UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

COMMISSION FILE NUMBER 00051965

WESTERN IOWA ENERGY, LLC

(Exact name of registrant as specified in its charter)

Iowa		41-2143913
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
1220 S. Center Street, P.O. Box 399
Wall Lake, Iowa		51466
(Address of principal executive offices)		(Zip Code)

(712) 664-2173
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None
Securities registered pursuant to Section 12(g) of the Act:

Limited Liability Company Membership Units
(Title of class)

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

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 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.

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Regulation S-T (§232.405 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 filer, an accelerated filer, 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 þ		Smaller Reporting Company o

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

The aggregate market value of the membership units held by non-affiliates of the registrant was $23,497,300 at June 30, 2010. There is no established public trading market for the registrant’s membership units. In addition, no units of the registrant were traded during the fiscal years ended December 31, 2010 and December 31, 2009. The aggregate market value was computed by reference to the average price at which membership units were traded on the registrant’s qualified matching service during the fourth quarter of the registrant’s fiscal year ended December 31, 2008, which is the most recent quarter prior to June 30, 2010 during which the registrant’s units were traded on the qualified matching service.

As of March 1, 2011, there were 26,447 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required in Section III of this Annual Report is incorporated herein by reference to the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended December 31, 2010.

 

 

INDEX

PART I			4
Item 1. Business			4
Item 1A. Risk Factors			18
Item 1B. Unresolved Staff Comments			27
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 Stockholder Matters and Issuer Purchases of Equity Securities			28
Item 6. Selected Financial Data			31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			41
Item 8. Financial Statements and Supplementary Data			43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			59
Item 9A. Controls and Procedures			59
Item 9B. Other Information			60
PART III			60
Item 10. Directors, Executive Officers and Corporate Governance			60
Item 11. Executive Compensation			60
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			60
Item 13. Certain Relationships and Related Transactions, and Director Independence			60
Item 14. Principal Accounting Fees and Services			60
PART IV			60
Item 15. Exhibits, Financial Statement Schedules			60
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS

This report contains forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based upon current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

•

Changes in federal, state, or local incentives for biodiesel production, including without limitation the federal biodiesel blenders’ tax credit;

•

The availability and adequacy of our cash flow to meet our requirements;

•

Changes to the rules related to the Renewable Fuels Standard and the value of renewable identification numbers (“RINs”);

•

Competition with other manufacturers in the biodiesel industry;

•

Results of our hedging strategies;

•

Changes in interest rates and the availability of credit to support capital improvements, development, expansion, and operations;

•

Changes in the amounts available under our credit facilities with Farm Credit;

•

Our ability to keep up with the latest technology for the production of biodiesel;

•

Decrease in the demand for biodiesel;

•

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

•

Actual biodiesel and co-product production varying from expectations;

•

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

•

Changes in the price and market for biodiesel and its co-products;

•

Our ability to market and our reliance on ADM to market our products;

•

Fluctuations in petroleum prices;

•

Our ability to procure and our reliance on ADM to procure feedstock for our plant;

•

Competition from alternative fuels and alternative fuel additives;

•

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

•

Consequences of the domestic and global economic downturn and ongoing financial crisis;

•

Our ability to generate free cash flow to invest in our business and service our debt;

•

Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil, or transportation industries;

•

Changes in the environmental regulations or in our ability to comply with the environmental regulations that apply to our plant operations;

•

Changes and advances in biodiesel production technology;

•

Our ability to export our biodiesel;

•

Overcapacity within the biodiesel industry resulting in increased competition and costs for feedstock and/or decreased prices for our biodiesel and co-products;

•

Our ability to successfully operate our plant following the period during which the plant was warm-idled;

•

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

•

Our ability to comply with the financial covenants in our loan agreements;

•

Changes to our operations related to the engagement of ADM as our biodiesel and co-product marketer and feedstock procurer;

•

Our ability to hire and retain qualified personnel to operate the plant; and

•

Other factors described elsewhere in this report.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, 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 what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

AVAILABLE INFORMATION

Our website address is www.westerniowaenergy.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 Compliance,” 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

General Development of Business

Western Iowa Energy, LLC (“WIE” or the “Company”) is an Iowa limited liability company formed on September 21, 2004, for the purpose of developing, constructing, and operating a biodiesel manufacturing facility in Sac County, Iowa. References to “we,” “us,” and “our” refer to Western Iowa Energy, LLC. Our biodiesel production plant first commenced operations in May 2006.

We derive our revenues from the sale and distribution of our biodiesel, glycerin, and fatty acid. Our plant has a nameplate production capacity of 30 million gallons of biodiesel per year and is able to pre-treat crude vegetable oil and crude animal fats for use in the biodiesel production process. Our pretreatment systems permit us to utilize lower-cost feedstock, such as animal fats, in place of higher-cost feedstock, such as soybean oil, to optimize our profits.

Our plant is BQ-9000 accredited by the National Biodiesel Board and the National Biodiesel Accreditation Committee. BQ-9000 is a voluntary quality-assurance program. BQ-9000 accreditation demonstrates that the quality control processes in place at a plant provide confidence that the biodiesel produced at the facility will consistently meet applicable American Society of Testing and Materials (“ASTM”) biodiesel specifications.

For the fiscal year ended December 31, 2010, we produced a total of 3,411,080 gallons of biodiesel at our plant. This is significantly less than our annual nameplate production capacity of 30,000,000 gallons, and represents a significant decrease from the fiscal year ended December 31, 2009, when we produced 17,276,098 gallons of biodiesel. The reduced production in fiscal year 2010 was a result of limited sales related to the failure of Congress to extend the federal blenders’ tax credit for biodiesel mixtures, which expired on December 31, 2009. Although this tax credit was reinstated in December 2010 and made retroactive for the 2010 calendar year, the absence of the credit during 2010 caused many biodiesel plants to significantly reduce production or halt production altogether. The biodiesel tax credit is set to expire again on December 31, 2011. If Congress fails to enact another extension of this credit, we expect that demand for biodiesel will once again decrease significantly.

In mid-April 2010 we warm-idled our plant, meaning we reduced staffing levels and maintained the plant in a state capable of commencing the production of biodiesel again within a matter of several days, due to limited sales. In connection with our plant warm-idling, we laid off 15 full-time employees to reduce operating expenses. Effective August 13, 2010, we laid off seven additional full-time employees, leaving us with six full-time employees. However, since these layoffs we have begun hiring employees again. In September 2010, we hired our General Manager and Operations Manager. We were in need of employees for these positions following the termination of our Management and Operational Services Agreement (“MOSA”) with Renewable Energy Group, Inc. (“REG”), discussed below in more detail. Following the reinstatement of the biodiesel tax credit in December 2010, we began to hire back additional employees as we started operating our biodiesel plant again.

On May 11, 2009, we entered into an Asset Purchase Agreement with REG providing for the sale of substantially all of our assets to REG. This agreement was later amended on August 7, 2009 and again on November 20, 2009. Under the agreement as amended, REG Wall Lake, LLC would have acquired substantially all of our assets and certain of our liabilities in exchange for a certain amount of common and preferred stock in REG Newco, Inc. The amended agreement also contemplated the consolidation of the business and operations of two other biodiesel plants, Central Iowa Energy, LLC and Blackhawk Biofuels, LLC, under REG Newco, Inc. However, the amended agreement was subject to several closing conditions, including the approval of a majority of the membership voting interests of WIE. On February 24, 2010, our unitholders voted against the proposed transaction, meaning that we did not complete the transaction.

REG formerly managed and directed the general operations of our plant pursuant to the MOSA. However, the term of the MOSA, as extended, expired on June 11, 2010. Following the expiration of the MOSA, we continued our working relationship with REG upon the same general terms without a written agreement. During this time, the plant was warm-idled, as discussed above, meaning we were not engaging in the day-to-day production of biodiesel and its co-products and therefore did not require the same level of management, feedstock procurement and product marketing services that would have been required if we were actively operating the plant during that time.

Since we desired to have marketing and feedstock procurement services in place in the event that the federal biodiesel tax credit was reinstated, in September 2010 we finalized three agreements with Archer-Daniels-Midland Company (“ADM”): (i) a Product Marketing Agreement, (ii) a Feedstock Agreement, and (iii) a Services Agreement. Pursuant to the Product Marketing Agreement, ADM will purchase, and we will sell, all of the biodiesel and co-products produced at our biodiesel plant. Under this agreement, we will receive an amount equal to the sales price charged by ADM to third party purchasers for our products (or to be paid by ADM, if there is no underlying third party sale), less ADM’s marketing costs such as freight, fuel surcharges, brokerage fees, off-site storage and any applicable shrink, independent lab fees, and other related costs. Under the Feedstock Agreement, ADM will procure the feedstock for our biodiesel plant. Finally, pursuant to the Services Agreement, ADM will provide us with certain other services, including: (i) annual site audits for BQ 9000, safety, and regulatory and environmental compliance, (ii) ongoing operations assistance, and (iii) annual quality control lab audits and routine round robin lab testing. The initial terms of the Product Marketing Agreement, Feedstock Agreement and Services Agreement are one year, commencing on the first day of the month in which the production of biodiesel resumed at our biodiesel plant, which was January 2011, subject to earlier termination by either party upon thirty days written notice. While our MOSA with REG provided that REG would provide us with certain management personnel and services, our agreements with ADM do not contemplate the provision of management services because we desired to move all management functions in-house. For this reason, we hired our General Manager and Operations Manager in September 2010, as discussed above.

We expect to fund our operations during the next 12 months using cash flow from continuing operations and our credit facilities. In May 2010 we agreed with Farm Credit to reduce the amount available under our revolving credit loan from $8,000,000 to $6,000,000 through July 31, 2010. The agreement to reduce this loan was subsequently extended through March 31, 2011. On March 28, 2011, we agreed with Farm Credit to increase the amount available under this loan to $7,000,000 through September 30, 2011. We paid off our term debt in full in December 2010. Although we expect to have sufficient cash flow to fund our operations from our continuing operations and from our remaining credit facilities, it is possible our cash flow may prove to be insufficient.

We are subject to industry-wide factors that affect our operating and financial performance. These factors include, but are not limited to, the available supply and cost of animal fats and other feedstocks from which we produce our biodiesel, glycerin, and fatty acid; dependence on our product marketer to market and distribute our products; the timely expansion of infrastructure in the biodiesel industry; the intensely competitive nature of the biodiesel industry; possible legislation at the federal, state, and/or local level; and the cost of complying with extensive environmental laws that regulate our industry.

Financial Information About Segments

We do not operate any distinct segments, as defined by generally accepted accounting principles.

Principal Products

The principal products that we produce are biodiesel, crude glycerin, and fatty acid.

Biodiesel

Biodiesel is a high-lubricity, clean-burning alternative fuel produced from domestic, renewable resources and is primarily used in compression ignition (diesel) engines and may also be used as home heating oil. Biodiesel provides environmental benefits over petroleum-based diesel, including reduced emissions of carbon dioxide, carbon monoxide, particulate matter, and sulfur. Biodiesel’s physical and chemical properties, as they relate to operation of diesel engines, are similar to petroleum-based diesel fuel. As a result, blends containing 20% biodiesel and 80% petroleum-based diesel may be used in most standard diesel engines without requiring any engine modifications.

We derived approximately 90.0% of our revenue from the sale of biodiesel during our fiscal year ended December 31, 2010. Biodiesel sales accounted for approximately 96.7% and 96.5% of our revenue for the fiscal years ended December 31, 2009 and 2008, respectively.

Primary Co-Product — Crude Glycerin

The primary co-product of the biodiesel production process is crude glycerin, which equals approximately 10% of the quantity of biodiesel produced. Crude glycerin is highly stable under typical storage conditions, compatible with a wide variety of other chemicals, and relatively non-toxic. Glycerin possesses a unique combination of physical and chemical properties that are used in a large variety of products. It is an ingredient or processing aid in cosmetics, toiletries, personal care, pharmaceuticals, and food products. In addition, new uses for glycerin are frequently being discovered and developed due to its versatility. Many of these uses, however, require refined glycerin. Our plant only produces crude glycerin and does not have the capability to refine glycerin. Also, glycerin produced from the production of animal fat-based biodiesel cannot be used in pharmaceutical products.

We derived approximately 2.6% of our revenue from the sale of crude glycerin during our fiscal year ended December 31, 2010. Crude glycerin sales accounted for approximately 1.4% and 2.2% of our revenue for the fiscal years ended December 31, 2009 and 2008, respectively.

Primary Co- Product — Fatty Acid

An additional co-product of the biodiesel production process is fatty acid. Fatty acid is generally used as a component of livestock feed. We derived approximately 3.5% of our revenue from the sale of fatty acid during our fiscal year ended December 31, 2010. Fatty acid sales accounted for approximately 1.9% and 1.3% of our revenue for the fiscal years ended December 31, 2009 and 2008, respectively.

Principal Products Markets

As described below in “Distribution Methods”, we currently market and distribute all of our biodiesel, glycerin, and fatty acid through a third-party marketer, Archer-Daniels-Midland Company (“ADM”). Our products are primarily sold in the domestic market. A portion of our products have also been sold in international markets, particularly to European customers. In 2009, however, the European Commission imposed anti-dumping and countervailing duties on U.S. biodiesel imported into Europe. These duties significantly increase the price at which we must sell our biodiesel in European markets, making it difficult or impossible for us to compete with European biodiesel producers.

