of 5% biodiesel, however; the state has occasionally had to suspend this requirement during winter months, due to cold flow concerns. Similarly, in July 2008, Massachusetts signed a law that requires all home heating oil and diesel fuel in the state to consist of 2% biodiesel by 2010 and 5% biodiesel by 2013. However, the Massachusetts Department of Energy Resources will be entitled to delay those requirements if it determines that fuels are not available to meet these requirements.

Originally passed in May 2006, and updated in 2009, Iowa passed legislation that creates a renewable fuels standard (IRFS) that requires 10% of the fuel used in Iowa to be from renewable sources by 2009 and increasing the renewable fuel standard to 25% by 2021. While this does not require biodiesel use, it may significantly increase renewable fuels use in Iowa, which may include increased biodiesel use in Iowa. The Iowa legislation includes tax credits to help retailers meet this requirement.

For example, Iowa provides for an incentive of three cents per gallon of biodiesel sold for retailers who sell at least 50% biodiesel blends. This incentive, known as the Biodiesel Blended Fuel Tax Credit, is also expected to support biodiesel sales and production. This incentive is set to expire in 2012.

In addition, in 2009, Iowa passed the Ethanol Promotion Tax Credit, which began in 2009 and ends after calendar year 2020. The incentive each site is eligible for will be directly tied to the IRFS schedule with amounts to be paid only for “pure” ethanol gallons (E100). The law allows “pure” biodiesel gallons (B-100) to count toward achieving the threshold schedule. However, biodiesel gallons are not eligible for these credits; as they are covered by the Biodiesel Blended Fuel Tax Credit. The schedule is based on E-100 plus B-100 divided by total gasoline gallons. The amount of the credit will be determined each year using:

	•		6.5 cents per gallon of E100 if retailer meets the biofuel standard threshold percentage
	•		4.5 cents per gallon of E100 if retailer is within 1-2% of threshold percentage
	•		2.5 cents per gallon of E100 if retailer is within 3-4% of threshold percentage
	•		0 cents if more than 4% below the threshold percentage

We anticipate this program may also support biodiesel demand and growth in our industry.

Other states have enacted legislation to encourage (but not require) biodiesel production and use. Several states provide tax incentives and grants for biodiesel-related studies and biodiesel production, blending, and use. In addition, several governors have issued executive orders directing state agencies to use biodiesel blends to fuel their fleets.

Future Legislation

Environmental regulations that may affect our company change frequently. It is possible that the government could adopt more stringent federal or state environmental rules or regulations, which could increase our operating costs and expenses. The government could also adopt federal or state environmental rules or regulations that may have an adverse effect on the use of biodiesel. Furthermore, the Occupational Safety and Health Administration (OSHA) governs our plant operations. OSHA regulations may change such that the costs of the operation of the plant may increase. Any of these regulatory factors may result in higher costs or other adverse effects on our operations, cash flows and financial performance. These adverse effects could decrease or eliminate the value of our units.

Competition with Other Biodiesel Producers

We operate in a very competitive environment. Biodiesel is a relatively uniform commodity where competition in the marketplace is predominantly based on price, consistent fuel quality, and to a lesser extent delivery service. We compete with large, multi-product companies and other biodiesel plants with varying capacities. Some of these companies can produce biodiesel in a more efficient manner than we are able. We face competition for capital, labor, management, feedstock and other resources. Some of our competitors have greater resources than we currently have or will have in the future. Some of our competitors have soy-crushing facilities and are therefore not reliant upon third parties for their soybean oil supply.

In 2009, approximately 545 million gallons of biodiesel were produced in the United States, which is down from the approximately 700 million gallons produced in 2008. As of December 12, 2010, the Biodiesel Magazine website reported that there were 167 biodiesel plants in the United States, but that only 109 of these plants are currently operating. The total annual production capacity of all 167 plants is 2.82 billion gallons, the production capacity of those currently operating is 1.94 billion gallons. Two plants are undergoing expansion to increase their annual production capacity and another 11 plants were reported to be in the planning stages or under construction as of December 12, 2010. The additional combined capacity of these plants under construction or expansion is estimated at 386 million gallons per year. Accordingly, biodiesel supply may already far exceed demand for biodiesel. Currently, there are 12 existing biodiesel plants in Iowa, including our plant; however, according to the Biodiesel Magazine website only 6 of these are currently operating and several of these plants may not be operating at full capacity. We expect that additional biodiesel producers may enter the market if the demand for biodiesel increases. As additional biodiesel plants are constructed and brought on line, we expect the supply of biodiesel to increase. The absence of increased demand may cause prices for biodiesel to decrease. We may not be able to compete successfully or such competition may reduce our ability to generate the profits necessary to operate our plant.

While WMG markets our biodiesel to end users both domestically and internationally, biodiesel plants in Iowa are direct competitors for local end users and resources other than customers. We compete with the plants in Iowa for capital, labor and management. These resources tend to be utilized from a local market, and additional strains placed on these resources by increased competition in Iowa could result in our company being forced to expend additional funds on recruiting labor and management to relocate from other areas. In addition, while we may receive feedstock from areas beyond the state of Iowa, the most cost-efficient feedstock will likely come from local suppliers, as this will reduce transportation costs. We directly compete with Iowa biodiesel plants for business from a limited number of local feedstock suppliers.

We must compete with other biodiesel producers in the industry not just in the sale of our biodiesel, but also in the acquisition of soybean oil, animal fats and other feedstocks and raw materials. A majority of biodiesel plants, including many of the largest biodiesel producers, utilize soybean oil. This may change over time as high soybean oil prices are encouraging biodiesel producers to find ways to utilize alternative and less costly types of feedstock. Furthermore, producers may increasingly design their plants with the capability to use multiple feedstocks. Nonetheless, we expect that increased biodiesel production will continue to increase the demand and cost of not only soybean oil, but also animal fats and other inputs. We expect this will make it more expensive for us to produce our biodiesel and will reduce our profit margins from biodiesel. This is because there is little or no correlation between the cost of feedstock and the market price of biodiesel and, therefore, we cannot pass along increased feedstock costs to our biodiesel customers. In order to stay competitive in the diesel industry, biodiesel must be competitively priced with petroleum-based diesel. Therefore, biodiesel prices fluctuate more in relation to petroleum-based diesel market prices than with feedstock market prices. As a result, increased feedstock costs and reduced biodiesel prices result in decreased profit margins. If we experience high feedstock costs or reduced biodiesel prices for a sustained period of time, such pricing and costs may reduce our ability to generate revenues and our profit margins may significantly decrease or be eliminated.

Many current plants are capable of using only vegetable oil for feedstock. Our plant is able to use both vegetable oils and animal fats to produce biodiesel, allowing us to use whichever types of feedstock provides the greatest return at any given time. This is beneficial because the cost of feedstock is the highest cost associated with biodiesel production. Our ability to utilize animal fats is also significant because animal fat-based biodiesel has some favorable advantages over soybean oil-based biodiesel, such as better lubricity and lower nitrogen oxide (NOx) emissions. However, some purchasers of animal fat-based biodiesel may believe that it is not suitable for use during the winter months in colder climates due to its tendency to gel at higher temperatures. This could limit our ability to sell animal fat-based biodiesel during winter months.

We compete with large, multi-product companies and other biodiesel plants with varying capacities. Some of our competitors have greater resources than we currently have or will have in the future. Large plants with which we compete include the 85 million gallon per year Archer Daniels Midland Co (ADM) canola-based plant in Velva, North Dakota; the 90 million gallon per year Green Earth Fuels multi-feedstock plant in Galena Park, Texas; the 100 million gallon per year multi-feedstock Imperium Grays Harbor plant in Grays Harbor, Washington; the 100 million gallon per year multi-feedstock plant in Las Vegas, Nevada; and the 180 million gallon per year multi-feedstock RBF Port Neches plant in Port Neches, Texas which became operational in the fourth quarter of 2008.

Although most biodiesel plants are not equipped to process raw materials (such as soybeans) into feedstock (such as soybean oil), there are several of our competitors that have soy-crushing facilities and are therefore not reliant upon third parties for their feedstock supply like we are. As a result, we face a competitive challenge from biodiesel plants owned and operated by the companies that supply our inputs, such as Cargill, Inc., Ag Processing, Inc. (AGP) and ADM. Cargill, AGP and ADM have significant crush capabilities throughout North America and are large suppliers of soybean oil that own and operate their own biodiesel plants in the Midwest. Cargill owns a 37.5 million gallon plant in Iowa Falls, Iowa and AGP owns a 30 million gallon per year plant in Sergeant Bluff, Iowa, both of which process soy oil into biodiesel. ADM has constructed an 85 million gallon plant in Velva, North Dakota which processes canola oil into biodiesel. Also, increasing feedstock costs have spurred, and will likely continue to spur, additional development of crush facilities throughout the country. Such vertical integration provides these plants with greater control over their feedstock supplies, thereby providing them with a competitive advantage over plants like ours that do not have soy-crushing capabilities, especially as prices and competition for soybean oil and other feedstocks have increased.

Competition from Other Fuel Sources

The biodiesel industry is in competition with the diesel fuel segment of the petroleum industry. Historically, biodiesel prices have correlated to the prices of petroleum-based diesel. Over the past several years, according to the Energy Information Administration, the price of diesel fuel steadily increased until reaching record high prices in July 2008 of approximately $4.70 per gallon for No. 2 ultra low sulfur diesel, and thereafter declined sharply to approximately $3.23 as of December 13, 2010. Although the price of diesel fuel has decreased over the past several months, diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel. Following the trend of diesel prices, biodiesel prices steadily increased to their peak in the summer of 2008, after which time they decreased. As of December 10, 2010, the National Weekly Ag Energy Roundup reports that B100 biodiesel prices in Iowa ranged from $4.00 to $4.26 per gallon, which is up from a range of $3.25 to $3.50 approximately one year ago. If the diesel fuel industry is able to produce petroleum-based diesel fuel with acceptable environmental characteristics, we may find it difficult to compete with diesel fuel. In addition, other more cost-efficient domestic alternative fuels may be developed and displace biodiesel as an environmentally-friendly alternative. If diesel prices do not continue to increase or a new fuel is developed to compete with biodiesel, it may be difficult to market our biodiesel, which could result in the loss of some or all of our ability to operate profitably.

One advantage biodiesel has in the petroleum diesel market is the marketability and value of RINs. The RFS2 system is enforced through a system of registration, recordkeeping and reporting requirements for obligated parties and renewable producers (“RIN generators”), as well as any party that procures or trades renewable identification numbers, either as part of their renewable purchases or separately. Any person who violates any prohibition or requirement of the RFS2 program may be subject to civil penalties for each day of each violation. For example, a failure to acquire sufficient RINs to meet a party’s renewable fuels obligation would constitute a separate day of violation for each day the violation occurred during the annual averaging period. The enforcement provisions are necessary to ensure the RFS2 program goals are not compromised by illegal conduct in the creation and transfer of RINs. The EPA has assigned “equivalence values” to each type of renewable energy fuel in order to determine compliance with the RFS2. The equivalence values used ethanol as the base-line measurement (such that one gallon of ethanol is equivalent to one credit towards RFS2 compliance) and assigned biodiesel an equivalence value of 1.5, such that each gallon of biodiesel used by an obligated party will be equal to one and one-half gallons credit towards its RFS2 compliance. A market has established in the petroleum diesel industry for trading these RINs. Thus, the value of the RIN can sometimes offset higher biodiesel pricing, which can make biodiesel more competitive on the market with petroleum diesel.

Management estimates we accumulated over 400,000 RINs from our 2009 calendar-year production, however, these RINs will not be available for us to trade until our arbitration with REG (see “Legal Proceedings”) below is resolved. We have not sold any RINs during the 2010 calendar year.

At least one large oil company has previously announced its intent to produce renewable diesel, another form of diesel with which we may be required to compete. Renewable diesel has characteristics similar to that of petroleum-based diesel fuel and can be co-processed at traditional petroleum refineries from vegetable oils or animal fats mixed with crude oil through a thermal de-polymerization process. However, as a result of an Internal Revenue Service interpretation of the application of certain biodiesel tax credits, renewable diesel processed in traditional petroleum-refining equipment is eligible for the biodiesel tax credit, but only at a reduced rate of 50 cents per gallon. Opponents of the IRS interpretation argue that the biodiesel tax credit was intended for specific, limited production technologies, including the methyl ester biodiesel production process, and that the recent interpretation will allow a large subsidy of conventional petroleum refinery capacity at the expense of free-standing producers of biodiesel. Because renewable diesel is currently eligible for the biodiesel tax credit (although only at a reduced credit of 50 cents compared to the $1.00 credit available for biodiesel), other large oil companies may also decide to add production capacity for renewable diesel. These large petroleum refiners likely have greater financial resources than we do and may be able to devote greater production capacity to the production of renewable diesel than the typical biodiesel plant, which on average has an annual production capacity of 30 million gallons. Accordingly, if renewable diesel proves to be more cost-effective than biodiesel, our revenues and our ability to operate profitably may be adversely affected.

Glycerin Competition

Excess production of glycerin, a co-product of the biodiesel production process, may cause the price of glycerin to decline, thereby adversely affecting our source of revenue from glycerin. It is estimated that every one million gallons of biodiesel produced adds approximately another 100,000 gallons of crude glycerin into the market. Accordingly, as biodiesel production has increased, the glycerin market has become increasingly saturated. As a result, glycerin prices dropped dramatically in 2006, with crude glycerin prices hovering around 2 cents per pound or less. Some plants were forced to give away glycerin, and according to the Jacobsen Publishing Company’s Biodiesel Bulletin, others paid 3 cents to 4 cents per pound to dispose of crude glycerin. However, as of mid December 2010, according to the Jacobsen Biodiesel Bulletin, average crude glycerin prices increased to approximately 14 to 16 cents per pound. WMG will market the glycerin produced at our plant under our Management Agreement.

