Table of Contents





|                                                 
|-------------------------------------------------
|UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
|                                                 
|Washington, D.C. 20549                           
|                                                 
|                                                 
|FORM 10-Q                                        
|                                                 

|                                                                   |                                                                                    
|------------------------------------------------------------------ | -----------------------------------------------------------------------------------
|x                                                                  | Quarterly report under Section 13
 or 15(d) of the Securities Exchange Act of 1934.
|                                                                   |                                                                                    
|For the quarterly period ended July 31, 2008                      
|                                                                  
|OR                                                                
|                                                                  
|o                                                                  | Transition report under Section 13
 or 15(d) of the Exchange Act.                  
|                                                                   |                                                                                    
|For the transition period from _______ to _________               
|                                                                  
|Commission file number 000-53112                                  
|                                                                  
|                                                                  
|SOY ENERGY, LLC                                                   
|                                                                  
|(Exact
 name of small business issuer as specified in its charter)

|                                                                 |  |                                      
|---------------------------------------------------------------- |  | -------------------------------------
|Iowa                                                             |  | 20-4026473                           
|(State
 or other jurisdiction of
 incorporation or organization) |  | (I.R.S.
 Employer Identification No.)

222 N. MAIN STREET, P. O. BOX 663, MARCUS, IOWA 51035
(Address of principal executive offices)

(712) 376-2081
(Issuers telephone number)

---

Indicate
by check mark whether the registrant: (1) 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.


x
Yes           o No


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. (Check one):

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

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

As of September 15, 2008, we
had 33,018 units outstanding.

1





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|           |                                                                                       |  |   
|---------- | ------------------------------------------------------------------------------------- |  | --
|PART 1.    | FINANCIAL INFORMATION                                                                 |  | 3 
|Item 1.    | Financial
Statements                                                                  |  | 3 
|Item 2.    | Managements Discussion and
Analysis of
 Financial Condition and Results of Operation |  | 13
|Item 3.    | Quantitative and Qualitative
Disclosures
 about Market Risk                           |  | 24
|Item 4T.   | Controls and
Procedures                                                               |  | 24
|PART II.   | OTHER INFORMATION                                                                     |  | 25
|Item 1.    | Legal
Proceedings                                                                     |  | 25
|Item 1A.   | Risk Factors                                                                          |  | 25
|Item 2.    | Unregistered Sales of Equity
Securities and
 Use of Proceeds                          |  | 25
|Item 3.    | Defaults Upon Senior
Securities                                                       |  | 26
|Item 4.    | Submission of Matters to a Vote of
Security
 Holders                                  |  | 26
|Item 5.    | Other
Information                                                                     |  | 26
|Item 6.    | Exhibits                                                                              |  | 26
|SIGNATURES |                                                                                       |  | 27