We expect our product marketer to explore all markets for our products, including export markets. However, due to high transportation costs, and the fact that we are not located near a major international shipping port, we expect a majority of our products to continue to be marketed and sold domestically.

Distribution Methods

We previously were a party to a Management and Operational Services Agreement (“MOSA”) with Renewable Energy Group, Inc. (“REG”), under which REG marketed and distributed our biodiesel, glycerin, and fatty acid. The term of the MOSA expired on June 11, 2010, although we continued our working relationship with REG for a period of time following that date upon the same general terms without a written agreement. Pursuant to the MOSA, we paid REG a fee equal to one cent ($0.01) per gallon for all biodiesel marketed from our facility. We also paid REG a fee for marketing our glycerin based on the amount of biodiesel marketed, which was equal to one fifth of one cent ($0.002) per gallon of biodiesel. We also paid REG an annual net income bonus equal to 6% of our net income.

Following the expiration of the term of the MOSA, we entered into a Product Marketing Agreement with ADM dated September 21, 2010 pursuant to which ADM purchases from us, and we sell to ADM, all of the biodiesel and co-products produced at our biodiesel plant. Under the Product Marketing Agreement, we receive an amount equal to the sales price charged by ADM to third party purchasers for our products (or to be paid by ADM, if there is no underlying third party sale), less ADM’s marketing costs such as freight, fuel surcharges, brokerage fees, off-site storage and any applicable shrink, independent lab fees, and other related costs. ADM also procures feedstock for our production plant and provides certain other services to us pursuant to separate agreements. The fee we pay to ADM for all such services, including services provided under the Product Marketing Agreement, is a percentage of the net amount we receive for our product sales, plus a percentage of our annual net profit. The initial terms of our Product Marketing Agreement with ADM is one year, commencing on the first day of the month in which we resumed the production of biodiesel following our warm-idle, which was January 2011, subject to earlier termination by either party upon thirty days written notice. The amounts we paid our product marketers for their services in the fiscal years ended December 31, 2010, 2009, and 2008 were $106,099, $676,532, and $751,659, respectively.

Seasonal Demand for Biodiesel

Biodiesel has different cold flow properties depending on the type of feedstock used in its manufacture. 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. The cloud point is the temperature at which small solid crystals are visually observed as the fuel is cooled. When air temperatures fall below the cloud point, these crystals may plug fuel filters or drop to the bottom of a storage tank; however, fuels can usually be pumped at temperatures below the cloud point. The “pour point” for a fuel is the temperature at which the fuel contains so many crystals that it is essentially a gel and will no longer flow. Therefore, a lower cloud point and pour point means that the fuel flows better in colder temperatures. To provide biodiesel with an acceptable cloud point and pour point in cold weather, we need to blend our biodiesel with petroleum-based diesel. Generally, biodiesel that is used in blends of 2% to 20% provides acceptable cold flow properties for the Iowa market. We expect that our biodiesel distributor will sell our biodiesel throughout the nation, and potentially 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 typically diminishes in colder climates and during the colder fall and winter months as a result of cold flow concerns. Animal fat-based biodiesel has a higher pour point temperature than other types of biodiesel. Accordingly, demand for this type of biodiesel may fluctuate by season more than demand for biodiesel made from other types of feedstock.

General Demand for Biodiesel

The biodiesel industry is still relatively new and unknown especially when compared to the ethanol industry. In 2010, the Renewable Fuels Association reported that a record 13.23 billion gallons of ethanol were produced in the United States. However, the biodiesel industry produced only approximately 315 million gallons of biodiesel in 2010, constituting only a small part of the U.S. diesel fuel market and a fraction of the amount of 2010 ethanol production. Total 2010 biodiesel production is also significantly less than that produced in 2009, which was approximately 545 million gallons. Biodiesel production overall is currently less than current national biodiesel production capacity. The Biodiesel Magazine website estimates that as of January 27, 2011, national biodiesel production capacity totaled approximately 2.84 billion gallons per year. According to the Biodiesel Magazine website there are 169 plants already operational; of these, some 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, discussed below under “Government Regulation and Federal Biodiesel Supports,” and offset some of the negative public opinions the biodiesel industry has faced.

Financial Information about Geographic Areas

All of our operations are domiciled in the United States. All of the products sold to our customers for fiscal years 2010, 2009 and 2008 were produced in the United States and all of our long-lived assets are domiciled in the United States. We have engaged a third party marketer to market our biodiesel and co-products. Our marketer may decide to sell our products in countries other than the United States.

Sources and Availability of Raw Materials

Feedstock Procurement

We entered into a Feedstock Agreement with ADM in September 2010, under which ADM procures the feedstock for our biodiesel plant. The inability of ADM 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.

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. Soybean oil is the most abundant and widely used feedstock available in the United States. Our plant is capable of pretreating animal fats and crude vegetable oil, including soybean oil and corn oil, and utilizing these feedstocks to produce biodiesel. Our plant is also capable of pretreating used cooking oils. Animal fat has typically been less expensive to acquire than soybean oil and, accordingly, we attempt to use as much animal fat feedstock as possible when producing our biodiesel when such use would return greater profit margins. Demand for animal fat-based biodiesel, however, typically declines in the colder fall and winter months and, accordingly, our use of animal fats may decline during those months. Most of the feedstock used in our biodiesel production in fiscal year 2010 was animal fats. In the past we have also utilized cooking oils as a lower-cost feedstock alternative to soybean oil.

In the event we cannot obtain adequate supplies of feedstock at affordable prices, our ability to operate profitably may be materially impaired. Increased feedstock costs may reduce our revenues and the value of our units.

Animal Fats and Other Alternative Feedstocks

Our plant is capable of utilizing animal fats to produce biodiesel. In 2010, approximately 75.8% of our total feedstock usage consisted of a particular animal fat, choice white grease, as compared to 2009 and 2008, when 68.8% and 57.0%, respectively, of our total feedstock usage consisted of choice white grease. Animal fat prices peaked in the summer of 2008 and then fell as domestic and global economic conditions worsened. More recently animal fat prices have risen again and remain above their historical average. We have also used small amounts of bacon fat, beef tallow, poultry fat, lard, yellow grease, and used cooking oil as feedstocks for our biodiesel.

It takes approximately 7.75 pounds of choice white grease to make a gallon of biodiesel. In 2010, the average price we paid for choice white grease was 28.32 cents per pound. By contrast, we paid an average of 24.92 and 39.50 cents per pound for choice white grease in 2009 and 2008, respectively.

The charts below show U.S. lard and edible tallow prices over the past ten years and for each month from February 2010 to January 2011.

Lard and Edible Tallow Prices for the Past
10 Years

		Lard Price				Edible Tallow
Marketing Year		(cents/lb.)				Price (cents/lb.)
2001/2002			13.55				13.87
2002/2003			18.13				17.80
2003/2004			26.13				22.37
2004/2005			21.80				18.48
2005/2006			21.74				18.16
2006/2007			28.43				27.32
2007/2008			40.85				41.68
2008/2009			26.72				25.47
2009/2010			31.99				32.26
2010/2011			44.5-48.5	(1)			45.0-49.0	(1)

Lard and Edible Tallow Prices
for Preceding Twelve-Month
Period

		Lard Price				Edible Tallow
Month		(cents/lb.)				Price (cents/lb.)
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				41.75
December 2010			38.30				45.00
January 2011			48.50	(1)			50.10	(1)

(1)		Preliminary Price
Source: USDA, Oil Crops Outlook Report, February 10, 2011

Soybean Oil

Like many other biodiesel plants, our plant is capable of producing biodiesel from crude vegetable oils, including soybean oil. Due to the recent high cost of soybean oil, however, we have significantly limited our use of soybean oil. After peaking in the summer of 2008 and sharply declining thereafter, soybean oil prices remained relatively stable throughout 2009 and the first nine months of 2010. However, more recently, soybean oil prices have again risen sharply. This increase is likely attributable to projected decreases in soybean oil stock, combined with increasing demand from export markets. The charts below show U.S. soybean oil prices over the past ten years and for each month from February 2010 to January 2011.

U.S. Soybean Oil Prices for the Past
10 Years

		Price
Marketing Year		(cents/lb.)
2001/2002			16.46
2002/2003			22.04
2003/2004			29.97
2004/2005			23.01
2005/2006			23.41
2006/2007			31.02
2007/2008			52.03
2008/2009			32.16
2009/2010			35.95
2010/2011			51.0-55.0	(1)

U.S. Soybean Oil Prices
for Preceding Twelve-Month
Period

		Price
Month		(cents/lb.)
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			47.62
December 2010			51.51
January 2011			53.84	(1)

(1)		Preliminary Price
Source: USDA, Oil Crops Outlook Report, February 10, 2011

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 we sell produced from soybean oil. Any increase in the price of soybean oil without a corresponding increase in the price of biodiesel will negatively impact our ability to generate revenues and profits. Due to high soybean oil prices, 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, as discussed above. However, prices for these alternative feedstocks have tended to increase along with the cost of soybean oil. In 2010, only a de minimis amount of our total feedstock used consisted of soybean oil, which is a significant decrease from 2009 and 2008, in which 8.4% and 29.3%, respectively, of our total feedstock used was soybean 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 “cloud point” is the temperature at which small solid crystals are visually observed as the fuel is cooled. When air temperatures fall below the cloud point, these crystals may plug fuel filters or drop to the bottom of a storage tank; however, fuels can usually be pumped at temperatures below the cloud point. The “pour point” for a fuel is the temperature at which the fuel contains so many crystals that it is essentially a gel and will no longer flow. Therefore, a lower pour point temperature means the fuel flows better in colder temperatures. The following table represents the cloud points and pour points for different types of fuels:

Type of Fuel		Cloud Point				Pour Point
Soy-based Biodiesel (B100)			32ºF				25ºF
Choice white grease-based Biodiesel (B100)			48ºF				42ºF
Beef tallow-based Biodiesel (B100)			61ºF				59ºF
No. 2 Ultra Low Sulfur Petroleum Diesel			6ºF				-30ºF
B2 Soy Blend with No. 2 Diesel			7ºF				-25ºF

To provide biodiesel with acceptable cloud points and pour points 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 acceptable cold weather properties for the Iowa market. However, we expect that our biodiesel marketer will sell our biodiesel throughout the nation, and potentially 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 currently producing biodiesel from animal fats and soybean oil. Nearly all of our biodiesel sales for fiscal year 2010 were animal fat biodiesel blends, which is an increase over the previous two years. In fiscal years 2009 and 2008, approximately 91.5% and 69.8% of our biodiesel sales were animal fat biodiesel blends.

Hedging

Due to fluctuations in the price and supply of feedstock, we utilize forward contracting and hedging strategies to manage our commodity risk exposure and to optimize finished product pricing and supply. 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 that result from our purchase of feedstock in the agricultural market and the sale of our biodiesel in the energy market. These markets are largely unrelated, so an increase in feedstock costs does not generally translate into an increase in the price of our biodiesel. 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 grease 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 currently produced to justify a futures market. As such, there is no spot biodiesel price, making current price discovery limited. In late 2007, our Board of Directors formed a Risk Management Committee, which enacted a policy intended to balance our hedging activities.

Pretreatment Costs

Crude vegetable oils, such as crude soy and corn oil, and all animal fats need to be pretreated before being processed into biodiesel. Pretreatment removes the impurities from crude vegetable oils, crude animal fats, and waste greases, 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 approximately 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.

Utilities, Energy & Infrastructure

Our biodiesel plant requires a significant and uninterrupted supply of electricity, natural gas, and water to operate. We entered into agreements with providers of these utilities as follows:

Electricity. Our plant requires a continuous supply of electricity. We entered into an Electrical Services Agreement with Sac County Electric Cooperative (now known as Raccoon Valley Electric Cooperative) to supply our electricity. Under the agreement, we pay Sac County Electric Cooperative a facility charge of $2,100 per month, plus regular rates for delivery of electricity to our plant. Our current delivery rate is $0.0686 per kilowatt.

Water. We require a significant supply of water—approximately 100,000 gallons of water per day. The City of Wall Lake drilled a well on the property adjacent to the plant to supply process water for our use. The City of Wall Lake has run a line from its pretreatment plant to our site to supply us with potable water. The rate currently charged by the City of Wall Lake for both process water and potable water is $1.00 per 1,000 gallons.

Natural Gas. Natural gas is a significant input to our manufacturing process. During the 2010 fiscal year, our natural gas usage was approximately 43,852 million British thermal units (“mmBTU”). Because the volume of animal fat processed through our plant has a large impact on the volume of gas we use, we estimate a usage between 120,000 mmBTU and 160,000 mmBTU for the 2011 fiscal year. In fiscal year 2010, the average price that we paid for natural gas was $8.30 per mmBTU. Although the price we will pay for our natural gas during the 2011 fiscal year is uncertain, management expects that the cost will increase from the cost we experienced in 2010.

Patent, Trademarks and Licenses.

As part of our design-build agreement with REG, REG agreed to provide us a perpetual and irrevocable license to use any and all of its technology and propriety property related to or incorporated into the plant in connection with our operation, maintenance, and repair of the plant. Since this license is irrevocable, neither the expiration of the term of the MOSA nor the rejection of the proposed consolidation with REG is expected to affect our license of the REG proprietary technology that has been incorporated into the plant.