Excess glycerin production capacity may limit our ability to market our glycerin co-product, and we may even be forced to pay to dispose of our glycerin if prices decrease as they did in 2006. Low glycerin prices may also limit our ability to generate revenues through the sale of our co-product. This may negatively affect the profitability of our business. Additionally, some of our competitors, such as Cargill and ADM, have expanded their glycerin refining capacities due to relatively higher prices for refined glycerin when compared to the price of crude glycerin. In Iowa Falls, Iowa, Cargill has built a 30 million pound per year glycerin refinery near its 37.5 million gallon per year biodiesel production plant. These biodiesel producers may therefore have a competitive advantage over plants like ours that do not have glycerin refining capabilities.

Research and Development

We do not conduct any research and development activities associated with the development of new technologies for use in producing biodiesel and glycerin.

Dependence on One Major Customers

We have entered into a Management Agreement with WMG to market all of our products and procure all of our inputs. Any failure by WMG to comply with the terms of our Management Agreement could negatively impact our ability to generate revenues. The Management Agreement does not prohibit WMG from providing services to our competitors, and its does not provide any procedures as to how WMG will address any conflicts of interest that may arise during WMG’s service to our plant and competitor plants. If WMG places the interests of other biodiesel plants which it manages ahead of our interests, our profitability may be negatively impacted.

Costs and Effects of Compliance with Environmental Laws

We are subject to extensive air, water and other environmental regulations and we have been required to obtain a number of environmental permits to construct and operate the plant. We have obtained all of the necessary permits for plant operations including air emissions permits, a NPDES Permit, storm water discharge permits, and boiler permits. During our 2010 fiscal year we expended approximately $20,000 on environmental costs. Any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources complying with such regulations.

We are subject to oversight activities by the EPA. We have obtained an identification number from the EPA for any hazardous waste that may result from our production of biodiesel. There is always a risk that the EPA may enforce certain rules and regulations differently than Iowa’s environmental administrators. Iowa or EPA rules are subject to change, and any such changes could result in greater regulatory burdens on plant operations. We could also be subject to environmental or nuisance claims from adjacent property owners or residents in the area arising from possible foul smells or other air or water discharges from the plant. Such claims could have an adverse result in court if we are deemed to engage in a nuisance that substantially impairs the fair use and enjoyment of real estate.

Employees

As of September 30, 2010, we had 10 full-time employees to operate our biodiesel facility, which is a reduction in staff from our 2009 fiscal year. We have been forced to reduce our staff in order to save costs when the plant is not operating at full capacity. We recently had to again reduce our staff and currently only have two full-time employees, although we anticipate we will be able to quickly increase this number when plant operations re-start.

During 2010 fiscal year, IRE also made changes to its management. J. William Pim was appointed to the Chief Financial Officer and Chief Operating Officer position and subsequently resigned from the Board of Directors to serve only in the CFO / COO capacity. Todd Willson, the previous Chief Financial Officer for the Company, is no longer with the Company. Glen Hansel, who previously served as the Company’s Operations Manager, as provided by and employed by Renewable Energy Group, Inc. (REG) pursuant to the now expired management and operational services agreement between REG and IRE, was appointed the Plant Manager and is now an IRE employee. Al Yoder, who previously served as the Company’s General Manager, as provided by and employed by REG pursuant to the management and operational services agreement between REG and IRE, is no longer with the Company.

The board also appointed two new directors to fill vacancies on the board — Steven Powell and Larry Rippey.

ITEM 1A.		RISK FACTORS.

You should carefully read and consider the risks and uncertainties below and the other information contained in this report. The risks and uncertainties described below are not the only ones we may face. The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operations.

Risks Related to Our Business

We are experiencing liquidity issues which could require us to cease operations. We are experiencing liquidity issues associated with the high cost of our raw materials, decreased demand for biodiesel, and the delay between when we purchase those raw materials and when we receive payments for sales of our finished products. We received a six million dollar line of credit from our lender, received forbearance from our lender for certain covenants contained in our loan agreement, and refinanced our loan agreement during our 2010 fiscal year, however; our financial position is still not certain. Our term loan is now due in full at September 5, 2011. Should we not be able to secure the cash we require to operate the plant and pay our obligations as they become due, we may have to cease operations, either on a permanent or temporary basis, which would decrease or eliminate the value of our units.

We have a history of losses and may not ever operate profitably. For the fiscal year ended September 30, 2010 we incurred a net loss of $4,372,056. There is no assurance that we will be successful in our efforts to continue to operate the biodiesel plant. Even if we successfully meet all of our objectives, there is no assurance that we will be able to operate profitably. We have experienced very high raw material costs and low biodiesel prices that in some cases have been less than our production costs. Should our raw material costs increase without an increase in the price we receive for our biodiesel or glycerin, or if demand for biodiesel does not increase, we may have to scale back or cease operations at the biodiesel plant, either on a temporary or permanent basis. This may affect our ability to generate revenues and could decrease or eliminate the value of our units.

We may be required to write down our long-lived assets and these impairment charges would adversely affect our operating results. We account for the impairment of long-lived assets to be held and used in accordance with ASC Topic 360. In accordance with ASC Topic 360, an asset (other than goodwill and indefinite-lived intangible assets) is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated fair value. Fair value is generally determined based upon estimated discounted future cash flows. At September 30, 2010 the carrying amount of our fixed assets is $33 million. In determining if there has been an impairment, we have projected future cash flows assuming that we are able to obtain sufficient working capital to operate our plant, and our expectations related to the extension of the biodiesel tax credit. If conditions or events change and we have to reconsider our plans, the projected cash flows could change, requiring the assets to be adjusted to the estimated fair value. As a result, the amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

Our business is not diversified. Our success depends largely upon our ability to profitably operate our biodiesel plant. We do not have any other lines of business or other sources of revenue if we are unable to operate our biodiesel plant and manufacture biodiesel and glycerin. We have no other line of business to fall back on if the biodiesel business declines or if our biodiesel plant cannot operate at full capacity for any extended period of time. Should we continue to experience difficulty operating our biodiesel plant, the value of our units may decrease or be eliminated.

We have limited experience in the biodiesel industry, which increases the risk of our inability to operate the biodiesel plant. We are presently, and will likely continue to be, dependent upon our directors to manage our business. Most of our directors are experienced in business generally, but have limited or no prior experience in operating a biodiesel plant or in governing and operating a public company. Most of our directors have no expertise in the biodiesel industry. In addition, certain directors on our board of directors are presently engaged in business and other activities that impose substantial demands on the time and attention of such directors. As a result of the management change over when our management agreement with REG terminated, we have hired J. William Pim, who previously served on our board of directors, to serve as our Chief Financial Officer / Chief Operations Officer and Glen Hansel, who previously served as the Operations Manager provided to us by REG, as our Plant Manager. We may have difficulty in attracting other competent personnel to relocate to Iowa in the event that such personnel are not retained. If we cannot retain skilled management for our plant, our members could lose all or substantially all of their equity interest.

We engage in hedging transactions which involve risks that can harm our business. We are exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on soybean oil or other feedstocks for the biodiesel production process. In addition, we have engaged in hedging transactions for home heating oil, in an attempt to lock in profit margins on the sale of our biodiesel, because home heating oil has historically tracked with the price of biodiesel. The effectiveness of our hedging strategies is dependent upon the cost of soybean oil and home heating and our ability to sell sufficient amounts of our products. There is no futures market for animal fats. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may leave us vulnerable to volatile soybean oil and home heating oil prices. As a result, our results of operations and financial conditions may also be adversely affected during periods in which soybean oil prices increase. Alternatively, we may choose not to engage in hedging transactions, which is our situation currently.

Hedging activities themselves can result in increased costs because price movements in soybean oil contracts and home heating oil contracts are highly volatile and are influenced by many factors that are beyond our control. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of soybean oil and home heating oil. However, it is likely that commodity cash prices will have the greatest impact on the derivative instruments with delivery dates nearest the current cash price. We may incur such costs and they may be significant. If we realize losses with respect to our derivative instruments, our net loss could increase.

Risks Related to Operation of the Biodiesel Plant

We depend on key suppliers, whose failure to perform could force us to abandon business, hinder our ability to operate profitably or decrease the value of our units. We are highly dependent upon WMG for the operations of the plant. Should WMG fail to perform in any manner significant to our operations, our project could fail and our members could lose some or all of the value of their investment.

We are highly dependent upon WMG to procure our inputs and market our products. WMG has not completed any sales of our biodiesel since the beginning of our Management Agreement with them. If WMG does not perform its obligations pursuant to our management agreement we may be unable to specifically enforce our agreement which could negatively affect the value of our units.

Changes in production technology could require us to commit resources to updating the biodiesel plant or could otherwise hinder our ability to compete in the biodiesel industry or to operate at a profit. We expect advances and changes in the technology of biodiesel production to occur. Such advances and changes may make our biodiesel production technology less desirable or obsolete. The plant is a single-purpose facility and likely has no use other than the production of biodiesel and associated products. Much of the cost of the plant is attributable to the cost of production technology which may be impractical or impossible to update. The value of our units could decline if changes in technology cause us to operate the plant at less than full capacity for an extended period of time or cause us to abandon our business. Further, more efficient technologies might be developed in the future that we cannot implement that would allow our competitors to produce biodiesel in a more cost effective manner than us.

Because our natural gas provider will not allow us to enter into forward contracts for our natural gas, we may pay higher prices for our natural gas than other biodiesel producers, which puts us at a competitive disadvantage and may increase our losses. Our natural gas provider does not allow us to enter into forward contracts for our natural gas, and management has determined that it is not feasible to use a different natural gas provider. Many biodiesel producers can and do enter into forward contracts for their natural gas, which may allow them to lock in their natural gas costs at a lower price. Our inability to enter into forward contracts for our natural gas may put us at a competitive disadvantage which may increase our losses.

Risks Related to Biodiesel Industry

The downturn in the U.S. economy has caused demand for biodiesel to decline, which may adversely affect our ability to generate revenues. The U.S. stock markets tumbled in the Fall of 2008 upon the collapse of multiple major financial institutions, the federal government’s takeover of two major mortgage companies, Freddie Mac and Fannie Mae, and the President’s enactment of a $700 billion bailout plan pursuant to which the federal government directly invested in troubled financial institutions. Financial institutions across the country have lost billions of dollars due to the extension of credit for the purchase and refinance of over-valued real property. Other large corporate giants, such as the big three auto makers, have also received government bailout money. These factors have caused significant economic stress and upheaval in the financial and credit markets in the United States, as well as abroad. Credit markets have tightened and lending requirements have become more stringent. Oil prices have dropped rapidly as demand for fuel has decreased. Although demand for biodiesel typically declines in colder winter months due to its cold flow properties, we believe that these economic factors have contributed to an even greater decrease in demand for biodiesel, which may persist throughout all or parts of fiscal year 2011. It is uncertain for how long and to what extent these economic troubles may negatively affect biodiesel demand in the future. If demand for biodiesel declines, we may be forced to temporarily or permanently cease operations and you may lose some or all of your investment.

Several biodiesel companies throughout the country have filed for Chapter 1l bankruptcy due to industry and economic conditions, and we may also be forced to consider filing for bankruptcy protection in the event that economic conditions and our liquidity problems do not improve. In November 2008, Freedom Fuels, LLC, a biodiesel plant located near Mason City, Iowa, filed for Chapter 11 bankruptcy and then proceeded from a Chapter 11 bankruptcy into Chapter 7 bankruptcy. Beatrice Biodiesel, a biodiesel plant near Beatrice, Nebraska, filed for Chapter 11 bankruptcy. A Chapter 11 bankruptcy is an option in which a company attempts to reorganize with the intent that it will continue to operate. A Chapter 11 bankruptcy differs from a Chapter 7 bankruptcy because under Chapter 7 the assets of a company are liquidated and it is not anticipated that the business will continue to operate. Unfavorable worldwide economic conditions, the decreasing availability of credit, and volatile biofuel prices and input costs have likely contributed to the necessity of these bankruptcy filings. We are experiencing liquidity problems, which are resulting primarily from the general decrease in demand for biodiesel that the industry is currently experiencing, our lack of biodiesel sale contracts, the unfavorable economic conditions that are currently prevailing in the U.S. and abroad and the other factors identified in this report. We anticipate operating at significantly below our nameplate production capacity for the first quarter of 2011 based on our historical performance and lack of seasonal demand. If our current liquidity problems persist and we are unable to generate sufficient revenues from the sale of our biodiesel, we may also have to consider bankruptcy as an option to cope with our financial difficulties. This could reduce or eliminate the value of our members’ investments in the Company.

The decline in oil and diesel prices may affect our ability to sell biodiesel at profitable prices. The price for biodiesel is correlated to the price for diesel, as biodiesel is used primarily as a diesel additive. The price of biodiesel tends to increase as the price of diesel increases, and the price of biodiesel tends to decrease as the price of diesel decreases. Diesel prices are typically influenced by oil prices. The recent global economic downturn has resulted in a rapid decline in oil and diesel prices. In November 2008, oil prices fell to their lowest level in more than three years, dropping below $50 a barrel, down from approximately $150 a barrel in July 2008, and the current December 2010 average is up slightly at approximately $90 per barrel. Additionally, average retail diesel prices declined by approximately 40% from July 2008 to November 2008, and the price of biodiesel went down also. Since then diesel and biodiesel prices have risen slightly from the November 2008 lows, with diesel fuel at approximately $3.23 per gallon in early December 2010, according to the Energy Information Administration and biodiesel prices at approximately $4.00 to $4.26 per gallon in Iowa as of December 10, 2010, according to the National Weekly Ag Energy Roundup. If oil and diesel prices remain low or decline even further, biodiesel prices will also likely remain low or decline further. This could make it difficult for us to produce and sell biodiesel at a profit and you could lose some or all of your investment as a result.

An investigation by the European Commission into whether the U.S. biodiesel industry has been engaging in unfair trade practices has led to the imposition of tariffs on biodiesel imported into Europe, which could result in further losses from our business. The European Commission conducted anti-subsidy and anti-dumping investigations on U.S. biodiesel imports into Europe. Based on complaints from the European Biodiesel Board (EBB), the European Commission claims that U.S. biodiesel producers, after claiming maximum U.S. subsidies for B99 biodiesel, have been dumping biodiesel in the European market, where it may also be eligible for European subsidies. The European Commission states that these factors have adversely affected the European biodiesel industry, causing adverse effects on the prices and market share of European biodiesel producers. The EBB claims that subsidized B99 exports are a trade practice that breaches World Trade Organization rules. The tariffs went into effect March 13, 2009 and the European Commission determined in July 2009 that the tariffs would be extended through 2014. According to the May 2009 issue of the Biodiesel Magazine, the tariffs could result in an additional charge of $30 to $265 per metric ton of biodiesel. These tariffs have virtually eliminated our ability to make profitable sales in Europe.

If demand for biodiesel fails to grow at the same rate as planned supply, the excess production capacity will adversely impact our financial condition. In 2009, approximately 545 million gallons of biodiesel were produced in the United States, according to the National Biodiesel Board. Our biodiesel plant alone could produce almost 6% of the 2009 domestic production. The Biodiesel Magazine website estimates the current dedicated U.S. biodiesel production capacity of existing biodiesel plants as of December 12, 2010 is approximately 2.83 billion gallons per year. Further, plants under construction and expansion as of December 12, 2010, if completed, are expected to result in another 386 million gallons of annual U.S. biodiesel production capacity, for total annual production capacity of approximately 3.22 billion gallons. Thus, the current annual production capacity of existing plants far exceeds 2008 annual biodiesel consumption, and will likely far exceed 2009 biodiesel consumption. As production capacity increases, our competition with other biodiesel producers for the sale of our products increases, especially if there is not a corresponding increase in demand for biodiesel. Many biodiesel plants do not operate at full capacity due to the discrepancy between annual domestic biodiesel consumption and annual U.S. biodiesel production capacity. Several biodiesel plants have even been forced to completely shut down or declare bankruptcy, which may be due in part to an increase in national excess production capacity without a corresponding increase in biodiesel demand in combination with the worsening economic conditions. If biodiesel production capacity continues to expand at its current pace, and demand does not grow to meet the available supply, we may be forced to suspend production at our plant and the value of your units could be decreased or eliminated.

Excess capacity in the biodiesel industry may cause increased competition for inputs and decreased market prices for biodiesel. Biodiesel production at our plant requires significant amounts of soybean oil, animal fats and other inputs. If overproduction of biodiesel occurs, we will face increased competition for inputs which means we may be either unable to acquire the inputs that we need or unable to acquire them at profitable prices. In addition, if excess capacity occurs, we may also be unable to market our products at profitable prices. If the demand for biodiesel does not grow at the same pace as increases in supply, we would expect the price for biodiesel to decline. Any decrease in the price at which we can sell our biodiesel will negatively impact our future revenues. Increased expenses and decreased sales prices for biodiesel will result in decreased revenues and increased losses.

Excess production of glycerin, the primary co-product of the biodiesel production process, may cause the price of glycerin to decline, thereby adversely affecting our ability to generate revenue from the sale of glycerin. It is estimated that every million gallons of biodiesel produced adds approximately another one hundred thousand gallons of crude glycerin into the market. As biodiesel production has increased, the glycerin market has become increasingly saturated, resulting in significant declines in the price of glycerin. In 2006, glycerin prices dropped dramatically, with crude glycerin prices hovering around 2 cents per pound or less. According to the September 2006 issue of Biodiesel Magazine, some smaller plants were even forced to essentially give away glycerin and some even had to pay to dispose of the glycerin. Since then, however, there has recently been a steady, gradual increase in glycerin prices. The Jacobsen Company reported average glycerin prices of 14 to 16 cents in mid December 2010. However, if the price of glycerin declines again, our revenues will be adversely affected and we could even be forced to pay to dispose of our glycerin as plants were required to do in the past. Any further excess glycerin production capacity may limit our ability to market our glycerin co-product and could negatively impact our future revenues.

The biodiesel manufacturing industry is a feedstock limited industry. As more plants are developed and go into production there may not be an adequate supply of feedstock to supply the demands of the industry, which could threaten the viability of our plant. As more plants are developed and go into production, and as more existing plants expand their production capacities, there may not be an adequate supply of feedstock to supply the demand of the biodiesel industry. Consequently, the cost of feedstock may rise to the point where it threatens the viability of our plant. This is because there is little or no correlation between the cost of feedstock and the market price of biodiesel and, therefore, we cannot pass along increased feedstock costs to our biodiesel customers. We cannot pass along increased feedstock costs to our biodiesel customers because in order to stay competitive in the diesel industry, biodiesel must be competitively priced with petroleum-based diesel. Therefore, biodiesel prices fluctuate more in relation to petroleum-based diesel market prices then with feedstock market prices. As a result, increased feedstock costs or decreased biodiesel prices may result in decreased revenues. If we experience a sustained period of high feedstock costs or reduced biodiesel prices, such pricing and costs may reduce our ability to generate revenues and our profit margins may significantly decrease or be eliminated.

The biodiesel industry is becoming increasingly competitive and we compete with some larger, better financed entities which could impact our ability to operate profitably. We face a competitive challenge from larger biodiesel plants and from biodiesel plants owned and operated by the companies that supply our inputs. Cargill, Inc., a large supplier of soybean oil, owns a 37.5 million gallon plant in Iowa Falls, Iowa. Another large corporation and supplier of soybean oil, Archer Daniels Midland Co., has constructed an 85 million gallon plant in Velva, North Dakota to process canola oil into biodiesel. Additionally, Biodiesel of Las Vegas was expected to begin operations of a 100 million gallon per year multi-feedstock plant in the fourth quarter of 2009, but it is currently still listed as under construction. Imperium Renewables operates a 100 million gallon per year biodiesel plant in Grays Harbor, Washington, and RBF Port Neches operates a 180 million gallon per year multi-feedstock plant in Port Neches, Texas making these plants some of the largest biodiesel producers in the country. These plants will be capable of producing significantly greater quantities of biodiesel than the amount we expect to produce. Moreover, some of these plants may not face the same competition we do for inputs as the companies that own them are suppliers of the inputs. In light of such competition, lower prices for biodiesel may result which would adversely affect our ability to generate profits and adversely affect our financial obligations.

Risks Related to Biodiesel Production

Declines in the demand for and prices of biodiesel and its primary co-product will have a significant negative impact on our financial performance. Our revenues will be greatly affected by the price at which we can sell our biodiesel and its primary co-product, glycerin. These prices can be volatile as a result of a number of factors over which we have no control. These factors include the overall supply and demand, the price of diesel fuel, level of government support, and the availability and price of competing products, and domestic and global economic conditions. The total production capacity of biodiesel continues to expand at this time. Demand may not rise to meet the increase in supply, and increased production of biodiesel may lead to lower prices. Any lowering of biodiesel prices may negatively impact our ability to generate profits.

We believe that the recent U.S. recession and global financial market turmoil may also depress biodiesel demand and prices. Biodiesel prices have significantly declined over recent months. We expect that we will operate below our nameplate capacity throughout our fiscal year 2011. If we continue to operate at less than full capacity, this would have a negative impact on our revenues.

In addition, increased biodiesel production has lead to increased supplies of co-products such as glycerin. While prices have been increasing after a dramatic drop in 2006, prices are still lower than ten year historical prices. If the price of glycerin declines, our revenue from glycerin may substantially decrease. Increased expenses and decreased sales prices for our products will result in decreased revenues.

Because of volatile soybean oil prices, we have attempted to use alternative feedstocks, such as corn oil, to produce our biodiesel, which may have risks and disadvantages of which we are not yet fully aware. We have previously produced some of our biodiesel from corn oil that we obtain from ethanol plants or other sources. Corn oil, however, poses several unique challenges due to its moisture and solid content, as well as its elevated free-fatty-acid levels. Furthermore, unlike many other oil sources, corn oil from ethanol plants contains waxy compounds and sterols. This tends to cause a waxy substance to build-up in the process equipment during the production process. Unless a process for removing this waxy substance is developed, we expect that we will not be able to produce any biodiesel blends containing greater than 5% corn oil. The technology utilized by the ethanol plant which extracts the corn oil may also cause the suitability of the corn oil for the biodiesel production process to vary. These characteristics of corn oil could cause corn oil-based biodiesel to be less desirable than other types of biodiesel. Furthermore, special technologies may be necessary to pretreat corn oil for utilization in the biodiesel production process. Accordingly, our use of alternative feedstocks, such as corn oil, may require us to make modifications to our equipment, purchase new equipment or repair equipment that could unexpectedly be damaged by the use of different feedstocks. There may be disadvantages to the use of corn oil as a feedstock of which we are not yet aware. If as a result of the unique characteristics of corn oil, the demand for or price we are able to receive for biodiesel produced from corn oil is less than what we can receive for biodiesel produced from other types of feedstock, our revenues could be negatively affected.

The decreasing availability and volatile cost of feedstock may hinder our ability to profitably produce biodiesel and may result in plant shut downs and decreased revenues. On December 13, 2010, the USDA reported the November average cost of soybean oil was approximately 47.62 cents per pound, which is below the July 2008 peak prices but higher than a year ago. Although prices have sharply dropped from the record high prices experienced in the summer of 2008, the November average is still higher than historical averages. The ten-year average price for soybean oil is approximately 28 cents per pound. In the USDA December 13, 2010 Oil Crops Outlook Report, it was forecasted soybean oil prices will likely remain close to current prices during the 2010/2011 marketing season, with a predicted price range of 45.0-49.0 cents per pound. Soybean oil prices have been extremely volatile over the recent years. The declining global economic conditions brought on by the collapse of major U.S. financial institutions in the fall of 2008 and the disruption of the financial and credit markets likely contributed to the sharp drop in prices from the summer of 2008 through fall of 2008. However, demand, supply, acres planted, weather, soybean crush rates and many other factors can contribute to price volatility. Prices for animal fats have also been volatile in recent months, as they tend to correlate to the prices of soybean oil. In a December 2010 Oil Crops Outlook Report, the USDA provided that the average November 2010 prices for lard and edible tallow were 37.32 cents and 41.75 cents per pound, respectively, which are down from their peak prices in the summer of 2008. These average prices, however, still exceed their historical averages. We expect that this volatility in feedstock costs will continue through the 2011 fiscal year. In the event we cannot obtain adequate supplies of feedstock at affordable costs for sustained periods of time, then we may be forced to shut down the plant, either temporarily or permanently. Shut downs or the persistence of recent high feedstock costs, or any further increase of feedstock costs, may reduce our revenues from operations which could decrease or eliminate the value of our units.

If we are forced to continue to have to temporarily cease operating our biodiesel plant, we might not be able to meet our current liabilities and our losses may be increased. If we are forced to temporarily cease operations at our biodiesel plant, either due to our inability to sell the biodiesel we are producing, feedstock costs, defects in our equipment at the plant, violations of environmental law, or any other reason, our ability to produce revenue would be adversely affected. We do not have any source of revenues other than production of biodiesel and glycerin at our biodiesel plant. If our plant were to cease production for any significant period of time, we would not generate any revenue and we might not be able to pay our debts as they become due, including payments required under our loan agreements with our lender. If the plant ceases to operate for enough time, we might not be able to re-start operations at the plant and our members could lose some or all of their investment.

We are at a disadvantage in marketing our glycerin because our plant will not produce pharmaceutical grade glycerin, thereby decreasing the market for the glycerin we produce. A major use of glycerin is in the production of drugs. The glycerin our plant produces, however, is not pharmaceutical grade glycerin. This limits our ability to market the glycerin produced by our biodiesel plant. The glycerin we produce has to be purified in order for it to be used in pharmaceutical applications. Since the market in which we can sell our glycerin is limited, we might not be able to sell all of the glycerin we produce or we may not be able to sell our glycerin at a favorable price. If we cannot sell all of the glycerin we produce or cannot sell it at a favorable price, our ability to operate our biodiesel plant profitably might be adversely affected which could decrease the value of our units.

Competition from other sources of fuel may decrease the demand for our biodiesel. Diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel making it difficult for the biodiesel industry to compete with the diesel fuel industry without government support programs. In addition, other more cost-efficient domestic alternative fuels may be developed and displace biodiesel as an environmentally-friendly alternative. If diesel prices do not continue to increase or a new fuel is developed to compete with biodiesel, it may be difficult to market our biodiesel, which could result in increased losses for our company.

Concerns about fuel quality may impact our ability to successfully market our biodiesel. Industry standards impose quality specifications for biodiesel fuel. Actual or perceived problems with quality control in the industry may lead to a lack of consumer confidence in the product and hinder our ability to successfully market our biodiesel. An inability to successfully market our biodiesel will lead to decreased revenues and may adversely impact our ability to operate at all.

Cold weather may cause biodiesel to gel, which could have an adverse impact on our ability to successfully market our biodiesel. The pour point for a fuel is the temperature at which the flow of the fuel stops. A lower pour point means the fuel is usable in colder weather. The pour point of 100% soy-based biodiesel is approximately 27ºF to 30ºF. The pour point for 100% tallow-based biodiesel is approximately 61ºF. The pour point for No. 2 petroleum diesel fuel, the non-biodiesel fuel currently used in machines, is approximately -30ºF. When diesel is mixed with soy-based biodiesel to make a 2% biodiesel blend, the pour point is -25ºF. Therefore, we believe we will need to blend soy-based biodiesel and animal fat-based biodiesel with petroleum diesel in order to provide a biodiesel product that will have an acceptable pour point in cold weather. Generally, biodiesel that is used in blends of 2% to 20% is expected to provide an acceptable pour point for colder markets comparable to the No. 2 petroleum diesel pour point. In colder temperatures, lower blends are recommended to avoid fuel system plugging. This may cause the demand for our biodiesel in northern markets to diminish during the colder months.

The tendency of biodiesel to gel in colder weather may also result in long-term storage problems. At low temperatures, fuel may need to be stored in a heated building or heated storage tanks. This may result in a decrease in demand for our product in colder climates due to increased storage costs.