Working Capital

In order to protect the price of our finished biodiesel, we enter into hedging transactions that are designed to limit our exposure to decreases in the price of biodiesel. In 2009 and 2010, we sought to minimize the risks from fluctuations in the price of biodiesel by using derivative instruments such as cash, futures, and option contracts for home heating oil. There is currently no futures market for biodiesel. Instead, we used home heating oil derivatives. Home heating oil is high sulfur diesel, which is the closest commodity to biodiesel for which there is a futures market. More recently, we have entered into flat price future sales contracts with our product marketer, ADM, to limit our exposure to decreases in the price of biodiesel. These flat price sales contracts allow us to lock in a margin at the time that we purchase the feedstock utilized to produce the biodiesel that we have contracted for future sale. This risk management practice has allowed us to avoid dedicating cash to margin calls associated with derivative instruments.

We are also subject to volatility with respect to the prices of our inputs, including feedstock and natural gas. Currently, we are unable to manage our price risk for animal fats as there are no futures contracts available for animal fats, and animal fats suppliers are, to date, unwilling to enter into long-term contracts for animal fats. Volatility in feedstock and natural gas prices can significantly impact the cash we have available for working capital.

Government Regulation and Federal Biodiesel Supports

The biodiesel industry is dependent on economic incentives to produce biodiesel, including federal biodiesel supports. The American Jobs Creation Act of 2004, the Energy Policy Act of 2005, and the Energy Independence and Security Act of 2007 have established the groundwork for biodiesel market development.

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 (often referred to as “RFS2”) to require the use of 9 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons of renewable fuel by 2022. The RFS2 requires 600 million gallons of renewable fuel in 2009 to 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 included 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. In 2008, however, the EPA announced that the RFS program in 2009 would be applicable to producers and importers of gasoline only, which meant that the 500 million gallons of biomass-based diesel required by the RFS2 was not required to be blended into U.S. fuel supplies in 2009. This was due to the fact that the regulatory structure of the original RFS program did not provide a mechanism for implementing the RFS2 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 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 stated 800 million gallon requirement.

RFS2 required that advanced biofuels reduce life-cycle greenhouse gas emissions by 50% relative to gasoline sold or distributed for 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%. In February 2010, the EPA published new rules to confirm that biodiesel made from soy oil complies with the 50% threshold for reduction in greenhouse gas emissions and therefore soy-based biodiesel qualifies to count toward the RFS2 requirement. The EPA cautioned that it is committed to reassess these determinations as the state of scientific knowledge continues to evolve.

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 the price of biodiesel will be increased by the RFS2. As of January 27, 2011, the Biodiesel Magazine website estimated that national biodiesel production capacity was approximately 2.84 billion gallons per year, which already exceeds the 2012 biodiesel and biomass-based diesel use mandate required by RFS2. 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 RFS2. 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 billion 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 billion 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 reinstated and extended in December 2010, we are still not certain if this measure will be enough to re-stimulate the biodiesel market.

The RFS2 system is enforced through a system of registration, recordkeeping and reporting requirements for obligated parties and renewable fuel producers, as well as any party that procures or trades renewable identification numbers (“RINs”), either as part of their renewable fuel purchases or separately. Any person who violates any prohibition or requirement of the RFS 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 RFS 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 RFS. The equivalence values used ethanol as the base-line measurement (such that one gallon of ethanol is equivalent to one credit towards RFS 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 RFS compliance. A market has established in the petroleum diesel industry for trading these RINs. Thus, the value of the RINs can sometimes offset higher biodiesel pricing, which can make biodiesel more competitive on the market with petroleum diesel.

Other Federal Biodiesel Supports and Programs

The Energy Policy Act of 2005 provided for a tax subsidy for small agri-biodiesel producers with total annual production capacities of 60 million gallons or less. The subsidy is applicable to the first 15 million gallons of biodiesel produced annually and is available through December 31, 2011. The subsidy is equivalent to a 10 cent credit per gallon of biodiesel produced annually and the maximum annual subsidy per biodiesel producer is $1.5 million. This tax credit may foster additional growth and increase competition among biodiesel producers whose plant capacity does not exceed 60 million gallons per year. Because we are organized as a limited liability company, this credit passes through to our members and may be used as a credit against their federal income tax liability, subject to various limitations.

The American Jobs Creation Act of 2004 originally created the biodiesel mixture tax credits, including the excise tax credit and the income tax credit (collectively, the “blenders’ credit”). That legislation, as amended, provides an excise tax credit of $1.00 per gallon and an income tax credit of $1.00 per gallon for biodiesel mixtures. The two credits are coordinated so that a taxpayer cannot claim both credits for the same biodiesel. The biodiesel blenders’ 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 blenders’ credit is 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 American Jobs Creation Act also streamlined the tax refund system for below-the-rack blenders to allow a tax refund of the blenders’ 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 for ground transportation engines and not in the bulk transfer system. The blenders’ credit expired on December 31, 2009. Only in December 2010 was the 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 blenders’ credit will be sufficient to stimulate demand for biodiesel. We do not anticipate benefitting very much from the retroactive application of the biodiesel tax credit in 2010 due to our limited sales during the year.

The Farm, Nutrition and Bioenergy Act of 2008 reauthorized the Commodity Credit Corporation, or CCC, Bioenergy Program. The program provides $55.0 million in mandatory funding in each of 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. Biodiesel producers must apply for this credit and are paid based on the quantity and duration of advanced biofuel 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 are eligible for 95% of the funds provided under the program. We received approximately $298,476 in funds pursuant to the CCC Bioenergy Program in 2009 and approximately $210,509 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.

In May 2006, Iowa passed legislation (later updated in 2009) that creates a renewable fuels standard 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, such as an incentive of $0.03 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.

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.

Effect of Government Incentives and Regulation

The biodiesel industry and our business depend upon continuation of the state and federal biodiesel supports discussed above. These incentives have supported a market for biodiesel that might disappear without the incentives, as demonstrated in 2010 following the expiration of the federal biodiesel blenders tax credit. Alternatively, the incentives may be continued at lower levels than the levels at which they currently exist. The elimination or reduction of such state and federal biodiesel supports would make it more costly for us to produce our biodiesel and negatively impact our future financial performance.

Furthermore, 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. The Occupational Safety and Health Administration (“OSHA”) oversees our plant operations. OSHA regulations may change such that the costs of operating the plant increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions affecting 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. Because biodiesel is a relatively uniform commodity, competition in the marketplace is predominately based on variables other than the product itself, such as price, consistent quality and, to a lesser extent, delivery service. Accordingly, the uniform nature of the product limits the competitive advantage that may be gained based upon unique or improved product features. Nevertheless, the consistent high-quality biodiesel produced by BQ-9000 certified plants is becoming the standard in the industry.

As of the end of calendar year 2010, the U.S. Census estimates that approximately 315 million gallons of biodiesel were produced in the United States. As of January 27, 2011 (the latest date for which data is available), the National Biodiesel Board reported that there were 169 operating biodiesel plants in the United States with a total annual production capacity of 2.84 billion gallons. Another 11 plants were reported to be in the planning stages or under construction as of January 2011. The additional combined capacity of these plants under construction or expansion is estimated at 385.50 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, several of these plants may not be operating, may not be operating at full capacity, or may never begin operations due to economic and market conditions. 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.

We must compete with other biodiesel producers in the industry not just in the sale of our biodiesel, but also in the acquisition of animal fats, soybean oil, 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 design their plants with the capability to use multiple feedstocks. Nonetheless, we expect that as biodiesel production increases, the demand for, and cost of, soybean oil, animal fats and other inputs will also increase. We expect this will make it more expensive for us to produce our biodiesel from soybean oil alternatives, such as animal fat, 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. 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 may result in decreased profit margins.

Many plants are currently 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 provide 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, lower nitrogen oxide (NOx) emissions, and higher cetane values. The tendency of animal-fat based biodiesel to gel at higher temperatures than soybean oil-based biodiesel, however, limits 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. As discussed previously, ADM currently markets our products and procures our feedstock pursuant to agreements we entered into with ADM in September 2010. Our agreements with ADM do not prohibit ADM from competing with us or from providing marketing and sales services to our competitors.

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’s 85 million gallon plant in Velva, North Dakota processes canola oil into biodiesel. Increasing feedstock costs have spurred, and may 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 increase.

Competition from Other Fuel Sources and Additives

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. 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 $2.00 per gallon in March 2009. More recently, the price of diesel fuel has risen again, to approximately $3.90 per gallon as of March 2011. Although the price of diesel fuel has increased over the past several months, diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel. As of March 11, 2011, the National Weekly Ag Energy Roundup reports that B100 biodiesel prices in Iowa ranged from $4.70 to $5.06 per gallon, an increase from a range of $3.25 to $3.45 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.

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 federal biodiesel blenders’ tax credit, but only at a reduced rate of 50 cents per gallon. Because renewable diesel is currently eligible for this credit (although only at the reduced credit amount), 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.

The EPA has issued regulations to reduce the amount of sulfur in diesel fuel in order to improve air quality. 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. We expect to compete with producers of other diesel additives made from raw materials other than soybean oil having similar lubricity values as biodiesel, such as petroleum-based lubricity additives. Some 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.

Research and Development

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

Dependence on One or a Few Major Customers

We have entered into a Product Marketing Agreement with ADM to market all of our products. Any failure by ADM to comply with the terms of the Product Marketing Agreement could negatively impact our ability to generate revenues. The Product Marketing Agreement does not prohibit ADM from providing services to our competitors, and its does not provide any procedures as to how ADM will address any conflicts of interest that may arise during ADM’s service to our plant and ADM’s own plants or other competitor plants. If ADM places the interests of its own biodiesel plants or 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 to conduct plant operations, including air emissions permits, a NPDES permit, and boiler permits. We previously entered into an agreement with the City of Des Moines for the discharge of our wastewater into its wastewater reclamation facility; however, this agreement expired on March 1, 2011. We now sell our wastewater to a private energy-recycling firm.

We are subject to ongoing environmental regulation and testing. Thompson Environmental Consulting, Inc. assisted us in obtaining all of our required permits and continues to assist us in ongoing permitting matters. Although we have been successful in obtaining all of the permits currently required, 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 on complying with such regulations. We estimate that we will spend approximately $25,000 to comply with federal, state, and local environmental laws over the next twelve months.

The government’s regulation of the environment changes constantly. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which would increase our operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use 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 may result in 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 December 31, 2010, we had 20 full-time employees and no part-time employees. We have since increased our workforce to 27 full-time employees as we have increased biodiesel production.

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

Declines in the prices of biodiesel and glycerin 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 of biodiesel and glycerin, the price of diesel fuel, the level of government support, the availability and price of competing products, and domestic and global economic conditions. The total production capacity of biodiesel remains significantly above the level of demand for biodiesel, which may lead to lower prices. Any lowering of biodiesel prices may negatively impact our ability to generate profits.

In addition, at times during which biodiesel production has increased, this has led to increased supplies of co-products from the production of biodiesel, such as glycerin. These increased supplies have led to lower prices for glycerin. If the price of glycerin declines, our revenue from glycerin may substantially decrease.

Our business is sensitive to feedstock costs. Changes in the prices and availability of our feedstock may hinder our ability to generate revenue. Our results of operations and financial condition are significantly affected by the cost and supply of feedstock. Biodiesel production at our plant requires significant amounts of feedstock. Changes in the price and supply of feedstock are subject to and determined by market forces over which we have no control. Because there is little or no correlation between the costs of feedstock and the price of biodiesel, we cannot pass along increased feedstock costs to our biodiesel customers. As a result, increased feedstock cost may result in decreased profits. If we experience a sustained period of high or volatile feedstock costs, such pricing may reduce our ability to generate revenues and our profit margins will decrease, and these decreases may be significant.

Our biodiesel plant processes primarily animal fats and a small amount of soybean oil, and the cost of feedstock represents approximately 70%-90% of our cost of production. In late 2010, the cost of our primary feedstock, choice white grease, increased substantially. If the cost of choice white grease continues to increase, the cost advantages of utilizing choice white grease as a primary feedstock may diminish and our profits will be negatively affected.

The price for animal fats, including choice white grease, tends to move in relation to the price of other feedstocks, such as soybean oil. Accordingly, as soybean oil prices increase, animal fat prices generally tend to increase. Soybean oil prices have recently increased substantially. Soybean prices may also be affected by other market sectors, as soybeans are comprised of 80% protein meal and only 20% oil. Soybean oil is a co-product of processing, or “crushing,” soybeans for protein meal used for livestock feed. Soybean meal demand drives the prices we pay for soybean oil. Currently, soybean crush capacity is concentrated among four companies, Cargill, Inc., Bunge, ADM, and Ag Processing Inc., which represent more than 80% of crushing operations in the United States. These companies typically crush soybeans based upon demand for livestock feed and they will not likely increase the amount of soybeans crushed for soybean oil unless there is an equal increase in demand for livestock feed. Accordingly, the amount of soybean crushing could create uncertainty and price volatility in the soybean oil market. We also expect that competition for raw soy oil, animal fats and other feedstocks from other biodiesel producers may increase our cost of feedstock and harm our financial performance and reduce our profits. Any inability to obtain adequate quantities of feedstock at economical prices will result in increased costs and decreases in our profit margins.

Increases in the price of natural gas could reduce our profitability. Our results of operations and financial condition are significantly affected by the cost and supply of natural gas. Changes in the price and supply of natural gas are subject to and determined by market forces over which we have no control. The average price we paid for natural gas during the fiscal year ended December 31, 2010 was approximately 36.0% more than the average price we paid for natural gas during the fiscal year ended December 31, 2009. In 2008, natural gas prices significantly exceeded historical averages. According to the Energy Information Administration, the industrial price of natural gas averaged $9.58 per thousand cubic feet in 2008, reaching a peak price of $13.05 per thousand cubic feet in July 2008. Since that time, natural gas prices have decreased substantially, and as of December 2010 averaged $5.42.