Automobile manufacturers and other industry groups have expressed reservations regarding the use of biodiesel, which could negatively impact our ability to market our biodiesel. Because it is still a relatively new product, the research on biodiesel use in automobiles and its effect on the environment is ongoing. Some industry groups, including the World Wide Fuel Charter, have recommended that blends of no more than 5% biodiesel be used for automobile fuel due to concerns about fuel quality, engine performance problems and possible detrimental effects of biodiesel on rubber components and other parts of the engine. Although some manufacturers have encouraged use of biodiesel fuel in their vehicles, cautionary pronouncements by others may impact our ability to market our product.

In addition, studies have shown that nitrogen oxide emissions increase by 10% when pure biodiesel is used. Nitrogen oxide is the chief contributor to ozone or smog. New engine technology is available and is being implemented to eliminate this problem. However, these emissions may decrease the appeal of our product to environmental groups and agencies who have been historic supporters of the biodiesel industry, which may result in our inability to market our biodiesel.

Competition from other diesel fuel lubricity additives for ultra low sulfur diesel may be a less expensive alternative to our biodiesel, which would cause us to lose market share and adversely affect our ability to generate revenues. The Environmental Protection Agency (EPA) has issued regulations to reduce the amount of sulfur in diesel fuel in order to improve air quality. These regulations affect all diesel fuel available for retail sale since October 2006. The removal of sulfur from diesel fuel also reduces its lubricity which must be corrected with fuel additives, such as biodiesel which has inherent lubricating properties. Our biodiesel plant is expected to compete with producers of other diesel additives made from other raw materials having similar lubricity values as biodiesel, such as petroleum-based lubricity additives. Many major oil companies produce these petroleum-based lubricity additives and strongly favor their use because they may be used in lower concentrations than biodiesel. In addition, much of the infrastructure in place is for petroleum-based additives. As a result, petroleum-based additives may be more cost-effective than biodiesel. Therefore, it may be difficult to market our biodiesel as a lubricity additive, which could adversely affect our ability to generate revenues.

Risks Related to Our Financing Plan

We are experiencing liquidity issues which could require us to cease operations. We are experiencing liquidity issues associated with the high cost of our raw materials, decreased demand for biodiesel, and the delay between when we purchase those raw materials and when we receive payments for sales of our finished products. We received a six million dollar line of credit from our lender, received forbearance from our lender for certain covenants contained in our loan agreement, received forbearance from our lender from taking action on existing events of default under the loan agreement through February 2011, and refinanced our loan agreement during our 2010 fiscal year, however; our financial position is still not certain. Should we not be able to secure the cash we require to operate the plant and pay our obligations as they become due, we may have to cease operations, either on a permanent or temporary basis, which would decrease or eliminate the value of our units.

The loan agreement under which we obtained financing for the construction of our biodiesel plant contains restrictive covenants. We have undertaken significant borrowings to finance the construction of the biodiesel plant. Our loan agreements with our lender contain restrictive covenants which, among other things, require us to maintain minimum levels of working capital, as well as debt coverage and fixed charge coverage financial ratios. These covenants may restrict our ability to make distributions on the units without the prior consent of our lender. In addition, failure to comply with these covenants may constitute an event of default under our loan agreements. The loan agreement currently contains a covenant that requires a minimum ratio of current assets to current liabilities (working capital ratio), minimum debt coverage and fixed charge coverage ratios. We are not in compliance with these covenants at September 30, 2010 and it is projected that the we will fail to comply with one or more of the loan covenants throughout fiscal 2011. Failure to comply with these loan covenants constitutes an event of default under the Company’s loan agreements which, at the election of the lender, could result in the acceleration of the unpaid principal loan balance and accrued interest under the loan agreements or the loss of the assets securing the loan in the event the lender elected to foreclose its lien or security interest in such assets. In addition, the Company’s loan agreement allows the lender to consider the Company in default of the loan at any point for poor financial performance. While we have received forbearance from our lender for certain covenants contained in the loan agreement, unless our business improves substantially, we will still likely be in violation of these covenants after the forbearance has expired.

We may be unable to raise additional capital in the event our funds from operations and our credit facilities are insufficient to fund our operations for the next twelve months. In the event that the board of directors deems it necessary to obtain additional capital in order to fund plant operations or to otherwise comply with the covenants contained in our financing agreements with our lender during the next 12 months, the board of directors may decide to attempt to issue additional membership units in our company through one or more private placements. In such event, however, there is no guarantee that such an offering of our membership units would be successful in raising the desired capital. Due to current market conditions in the biodiesel industry, such as the increasing costs of soybean oil, animal fats, and methanol, and lack of demand for our biodiesel, we may not be able to attract sufficient numbers of investors to provide us with the necessary amount of additional capital. For the same reasons, we may be unable to obtain additional debt financing for operations in the event we cannot raise sufficient capital. In such event, we may be forced to shut down the plant, either temporarily or permanently, or we may continue to be unable to comply with the loan covenants contained in our Loan Agreement, which entitles our lender to accelerate payments under our Loan Agreement or foreclose its lien or security interest in the assets securing the Loan Agreement after the forbearance period has expired.

Our auditor has raised doubts about our ability to continue as a going concern and if we are unable to continue our business, our units may have little or no value. As discussed in the accompanying financial statements, we have generated accumulated losses of $15,256,097 since our inception, have experienced significant increases in our input costs and undertaken significant borrowings to finance the construction of our biodiesel plant. These liquidity issues raise doubts about our ability to continue as a going concern. See Note 6 to the financial statements. Moreover, our term loan is listed as a current liability, as it now has a maturity date of September 5, 2011. In the event our lender declared a default under the Loan Agreement and elected to accelerate our payments or take possession of our assets securing the loans, we may be forced to shut down the plant and our members could lose some or all of their investment. These factors have raised doubts as to our ability to continue as a going concern.

Risks Related to Regulation and Governmental Action

Loss of or ineligibility for favorable tax benefits for biodiesel production could further hinder our ability to operate at a profit and reduce the value of our units. The biodiesel industry and our business are assisted by various federal biodiesel incentives. One such incentive is the biodiesel tax credit, which provides a tax credit of $1.00 per gallon of biodiesel. The blenders credit expired on December 31, 2009 and only in December 2010 was it extended for 2011 and made retroactive for 2010. These tax incentives for the biodiesel industry may not continue, or, if they continue, the incentives may not be at the same level. The elimination or reduction of tax incentives to the biodiesel industry, including the biodiesel tax credit, could significantly reduce the market for biodiesel and could materially impair our ability to profitably produce and sell biodiesel. The loss or reduction of the biodiesel tax credit would make it more costly or difficult to produce and sell biodiesel and we could be forced to take significant cost savings measures or temporarily or permanently cease production at our plant. If the federal tax incentives are eliminated or sharply curtailed, we believe that a continued decreased demand for biodiesel will result, which could further depress biodiesel markets and negatively impact our financial performance.

A change in environmental regulations or violations thereof could result in the devaluation of our units. We are subject to extensive air, water and other environmental regulations. We have obtained all of the permits required to construct the plant and have obtained all the permits currently required to operate the plant. Environmental laws and regulations, both at the federal and state level, are subject to change and changes can be made retroactively. Consequently, even if we have the proper permits at the proper time, we may be required to spend considerable resources to comply with future environmental regulations or new or modified interpretations of those regulations, which may increase our losses and could reduce or eliminate the value of our units.

Risks Related to Conflicts of Interest

Our directors may have relationships with individuals, companies or organizations with which we do business which may result in conflicts of interest. There may be business relationships between our directors and other individuals, companies or organizations with which we do business that may pose potential conflicts of interest with us. These relationships may result in conflicts of interest with respect to transactions between us and the other individuals, companies or organizations if our directors and officers put their interests in other companies or their own personal relationships ahead of what is best for our company.

Risks Related to Tax Issues in a Limited Liability Company

We expect to be taxed as a partnership, however, if we are taxed as a corporation we could be subject to corporate level taxes which could decrease our net income, if any, and decrease the amount of cash available to distribute to our members. We expect that our company will continue to be taxed as a partnership. This means that our company does not pay any company level taxes. Instead, the members are allocated any income or losses generated by our company based on the member’s ownership interest, and could pay taxes on the member’s share of our income, if any. If we are not taxed as a partnership, our company could be liable for corporate level taxes which would decrease our net income, if any, which may decrease the cash we have to distribute to our members.

Members may be allocated a share of our taxable income that exceeds any cash distributions received, therefore members may have to pay this tax liability using their personal funds. We expect to continue to be taxed as a partnership. This means members are allocated a percentage of our taxable income or loss based on their ownership interest in our company. Members may have tax liability based on their allocation of this income, if any. We may make distributions that are less than the amount of tax members owe based on their allocated percentage of our taxable income, or we may not make any distributions. If this is the case, members would have to satisfy this tax liability using their personal funds.

If we are audited by the IRS resulting in adjustments to our tax returns, this could cause the IRS to audit members’ tax returns, which could lead to additional tax liability for our members. The IRS could audit our tax returns and could disagree with tax decisions we have made on our returns. This could lead to the IRS requiring us to reallocate items of income, gain, losses, deductions, or credits that could change the amount of our income or losses that were allocated to members. This could require adjustments to members’ tax returns and could lead to audits of members’ tax returns by the IRS. If adjustments are required to members’ tax returns, this could lead to additional tax liabilities for members as well as penalties and interest being charged to members.

We do not anticipate declaring distributions to members in the foreseeable future. We have incurred a net loss of $4,372,056 as of our fiscal year ended September 30, 2010. We do not anticipate that our board of directors will be declaring distributions to members in the foreseeable future. Accordingly, members will not likely receive distributions on their units and, in the event that members incur any tax liability as a result of their ownership of units in the company, members may be required to satisfy such liability with their personal funds.

ITEM 2.		PROPERTIES.

Our property consists primarily of the plant and the real estate upon which the plant sits near Washington, Iowa. The plant can be fully operational. The plant is currently blown down and winterized. We anticipate it will take us two to three weeks to bring the plant back online in the event we again begin producing biodiesel. The plant is located on an approximately 28 acre site located near Washington, Iowa. The site is approximately thirty-five miles from Interstate 80 and thirty miles from the Mississippi River. We paid $420,000 for the site. The plant’s address is 1701 East 7th Street, Washington, Iowa. The site is adjacent to the main line of the Iowa Chicago & Eastern Railroad, which serves the plant. The plant consists of the following buildings:

•

Administrative building

•

Processing building

•

Pretreatment building

•

Storage tank farm

The site also contains improvements such as rail tracks and a rail spur, landscaping, drainage systems and paved access roads. Construction of the plant was substantially complete in June 2007.

All of our tangible and intangible property, real and personal, serves as the collateral for the debt financing with MLIC Assets Holdings, LLC (MLIC). Money borrowed under the Iowa Department of Economic Development loan is also secured by substantially all of the company’s assets, but is subordinate to the agreements with MLIC.

ITEM 3.		LEGAL PROCEEDINGS.

In February 2009, we gave notice to REG that it had breached the Management and Operational Services Agreement (MOSA) in a variety of manners and requested the annual review of the MOSA, as provided for in the MOSA. After not receiving requested information and being unable to resolve any disputes, in June 2009, we gave notice to REG that we intended to proceed with arbitration to resolve disputes arising under the MOSA. On or about October 30, 2009, we delivered our Statement of Claims to REG and the selected arbiter alleging the following: (1) breach of the MOSA for failure to utilize best efforts; (2) breach of the covenant of good faith and fair dealing; (3) breach of fiduciary duties; (4) fraudulent non-disclosure; and (5) negligent misrepresentation. On or about December 7, 2009, REG responded to these claims and also asserted counterclaims for breach of written contract, breach of the covenant of good faith and fair dealing, breach of oral contract and promissory estoppel, all of which arise out of one customer issue. On or about December 16, 2009, we responded to the counterclaims. The parties have selected Wayne Mark as the arbiter. The parties have exchanged and provided initial responses to written discovery. The parties have entered a scheduling order setting the date of arbitration for August 22, 2011 through September 2, 2011 in Des Moines, Iowa.

On November 4, 2009, three of our former directors, Denny Mauser, William J. Horan and Warren L. Bush, who are also members of The Biodiesel Group, LLC, (the TBG Directors), filed suit in the Iowa District Court for Washington County against the remaining directors of our board of directors: Michael J. Bohannan, Mark A. Cobb, Richard Gallagher, John Heisdorffer, Edwin Hershberger and J. William Pim (Defendants). The TBG Directors requested temporary and permanent injunctions against the Defendants, in an effort to reverse certain actions taken by Defendants, acting as a majority of the board of directors. These actions include the adoption of an Executive Committee Charter, the appointment of Defendants to the Executive Committee, and adoption of a Resolution adopting the Amended and Restated Director and Officer Compensation Plan.

The TBG Directors claim that Defendants exceeded their authority, acting as a majority of the board, in taking these actions. Defendants claim that under our amended and restated operating agreement, Defendants were permitted and justified in taking such actions, due to recent revelations regarding certain payments made in 2007 to the TBG Directors by predecessors in interest to REG, which Defendants claim constitute a conflict of interest and breach of our amended and restated operating agreement. Defendants filed a motion for summary judgment on November 16, 2009, on which arguments were heard on December 18, 2009, and on March 3, 2010 the court issued an order denying the motion for summary judgment, which means the court determined that facts are in dispute that require further proceedings before a final judgment can be entered in favor of either party. This case was set for trial in December 2010, however, prior to this time, on October 7, 2010, the suit was dismissed without prejudice by the TBG Directors.

ITEM 4.		REMOVED AND RESERVED

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

There is no public trading market for our units. We have created a private qualified online matching service in order to facilitate trading of our units, however; as of the date of this report no trades have been completed on our private qualified online matching service. Our online matching service consists of an electronic bulletin board that provides information to prospective sellers and buyers of our units. We do not receive any compensation for creating or maintaining the matching service. We do not become involved in any purchase or sale negotiations arising from our qualified matching service. In advertising our qualified matching service, we do not characterize Iowa Renewable Energy as being a broker or dealer in an exchange. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the online matching service. We do not use the bulletin board to offer to buy or sell securities other than in compliance with the securities laws, including any applicable registration requirements. We have no role in effecting the transactions beyond approval, as required under our amended and restated operating agreement, and the issuance of new certificates. So long as we remain a public reporting company, information about the Company will be publicly available through the SEC’s filing system. However, if at any time we cease to be a public reporting company, we will continue to make information about the Company publicly available on our website. No sales of our units have been completed under our qualified online matching service.

Unit Holders

As of September 30, 2010, we had approximately 614 unit holders of record.

Distributions

We have not declared or paid any distributions on our units. Our board of directors has complete discretion over the timing and amount of distributions to our unit holders. However, our second amended and restated operating agreement requires the board of directors to endeavor to make cash distributions at such times and in such amounts as will permit our unit holders to satisfy their income tax liability in a timely fashion.

Equity Compensation Plans

We do not have any equity compensation plans under which equity securities of Iowa Renewable Energy are authorized for issuance.

Sale of Unregistered Securities

We did not make any sales of equity securities that were unregistered during the fiscal year ended September 30, 2010.

Repurchases of Equity Securities

Neither we, nor anyone acting on our behalf, has repurchased any of our outstanding units.

ITEM 6.		SELECTED FINANCIAL DATA.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statements Regarding Forward Looking Statements

Throughout this report, we make “forward-looking statements” that involve future events, our future performance, and our future operations and actions. In some cases, you can identify forward-looking statements by the use of words such as “may,” “should,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” “believe,” “expect” or “anticipate” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results may differ from these forward-looking statements for many reasons, including the following factors:

Continuing decrease in the demand for biodiesel;

Failure to comply with loan covenants contained in our financing agreements;

Our ability to continue to export our biodiesel;

The continued imposition of tariffs or other duties on biodiesel imported into Europe;

Loss of the blenders tax credit again in 2012;

WMG’s ability to market our product and procure feedstock;

Actual biodiesel and glycerin production varying from expectations;

Economic consequences of the domestic and global economic downturn and the on-going financial crisis;

Availability and cost of products and raw materials, particularly soybean oil, animal fats, natural gas and methanol;

Changes in the price and market for biodiesel and its co-products, such as glycerin;

Our ability to market and our reliance on third parties to market our products;

Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices such as:

	•		national, state or local energy policy;
	•		federal and state biodiesel tax incentives;
	•		the RFS or other legislation mandating the use of biodiesel or other lubricity additives; or
	•		environmental laws and regulations that apply to our plant operations and their enforcement;

Total U.S. consumption of diesel fuel;

Fluctuations in petroleum and diesel prices;

Changes in plant production capacity or technical difficulties in operating the plant;

Changes in our business strategy, capital improvements or development plans;

Results of our hedging strategies;

Competition with other manufacturers in the biodiesel industry;

Our ability to generate free cash flow to invest in our business and service our debt (and the flexibility of our lender in regards to our debt);

Our liability resulting from litigation;

Our ability to retain key employees and maintain labor relations;

Changes and advances in biodiesel production technology;

Competition from alternative fuels and alternative fuel additives;

Our ability to generate profits; and

Other factors described elsewhere in this report.

We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from those we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

Our plant is currently blown down and winterized, which we decided to do in response to our plant shut-down. Our plant is not currently operational and we anticipate it will take us two to three weeks to bring the plant back online in the event we again start producing biodiesel. We began producing biodiesel on July 10, 2007. After obtaining independent testing of our biodiesel to certify that our biodiesel meets the American Society for Testing and Materials (ASTM) standards, we began shipping our first lot of 7,200 gallons of biodiesel on July 12, 2007. The plant was operating at full capacity until the end of September 2007, with only minor temporary shut downs for maintenance and a weather-related power outage. Since the beginning of October 2007, we have only been operating to produce biodiesel to satisfy existing contracts for the sale of our biodiesel and have not been producing biodiesel for speculation. This has allowed us to avoid excess inventory, but also, resulted in several plant shutdowns. During the fourth quarter of fiscal year 2010 and the first quarter 2011, we did not operate our plant.

From October 1, 2009 through September 30, 2010 we produced approximately 2,300,000 gallons of biodiesel, which is only approximately 7.7% of our plant’s capacity. We anticipate operating the plant at increased levels during our fiscal year 2011, given the RFS2 800 million gallon requirement for 2011; however, our ability to operate depends upon many factors outside of our control, such as the demand for biodiesel, price for biodiesel, cost of feedstock, and timing for obligated parties to begin purchasing biodiesel under the RFS2. We do not however, anticipate speculatively producing biodiesel in the next 12 months. Therefore, if demand does not increase such that we can obtain contracts for the same amount of biodiesel that we produced during our fiscal year 2010, then we may operate at a lower production rate than during our fiscal year 2010. In addition, we have been experiencing liquidity difficulties since beginning our operations and if these conditions do not improve, or get worse, during our fiscal year 2011 then we will likely operate our plant at lower levels than we did during our fiscal year 2010.

Plan of Operations for the Next 12 Months

Plant Operations

We expect to spend the next 12 months engaging in the production of biodiesel and glycerin at our plant, if the reinstatement of the biodiesel tax credit is sufficient to stimulate demand for biodiesel and our marketer is able to obtain contracts for our biodiesel. Our plant is fully operational and we were previously actively producing biodiesel at our plant, although we have not operated during our last quarter of fiscal year 2010.

Results of Operations

Comparison of Fiscal Years Ended September 30, 2010 and September 30, 2009

The following table shows the results of our operations and the percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our statements of operations for the fiscal years ended September 30, 2010 and September 30, 2009.

		Fiscal Year Ended								Fiscal Year Ended
Income Statement Data		September 30, 2010								September 30, 2009
Revenues		$	9,234,866				100.00	%		$	29,132,604				100.00	%
Cost of Goods Sold		$	12,070,190				130.70	%		$	29,795,410				102.28	%
Gross (Loss)		$	(2,835,324	)			(30.70	)%		$	(662,806	)			(2.28	)%
Operating Expenses		$	887,187				9.60	%		$	1,421,907				4.88	%
Interest and Other Income		$	460,104				4.98	%		$	36,579				0.13	%
Interest Expense		$	1,109,649				12.02	%		$	1,272,475				4.37	%
Net (Loss)		$	(4,372,056	)			(47.34	)%		$	(3,320,609	)			(11.40	)%

Our operating results generally reflect the relationship between the price of biodiesel and the costs of feedstocks used to produce our biodiesel. Because biodiesel is used as an additive or alternative to diesel fuel, biodiesel prices are strongly correlated to petroleum-based diesel fuel prices. Historically, the price of biodiesel has fluctuated with the price of diesel fuel. In addition, the price of biodiesel is generally influenced by factors such as general economic conditions, the weather, and government policies and programs. Surplus biodiesel supplies also tend to put downward price pressure on biodiesel. Additionally, prices for diesel and the costs of feedstock, including soybean oil or animal fats, have been volatile and such fluctuations in the cost of feedstock may significantly affect our financial performance. Our results of operations will benefit when the margin between biodiesel prices and feedstock costs widens and will be harmed when this margin narrows. The biodiesel industry experienced very high feedstock costs during the summer of 2008, without corresponding increases in biodiesel prices, thereby causing profit margins to be small or nonexistent. In 2010, the biodiesel industry has seen significant volatility in feedstock costs with prices for biodiesel dropping as well, given the excess capacity and low demand. We expect that feedstock prices will rise as more certainty enters the biodiesel industry with the extension of the biodiesel tax credit through December 31, 2011, an additional year under the RFS2, and clearer expectations of the mandates. In addition, our revenues are also impacted by the intensely competitive nature of our industry; the extensive environmental laws that regulate our industry; possible legislation at the federal, state and/or local level; and changes in federal biodiesel tax incentives.

Revenues

		Fiscal Year Ended								Fiscal Year Ended
		September 30, 2010								September 30, 2009
Revenue Source		Amount				% of Revenues				Amount				% of Revenues
Biodiesel Sales		$	8,820,946				96.52	%		$	24,995,232				85.80	%
Glycerin Sales			169,511				1.84	%			486,327				1.67	%
Fatty Acids and Soapstock Sales			56,777				0.61	%			424,978				1.46	%
Federal Incentives			187,632				2.03	%			3,226,067				11.07	%
Total Revenues from Sales		$	9,234,866				100.00	%		$	29,132,604				100.00	%

Revenues from operations for the fiscal year ended September 30, 2010 totaled $9,234,866 compared with $29,132,604 for the fiscal year ended September 30, 2009. Included within our total revenues for the fiscal year ended September 30, 2010 and 2009 are approximately $187,632 and $3,226,067 respectively, in incentives we received or which were receivable from certain federal government programs for the sale of our biodiesel. Revenues in fiscal year 2010 were approximately a third of the revenues in fiscal year 2009. The decrease in revenues was due primarily to decreased production and sales volume of biodiesel, glycerin, fatty acids and soapstock. The decrease in production volume was due to lack of demand and contracts for our biodiesel due in large part to the uncertainty surrounding the federal tax credit and slow implementation of RFS2.

Lower biodiesel prices in fiscal 2010 compared to fiscal 2009, combined with a decrease in biodiesel sales volume, contributed to the lower total revenues in fiscal year 2010 as compared with fiscal year 2009. Average biodiesel sale prices during most of the year ended September 30, 2010 trended downward from the average biodiesel sale prices we experienced in the same period in 2009. The average biodiesel sale price we received for the year ended September 30, 2010 was approximately 2.0% lower than our average biodiesel sale price for the comparable period in 2009.

Because biodiesel is primarily used as an additive to petroleum-based diesel, biodiesel prices have generally correlated to diesel fuel prices. Diesel prices have climbed over the past several years reaching record highs of over $4.70 per gallon in July 2008, but have since trended downward, as oil prices have plummeted and the U.S. economic downturn and credit crisis have contributed to a decrease in demand for fuel in general. According to the Energy Information Administration, average retail prices for No. 2 Ultra Low Sulfur Diesel peaked at over $4.70 per gallon in July 2008, but have since dropped to approximately $3.23 per gallon as of early December 13, 2010. Biodiesel prices have followed a similar trend, peaking in the summer of 2008 and declining thereafter. Nonetheless, diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel. For example, the price for soy B100 biodiesel in Iowa averaged approximately $4.52 per gallon for December 21, 2010, according to the Iowa Department of Transportation’s report. However, according to the same report, No. 2 diesel fuel prices as of December 21, 2010 averaged approximately $2.56 per gallon, which is lower than the price per gallon for B100 biodiesel. The premium of biodiesel prices over diesel prices could cause a reduction in the demand for biodiesel. Through most of fiscal year 2008, biodiesel prices steadily increased and were well above historical highs and, therefore helped, to a certain extent, to offset high input costs, such as soybean oil. However, we expect that a continued drop in biodiesel prices without a corresponding decrease in the cost of feedstock and other inputs will cause the profit margin on each gallon of biodiesel produced to continue to be small to nonexistent, which could result in significant losses. Due to the volatility of the global economic conditions and commodities markets, it is uncertain whether biodiesel prices and input costs will continue to decrease or whether they will rebound to the higher prices experienced in the summer of 2008.

Based on historical trends, we anticipate that seasonal demand for biodiesel will decrease in the fall and winter months when blenders have typically decreased their biodiesel blend percentages due to cold flow concerns. Such decrease in demand could cause downward pressure on biodiesel sale prices. We anticipate the RFS2 will increase demand for biodiesel; however, while the 2011 obligated party requirement is 800 million gallons under RFS2, we are still several months away from realization of that requirement. Our financial condition may be negatively affected by decreases in the sales price of biodiesel. This is especially true during periods when feedstock costs for soybean oil and animal fats are relatively high, causing our profit margins to decrease even further.

We also believe that the U.S. and global economic downturn and the financial crisis that led to a collapse of a variety of major U.S. financial institutions and the federal government’s passage of a bailout plan may also place downward pressure on the demand for fuel, including biodiesel. These factors have caused significant upheaval in the financial markets and economy of the U.S., as well as abroad. Credit markets have tightened and lending requirements have become more stringent. Commodity markets have tumbled as a result of the recent economic turmoil, causing oil and other commodity prices to drop significantly. We expect that these conditions may lead to a decline in biodiesel demand and it is uncertain for how long and to what extent these financial troubles may negatively affect biodiesel demand in the future.

Excess production capacity in the biodiesel industry could make it difficult for us to market our products at profitable prices. The Biodiesel Magazine website estimates that current total biodiesel production capacity of existing plants as of December 12, 2010 was about 2.83 billion gallons per year, which is up from approximately 1.92 billion gallons per year as of September 2007. The Biodiesel Magazine website also estimates that plants under construction and expansion as of December 12, 2010 could add another 386 million gallons to U.S. biodiesel production capacity, for a total annual production capacity of 3.22 billion gallons. Despite these significant increases in production capacity, the National Biodiesel Board estimates that only 545 million gallons of biodiesel were produced in 2009. Many biodiesel plants do not operate at full capacity due in part to the fact that total production capacity significantly exceeds demand. If the demand for biodiesel does not grow at the same pace as increases in supply, we expect the price for biodiesel to decline in the long-term.

Our average sales price for glycerin in our fiscal year 2010 was less than in our fiscal year 2009. These lower sales prices were in conjunction with us selling significantly less glycerin in our fiscal year 2010, because we produced less biodiesel in our fiscal year 2010 due to decreased demand for biodiesel, which meant we had less of our primary co-product, glycerin, to sell.

We expect our results of operations to benefit from federal and state biodiesel supports and tax incentives. Biodiesel has generally been more expensive to produce than petroleum-based diesel and, as a result, the biodiesel industry depends on such incentives to be competitive. Changes to these supports or incentives, or continued instability with the same, could significantly impact demand for biodiesel. The most significant of these are the biodiesel blender’s credit and the RFS2. See “BUSINESS — Government Regulation and Federal Biodiesel Supports.”