The price we pay for natural gas affects our costs of production. The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions, natural disasters, overall economic conditions, and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of natural gas could impair our ability to manufacture biodiesel for our customers. Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition.

We are in competition with ADM, our current product marketer and feedstock procurer, which could place us at a competitive disadvantage and cause a conflict of interest for ADM. We have contracted with ADM for feedstock procurement and marketing services for our plant. We are highly dependent upon ADM to procure our inputs and market our products. We are also highly dependent upon ADM’s experience and relationships in the biodiesel industry.

ADM owns, wholly or jointly, biodiesel production facilities in Missouri, North Dakota, and other places around the world. This means that ADM is in competition with us in many aspects of our business, including feedstock procurement (to the extent that we utilize soybean oil as a feedstock) and biodiesel production and marketing. Because ADM operates its own biodiesel production facilities and competes with us in many aspects of our business, ADM may have a conflict of interest in marketing our products. Although we have entered into marketing and feedstock procurement agreements with ADM, there is no assurance that ADM’s performance of these services will not be compromised by its own biodiesel production operations.

Our exclusive reliance on ADM to procure our inputs and market our products could damage our profitability if ADM fails to perform its obligations under our agreements with ADM. We are highly dependent upon ADM to procure our inputs and market our products. We do not have a soy crushing facility to supply our own raw soybean oil and we do not have any arrangements with other suppliers of feedstock. Rather, we depend upon ADM to acquire our feedstock from third parties. If ADM is unable to provide us with adequate feedstock or other inputs, we may have to decrease or halt operations which would adversely affect our ability to generate profits and adversely affect our financial obligations

In addition, we do not have a sales force of our own to market our biodiesel and glycerin and will be highly dependent upon ADM to market our products. If ADM breaches the terms of our agreement or does not have the ability to market all of the biodiesel and glycerin we produce, we will not have any readily available means to sell our biodiesel and glycerin. Our lack of a sales force and reliance on ADM to sell and market our products may place us at a competitive disadvantage. If and when we recommence producing biodiesel, our failure to sell our biodiesel and glycerin products may result in less income from sales, reducing our revenue, which could adversely affect our financial position.

If ADM does not perform its obligations as agreed, we may be unable to specifically enforce our agreement. Additionally, ADM’s right to terminate its agreements with us upon thirty days’ notice could place us at a competitive disadvantage. Any loss of our relationship with ADM may result in the failure of our business. Significant costs and delays would likely result from the need to find other feedstock suppliers, consultants or product marketers. In addition, any failure by ADM to perform under our agreements may reduce our ability to generate revenue and may significantly damage our competitive position in the biodiesel industry such that our members could lose all or substantially all of their investment.

Reductions in the amounts available under our credit facilities with Farm Credit may cause us to be unable to meet our capital needs. The expiration of the blenders’ tax credit on December 31, 2009 and our subsequent decision to warm-idle our plant led to discussions with CoBank, as administrative agent of Farm Credit, regarding certain changes to our credit facilities. In particular, we agreed with Farm Credit to reduce the amount available under our revolving credit loan from $8,000,000 to $6,000,000 (inclusive of our $490,000 irrevocable letter of credit in favor of Glidden Rural Electric Cooperative) and reduce the amount of minimum working capital required pursuant to our loan covenants. On March 28, 2011, we entered into an agreement with Farm Credit increasing the amount available under this loan to $7,000,000 through September 30, 2011 and reducing the minimum net worth we are required to maintain pursuant to our loan covenants through that same date. If Farm Credit again reduces the amounts available under our credit facilities, we may be unable to meet our capital needs. This may have a material adverse effect on our ability to operate the plant and may cause our members to lose some or all of their investment.

Liquidity constraints could impact our operations. There is a delay between the time we purchase our raw materials and the time we receive payment for sales of our finished products. Rising input costs tend to increase the amount of working capital we need to finance our operations, particularly in light of the delay between our raw material acquisition and the date we receive payment for finished products. In May 2010 we agreed with Farm Credit to reduce the amount available under our revolving credit loan from $8,000,000 to $6,000,000. On March 28, 2011, we agreed with Farm Credit to increase the amount available under this loan to $7,000,000 through September 30, 2011. While we currently expect our cash from operations and the amounts available under our revolving credit loan to be sufficient to fund our operations, our cash flow may prove to be insufficient to fund our ongoing operations. 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 reduce or cease our operations, which may decrease or eliminate the value of our units.

Our loan agreement contains restrictive covenants that we may be unable to satisfy. Our loan agreement with Farm Credit contains restrictive covenants that require us to maintain minimum levels of working capital and net worth, as well as to meet a minimum debt service coverage ratio. We were not in compliance with our restrictive covenant regarding our debt service coverage ratio at December 31, 2010; however, we received a waiver from CoBank, as administrative agent for Farm Credit, regarding this covenant violation. A failure to comply with our covenants in the future may constitute an event of default under our loan agreements which, at the election of Farm Credit, could result in the acceleration of the unpaid principal loan balance and accrued interest owed to Farm Credit, or the loss of our assets securing the loan in the event Farm Credit elected to foreclose its lien or security interest in such assets. While Farm Credit granted us a waiver for failing to comply with our debt service coverage ratio at December 31, 2010, Farm Credit might not grant a waiver for future covenant violations. If an event of default occurs and Farm Credit elects to accelerate the amounts due to it or foreclose on our assets, this may have a material adverse effect on our ability to operate the plant and may cause our members to lose some or all of their investment.

We have limited experience in the biodiesel industry, which increases the risk of our inability to operate the biodiesel plant. We organized our company in September 2004 and commenced production of biodiesel at our plant in May 2006. Accordingly, we have a limited operating history from which you can evaluate our business and prospects. We are presently, and will likely continue to be, dependent upon our directors to govern the business of the biodiesel plant. 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 had no prior 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.

Our operating results could fluctuate significantly in the future as a result of a variety of factors. Many of these factors are outside of our control. As a result of these factors, our operating results may not be indicative of future operating results and you should not rely on them as indications of our future performance. There is no assurance that our future financial performance will improve. In addition, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in rapidly growing industries, such as the biodiesel industry, where supply and demand may change substantially in a short amount of time. Some of these risks relate to our potential inability to effectively manage our business and operations; recruit and retain key personnel; develop new products that complement our existing business; and obtain sufficient amounts of credit and capital to support our business operations. If we cannot successfully address these risks, our business, future results of operations and financial condition may be materially adversely affected.

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 commodities in the biodiesel production process, such as soybean oil and home heating oil. Hedging activities can result in increased costs because price movements in soybean oil contracts, home heating oil contracts, and other commodity 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, home heating oil and other commodities. 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 income could decrease.

The effectiveness of our hedging strategies with respect to soybean oil is dependent upon the cost of soybean oil and other commodities and our ability to sell sufficient amounts of our products to use all of the soybean oil for which we have futures contracts. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high soybean oil prices. Alternatively, we may choose not to engage in hedging transactions. As a result, our results of operations and financial conditions may also be adversely affected during periods in which soybean oil prices increase.

We compete with other biofuels plants for key management and other personnel who are critical to our success. In September 2010 we successfully hired a General Manager and a Plant Manager. However, if these or other employees leave our employment, we may be forced to identify and hire new individuals to fill these positions or to contract with a provider of plant management services. There are a limited number of individuals with expertise in this area. In addition, we may have difficulty in attracting other competent personnel to relocate to Iowa in the event that such personnel leave our employment. Our failure to attract and retain such individuals could limit or eliminate any profit that we might make and could result in our failure.

Our business is not diversified. Our success depends largely on 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. If economic or political factors adversely affect the market for biodiesel, we have no other line of business to fall back on. Our business would also be significantly harmed if our biodiesel plant does not operate at full capacity for any extended period of time.

If it is necessary to temporarily cease operating our biodiesel plant for sustained periods of time for any reason, we might not be able to meet our current liabilities and may experience losses. If we are forced to temporarily cease operations at our biodiesel plant, either due to our inability to sell the biodiesel we are producing, increased feedstock costs, our lack of working capital and available credit, defects in our equipment at the plant, violations of environmental law, or any other reason, our ability to produce revenue would be aversely 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, 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. Failure to make the payments required under our loan agreements would constitute an event of default, entitling our lender to exercise any number of remedies, including foreclosure on its security interest in all of our assets. 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 does 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. However, any glycerin produced from the production of animal fat-based biodiesel cannot be used in such 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.

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 “cloud point” is the temperature at which small solid crystals are visually observed as a fuel is cooled. When air temperatures fall below the cloud point, these crystals may plug fuel filters or drop to the bottom of a storage tank. The “pour point” for a fuel is the temperature at which the fuel contains so many crystals that it is essentially a gel and will no longer flow. The cloud point of 100% soy-based biodiesel is approximately 32ºF and the pour point is approximately 25ºF. The cloud point and pour point for No. 2 ultra low sulfur petroleum diesel fuel, the non-biodiesel fuel currently used in machines, are approximately 6ºF and -30ºF, respectively. When diesel is mixed with soy-based biodiesel to make a 2% biodiesel blend, the cloud point and pour point are 7ºF and -25ºF, respectively. 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 cloud point and pour point in cold weather. Generally, biodiesel that is used in blends of 2% to 20% is expected to provide acceptable cold flow properties for colder markets comparable to the No. 2 petroleum diesel cold flow properties. 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.

We may be unable to generate positive cash flow, and if we are unable to continue our business, our units may have little or no value. As discussed in Note 14 to the accompanying financial statements, the biodiesel industry has faced numerous challenges since we commenced production, including significant volatility in the cost of its inputs. Unlike many industries, historically, we have not been able to pass along increased input costs to our customers. A sustained narrow spread or any further reduction in the spread between biodiesel and feedstock prices, whether as a result of sustained high or increased feedstock prices or sustained low or decreased biodiesel prices, would adversely affect our results of operations and financial position. Additionally, the future expiration of the federal blenders’ tax credit on December 31, 2011 has led our auditor to raise doubts about our ability to continue as a going concern. If we are unable to continue as a going concern, our units may have little or no value.

Technological advances could significantly decrease the cost of producing biodiesel or result in the production of higher-quality biodiesel, and if we are unable to adopt or incorporate technological advances into our operations, our plant could become uncompetitive or obsolete. We expect that technological advances in the processes and procedures for processing biodiesel will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our plant less efficient or obsolete, or cause the biodiesel we produce to be of a lesser quality. Advances and changes in the technology of biodiesel production are expected to occur. These advances could also allow our competitors to produce biodiesel at a lower cost than cost at which we produce biodiesel. Our plant is a single-purpose facility and 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. If we are unable to adopt or incorporate technological advances, our biodiesel production methods could be less efficient than our competitors, which could cause our plant to become uncompetitive or obsolete. If our competitors develop, obtain, or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our biodiesel production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. We cannot guarantee or assure you that third-party licenses will be available or, once obtained, will continue to be available on commercially reasonable terms, if at all. These costs could negatively impact our financial performance by significantly increasing our operating costs, as well as reducing our net income.

Risks Related to the Biodiesel Industry

The economic recession and tightening of credit markets has caused demand for biodiesel to decline, which may adversely affect our ability to generate revenues. The collapse of various major financial institutions and the federal government’s bailout and takeover of troubled financial institutions and corporations since the Fall of 2008 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. We believe that these economic factors have contributed to a decrease in demand for fuel in general, including 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.

A decline in crude 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 crude oil prices. In January 2009, crude oil prices fell to their lowest level in more than four years, dropping to $31.76 per barrel. However, more recently, crude oil prices rebounded to more than $100 per barrel in early March 2011. If crude oil and diesel prices decline, biodiesel prices will also likely decline. 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.

The downturn in the U.S. economy may limit our customers’ ability to pay for our biodiesel and co-products, which may adversely affect our ability to generate revenues In 2008, one of our customers defaulted on its contract with us for the purchase of biodiesel as a result of poor economic conditions. As a result, we sold the biodiesel to another customer for a lower price. We and other biodiesel producers who sold biodiesel to this customer remain in arbitration to resolve this dispute. Under our current product marketing agreement, we sell our biodiesel to our product marketer, ADM. Although this provides us with protection with respect to payment risk, if for some reason we do not receive payment for the biodiesel we produce, we may be forced to reduce production, and you may lose some or all of your investment.

The European Commission has imposed definitive anti-dumping and countervailing duties on biodiesel imported into Europe, which may negatively impact biodiesel demand and our revenues. In March 2009, the European Commission imposed anti-dumping and anti-subsidy tariffs on biodiesel produced in the United States. These tariffs have reduced European demand for biodiesel produced in the United States. In July 2009, the European Commission decided to extend these tariffs beyond their July 2009 expiration until 2014. These duties significantly increase the price at which U.S. biodiesel producers may be able to sell biodiesel in European markets, making it difficult or impossible to compete with European biodiesel producers and thereby increasing the supply and reducing overall demand for biodiesel produced in the United States. Accordingly, these duties on U.S. biodiesel imported into Europe could significantly harm our financial performance.