We are highly dependent upon WMG for the successful marketing of our products. We do not have our own sales force and we do not have any other agreements or relationships with feedstock suppliers. If WMG breaches the agreement or does not have the ability, for financial or other reasons, to market all of the biodiesel and glycerin we produce, we will not have any readily available means to sell our biodiesel. Any loss of our relationship with WMG could have a significant adverse impact on our revenues.

Cost of Goods Sold

The primary components of cost of goods sold from the production of biodiesel are raw materials (soybean oil, animal fats, corn oil, methanol and other chemicals), energy (natural gas and electricity), labor and depreciation on process equipment. Our business is sensitive to feedstock costs. The cost of feedstock is the largest single component of the cost of biodiesel production, typically accounting for 70-90% of the overall cost of producing biodiesel. Any fluctuation in the cost of feedstock will alter the return on investment that our members receive. Changes in the price or supply of feedstock are subject to and determined by market forces and other factors over which we have no control, such as crop production, carryout, exports, government policies and programs, and weather. Because biodiesel prices are strongly correlated to diesel fuel prices, the biodiesel industry is unlike many other industries where finished product prices are more strongly correlated to changes in production costs. This characteristic of the biodiesel industry makes it difficult for biodiesel producers to pass along increased feedstock costs and, therefore, increases in feedstock costs can significantly affect our ability to generate profits.

Cost of goods sold for our products for the year ended September 30, 2010 was $12,070,190, which is less than half that of cost of goods sold for the year ended September 30, 2009, which was equal to $29,795,410. The decrease is primarily attributed to our lowered production rate. As a percentage of revenues, our cost of goods sold increased from fiscal year 2009 to fiscal year 2010, which were 102.28% and 130.70%, respectively. This increase was due primarily to fixed costs being spread over significantly reduced sales volumes.

Our average soybean oil costs per pound for the year ended September 30, 2010 were approximately 2.0% higher than soybean oil costs for the year ended September 30, 2009. Conversely, animal fat costs per pound for the year ended September 30, 2010 were approximately 11.0% lower than animal fat costs for the fiscal year ended September 30, 2009. In fiscal year 2010, we also utilized approximately 1.5 million pounds of corn oil feedstock, which is consistent with the minimal amounts of corn oil used in fiscal year 2009.

In order to minimize cost of goods sold, we anticipate that if we begin to again produce biodiesel, we will attempt to utilize lower-cost feedstocks such as animal fats and corn oil in place of higher-cost feedstocks such as soybean oil. In fiscal year 2009, approximately 80% of the feedstock used in our biodiesel production was animal fats and 20% was soybean oil. In fiscal year 2010, by comparison, approximately 14.0% of feedstock used in biodiesel production was animal fats, and approximately 86.0% was soybean oil.

In addition, natural gas has recently been available only at prices exceeding historical averages. We expect continued volatility in the natural gas market. Global demand for natural gas is expected to continue to increase, which may further drive up prices. Any ongoing increases in the price of natural gas will increase our cost of goods sold.

Commodity prices have been extremely volatile over the recent years, increasing by historic proportions in the summer of 2008. Soybean costs fell to $11.20 per bushel in November 2010, down from a high of approximately $13.30 per bushel in July 2008, according to the USDA’s December 2010 Oil Crop Outlook Report. Soybean oil prices have followed a similar trend, which according to the USDA’s December 2010 Oil Crop Outlook Report, average soybean oil prices reached a peak of approximately 62.43 cents per pound in June 2008, but have come down to a price of 47.62 cents per pound in November 2010. The decrease in soybean oil prices is likely due to the rapid changes in the global economy. The USDA National Weekly Ag Energy Round-Up Report indicates that as of December 10, 2010, soybean oil prices in Iowa are approximately 49.90 to 51.15 cents per pound, which is up from the price range of 35.59 to 38.15 cents per pound one year ago. The USDA forecasted that 2010/11 soybean oil prices would range from 45 to 49 cents per pound. Accordingly, based on recent trends, management expects that cost of goods sold on the basis of a per-gallon of soybean oil-based biodiesel sold may increase from levels experienced in fiscal year 2010. However, management still expects that prices may remain volatile through fiscal year 2011. It is uncertain to what extent and for how long domestic and global economic conditions may exert downward pressure on the cost of soybean oil and other commodities. Because it takes more than seven pounds of soybean oil to make a gallon of biodiesel, price fluctuations can have a significant affect on our profit margin on each gallon of biodiesel produced and sold. Soybean crushing, soybean acres planted, and weather conditions could increase volatility in the soybean oil market. Animal fats prices have also increased significantly, although they still remain lower than soybean oil prices.

Like soybean oil prices, animal fat costs also peaked in the summer of 2008. Although animal fat costs did not reach prices as high as soybean oil prices in the summer of 2008, animal fat costs nonetheless increased well above their historical average. The prices for animal fats tend to move in relation to the price of other feedstocks such as soybean oil. Accordingly, as soybean oil prices increase, animal fat costs will also likely increase and vice versa. According to the USDA’s December 2010 Oil Crop Outlook report, lard and edible tallow prices for November 2010 were estimated at 37.32 cents and 41.75 cents per pound, respectively, which are mixed changes from their prices of 52.82 cents and 38.61 cents per pound, respectively, in July 2008. Management expects that prices may remain volatile throughout fiscal year 2011, as domestic and global economic conditions and commodities markets may affect input prices, including animal fats.

Based on recent trends of soybean oil and animal fat costs, we expect that cost of goods sold on a per-gallon basis may increase from levels experienced in fiscal year 2010. In addition, management still expects that prices may remain volatile through fiscal year 2011. We will attempt to utilize feedstocks that provide us with the greatest margins on the sale of our biodiesel. Nonetheless, even if feedstock costs drop, decreases in the price at which we may sell our biodiesel and glycerin in the future could still result in low profit margins, which could have an adverse affect on our net income.

We experienced a $29,615 net loss during the year ended September 30, 2010 related to our derivative contracts, which is a decrease from the $560,099 net gain recognized during the fiscal year ended September 30, 2009. We enter into option contracts to reduce the risk caused by market fluctuations of soybean oil and home heating oil. The contracts are used to fix the purchase price of our anticipated requirements of soybean oil in production activities and to manage exposure to changes in biodiesel prices. The fair value of the derivatives is continually subject to change due to the changing market conditions. As the value of soybean oil and home heating oil fluctuate, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing and changes in value of derivative instruments relative to the cost of the commodity being hedged.

Operating Expenses

Operating expenses for the year ended September 30, 2010 totaled $887,187, which is lower than operating expenses of $1,421,907 for the same period in 2009. This decrease is largely due to reduced operations brought about by reductions in staff and elimination of nonessential expenditures to preserve cash resources. Operating expenses as a percentage of revenues increased from fiscal year 2009 to fiscal year 2010, at 4.88% and 9.60% respectively. The increase in operating expenses as a percentage of revenues is primarily due to the reduced overall sales volume. We expect that our operating expenses for fiscal 2011 will remain fairly consistent if average plant production levels remain consistent.

Other Income (Expenses)

Our other income and expenses for the fiscal year ended September 30, 2010 was interest expense of $1,109,649 and interest and other income of $460,104, compared to an interest expense of $1,272,475 and interest and other income of $36,579 in 2009. In 2010, other income included, $100,000 related to the forgivable grant portion of the Iowa Department of Economic Development (IDED) loan /grant, $280,000 in Advanced BioFuels Producer Credit funds, a $70,000 education grant from Kirkwood Community College, and with the remainder representing interest income. The interest expense represents interest and amortization costs. The decrease in interest expense was primarily the result of a decrease in our outstanding borrowings and a decrease in our average interest rates.

Changes in Financial Condition

The following table highlights the changes in our financial condition from September 30, 2009 to September 30, 2010:

		September 30, 2010				September 30, 2009
Current Assets		$	1,233,887			$	5,746,294
Current Liabilities		$	27,769,336			$	31,016,570
Members’ Equity		$	7,909,325			$	12,281,381

Current Assets. Current assets totaled $1,233,887 at September 30, 2010 down from $5,749,294 at September 30, 2009. The decrease during this period is a result of a decline in accounts receivable and a decline in inventory on hand. The decline in these two key indicators is the result of a lack of sales activity.

Current Liabilities. Total current liabilities totaled approximately $27,769,336 at September 30, 2010, down slightly from $31,016,570 at September 30, 2009. This decrease was due largely to the payment on our term loan and with the scale back of operations, the Company is incurring less expenses resulting in the reduction of accounts payable and accrued expenses.

Members’ Equity. Members’ contributions at both September 30, 2010 and September 30, 2009 were equal to $23,165,422. Total members’ equity as of September 30, 2010 was $7,909,325, down from $12,281,381 as of September 30, 2009. The decrease in total members’ equity is due to the current year loss. The loss is the result of the low level of sales experienced in fiscal year 2010 and the lower sales price received for the Company product sold. The low level has resulted in an inability to cover the fixed costs and interest expense incurred annually by us.

Liquidity and Capital Resources

Cash Flow from Operating Activities. Net cash flow provided by operating activities for the year ended September 30, 2010 totaled $2,044,225 compared to $4,039,052 for the year ended September 30, 2009. This was due to the increased loss incurred in fiscal year 2010 compared to prior fiscal year and the overall decline in working capital components. The decline is the result of the decline in sales.

Cash Flow from Investing Activities. Net cash flow provided by investing activities for the year ended September 30, 2010 totaled $454,634, of which $470,830 was for reductions in restricted cash balances due to it being used to make interest payments on the term debt and $16,196 used for capital expenditures for the purchase of computers and computer software. The term loan agreement allows for the use of the debt service reserve to make interest payments. As part of the agreement with our lender, during the period in which we have forbearance, principal payments are deferred and the interest payments are being pulled from the restricted cash. Capital purchases were necessary following the termination of the management agreement with REG. While aligned with REG under the management agreement, we used the REG computer operating system for operations and financial reporting. At the termination of the management agreement, we were required to acquire our own operating software as well as replace a number of computers owned by REG.

Cash Flow from Financing Activities. Net cash used in financing activities for the year ended September 30, 2009 totaled $2,668,847, which was primarily a payment on the term debt made prior to the agreement discussed in Note 4 to the Financial Statements.

Short-Term and Long-Term Debt Sources

In October 2006, we closed on our $34,715,000 debt financing with Marshall Bankfirst Corporation. Marshall Bankfirst Corporation has since been seized by the FDIC and our loan agreement is now held by MLIC as successor lender. The financing provided for a $29,715,000 term loan, with an interest rate during construction (the first 14 months following loan closing) of 0.75% over the Prime Rate as of the effective date reported in the Money Rates column of The Wall Street Journal. Our construction loan converted to a term loan in February 2008.

The term loan imposes various covenants upon us which may restrict our operating flexibility. We are subject to several ratios in the term loan which may limit how we allocate our sources of funds. The term loan imposes a negative covenant on distributions which may restrict our ability to distribute earnings to our members. The term loan also requires us to obtain MLIC’s permission prior to making any significant changes in our material contracts with third-party service providers.

We executed a mortgage in favor of MLIC creating a first lien on substantially all of our assets, including our real estate, plant, all personal property located on our property and all revenues and income arising from the land, plant or personal property for the loan and credit agreements discussed above.

On September 2, 2010, we executed a Third Amendment and Note Modification with MLIC (the Amendment Documents). The purpose of the Amendment Documents are to modify our term loan. The Amendment Documents provide that MLIC shall forbear until February 1, 2011 from exercising its remedies under the term loan and that MLIC shall waive until February 1, 2011 the Company’s compliance with certain covenants and ratios of the Term Loan.

The Amendment Documents also modify the payment and interest terms of the term loan. From October 1, 2010 and on the first day of each month thereafter through February 1, 2011, the Company shall pay MLIC all accrued interest then due.

Beginning on March 1, 2011, regular monthly principal and interest payments based upon the remaining term of the original amortization period of ten years shall resume in accordance with the original terms of the term loan. Beginning on March 1, 2011, we shall also pay the accrued interest on the principal payments that have been deferred until such deferred payments have been paid in full. On September 5, 2011, the principal payments that were otherwise due on August 1, 2010 through December 1, 2010 shall be due and payable. In addition, on September 5, 2011, the remaining unpaid principal balance of the term loan, together with all accrued but unpaid interest, shall be due and payable in full.

The Amendment Documents also modify the interest rate under the term loan. Under the Amendment Documents, interest shall begin to be calculated as 6% over LIBOR. Beginning six months from the first day of the full month after the date of the execution of the Amendment Documents, and every six months thereafter, the LIBOR margin shall be adjusted in accordance with the below schedule, which is based upon the number calculated by dividing our total debt (including both secured and unsecured obligations) by our earnings before interest, taxes, depreciation and amortization (“Company’s Leverage Ratio”).

Company’s Leverage Ratio		LIBOR Applicable Margin
Less than 2.75 to 1.00			4.00	%
Greater than or equal to 2.75 to 1.00 but less than 3.5 to 1.00			4.75	%
Greater than or equal to 3.5 to 1.00 but less than 4.25 to 1.00			5.25	%
Greater than or equal to 4.25 to 1.00 but less than 5.0 to 1.00			5.50	%

Also on September 1, 2010, we entered into a loan agreement and related documents for a $6,000,000 revolving line of credit with MLIC as the lead lender (the Line of Credit). The funds from the Line of Credit will be used for the production of biodiesel at our plant and up to $400,000 of the funds may be used by us for risk management to hedge biodiesel.

We made standard representation and warranties under the Line of Credit, including, but not limited to: agreeing not to amend its articles of organization, operating agreement or similar governing document; agreeing not to merge, consolidate, sell transfer or assign substantial parts of its business without prior approval of MLIC; and sell or assign any accounts receivable without prior approval of MLIC.

In addition, we are required to maintain certain financial ratios and covenants, including, but not limited to: net tangible worth of $7,000,000; and we agreed not to purchase or redeem our units, declare or pay any dividends, except dividends payable solely in units, make any distributions to members or set aside any funds for any such purpose, without the prior written approval of the MLIC.

Upon the occurrence of an event of default, the Line of Credit shall become due and payable immediately. Events of Default include, but are not limited to: nonpayment of any principal or interest; breach by us which goes uncured for fifteen (15) days after notice under the Line of Credit or any of the term loan Documents of the Company; misrepresentation by us in the Line of Credit documents; insolvency; determination by MLIC that its position is insecure for any reason, and such insecurity is not cured by us within ten (10) day of notification; and acceleration or default by us on other debts.

Any funds disbursed to us under the Line of Credit shall be repaid to the MLIC, along with interest, by May 31, 2011. Interest under the loan shall be variable, based on 12% above the current thirty (30) day LIBOR rate. As of September 30, 2010 the Company has not accessed the Line of Credit.

We shall make payments to MLIC beginning on the first day of the first month following the first advance under the Line of Credit and on the first day of each month thereafter. We shall make such monthly payments in an amount equal to all accrued, but unpaid interest on the Line of the Credit. On May 31, 2011, we shall make one payment in the amount of all unpaid principal and interest. In addition, we shall pay MLIC a monthly administrative fee of $3,000, with the first administrative fee to be paid contemporaneously with the execution of the Line of Credit and each administrative fee to be paid on the first day of each month thereafter. The administrative fees shall be paid regardless of whether there is a balance under the Line of Credit. We shall be allowed to borrow, prepay and re-borrow under the Line of Credit until May 31, 2011, however, all advances are subject to the sole discretion of MLIC and MLIC is not obligated to make any advance.

Grants and Government Programs

We entered into a loan with the Iowa Department of Economic Development for $400,000. This loan is part of the Iowa Department of Economic Development’s Value Added Program and $100,000 of the loan is forgivable and the $300,000 principal amount does not bear interest. The balance at September 30, 2010 was $65,000. The $100,000 forgivable portion was forgiven in October 2009. We recently requested and were granted a six month waiver on payments. This waiver will begin in January 2011 and as a result of this waiver, interest will be at 6.0% when we again begin making payments.

In addition, on May 14, 2007 we entered into a Railroad Revolving Loan and Grant Program Agreement with the Iowa Department of Transportation (IDOT) for an amount of up to $168,000 (or 13.3% of the cost for the railroad project, whichever is less) and a loan amount of up to $132,000 (or 10.5% of the cost for the railroad project, whichever is less). Interest on the loan amount is at 3.67% per year for five years. The balance at September 30, 2010 was $250,061 of which $82,061 is required to be repaid to the IDOT.

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses.

Revenue Recognition

Revenue from the production of biodiesel and its co-products is recorded when title transfers to customers. Biodiesel and its co-products are generally shipped FOB from the plant.

Derivative Instruments and Hedging Activities

Accounting Standards Codification (ASC) Topic No. 815, Derivatives and Hedging Activities, or ASC 815, requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain derivative contracts may be exempt under ASC 815 as normal purchases or normal sales, which are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. At this time, our forward contracts related to the purchase of soy oil are considered normal purchases and, therefore, are exempted from the accounting and reporting requirements of ASC 815.

Commodity Price Risk Protection

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as soybean oil, and finished products, such as biodiesel, through the use of derivative instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases, they do not qualify for hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of goods sold. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

During the year ended September 30, 2010, the losses on our derivative instruments relating to certain commodities, including soybean oil and heating oil, was a realized loss of $96,377 and a change in unrealized gain of $66,762 for a net loss of $29,615. The realized loss was recorded, but the transaction was offset by a sales price tied to heating oil. We realized gain of $560,099 during the year ended September 30, 2009, which consisted of an unrealized loss of $131,903 for a realized gain of $692,002. The unrealized portion of any hedging loss is subject to change with market fluctuations and may be offset by future higher-priced biodiesel sales.

There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of soybean oil or biodiesel. However, it is likely that commodity cash prices will have the greatest impact on the derivative instruments with delivery dates nearest the current cash price. As we move forward, additional protection may be necessary. As the prices of these hedged commodities move in reaction to market trends and information, our statement of operations will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for the Company.

Impairment of long-lived assets

We review long-lived assets, including property, plant and equipment, for impairment in accordance with ASC Topic 360-10, “Property, Plant, and Equipment”. Asset impairment charges are recorded for long-lived assets when events and circumstances indicate that such assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined by management estimates using discounted cash flow calculations. The estimate of cash flows arising from the future use of the asset that are used in the impairment analysis requires judgment regarding what we would expect to recover from the future use of the asset. Changes in judgment that could significantly alter the calculation of the fair value or the recoverable amount of the asset may result from, but are not limited to, significant changes in the regulatory environment, the business climate, management’s plans, legal factors, commodity prices, and the use of the asset or the physical condition of the asset.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

ITEM 8.		FINANCIAL STATEMENTS.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Members
Iowa Renewable Energy, LLC

We have audited the accompanying balance sheets of Renewable Energy, LLC as of September 30, 2010 and 2009, and the related statements of operations, members’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Iowa Renewable Energy, LLC as of September 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has suffered losses from operations and has experienced significant increases in the input costs of its products. This has created liquidity issues and caused the Company to be in violation of its bank debt covenants. There is no assurance that such violations will be waived and substantially all debt is due in September 2011 which, together raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ McGladrey & Pullen, LLP

Davenport, Iowa
December 29, 2010

Iowa Renewable Energy, LLC

Balance Sheets
September 30, 2010 and 2009

		2010				2009
Assets
Current Assets:
Cash and cash equivalents		$	479,309			$	649,297
Due from broker			310,390				477,059
Accounts receivable			—				1,090,753
Federal incentive receivable			—				146,182
Inventory			372,547				3,265,653
Prepaids and other assets			71,641				117,350
			1,233,887				5,746,294
Property and Equipment:
Land			420,000				420,000
Plant and processing equipment			40,742,442				40,742,442
Office building, furniture and fixtures			588,965				572,769
Equipment and vehicles			240,241				240,241
			41,991,648				41,975,452
Accumulated depreciation			(8,615,336	)			(5,963,978	)
			33,376,312				36,011,474
Other Assets:
Cash, restricted by loan agreement			730,288				1,201,118
Financing costs, net			338,174				339,065
			1,068,462				1,540,183
		$	35,678,661			$	43,297,951
Liabilities and Members’ Equity
Current Liabilities:
Current maturities of long-term debt		$	27,457,729			$	30,005,576
Accounts payable and accrued expenses			311,607				944,232
Derivative financial instruments			—				66,762
Total current liabilities			27,769,336				31,016,570
Long-Term Debt			—				—
Commitments
Members’ Equity:
Member contributions, net of issuance costs, units outstanding 2010 and 2009 26,331			23,165,422				23,165,422
Accumulated (deficit)			(15,256,097	)			(10,884,041	)
			7,909,325				12,281,381
		$	35,678,661			$	43,297,951

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Operations
Years Ended September 30, 2010 and 2009

		2010				2009
Revenues:
Sales		$	9,047,234			$	25,906,537
Federal incentives			187,632				3,226,067
			9,234,866				29,132,604
Cost of sales			12,070,190				29,795,410
Gross (loss)			(2,835,324	)			(662,806	)
Operating expenses:
General and administrative			849,187				1,383,907
Depreciation			38,000				38,000
			887,187				1,421,907
(Loss) before other income (expense)			(3,722,511	)			(2,084,713	)
Other income (expense):
Interest and other income			460,104				36,579
Interest expense			(1,109,649	)			(1,272,475	)
Net (loss)		$	(4,372,056	)		$	(3,320,609	)
Weighted average units outstanding			26,331				26,331
Net (loss) per unit — basic and diluted		$	(166.04	)		$	(126.11	)

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Changes in Members’ Equity (Deficit)
Years Ended September 30, 2010 and 2009

						Member				Accumulated				Total Members’
		Member Units				Contributions				Deficit				Equity
Balance, September 30, 2008			26,331			$	23,165,422			$	(7,563,432	)		$	15,601,990
Net (loss)			—				—				(3,320,609	)			(3,320,609	)
Balance, September 30, 2009			26,331				23,165,422				(10,884,041	)			12,281,381
Net (loss)			—				—				(4,372,056	)			(4,372,056	)
Balance, September 30, 2010			26,331			$	23,165,422			$	(15,256,097	)		$	7,909,325

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Cash Flows
Years Ended September 30, 2010 and 2009

		2010				2009
Cash Flows from Operating Activities:
Net (loss)		$	(4,372,056	)		$	(3,185,489	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation			2,651,358				2,650,008
Amortization			121,891				101,725
Unrealized (gain) loss on derivative financial instruments			(66,762	)			131,903
Change in working capital components:
(Increase) decrease in due from broker			166,669				(394,877	)
Decrease in accounts receivable			1,236,935				3,845,137
Decrease in inventory			2,893,106				2,315,253
(Increase) decrease in prepaids and other assets			45,709				(73,719	)
(Decrease) in accounts payable and accrued expenses			(632,625	)			(1,350,889	)
Net cash provided by operating activities			2,044,225				4,039,052
Cash Flows from Investing Activities:
Purchase of property and equipment			(16,196	)			(83,161	)
(Increase) decrease in cash restricted			470,830				(156,301	)
Net cash provided by (used in) investing activities			454,634				(239,462	)
Cash Flows from Financing Activities:
Debt issuance costs			(121,000	)			—
Payment on long-term borrowings			(2,547,847	)			(3,339,767	)
Net cash (used in) financing activities			(2,668,847	)			(3,339,767	)
Net increase (decrease) in cash and cash equivalents			(169,988	)			459,823
Cash and cash equivalents:
Beginning			649,297				189,474
Ending		$	479,309			$	649,297
Supplemental Disclosure of Cash Flow Information, cash payments for interest		$	923,670			$	1,119,767

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Note 1. Nature of Business and Significant Accounting Policies

Nature of business:

Iowa Renewable Energy, LLC (the Company), located in Washington, Iowa, was formed in April 2005 to pool investors to build a biodiesel manufacturing plant with an annual capacity of 30 million gallons. The Company was in the development stage until July 2007, when it commenced operations. See Note 6 for discussion of management’s plans for current operations.

Significant accounting policies:

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations of credit risk: The Company’s cash balances are maintained in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Restricted cash: Includes deposits to custodial accounts held by our lender. Debt service reserve: Commencing one month following the conversion date, the Company shall make monthly deposits to a debt service reserve until such time as the balance equals $1,319,265. Monthly deposits shall consist of not less than one-third of all available monthly projected EBITDA. Capital improvements reserve: Commencing one month after the conversion date, the Company shall make deposits into an account held by the Lender. The fund will be used to fund capital improvements. During the term of the loan, the capital improvements reserve must be maintained at $125,000. As part of the Line of credit agreement, discussed in Note 4 below, the Lenders will defer principal payments and pull interest payments from the debt service reserve. The lenders began taking interest payments from the debt service reserve in June of 2010. The balance in the debt service reserve at September 30, 2010 is $728,555 while the Capital Improvements reserve stands at $1,733.

Accounts receivable: Accounts receivable are presented at face value, net of the allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on historical experience and current economic conditions. The Company had no sales in the final quarter of the year. All outstanding accounts receivable were collected prior to the end of the period.

The Company’s policy is to charge simple interest on trade receivables past due balances; accrual of interest is discontinued when management believes collection is doubtful. Receivables are considered past due based upon payment terms set forth at the date of the related sale. The Company had no receivables accruing interest at September 30, 2010 or 2009.

Inventory: Inventory is valued at the lower of cost or market using the first-in, first out (FIFO) method. Inventory consists of the following as of September 30, 2010 and 2009:

		2010				2009
Raw material		$	111,951			$	1,418,828
Finished goods			260,596				1,846,825
		$	372,547			$	3,265,653

Iowa Renewable Energy, LLC

Notes to Financial Statements

Organizational costs and startup costs: The Company expenses all organizational and startup costs as incurred.

Property and equipment: Property and equipment is stated at cost. Depreciation of such amounts commenced when the plant began operations. Depreciation is computed using the straight-line method over the following estimated useful lives:

		Years
Plant and process equipment		10 - 20
Office building		10 - 20
Office equipment		3 - 7
Other equipment		3 - 7

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.

The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future undiscounted cash flows are less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market values of the asset to the carrying amount of the asset. No loss has been recorded during the years ended September 30, 2010 or 2009.

Financing costs: Deferred financing costs associated with the construction and revolving loans and the $34,715,000 construction loan (Note 4) include expenditures directly related to securing debt financing. These costs are being amortized using the effective interest method over the 6-year term of the related debt agreement. Deferred financings costs associated with the Company’s line of credit are being amortized using the effective interest method over the 6 month term of the related agreement. Accumulated amortization as of September 30, 2010 and 2009 was $418,586 and $296,695, respectively.

Derivative instruments: The Company has entered into derivative contracts to hedge its exposure to price risk related to forecasted soybean oil purchases and forecasted biodiesel sales. These derivative contracts are to be accounted for under Accounting Standards Codification (ASC) Topic No. 815, Derivatives and Hedging. ASC 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Although the Company believes its derivative positions are economic hedges, none have been designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings. The following amounts have been included in cost of goods sold for the years ended September 30, 2010 and 2009:

		2010				2009
Realized (gain) loss		$	96,377			$	(692,002	)
Change in unrealized (gain) loss			(66,762	)			131,903
Net (gain) loss		$	29,615			$	(560,099	)

Revenue recognition: Revenue from the production of biodiesel and related products is recorded upon transfer of the risks and rewards of ownership and delivery to customers. Interest income is recognized as earned.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Federal incentive payments and receivables: Revenue from federal incentive programs is recorded when the Company has sold blended biodiesel and satisfied the reporting requirements under the applicable program. When it is uncertain that the Company will receive full allocation and payment due under the federal incentive program, it derives an estimate of the incentive revenue for the relevant period based on various factors including the most recently used payment factor applied to the program. The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs. The blenders credit expired on December 31, 2009 and only in December 2010 was it extended for 2011 and made retroactive for 2010 No sales after the first quarter included Federal Blenders Incentive.