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 2010, approximately 315 million gallons of biodiesel were produced in the United States, according to the National Biodiesel Board. Our biodiesel plant alone could produce approximately 9.5% of the 2010 domestic production if we operated at our annual nameplate production capacity. The National Biodiesel Board estimates the current dedicated U.S. biodiesel production capacity of existing biodiesel plants as of January 27, 2011 is approximately 2.84 billion gallons per year. Thus the current annual production capacity of existing plants far exceeds 2010 annual biodiesel consumption, and will likely far exceed 2011 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, among other factors. 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 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, a 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. However, more recently there has been a steady, gradual increase in glycerin prices. 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. 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 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 biodiesel plants go into production following the reinstatement of the federal blenders’ credit, there may not be an adequate supply of feedstock to supply the demand of the biodiesel industry. Consequently, the price 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 price 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 than with feedstock market prices. As a result, increased feedstock costs may result in decreased profit margins. If we experience a sustained period of high feedstock costs, such pricing may significantly decrease or eliminate our profit margins.

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. We also expect to compete with plants that are 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. Such competition could result in lower prices for biodiesel, which would adversely affect our ability to generate profits and adversely affect our financial obligations.

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.

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 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 raw materials other than soybean oil 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.

Several biofuels companies throughout the country have filed for bankruptcy due to industry and economic conditions. Several biofuels companies have filed for bankruptcy. Unfavorable worldwide economic conditions, the decreasing availability of credit, volatile biofuels prices and input costs and the expiration of the federal blenders’ credit for most of 2010 have likely contributed to the necessity of these bankruptcy filings. If biodiesel prices drop to extremely low levels or feedstock prices increase significantly, we may find ourselves in a similar situation to these other biofuels plants.

Risks Related to Regulation and Governmental Action

Loss of or ineligibility for favorable tax benefits for biodiesel production could 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 blenders’ tax credit for biodiesel mixtures, which has provided a tax credit of $1.00 per gallon of biodiesel. On December 31, 2009, the $1.00 federal tax credit expired 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 be expensive and increase our costs. We are subject to extensive air, water, and other environmental regulations. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations, and permits can often require expensive pollution-control equipment or operation changes to limit actual or potential impact to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations, and/or plant shutdowns. To the best of our knowledge, we have at all times been in complete compliance with these laws, regulations, or permit conditions and we have all permits required to operate our business. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to invest or spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to increase our operating costs and decrease our profits, negatively affecting our financial condition.

Risks Related to Conflicts of Interest

Our directors may have relationships with individuals, companies or organizations which may result in conflicts of interest. There may be business relationships between our directors and other individuals, companies or organizations that may pose potential conflicts of interest with us. For example, two of our directors, Warren Bush and Denny Mauser, currently serve on the board of directors of another company engaged in biodiesel production, Western Dubuque Biodiesel, LLC. These and our other directors may serve on other boards of directors in the future or have relationships with other individuals, companies or organizations that 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 continue to be taxed as a partnership; however, if we are taxed as a corporation we would be subject to corporate level taxes which would decrease our net income 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 generated by our company based on the member’s ownership interest, and would pay taxes on the member’s share of our income. If we are not taxed as a partnership, our company would be liable for corporate level taxes which would decrease our net income which may decrease the cash we have to distribute to our members.

We may be unable to make any distributions to our members to satisfy tax obligations unless we obtain the approval of our lender. On June 5, 2008, we executed an amendment to our Master Loan Agreement with our lender. Pursuant to this amendment, we agreed to a negative covenant prohibiting us from distributing any profits to our members unless the proposed distribution is agreed to in writing by our lender. As a result of this amendment, we may be unable to make future distributions to our members, including distributions to satisfy members’ income tax obligations, and members would have to satisfy any tax liability resulting from the ownership of our units using their personal funds.

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 losses based on their ownership interest in our company. Members may have tax liability based on their allocation of this income. 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 at all. 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 is 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.

Item 1B.		Unresolved Staff Comments.

None.

Item 2.		Properties.

Our property consists primarily of the plant and the real estate upon which the plant sits in Wall Lake, Iowa in Sac County. The plant is located on an approximately 38.3-acre site near both US Highway 20 and US Highway 30. We commenced plant operations in May 2006. Our plant has the capacity to produce a total of 30 million gallons of biodiesel per year.

The completed plant consists of the following buildings:

•

Principal office building

•

Processing building

•

Pretreatment building

•

Loading/receiving building

•

Storage warehouse

•

Storage tank farm

•

Iron treatment facility

In December 2009, the Company exercised an option to purchase approximately 35 acres of land adjacent to the property on which the plant is situated. The purchase was completed in January 2010 for a total cost of $70,496. Substantially all of our property, real and personal, serves as the collateral for our debt financing with Farm Credit Services of America, FLCA. Money borrowed under an Iowa Department of Economic Development loan is also secured by substantially all of the Company’s assets, but is subordinate to the agreements with Farm Credit Services of America, FLCA. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources.”

Item 3.		Legal Proceedings.

From time to time in the ordinary course of business, WIE may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. Other than the arbitration matter described below, we are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of legal proceedings.

In 2008, a customer allegedly defaulted on its contract with our biodiesel marketer for the purchase of biodiesel due to revocation of the customer’s letter of credit after our marketer shipped the biodiesel for exporting. As a result, our marketer sold the biodiesel to another purchaser for a lower price. Our former marketer, on behalf of WIE and other biodiesel producers who sold biodiesel to the allegedly defaulting customer, is now in continued arbitration to resolve this dispute. The arbitration is being conducted in London, UK under the system of arbitration and appeals of the Federation of Oils, Seeds, and Fats Associations (FOSFA). The parties to the arbitration proceeding are an affiliate of our former marketer, REG Marketing and Logistics Group LLC, and Avista Trade Oy, a Finnish entity. On September 28, 2010, the arbitrators issued an award to our former marketer in an amount of approximately $3.25 million, plus interest dating from November 1, 2008, plus certain fees, costs and legal expenses. However, Avista Trade Oy has appealed this award to the FOFSA Board of Appeal. Because WIE produced and marketed approximately one-third (1/3) of the total quantity of biodiesel for which payment default is alleged in this arbitration proceeding, we estimate that WIE will be entitled to approximately one-third (1/3) of any award, judgment, settlement, or other monies collected by our former marketer arising from this dispute.

Item 4.		(Removed and Reserved).

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no public trading market for our membership units. We have created a qualified online matching service in order to facilitate trading of our units. Our online matching service consists of an electronic bulletin board that provides information to prospective sellers and buyers of our units. The Company does not receive any compensation for creating or maintaining the matching service. The Company does 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 the Company as being a broker or dealer or 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 operating agreement, and the issuance of new certificates. So long as we remain a publicly 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 publicly reporting company, we anticipate continuing to make information about the Company publicly available on our website in order to continue operating the QMS.

Effective on May 18, 2009, the Company suspended trading on its qualified online matching service in connection with the proposed consolidation with REG. Following rejection of the proposed consolidation by the unitholders of the Company, the Company resumed operation of the matching service on March 29, 2010.

The following table contains historical information by quarter for the past two years regarding the actual unit transactions that were completed by the Company’s unit-holders during the periods specified. The Company believes, during periods for which there are trades, this most accurately represents the current trading value of the Company’s units. The information was compiled by reviewing the completed unit transfers that occurred on our qualified matching service bulletin board during the quarters indicated. No units were traded on our qualified matching service bulletin board during the years ended December 31, 2010 and December 31, 2009.

		Low				High				Average				# of Units
Quarter		Price				Price				Price				Traded
2009 1st			—				—				—				0
2009 2nd			—				—				—				0
2009 3rd			—				—				—				0
2009 4th			—				—				—				0
2010 1st			—				—				—				0
2010 2nd			—				—				—				0
2010 3rd			—				—				—				0
2010 4th			—				—				—				0

The following table contains the bid and asked prices that were posted on the Company’s qualified matching service bulletin board and includes some transactions that were not completed. The Company believes, during periods for which there are trades, that the table above more accurately describes the trading value of its units as the bid and asked prices below include some offers that never resulted in completed transactions. The information was compiled by reviewing postings that were made on the Company’s qualified matching service bulletin board.

		Low				High				Average				# of Units
Sellers Quarter		Price				Price				Price				Listed
2009 1st		$	750			$	750			$	750				20
2009 2nd			—				—				—				0
2009 3rd			—				—				—				0
2009 4th			—				—				—				0
2010 1st		$	1,650			$	1,900			$	1,775				30
2010 2nd		$	800			$	800			$	800				5
2010 3rd			—				—				—				—
2010 4th			—				—				—				—

		Low				High				Average				# of Units
Buyers Quarter		Price				Price				Price				Listed
2009 1st			—				—				—				0
2009 2nd			—				—				—				0
2009 3rd			—				—				—				0
2009 4th			—				—				—				0
2010 1st			—				—				—				—
2010 2nd		$	200.00			$	200.00			$	200.00				20
2010 3rd			—				—				—				—
2010 4th			—				—				—				—

As a limited liability company, we are required to restrict the transfers of our membership units in order to preserve our partnership tax status. Our membership units may not be traded on any established securities market or readily traded on a secondary market (or the substantial equivalent thereof). All transfers are subject to a determination that the transfer will not cause the Company to be deemed a publicly traded partnership.

Unit Holders

As of February 28, 2010, there were approximately 748 holders of our membership units.

Distributions

Distributions are payable at the sole discretion of our board of directors, subject to the provisions of the Iowa Revised Uniform Limited Liability Company Act and our operating agreement. Under our operating agreement, we may distribute a portion of the net profits generated from plant operations to our unit holders in proportion to the number of units held by each unit holder. A unit holder’s distribution is determined by dividing the number of units owned by such unit holder by the total number of units outstanding. Our unit holders are entitled to receive distributions of cash or property if and when a distribution is declared by our board of directors. However, there can be no assurance as to our ability to declare or pay distributions in the future or that past distributions (described below) will be indicative of future distributions.

Our operating agreement requires our 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. However, under our Master Loan Agreement, we are required to make additional loan payments based on excess cash flow. In addition, on June 5, 2008, we executed an amendment to our Master Loan Agreement, pursuant to which we agreed to an additional negative covenant prohibiting us from distributing any profits to the our members unless the proposed distribution is agreed to in writing by our lender. These loan covenants and restrictions are described in greater detail under “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness.” As a result of our loan covenants and restrictions, we may be unable to make future distributions to our members, including for income tax purposes. Accordingly, if our lender does not allow us to make distributions on our units and our unit holders incur any tax liability as a result of unit ownership, our unit holders may be required to satisfy such liability with their personal funds.

We did not declare or pay any distributions during the fiscal years ended December 31, 2010 and December 31, 2009.

Performance Graph

The following graph shows a comparison of cumulative total member return since December 31, 2006, calculated on a dividend reinvested basis, for WIE, the NASDAQ Composite Index (the “NASDAQ”) and an index of other companies that have the same SIC code as WIE (the “Industry Index”). The graph assumes $100 was invested in each of our units, the NASDAQ, and the Industry Index on January 1, 2006. Data points on the graph are annual. Note that historic stock price performance is not necessarily indicative of future unit price performance.

COMPARISON OF CUMULATIVE TOTAL RETURN

Pursuant to the rules and regulations of the Securities and Exchange Commission, the performance graph and the information set forth therein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Equity Compensation Plans

We do not have any equity compensation plans under which equity securities of WIE 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 December 31, 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.

The following table sets forth selected consolidated financial data of the Company, which is derived from the audited financial statements for the periods indicated. The information below is only a summary. This information should be read in conjunction with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and our audited financial statements included in this annual report. Our past performance may not be indicative of future financial condition or results of operations for many reasons, including the risks described in “Item 1A—Risk Factors” and elsewhere in this annual report.

Statement of Operations Data:		2010				2009				2008				2007				2006
Revenues		$	11,601,444			$	50,109,924			$	79,782,833			$	78,676,998			$	31,991,876
Cost of Goods Sold		$	12,338,018			$	46,475,116			$	75,431,492			$	78,253,820			$	23,715,252
Gross Profit (Loss)		$	(736,574	)		$	3,634,808			$	4,351,341			$	423,178			$	8,276,624
Operating Expenses		$	1,429,827			$	2,052,040			$	1,915,675			$	1,750,886			$	1,606,516
Other Income (Expense)		$	(29,012	)		$	39,307			$	(592,957	)		$	(1,278,545	)		$	(337,583	)
Net Income (Loss)		$	(2,195,413	)		$	1,622,075			$	1,842,709			$	(2,606,253	)		$	6,332,525
Weighted Average Units Outstanding			26,447				26,447				26,447				26,447				25,674
Net Income (Loss) Per Unit		$	(83.01	)		$	61.33			$	69.68			$	(98.55	)		$	246.65
Cash Distributions per Unit		$	—			$	—			$	—			$	80.21			$	—

Balance Sheet Data:		2010				2009				2008				2007				2006
Total Assets		$	30,129,718			$	35,804,989			$	37,478,401			$	49,080,864			$	48,831,373
Long-Term Debt, less current maturities		$	2,195,000			$	3,262,222			$	6,725,056			$	12,366,667			$	12,851,239
Members’ Equity		$	26,355,372			$	28,550,785			$	26,928,710			$	25,086,001			$	29,813,568
Units Outstanding at End of Year			26,447				26,447				26,447				26,447				25,674
Book Value Per Capital Unit		$	996.54			$	1,079.55			$	1,018.21			$	948.54			$	1,161.24

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Item 1A—Risk Factors” and elsewhere in this annual report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect. For an overview of our business, please see “Item 1—Business.”