Cost of sales: The primary components of cost of sales from the production of biodiesel products are raw materials (soybean oil, animal fats, hydrochloric acid, methanol, sodium methylate, and chemicals), energy (natural gas and electricity), and labor. Cost of sales detail for the years ended September 30, 2010 and 2009 is as follows:

Cost Of Revenue/Sales		2010 Dollars				2010 Percentage				2009 Dollars				2009 Percentage
Input costs (soy oil, chemicals, etc.)		$	7,961,421				65.96	%		$	24,580,763				82.50	%
Plant wages and salaries			448,908				3.72				771,670				2.59
Utilities and waste disposal			446,595				3.70				1,055,769				3.54
Fees- procurement			34,250				0.28				142,591				0.48
(Gain) loss on derivative financial instruments			29,615				0.25				(560,099	)			(1.88	)
Depreciation			2,613,358				21.65				2,612,008				8.77
Maint., supplies and other expenses			536,043				4.44				1,192,708				4.00
Total cost of revenue/sales			12,070,190				100.00				29,795,410				100.00

Shipping and handling costs: Shipping and handling costs are expensed as incurred and are included in the cost of sales.

Income taxes: The Company is organized as a limited liability company which is accounted for like a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, the Company’s earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.

(Loss) per unit: Loss per unit has been computed on the basis of the weighted average number of units outstanding during each period presented.

Fair value of financial instruments: The estimated fair value of financial instruments was determined by reference to various market data and other valuation techniques as appropriate. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short maturity of these financial instruments. The carrying value of the debt also approximates fair value as the interest rate reprices when market interest rates change. The fair values of the derivate instruments are based on quoted prices in active exchange-traded or over-the-counter markets.

The Company follows the guidance set forth in ASC Topic 820 for assets and liabilities recognized at fair value on a recurring basis. ASC 820 establishes a framework for measuring fair value and requires enhanced disclosures about assets and liabilities carried at fair value.

Iowa Renewable Energy, LLC

Notes to Financial Statements

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as commodity derivative contracts listed on the Chicago Board of Trade.

Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

Level 3 — Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2009. There were no assets or liabilities recognized at fair value on September 30, 2010. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

Total Carrying

Significant other

Significant

Value at

Quoted prices in

observable

unobservable

September 30,

active markets

inputs

inputs

2009

(Level 1)

(Level 2)

(Level 3)

Liabilities

Derivative financial instruments liabilities

$

66,762

$

66,762

$

—

$

—

The Company enters into various commodity derivative instruments, including forward contracts, futures, options and swaps. The fair value of the Company’s commodity derivatives is determined using unadjusted quoted prices for identical instruments on the applicable exchange in which the Company transacts. When quoted prices for identical instruments are not available, the Company uses forward price curves derived from market price quotations. Market price quotations are obtained from independent energy brokers, exchanges, direct communication with market participants and actual transactions executed by the Company. Market price quotations for certain inputs are generally readily obtainable for the applicable term of the Company’s outstanding commodity derivative instruments and, therefore, the Company’s forward price curves for those locations and periods reflect observable market quotes.

Note. 2 Major Customer and Related Party

Iowa Renewable Energy, LLC entered into a marketing agreement with Renewable Energy Group (REG), where REG makes efforts to market and sell all of the biodiesel produced. Sales to REG for the years ended September 30, 2010 and 2009 were approximately $9.0 million and $25.9 million, respectively. Related accounts receivable from REG as of September 30, 2010 and 2009 were none and approximately $1.1 million, respectively.

Iowa Renewable Energy, LLC also entered into procurement and management agreements with REG to supply IRE with feedstocks and chemical inputs necessary for production and to manage operations.

Fees under this agreement are based on the number of biodiesel gallons produced and in addition the agreement provides for payment of a yearly bonus based on the Company’s net income. Total fees expensed under the agreement for the years ended September 30, 2010 and 2009 were $131,151 and $541,932, respectively.

On April 3, 2009 the Company received a written notice of termination from REG due to changes in the biodiesel market since the original agreements were signed. Therefore the current agreements expired on June 30, 2010.

Iowa Renewable Energy, LLC

Notes to Financial Statements

On January 29, 2010, the Company and WMG Services LLC (WMG) entered into a Management Services Agreement (Agreement). The Agreement provides that WMG will provide certain facility administration services; accounting services; and marketing, sales, feedstock sourcing and logistic services for the Company in exchange for a monthly asset utilization fee and a monthly performance fee. These fees are determined on a sliding fee scale tied to production. The Agreement commenced July 1, 2010 (Effective Date). The Agreement shall continue for a term of twenty-four (24) months from the Effective Date. Thereafter, the Agreement shall automatically renew for additional successive terms of twelve (12) months, unless either party gives ninety (90) days notice of its desire not to renew. The Agreement may also be terminated for a failure to cure a material breach of the Agreement thirty (30) days after receipt of notice of the breach, or for a change of control. Through September 30, 2010 the Company did not incur any expenses under this agreement.

Note 3. Members’ Equity

The Company was formed on April 14, 2005 to have a perpetual life. The Company has one class of membership unit with each unit representing a pro rata ownership interest in the Company’s capital, profits, losses and distributions. Income and losses are allocated to all members in proportion to units held.

The Company was initially capitalized by 12 members of the original board of directors, contributing an aggregate of $240,000 for 480 units. The Company was further capitalized by 78 members contributing an aggregate of $2,440,000 in exchange for 4,880 units. These units were issued pursuant to a private placement memorandum, limited to Iowa residents in which the Company offered a maximum of 6,000 units at a cost of $500 per unit for a maximum offering of $3,000,000, with all funds collected being considered at-risk capital. Each investor was required to purchase a minimum of 50 units for $25,000, with the option to purchase additional units in increments of one unit for $500 thereafter up to a maximum purchase by a single investor of 100 units for $50,000. Additionally, a total of 500 units were issued to the members of an entity related to the Company through common ownership in exchange for project development services provided pursuant to a consulting agreement. The private placement memorandum for the seed round offering was closed on November 30, 2005.

In April 2006, the Company issued an Iowa registered offering of membership units. The intrastate offering was set for a minimum of 17,595 membership units up to a maximum of 25,095 units for sale at $1,000 per unit, for a minimum offering amount of $17,595,000 and a maximum offering amount of $25,095,000. The minimum purchase requirements were 25 units for a minimum investment of $25,000. The Company began the intrastate offering on April 17, 2006 which was completed on May 1, 2006. A total of 19,371 membership units were issued to 508 members amounting to $19,371,000 of gross proceeds.

In November 2006 the directors exercised 1,100 units at $500 per unit. 100 units were unexercised and expired. In accordance with the Loan agreement, referenced in Note 4 below, the options funds were used for construction contract obligations prior to the initial draw on the loan in December 2006.

Note 4. Long-Term Debt

Long-term debt consists of the following as of September 30, 2010 and 2009:

		2010				2009
Note payable to Marshall Bank Group for construction loan (A)		$	27,142,668			$	29,505,098
Note payable to the Iowa Department of Economic Development (B)			65,000				225,000
Note payable to the Iowa Department of Transportation (C)			250,061				275,478
		$	27,457,729			$	30,005,576

Iowa Renewable Energy, LLC

Notes to Financial Statements

Cash payments for long-term debt are as follows:

Year ending September 30:
2011		$	27,229,033
2012			32,342
2013			196,354
		$	27,457,729

On September 2, 2010 the Company entered into a short-term line of credit where MLIC Asset Holdings, LLC, Federation Bank, and Washington State Bank will provide up to a $6.0 million revolving line of credit to be used for the purchase of raw materials. The line of credit term is for a six month period with formal maturity at May 31, 2011. At the maturity date any unpaid principal and accrued interest of the line of credit must be paid. The interest rate to be charged on the line of credit will be an annual rate equal to 12.0% plus the one month Libor rate in effect two New York Banking Days prior to the beginning of each calendar month. New York Banking Days is defined as any day other than Saturday or Sunday that a commercial bank is open for business in New York, New York.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Note 5. Lease Commitment and Other Contingencies

The Company leases a copier under a long-term operating lease that will expire in February 2011. The lease requires payments of $275 per month plus applicable taxes, therefore minimum lease payments under this operating lease for future years is $1,377 during the year ending September 30, 2011.

The European Union is currently leveling tariffs on biofuels exported from the United States due to subsidies paid on biofuels. These tariffs went into effect March 13, 2009. In July 2009, the European Commission decided to extend these tariffs beyond their initial July 2009 expiration date until 2014. The Company will likely face increased competition for sales of its biodiesel and international demand for its product will likely decrease as a result of these tariffs. If any governmental supports are modified or permanently removed and decreased demand for the Company’s biodiesel results, its profitability will be reduced. Because biodiesel has historically been more expensive to produce than diesel fuel, the biodiesel industry has depended on governmental incentives that have effectively brought the price of biodiesel more in line with the price of diesel fuel to the end user. These incentives have supported a market for biodiesel that might not exist without the incentives. The most significant of these incentives for biodiesel is the blenders’ tax credit which provides a $1.00 tax credit per gallon of pure biodiesel, or B100, to the first blender of biodiesel with petroleum based diesel fuel. The blenders’ tax credit expired on December 31, 2009 and only in December 2010 was it extended for 2011 and made retroactive for 2010.

Note 6. Going Concern Matters and Management Plans

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Through September 30, 2010, the Company has generated accumulated losses of $15,256,097, has experienced significant volatility in its input costs and undertaken significant borrowings to finance the construction of the biodiesel plant. The loan agreements with the Company’s lender currently contain covenants that require a minimum ratio of current assets to current liabilities (working capital ratio), minimum debt coverage, fixed charge coverage ratios and a minimum level of equity. The Company is not in compliance with certain of these covenants at September 30, 2010 and it is projected that the Company will fail to comply with one or more of the loan covenants throughout fiscal 2011. Failure to comply with these loan covenants constitutes an event of default under the Company’s loan agreements which, at the election of the lender, could result in the acceleration of the unpaid principal loan balance and accrued interest under the loan agreements or the loss of the assets securing the loan in the event the lender elected to foreclose its lien or security interest in such assets. Furthermore, the loan agreements have been amended such that all principal and interest is due and payable no later than September 5, 2011 and there is no assurance that the Company will be able to secure financing at that time. These issues raise doubt about whether the Company will continue as a going concern.

Beginning January 1, 2010, following the expiration of the Federal Blender’s Credit, the Company went into a “warm shut down” status. In this status, the Company maintained a minimal crew and has used the period to perform maintenance on the plant while selling remaining inventory on the “spot market.” The warm shut down has allowed the Company to reduce expenses and preserve cash; however the low sales level has not covered the reduced cost. The Company is hopeful that the reinstatement of the biodiesel tax credit and the demand created by RFS2 will create sufficient product demand for the Company to resume biodiesel production. Meanwhile, the Company has been in communication with its lender as to the steps it needs to take to resolve this situation. The Company’s ability to continue as a going concern is dependent on the Company’s ability to comply with the loan covenants, the lender’s willingness to waive any noncompliance with such covenants and the Company’s ability to refinance the debt at its maturity date of September 5, 2011. As discussed in Note 4 above, the Company has secured an operating line of credit for $6.0 million. The line of credit is restricted to the purchase of raw materials to be used in the production of biodiesel with a small set aside that can be used for hedging activities. In addition to the line of credit, the Company has secured from its lender forbearance through February 1, 2011 from exercising their remedies under the term loan document with regard to the existing defaults.

ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

McGladrey & Pullen, LLP is our independent registered public accounting firm at the present time. The Company has had no disagreements with its auditors.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management, including our chief executive officer (the principal executive officer), Michel Bohannan, along with our chief financial officer (the principal financial officer), J. William Pim, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. Based on a review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

Management’s Report on Internal Control over Financial Reporting

Our management, including our chief executive officer and our chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles and includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Generally Accepted Accounting Principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2010. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, our management concluded that, as of September 30, 2010, our integrated controls over financial reporting were effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Frank-Dodd Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers form the management report requirement.

Changes in Internal Control Over Financial Reporting

Our management, consisting of our chief executive officer and our chief financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of September 30, 2010 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B.		OTHER INFORMATION.

None.

PART III

ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated by reference to the definitive proxy statement for our 2011 annual Meeting of Members to be filed with the Securities and Exchange Commission within 120 days after the end of our 2010 fiscal year. This proxy statement is referred to in this report as the 2011 Proxy Statement.

ITEM 11.		EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to the 2011 Proxy Statement.

ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS.

The information required by this Item is incorporated by reference to the 2011 Proxy Statement.

ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information required by this Item is incorporated by reference to the 2011 Proxy Statement.

ITEM 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference to the 2011 Proxy Statement.

ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed as part of, or are incorporated by reference into, this report:

Exhibit						Method of
No.				Description		Filing
	3.2			Second Amended and Restated Operating Agreement dated March 27, 2010.			1
	10.1			Management Services Agreement between WMG Services LLC and Iowa Renewable Energy, LLC dated January 27, 2010.+			2
	31.1			Certificate pursuant to 17 CFR 240 13a-14(a)			*
	31.2			Certificate pursuant to 17 CFR 240 13a-14(a)			*
	32.1			Certificate pursuant to 18 U.S.C. Section 1350			*
	32.2			Certificate pursuant to 18 U.S.C. Section 1350			*

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: December 29, 2010		/s/ Mike Bohannan   Mike Bohannan
		Chairman and President
Date: December 29, 2010		/s/ Mark Cobb
		Mark Cobb
		Vice Chairman and Director
Date: December 29, 2010		/s/ Dick Gallagher
		Dick Gallagher
		Secretary and Director
Date: December 29, 2010		/s/ Larry Rippey
		Larry Rippey, Director
Date: December 29, 2010		/s/ Steven Powell
		Steven Powell, Director
Date: December 29, 2010		/s/ Edwin J. Hershberger
		Edwin J. Hershberger, Director
Date: December 29, 2010		/s/ John Heisdorffer
		John Heisdorffer, Director