During the fiscal year ended December 31, 2010, we operated at only 11.9% of our nameplate capacity. This was due in large part to the expiration of the federal blenders’ tax credit for biodiesel mixtures on December 31, 2009. In mid-April 2010 we warm-idled our plant, meaning we reduced staffing levels and maintained the plant in a state capable of commencing the production of biodiesel again within a matter of several days, due to limited sales and reduced sales forecasts related to the expiration of the blenders’ tax credit. Although this tax credit was reinstated in December 2010 and made retroactive for the 2010 calendar year, the absence of the credit during 2010 caused many biodiesel plants to significantly reduce production or halt production altogether. The biodiesel tax credit is set to expire again on December 31, 2011. If Congress fails to enact another extension of this credit, we expect that demand for biodiesel will once again decrease significantly.

Results of Operations

Comparison of Fiscal Years Ended December 31, 2010 and December 31, 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 December 31, 2010 and 2009.

		Fiscal Year Ended								Fiscal Year Ended
		December 31, 2010								December 31, 2009
Statement of Operations Data		Amount				Percent				Amount				Percent
Revenues		$	11,601,444				100.00	%		$	50,109,924				100.00	%
Cost of Sales		$	12,338,018				106.35	%		$	46,475,116				92.75	%
Gross Profit (Loss)		$	(736,574	)			(6.35	%)		$	3,634,808				7.25	%
Operating Expenses		$	1,429,827				12.32	%		$	2,052,040				4.10	%
Operating Income		$	(2,166,401	)			(18.67	%)		$	1,582,768				3.16	%
Other Income (Expense)		$	(29,012	)			(0.25	%)		$	39,307				0.08	%
Net Income (Loss)		$	(2,195,413	)			(18.92	%)		$	1,622,075				3.24	%

Revenues

Our revenues from operations primarily come from biodiesel, glycerin and fatty acid and soapstock sales, as well as custom processing and storage. The following table shows the sources of our revenues for the fiscal years ended December 31, 2010 and December 31, 2009:

		Fiscal Year Ended								Fiscal Year Ended
		December 31, 2010								December 31, 2009
Revenue Source		Amount				% of Revenues				Amount				% of Revenues
Biodiesel Sales		$	10,423,823				89.8	%		$	48,396,111				96.6	%
Glycerin Sales		$	298,037				2.6	%		$	703,169				1.4	%
Fatty Acid and Soapstock Sales		$	671,355				5.8	%		$	939,542				1.9	%
Custom Processing and Storage		$	208,229				1.8	%		$	71,102				0.1	%
Total Revenues		$	11,601,444				100.00	%		$	50,109,924				100.0	%

Revenues from operations for the twelve months ended December 31, 2010 decreased by approximately 76.8% compared to revenues from operations for the twelve months ended December 31, 2009. Revenue from sales of biodiesel decreased by approximately 78.5% for the twelve months ended December 31, 2010, 2010 compared to the twelve months ended December 31, 2009. This decrease in revenues is due primarily to a decrease in our number of gallons of biodiesel sold. During the twelve months ended December 31, 2010, we sold approximately 80.3% fewer gallons of biodiesel as compared to the same period in 2009. This decrease in number of gallons sold is a direct result of the expiration of the blenders’ tax credit for biodiesel mixtures. Although this tax credit was reinstated in December 2010 and made retroactive for the 2010 calendar year, the absence of the credit during 2010 caused many biodiesel plants to significantly reduce production or halt production altogether. Our decrease in quantity of gallons sold was offset slightly by an increase in biodiesel prices. The average price per gallon we received for our biodiesel during the twelve months ended December 31, 2010 increased approximately 7.7% compared to the same period from the prior year.

Revenue from sales of glycerin decreased by approximately 57.6% for the twelve months ended December 31, 2010 compared to the twelve months ended December 31, 2009. This decrease in revenue is the net result of a decrease in quantity sold, offset by an increase in glycerin prices. The average sales price for our glycerin increased by approximately 65.8% during the twelve months ended December 31, 2010 compared to the same period the prior year. However, our quantity of glycerin sold decreased by approximately 74.5% during the twelve months ended December 31, 2010 compared to the same period the prior year due to decreased production. Revenue from sales of fatty acids and soapstock decreased approximately 28.5% for the twelve months ended December 31, 2010 compared to the twelve months ended December 31, 2009. The average sales price for our fatty acids increased by approximately 28.3% during the twelve months ended December 31, 2010 compared to the same period the prior year. However, our quantity of fatty acids sold decreased by approximately 66.7% during the twelve months ended December 31, 2010 compared to the same period the prior year due to decreased production.

During the twelve months ended December 31, 2010, we received $210,509 in incentive funds from the federal government related to the USDA Bioenergy Program, compared to the same period the prior year when we received $298,476 in incentive funds related to the federal blenders’ tax credit. The incentive funds we received during the twelve months ended December 31, 2010 and 2009 are included in our biodiesel sales revenue in the table above.

For the twelve months ended December 31, 2010 and 2009, we also derived revenues from custom processing and storage. Our revenues from custom processing are attributable to experimental processing that we conducted on behalf of another company. Our revenues from storage are attributable to storing product sold by us until the time the purchaser took possession of the product. We do not expect to derive substantial revenues from custom processing or storage in the future.

During the twelve month period ended December 31, 2010, we produced a small quantity of biodiesel and sold additional amounts of our existing biodiesel inventory. During the first quarter of 2010, we rebuilt our in-house biodiesel inventories to establish our typical working inventory of approximately one million gallons. Prior to the first quarter of 2010 our inventory levels had been reduced to near zero in order for us to take advantage of the blenders’ credit as much as we could in 2009 prior to the expiration of the credit at year-end. More recently, we started producing biodiesel again at our plant. During the twelve months ended December 31, 2010, we operated at an average of approximately 11.9% of our nameplate capacity, compared to the same period the prior year when we operated at an average of approximately 52.8% of our capacity.

Cost of Sales

While our absolute cost of sales for our products decreased during the twelve months ended December 31, 2010 compared to the twelve month period from the prior year, our cost of sales as a percentage of our revenues increased from 92.75% of our revenues for the twelve months ended December 31, 2009, to 106.35% of our revenues for the twelve months ended December 31, 2010. This percentage increase is primarily due to price increases for our raw materials and energy compared to the previous year, and due to the fact that we had lower production rates compared to the previous year while fixed costs remained relatively consistent.

The primary components of cost of sales from the production of biodiesel are feedstock (primarily soybean oil and animal fats) and other raw materials (methanol and other chemicals), energy (natural gas and electricity), labor, and depreciation on process equipment. During the twelve months ended December 31, 2010, approximately 75.8% of our total feedstock usage consisted of choice white grease, which is an increase from the same period in 2009, when 68.8% of our total feedstock usage was choice white grease. Animal fat prices remain less than soybean oil prices. The average price we paid for feedstock for the twelve months ended December 31, 2010 was approximately 8.0% higher than our feedstock prices for the same period in 2009. Our average price paid for methanol, another input into the biodiesel production process, increased by approximately 36.1% during the twelve months ended December 31, 2010 compared to the same period in the prior year. Finally, our average price paid for natural gas increased by approximately 36.0% during the twelve months ended December 31, 2010 compared to the same period in the prior year.

Operating Expenses

Although our absolute operating expenses decreased during the twelve months ended December 31, 2010 compared to the same twelve month period from the prior year, our operating expenses as a percentage of revenues were higher for the twelve months ended December 31, 2010 than they were for the twelve months ended December 31, 2009. The decrease in our absolute operating expenses was due to the fact that we had increased consulting and professional fees during the twelve months ended December 31, 2009 in connection with our proposed consolidation with REG. The decrease in our absolute operating costs is also attributable to decreased office and administrative expenses. Our decreased office and administrative expenses are a result of decreased management fees, association dues, and the elimination of our bad debt reserve.

In mid-April 2010 we warm-idled our plant due to limited sales and reduced sales forecasts related to the failure of Congress to extend the blenders’ tax credit for biodiesel mixtures, which expired on December 31, 2009. In connection with our plant warm-idling, we laid off 15 full-time employees to reduce operating expenses, although we agreed to pay the health and dental insurance policy premiums for these individuals through mid-August 2010. Effective August 13, 2010, we laid off seven additional full-time employees, leaving us with six full-time employees. We also agreed to temporarily pay a portion of the health and dental insurance premiums of these laid-off employees. Since these most recent layoffs, and in connection with the reinstatement of the blenders’ tax credit, we have hired additional employees as we have once again started producing biodiesel.

Other Income (Expenses)

Our other income (expenses) decreased from a net other income of $39,307, or 0.08% of revenues, for the twelve months ended December 31, 2009, to a net other expense of $29,012, or (0.25%) of revenues, for the twelve months ended December 31, 2010. This change resulted primarily from the net result of a decrease in interest expense related to our credit facilities, a decrease in grant income, and a decrease in patronage dividends received from our lender. During the twelve months ended December 31, 2009, we received grant income in the amount of $131,525 from the Iowa Department of Economic Development’s New Jobs Training Program and the forgiveness of our $100,000 forgivable loan with the Iowa Department of Economic Development.

Comparison of Fiscal Years Ended December 31, 2009 and 2008.

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the fiscal years ended December 31, 2009 and December 31, 2008.

		Fiscal Year Ended								Fiscal Year Ended
		December 31, 2009								December 31, 2008
Income Statement Data		Amount				Percent				Amount				Percent
Revenues		$	50,109,924				100.00	%		$	79,782,833				100.00	%
Cost of Sales		$	46,475,116				92.75	%		$	75,431,492				94.55	%
Gross Profit		$	3,634,808				7.25	%		$	4,351,341				5.45	%
Operating Expenses		$	2,052,040				4.10	%		$	1,915,675				2.40	%
Operating Income		$	1,582,768				3.16	%		$	2,435,666				3.05	%
Other Income (Expense)		$	39,307				0.08	%		$	(592,957	)			(0.74	)%
Net Income (Loss)		$	1,622,075				3.24	%		$	1,842,709				2.31	%

Revenues

The following table shows the sources of our revenues for the fiscal years ended December 31, 2009 and December 31, 2008:

		Fiscal Year Ended								Fiscal Year Ended
		December 31, 2009								December 31, 2008
Revenue Source		Amount				% of Revenues				Amount				% of Revenues
Biodiesel Sales		$	48,396,111				96.6	%		$	76,970,163				96.5	%
Glycerin Sales		$	703,169				1.4	%		$	1,766,579				2.2	%
Fatty Acid and Soapstock Sales		$	939,542				1.9	%		$	1,046,091				1.3	%
Custom Processing and Storage		$	71,102				0.1	%		$	—				—	%
Total Revenues		$	50,109,924				100.00	%		$	79,782,833				100.0	%

Revenues from operations for the fiscal year ended December 31, 2009 totaled $50,109,924 compared with $79,782,833 for the fiscal year ended December 31, 2008. Included within our total revenues for the fiscal year ended December 31, 2009 and 2008 are approximately $6,986,655 and $10,068,612 respectively, in incentives we received or which were receivable from certain federal government incentive programs for the sale of our biodiesel. Revenues in fiscal year 2009 were approximately 37% lower than revenues in fiscal year 2008. The decrease in revenues was due primarily to decreased production and sales volume of biodiesel and its co-products, and lower per-unit sales prices for our biodiesel and its co-products.

Cost of Sales

Although our sales volume decreased 38% from fiscal 2008 to fiscal 2009, our cost of goods sold as a percentage of our revenues decreased approximately 1.8% from fiscal 2008 to fiscal 2009. Cost of sales for our products for the year ended December 31, 2009 was $46,475,116, compared to $75,431,492 for the year ended December 31, 2008. This is primarily due to the combination of the historically high biodiesel prices that were experienced during a large part of fiscal year 2008 and our utilization of lower-cost feedstocks during fiscal 2008. Average biodiesel sales prices in 2009 were significantly lower than in 2008. In order to minimize our cost of sales, in 2008, we began to increase our use of lower-cost feedstocks, such as animal fats and used cooking oils, in place of higher-cost feedstocks, such as soybean oil. We continued this practice throughout the fiscal year ended December 31, 2009. In fiscal year 2009, approximately 91.5% of the feedstock used in our biodiesel production was animal fats and 8.5% was soybean oil. In particular, approximately 68.8% of our total feedstock usage in 2009 was choice white grease.

Operating Expenses

Operating expenses for the fiscal year ended December 31, 2009 totaled $2,052,040, which is 7.1% higher than operating expenses of $1,915,675 for the same period in 2008. Our operating expenses as a percentage of revenues were 1.7% higher for the fiscal year ended December 31, 2009 than they were for the fiscal year ended December 31, 2008. Our operating expenses for the fiscal year ended December 31, 2009, include approximately $450,000 in expenses that we incurred in connection with the proposed consolidation with REG, which includes legal fees, audit fees, accounting fees, and consulting fees.

Other Income (Expenses)

Our other income and expenses for the fiscal year ended December 31, 2009 increased from a net other expense of $592,957, or 0.74% of revenues, during the fiscal year ended December 31, 2008 to a net other income of $39,307, or 0.08% of revenues, during the fiscal year ended December 31, 2009. This change resulted primarily from the reduction in our interest expense from $759,243 during the fiscal year ended December 31, 2008 to $322,698 during the fiscal year ended December 31, 2009. The reduction in our interest expense resulted primarily from reducing the outstanding balance under our revolving line of credit by $1,720,000 and paying down our term loan by $1,800,000. The change from a net other expense to a net other income also resulted from our receipt of grant income in the amount of $231,525, which includes grant income in the amount of $131,525 from the Iowa Department of Economic Development’s (“IDED”) New Jobs Training Program and IDED’s forgiveness of a forgivable loan in the amount of $100,000.

Changes in Financial Condition for Fiscal Years Ended December 31, 2010 and 2009

The following table highlights the changes in our financial condition from December 31, 2009 to December 31, 2010:

		December 31, 2010				December 31, 2009
Current Assets		$	3,821,367			$	7,424,221
Current Liabilities		$	1,579,346			$	3,991,982
Long-Term Debt		$	2,195,000			$	3,262,222
Member’s Equity		$	26,355,372			$	28,550,785

Current Assets

Current assets totaled $3,821,367 at December 31, 2010, a decrease from $7,424,221 at December 31, 2009. The decrease of $3,602,854 during this period is a net result of a decrease in accounts receivable and incentive receivables, partially offset by an increase in inventory. Our receivables were relatively high at December 31, 2009 due to our continued production through that date in order to take advantage of the federal blenders’ tax credit as much as we could in 2009 prior to the expiration of the credit at year-end. Since this tax credit expired, our production has been limited. For similar reasons, our inventory was relatively low at December 31, 2009, but has since increased again. During the year ended December 31, 2010, we made principal payments on our term note totaling $2,350,000 and reduced the amount outstanding under our revolving credit loan by $805,000.

Current Liabilities

Current liabilities totaled $1,579,346 at December 31, 2010, down from $3,991,982 at December 31, 2009. The decrease of $2,412,636 during this period was due primarily to a decrease in the current portion of our long-term debt related to our “free cash flow” payment and regular quarterly payments on our term note and a decrease in checks issued in excess of our bank balance, partially offset by an increase in accounts payable.

Long-Term Debt

The decrease in our long-term debt, net of current maturities, at December 31, 2010, as compared to December 31, 2009, was due to a decrease in the balance under our term note and our reducing revolving credit note with Farm Credit Services. During the year ended December 31, 2010, we made principal payments totaling $2,350,000 to Farm Credit Services under our term note and net payments totaling $805,000 under our revolving credit note.

Members’ Equity

Members’ contributions at December 31, 2010 and December 31, 2009 are $23,516,376. Retained earnings as of December 31, 2010 are $2,838,996 compared to $5,034,409 at December 31, 2009 due to our net loss during the year ended December 31, 2010.

Liquidity and Capital Resources

Comparison of Cash Flows for Fiscal Years Ended December 31, 2010 and December 31, 2009

		2010				2009
Net cash provided by operating activities		$	3,822,100			$	3,394,861
Net cash used in investing activities		$	(161,092	)		$	(161,747	)
Net cash used in financing activities		$	(3,600,230	)		$	(3,299,214	)
Net increase (decrease) in cash and equivalents		$	60,778			$	(66,100	)

Operating Cash Flows

For the twelve months ended December 31, 2010, net cash provided by operating activities increased by $427,239 compared to the twelve months ended December 31, 2009. This increase was primarily the result of changes in our receivables, including accounts receivable, incentive receivables and other receivables, prepaid expenses and other assets, accounts payable and non-cash forgiveness of debt, netted against our net loss for the year ended December 31, 2010 compared to the net gain during the same period the prior year and changes in our inventory, margin deposits, and accrued wages and benefits. Most of the changes in operating cash flows for the year ended December 31, 2010 compared to the year ended December 31, 2009 are directly attributable to our decreased production during the year ended December 31, 2010.

Although our capital needs are currently being adequately met through cash from operations and our credit facilities, any further reductions in the amount available for advancement under our revolving credit loan beyond the current reduction may cause us to be unable to meet our capital needs. See “Liquidity and Capital Resources — Indebtedness.”

Investing Cash Flows

For the twelve months ended December 31, 2010, cash used in investing activities decreased by $655 compared to the twelve months ended December 31, 2009. Our cash used in investing activities consists of expenditures for property, plant and equipment.

Financing Cash Flows

For the twelve months ended December 31, 2010, cash used in financing activities increased by $301,016 compared to the twelve months ended December 31, 2009. This change was largely due to a reduction in net payments on our revolving line of credit in 2009 compared to 2008 and an increase in payments on our long-term debt. This decrease is a result of a net decrease in checks issued in excess of our bank balance, offset by payments on our long-term debt exceeding proceeds from our long-term debt by approximately $365,000 more during the twelve months ended December 31, 2009 compared to the twelve months ended December 31, 2010.

Comparison of Cash Flows for Fiscal Years Ended December 31, 2009 and December 31, 2008

		2009				2008
Net cash provided by (used in) operating activities		$	3,394,861			$	9,050,603
Net cash used in investing activities		$	(161,747	)		$	(394,028	)
Net cash used in financing activities		$	(3,299,214	)		$	(8,622,223	)
Net increase (decrease) in cash and equivalents		$	(66,100	)		$	34,352

Operating Cash Flows

For the twelve months ended December 31, 2009, cash provided by operating activities decreased by $5,655,742 compared to the twelve months ended December 31, 2008. This decrease was the result of lower net income and changes in operating assets and liabilities.

Investing Cash Flows

For the twelve months ended December 31, 2009, cash used in investing activities decreased by $232,281 compared to the twelve months ended December 31, 2008. This decrease in cash used resulted from a decrease in expenditures for property, plant and equipment from the twelve months ended December 31, 2008.

Financing Cash Flows

For the twelve months ended December 31, 2009, cash used in financing activities decreased by $5,323,009 compared to the twelve months ended December 31, 2008. This change was largely due to a reduction in net payments on our revolving line of credit in 2009 compared to 2008 and an increase in payments on our long-term debt.

Indebtedness

Short-Term Debt Sources

We obtained a $570,000 declining balance standby irrevocable letter of credit from Farm Credit in favor of Glidden Rural Electric Cooperative (“Glidden REC”) as security for our loan with Glidden REC (discussed below under “Long-Term Debt Sources”). The letter of credit was was extended in July 2010 at the lower amount of $490,000. The letter of credit will now expire on June 30, 2011.

Long-Term Debt Sources

On June 6, 2005, we closed on $18,000,000 of long-term debt financing with Farm Credit pursuant to a Master Loan Agreement (“MLA”). CoBank, ACB is the administrative agent of Farm Credit pursuant to an Administrative Agency Agreement dated June 6, 2005. Pursuant to supplements to the MLA, the loan commitments from Farm Credit consisted of a $10,000,000 term loan and an $8,000,000 reduced revolving credit loan. In December 2010 we paid off the remaining balance on our term loan and therefore at December 31, 2010 had no balance outstanding on the term loan, as compared to December 31, 2009 when our outstanding balance on the term loan was $2,350,000. Our term loan required quarterly payments of principal in the amount of $450,000, with a final payment due no later than December 20, 2011. We were also required to make annual payments of 50% of our “free cash flow,” as defined in our term loan agreement. Although we paid off our term loan in full in December 2010, our term loan agreement provides that in the event our term loan is paid in full prior to the end of fiscal year 2012, we must continue to make 50% “free cash flow” payments for each fiscal year through fiscal year 2012 in the form of early reductions to the amount of our revolving credit loan commitment.

The expiration of the blenders’ tax credit on December 31, 2009 and our subsequent decision to warm-idle our plant led to discussions with CoBank, as administrative agent of Farm Credit, regarding certain changes to our credit facilities. In particular, on May 14, 2010, we agreed with Farm Credit to reduce the amount available under our revolving credit loan from $8,000,000 to $6,000,000 (inclusive of our $490,000 irrevocable letter of credit in favor of Glidden Rural Electric Cooperative, discussed above under “Short-Term Debt Sources”). The term of this agreement was subsequently extended through March 31, 2011. On March 28, 2011, we agreed with Farm Credit to increase the amount available under this loan to $7,000,000 through September 30, 2011. Our March 28, 2011 agreement also reduced the minimum net worth we are required to maintain pursuant to our loan covenants from $26,000,000 to $24,000,000 for the period from February 1, 2011 through September 30, 2011. The May 14, 2010 agreement to reduce the amount available under our revolving credit loan amended our loan covenant pertaining to minimum working capital so that the reduction of the amount available for advancement under the revolving credit loan did not cause us to fall out of compliance with the minimum working capital covenant in our loan agreement. Our prior minimum working capital requirement was $6,000,000 and our amended minimum working capital requirement is $4,000,000. Our March 28, 2011 agreement with Farm Credit extended this reduction in required working capital through September 30, 2011. As of December 31, 2010, the balance outstanding under the revolving credit loan was $1,825,000, as compared to December 31, 2009, when the balance outstanding under the revolving credit loan was $2,630,000.

Subject to our May 14, 2010 agreement with Farm Credit, as extended and amended, advances under the revolving credit loan are available throughout the life of the commitment, although the amount of the commitment reduces by $900,000 semi-annually beginning upon the earlier of: (i) July 1, 2012, or (ii) the first day of the month that is six months after the first day of the month following the repayment of our term loan. Because we paid off the term loan in full in December 2010, our revolving credit loan commitment will be reduced by $900,000 every six months beginning July 1, 2011. As discussed above, the revolving credit loan commitment may also be reduced in the amount of any “free cash flow” payment we would otherwise be required to make on our term loan through 2012. Any outstanding balance on our revolving credit loan is due and payable in full on July 1, 2016. At December 31, 2010, we had $3,685,000 of available borrowings under the revolving credit loan.

The revolving credit loan bears interest at one of three rates, to be determined by us in our discretion: (1) at a rate equal to the rate of interest established by the agent as its agent base rate; (2) at a fixed rate per annum to be quoted by the agent in its sole discretion; or (3) at a fixed rate per annum equal to LIBOR. Each of the rates is subject to certain performance pricing adjustments. While our term loan had an outstanding balance, it was subject to the same terms with respect to interest rates. At December 31, 2010 and December 31, 2009, the applicable interest rate with respect to our credit facilities with Farm Credit was 3.25% and 3.50%, respectively. Our credit facilities with Farm Credit are secured by substantially all of our assets.

The MLA, as amended, contains covenants pertaining to minimum levels of working capital and net worth, as well a minimum debt service coverage ratio. As of December 31, 2010, we were not in compliance with our debt service coverage ratio covenant, which requires us to maintain a debt service coverage ratio, defined as (i) net income (after taxes), plus depreciation and amortization; divided by (ii) all current portion of long term debt for the prior period, of 1.50 to 1.00. At December 31, 2010, our debt service coverage ratio was approximately 0.21 to 1.00. Although we were in violation of this covenant, we have received a waiver for this violation.

The working capital covenant set forth in the MLA, as amended, (including the amendment pursuant to our May 14, 2010 agreement with Farm Credit, discussed above), requires us to maintain minimum working capital of $4,000,000. As of December 31, 2010, we were in compliance with our working capital covenant.

Additionally, the net worth covenant set forth in the MLA, as amended, required us to maintain a minimum net worth of $26,000,000 through January 31, 2011, and requires us to maintain a minimum net worth of $24,000,000 from February 1, 2011 through September 30, 2011. As of December 31, 2010, we were in compliance with our net worth covenant. We were not in compliance with our net worth covenant as of February 28, 2011 because our net worth at that time was less than $26,000,000. However, under our March 28, 2011 agreement with Farm Credit, our minimum net worth covenant was reduced to $24,000,000 retroactive to February 1, 2011. Therefore, pursuant to our March 28, 2011 agreement with Farm Credit, we are now in compliance with our net worth covenant.

Although we were either in compliance with, or received a waiver for non-compliance for, our loan covenants as of December 31, 2010, we could fail to comply with one or more of our loan covenants in the future. A failure to comply with our covenants in the future may constitute an event of default under our loan agreements which, at the election of Farm Credit, could result in the acceleration of the unpaid principal loan balance and accrued interest owed to Farm Credit, or the loss of our assets securing the loan in the event Farm Credit elected to foreclose its lien or security interest in such assets. While Farm Credit granted us a waiver for failing to comply with our debt service coverage ratio at December 31, 2010, Farm Credit might not grant a waiver for future covenant violations. Additionally, while Farm Credit agreed to amend our loan documents to retroactively modify our net worth requirement from February 1, 2011 so that we would not be in violation of our net worth covenant at February 28, 2011, Farm Credit might not be willing to amend our loan documents in the future. If an event of default occurs and Farm Credit elects to accelerate the amounts due to it or foreclose on our assets, this may have a material adverse effect on our ability to operate the plant and may cause our members to lose some or all of their investment.

The MLA, as amended, prohibits us from distributing any profits to our members unless the proposed distribution is agreed to in writing by CoBank. As a result, we may be unable to make future distributions to our members, including for income tax purposes.

On July 13, 2006, we entered into a Rural Development Loan Agreement with the Glidden REC for a $740,000 no-interest loan to fund operating expenses for the plant. Pursuant to the terms of the agreement and an associated Promissory Note, the loan is to be repaid in monthly installments of $6,851 beginning on July 31, 2007, and continuing on the last day of each month thereafter until the principal sum has been paid in full or before the final maturity date of the promissory note which shall be on the tenth anniversary of the first advance of funds. The outstanding balance of the loan as of December 31, 2010 and December 31, 2009 was $452,222 and $534,444, respectively. The loan is secured by the declining balance standby irrevocable letter of credit from Farm Credit discussed above under “Short-Term Debt Sources.”

We have obtained subordinated debt financing of approximately $400,000 from the Iowa Department of Economic Development (“IDED”). The subordinated debt financing included a $300,000 zero-interest deferred loan and a $100,000 forgivable loan. On April 30, 2009, IDED notified us that we had satisfied all conditions of the forgivable loan and that IDED had forgiven the balance outstanding under the forgivable loan. The zero-interest deferred loan requires monthly installments of $2,500 beginning January 2008 with the remaining unpaid principal due in December 2012. The balance outstanding on the zero-interest deferred loan at December 31, 2010 and December 31, 2009 was $177,500 and 207,500, respectively.

Contractual Obligations

The following table provides information regarding our contractual obligations and commitments as of December 31, 2010.

		Payments Due by Period
		Total				2011				2012-2013				2014-2015				After 2015
Long-Term Debt Obligations		$	2,454,722			$	259,722			$	1,389,444			$	764,444			$	41,112
Operating Lease Obligations		$	17,814			$	17,814				—				—				—
Total		$	2,472,536			$	277,536			$	1,389,444			$	764,444			$	41,112

Subsequent Events

We previously agreed with Farm Credit to reduce the amount available under our revolving credit loan, inclusive of our irrevocable letter of credit in favor of Glidden Rural Electric Cooperative, from $8,000,000 to $6,000,000 through January 31, 2010. We also amended the covenant in our loan agreement with Farm Credit pertaining to minimum working capital so that the reduction of the amount available for advancement under the revolving credit loan did not cause us to fall out of compliance with the minimum working capital covenant in our loan agreement with Farm Credit. Our prior minimum working capital requirement was $6,000,000 and our amended minimum working capital requirement is $4,000,000. On January 28, 2011, we extended the term of this agreement through February 28, 2011, and on February 28, 2011, we finalized an extension of the term of this agreement through March 31, 2011.

On March 28, 2011, we agreed with Farm Credit to increase the amount available under our revolving credit loan to $7,000,000 through September 30, 2011. This agreement also extended the reduction in our minimum working capital covenant described above through September 30, 2011 and reduced the minimum net worth we are required to maintain pursuant to our loan covenants from $26,000,000 to $24,000,000 for the period from February 1, 2011 through September 30, 2011. We were not in compliance with our net worth covenant as of February 28, 2011 because our net worth at that time was less than $26,000,000. However, under our March 28, 2011 agreement with Farm Credit, our minimum net worth covenant was reduced to $24,000,000 retroactive to February 1, 2011. Therefore, pursuant to our March 28, 2011 agreement with Farm Credit, we are now in compliance with our net worth covenant.

Application of 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. The following is a discussion of what we believe to be the most critical of these policies and methods.

Inventories. Inventories are stated at the lower of cost or market value. Costs are determined using the first-in, first-out method.

Long-Lived Assets. Depreciation and amortization of our property, plant, and equipment is provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual useful lives.

Long-lived assets, including property, plant and equipment, and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to our estimated fair market value based on the best information available. Considerable management judgment is necessary to estimate discounted future cash flows and may differ from actual cash flows.

Recently Adopted Accounting Standards. In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, amending ASC 820. ASU 2010-06 requires entities to provide new disclosures and clarify existing disclosures relating to fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial position or results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 7A.		Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as we conduct all of our business in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We consider market risk to be the potential loss arising from adverse changes in market rates and prices. We do not enter into these contracts as hedges for accounting purposes pursuant to the requirements of the FASB Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging.

Our risk management committee oversees our risk management practices and provides open communication among management and the board of directors regarding market risk. The risk management committee takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment, and control of various risks.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our credit facilities with Farm Credit. Specifically, we have $1,825,000 outstanding in variable rate debt as of December 31, 2010. The specifics of our credit facilities are discussed in detail in “Item 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources, Indebtedness.”

Below is a sensitivity analysis we prepared regarding our income exposure to changes in interest rates. The sensitivity analysis below shows the anticipated effect on our income from a 10% adverse change in interest rates for a one year period.

Outstanding Variable Rate										Adverse 10% Change in				Annual Adverse Change to
Debt at 12/31/10						Interest Rate at 12/31/10				Interest Rates				Income
$1,825,000							3.25	%			3.58	%		$	5,931

Commodity Price Risk

We are also exposed to market risk from commodity prices. Exposure to commodity price risk results from our dependence on animal fats, soybean oil, and natural gas in the biodiesel production process. We are also exposed to biodiesel and co-products price risks as our revenues consist primarily of biodiesel sales and co-products sales. In 2009 and 2010, we sought to minimize the risks from fluctuations in the price of biodiesel by using derivative instruments such as cash, futures, and option contracts for home heating oil. There is currently no futures market for biodiesel. Instead, we used home heating oil derivatives. Home heating oil is high sulfur diesel, which is the closest commodity to biodiesel for which there is a futures market. More recently, we have entered into flat price future sales contracts with our product marketer, ADM, to limit our exposure to decreases in the price of biodiesel. These flat price sales contracts allow us to lock in a margin at the time that we purchase the feedstock utilized to produce the biodiesel that we have contracted for future sale. We are currently unable to manage our price risk for animal fats as there are no futures contracts available for animal fats, and animal fats suppliers are, to date, unwilling to enter into long-term contracts for animal fats.

In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. The extent to which we enter into cash, futures, or option contracts varies substantially from time to time based on a number of factors, including supply and demand factors affecting the needs of customers or suppliers to purchase biodiesel or co-products or to sell us raw materials on a fixed basis, our views as to future market trends, seasonal factors and the costs of futures contracts.

Although we believe our hedge positions accomplish an economic hedge against our future sales, they are not designated as such for hedge accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity being hedged. As the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. The immediate recognition of hedging gains and losses 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. At December 31, 2010 and December 31, 2009, we recorded a net liability for derivative instruments of $0 and $2,587, respectively. During the fiscal year ended December 31, 2010, we recognized a net gain in earnings on derivative activities of $95,704, which is included in our cost of sales in our statements of operations.

Several variables could affect the extent to which biodiesel price fluctuations impact our derivative instruments. 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 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, these price protection positions may cause immediate adverse effects, but are expected to produce long-term growth for us.

A sensitivity analysis has been prepared to estimate our exposure to commodity price risk. The table presents the net fair value of our derivative instruments as of December 31, 2010 and December 31, 2009, and the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The fair value of the positions is a summation of the fair values calculated by valuing each net position at quoted market prices as of the applicable date. The results of this analysis, which may differ from actual results, are as follows:

						Effect of Hypothetical
						Adverse Change –
		Fair Value				Market Risk
December 31, 2010		$	0			$	0
December 31, 2009		$	533,131			$	53,313

Item 8.		Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

		PAGE
ACCOUNTANT’S COMPILATION REPORT			44
FINANCIAL STATEMENTS
Balance Sheets			45
Statements of Operations			46
Statements of Changes in Members’ Equity			47
Statements of Cash Flows			48
Notes to Financial Statements			49

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Members
Western Iowa Energy, LLC
Wall Lake, Iowa

We have audited the accompanying balance sheets of Western Iowa Energy, LLC as of December 31, 2010 and 2009, and the related statements of operations, changes in members’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010. Western Iowa Energy, LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit 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 do not express such an opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Western Iowa Energy, LLC as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the federal blender’s tax credit expires on December 31, 2011. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Eide Bailly LLP

Sioux Falls, South Dakota
March 29, 2011

WESTERN IOWA ENERGY, LLC

		2010				2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	61,078			$	300
Margin deposits			—				58,445
Accounts receivable:
Trade			248,928				—
Related parties			—				3,106,676
Other receivables			295,650				387,883
Incentive receivables			231,949				2,946,499
Inventory			2,612,016				383,528
Prepaid expenses and other assets			371,746				540,890
Total current assets			3,821,367				7,424,221
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements			1,435,928				1,364,842
Office building and equipment			659,840				645,542
Plant and process equipment			33,938,749				33,854,309
Construction in progress			—				8,136
Total, at cost			36,034,517				35,872,829
Less accumulated depreciation			9,901,503				7,669,210
Total property, plant and equipment			26,133,014				28,203,619
OTHER ASSETS
Land options			—				596
Other investments			124,078				107,198
Loan origination fees, net of amortization			51,259				69,355
Total other assets			175,337				177,149
TOTAL ASSETS		$	30,129,718			$	35,804,989
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Checks issued in excess of bank balance		$	—			$	333,008
Accounts payable:
Trade			1,209,965				824,979
Related party			13,838				88,277
Current portion of long-term debt			259,722				2,459,722
Derivative instruments			—				2,587
Accrued interest			6,079				22,226
Accrued wages and benefits			61,651				107,664
Accrued payroll taxes			2,657				3,678
Accrued expenses — related party			—				103,537
Other current liabilities			25,434				46,304
Total current liabilities			1,579,346				3,991,982
LONG-TERM LIABILITIES
Long-term debt, less current portion above			2,195,000				3,262,222
Total liabilities			3,774,346				7,254,204
COMMITMENTS AND CONTINGENCIES (Note 9 & Note 15)
MEMBERS’ EQUITY
Contributed capital			23,516,376				23,516,376
Retained earnings			2,838,996				5,034,409
Total members’ equity			26,355,372				28,550,785
TOTAL LIABILITIES AND MEMBERS’ EQUITY		$	30,129,718			$	35,804,989

See accompanying notes.

WESTERN IOWA ENERGY, LLC

		2010				2009				2008
REVENUES
Related parties		$	8,452,526			$	43,123,269			$	69,714,221
Unrelated parties			2,706,459				—				—
Incentive funds			442,459				6,986,655				10,068,612
Total revenues			11,601,444				50,109,924				79,782,833
COST OF SALES			12,338,018				46,475,116				75,431,492
Gross profit (loss)			(736,574	)			3,634,808				4,351,341
OPERATING EXPENSES
Consulting and professional fees			446,302				622,584				289,544
Office and administrative expenses			983,525				1,429,456				1,626,131
Total operating expenses			1,429,827				2,052,040				1,915,675
OTHER INCOME (EXPENSE)
Interest income			3,733				13,746				9,882
Interest expense			(98,997	)			(322,698	)			(759,243	)
Grant income			—				231,525				—
Patronage dividends			66,252				116,734				156,404
Total other income (expense)			(29,012	)			39,307				(592,957	)
NET INCOME (LOSS)		$	(2,195,413	)		$	1,622,075			$	1,842,709
BASIC AND DILUTED EARNINGS (LOSS) PER UNIT		$	(83.01	)		$	61.33			$	69.68
WEIGHTED AVERAGE UNITS OUTSTANDING, BASIC AND DILUTED			26,447				26,447				26,447

See accompanying notes.

WESTERN IOWA ENERGY, LLC

						Contributed				Retained
		Units				Capital				Earnings				Total
BALANCE, DECEMBER 31, 2007			26,447			$	23,516,376			$	1,569,625			$	25,086,001
Net income for the year ended December 31, 2008			—				—				1,842,709				1,842,709
BALANCE, DECEMBER 31, 2008			26,447				23,516,376				3,412,334				26,928,710
Net income for the year ended December 31, 2009			—				—				1,622,075				1,622,075
BALANCE, DECEMBER 31, 2009			26,447				23,516,376				5,034,409				28,550,785
Net loss for the year ended December 31, 2010			—				—				(2,195,413	)			(2,195,413	)
BALANCE, DECEMBER 31, 2010			26,447			$	23,516,376			$	2,838,996			$	26,355,372

See accompanying notes

WESTERN IOWA ENERGY, LLC

		2010				2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(2,195,413	)		$	1,622,075			$	1,842,709
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			2,250,389				2,235,685				2,208,288
Non cash portion of patronage dividends			(16,880	)			(26,303	)			(47,085	)
Non cash forgiveness of debt			—				(100,000	)			—
Effects of changes in operating assets and liabilities:
Margin deposits			58,445				226,850				1,141,923
Accounts receivable			2,857,748				(1,678,155	)			4,387,564
Other receivables			92,233				(224,413	)			(157,473	)
Incentive receivables			2,714,550				(2,634,480	)			5,206
Inventory			(2,228,488	)			4,126,929				4,587,894
Derivative instruments			(2,587	)			63,947				(1,997,735	)
Prepaid expenses and other assets			169,144				(318,414	)			(34,114	)
Accounts payable			310,547				90,431				(2,985,924	)
Accrued interest			(16,147	)			(11,146	)			(67,170	)
Accrued wages and benefits			(46,013	)			36,094				14,881
Accrued payroll taxes			(1,021	)			(381	)			804
Accrued expenses — related party			(103,537	)			(14,083	)			117,620
Other current liabilities			(20,870	)			225				33,215
Net cash provided by operating activities			3,822,100				3,394,861				9,050,603
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment, including construction in progress			(161,092	)			(161,747	)			(394,028	)
Net cash used in investing activities			(161,092	)			(161,747	)			(394,028	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in checks issued in excess of bank balance			(333,008	)			333,008				—
Net payments on revolving line of credit			—				—				(3,800,000	)
Proceeds from long-term debt			5,175,000				12,627,000				8,082,566
Payments on long-term debt			(8,442,222	)			(16,259,222	)			(12,904,789	)
Net cash used in financing activities			(3,600,230	)			(3,299,214	)			(8,622,223	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			60,778				(66,100	)			34,352
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			300				66,400				32,048
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	61,078			$	300			$	66,400