2

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Table of Contents

|        |                       
|------- | ----------------------
|PART 1. | FINANCIAL
 INFORMATION

Item 1. Financial Statements

Condensed Balance Sheets

|                                                                                                               |  |                 |            |                    |   |            |  
|-------------------------------------------------------------------------------------------------------------- |  | --------------- | ---------- | ------------------ | - | ---------- | -
|                                                                                                               |  |                 |            |                    |  
|ASSETS                                                                                                         |  | July
 31,
 2008 |            | October
 31,
 2007 |  
|                                                                                                               |  |                 |            |                    |  
|                                                                                                               |  | (Unaudited)     |            |                    |  
|Current Assets                                                                                                 |  |                 |            |                    |   |            |  
|Cash and equivalents                                                                                           |  | $               | 20,387,325 |                    | $ | 16,244,811 |  
|Certificates of deposit                                                                                        |  |                 |           |                    |   | 1,850,000  |  
|Accrued interest receivable                                                                                    |  |                 | 29,191     |                    |   | 12,507     |  
|Prepaid expenses                                                                                               |  |                 | 41,591     |                    |   | 2,250      |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total current assets                                                                                           |  |                 | 20,458,107 |                    |   | 18,109,568 |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Property, Plant and Equipment                                                                                  |  |                 |            |                    |   |            |  
|Land                                                                                                           |  |                 | 250,262    |                    |   | 250,012    |  
|Equipment                                                                                                      |  |                 | 8,873      |                    |   | 8,873      |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total                                                                                                          |  |                 | 259,135    |                    |   | 258,885    |  
|Accumulated depreciation                                                                                       |  |                 | (2,048     | )                  |   | (718       | )
|                                                                                                               |  |                 |            |                    |   |            |  
|Total                                                                                                          |  |                 | 257,087    |                    |   | 258,167    |  
|Construction-in-progress                                                                                       |  |                 | 4,740,444  |                    |   | 11,093,267 |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Net property, plant and equipment                                                                              |  |                 | 4,997,531  |                    |   | 11,351,434 |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Other Assets                                                                                                   |  |                 |            |                    |   |            |  
|Design services deposit - related party                                                                        |  |                 |           |                    |   | 4,535,000  |  
|Loan commitment fee                                                                                            |  |                 |           |                    |   | 25,000     |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total other assets                                                                                             |  |                 |           |                    |   | 4,560,000  |  
|                                                                                                               |  |                 |            |                    |   |            |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total Assets                                                                                                   |  | $               | 25,455,638 |                    | $ | 34,021,002 |  
|                                                                                                               |  |                 |            |                    |   |            |  
|                                                                                                               |  |                 |            |                    |   |            |  
|LIABILITIES AND MEMBERS EQUITY                                                                                |  |                 |            |                    |   |            |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Current Liabilities                                                                                            |  |                 |            |                    |   |            |  
|Accounts payable                                                                                               |  | $               | 430,003    |                    | $ | 499,379    |  
|Accounts payable - related party                                                                               |  |                 |           |                    |   | 1,711,363  |  
|Accrued expenses                                                                                               |  |                 | 10,407     |                    |   | 1,708      |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total current liabilities                                                                                      |  |                 | 440,410    |                    |   | 2,212,450  |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Members Equity                                                                                                |  |                 |            |                    |   |            |  
|Member contributions, 33,018 units outstanding at
July 31, 2008,
 33,768 units outstanding at October 31, 2007 |  |                 | 31,031,572 |                    |   | 31,781,572 |  
|(Deficit) income accumulated during development
stage                                                          |  |                 | (6,016,344 | )                  |   | 26,980     |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total members equity                                                                                          |  |                 | 25,015,228 |                    |   | 31,808,552 |  
|                                                                                                               |  |                 |            |                    |   |            |  
|                                                                                                               |  |                 |            |                    |   |            |  
|Total Liabilities and Members
Equity                                                                          |  | $               | 25,455,638 |                    | $ | 34,021,002 |  
|                                                                                                               |  |                 |            |                    |   |            |  

Notes to Unaudited Condensed
Financial Statements are an integral part of this Statement.

3

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)
Condensed Statements of Operations

|                                                       |  |                                     |            |                                     |   |         |  
|------------------------------------------------------ |  | ----------------------------------- | ---------- | ----------------------------------- | - | ------- | -
|                                                       |  |                                     |            |                                     |   |         |  
|                                                       |  | Three Months
 Ended
 July 31,
 2008 |            | Three Months
 Ended
 July 31,
 2007 |  
|                                                       |  |                                     |            |                                     |  
|                                                       |  | (Unaudited)                         |            | (Unaudited)                         |  
|                                                       |  |                                     |            |                                     |   |         |  
|Revenues                                               |  | $                                   |           |                                     | $ |        |  
|                                                       |  |                                     |            |                                     |   |         |  
|Operating Expenses                                     |  |                                     |            |                                     |   |         |  
|General and administrative                             |  |                                     | 90,644     |                                     |   | 51,379  |  
|Professional fees                                      |  |                                     | 268,013    |                                     |   | 47,820  |  
|Impairment expense                                     |  |                                     | 1,920,000  |                                     |   |        |  
|                                                       |  |                                     |            |                                     |   |         |  
|Total operating expenses                               |  |                                     | 2,278,657  |                                     |   | 99,199  |  
|                                                       |  |                                     |            |                                     |   |         |  
|                                                       |  |                                     |            |                                     |   |         |  
|Operating Loss                                         |  |                                     | (2,278,657 | )                                   |   | (99,199 | )
|                                                       |  |                                     |            |                                     |   |         |  
|Other Income                                           |  |                                     |            |                                     |   |         |  
|Interest income                                        |  |                                     | 122,674    |                                     |   | 388,480 |  
|Other income                                           |  |                                     |           |                                     |   | 4,500   |  
|                                                       |  |                                     |            |                                     |   |         |  
|Total other income                                     |  |                                     | 122,674    |                                     |   | 392,980 |  
|                                                       |  |                                     |            |                                     |   |         |  
|                                                       |  |                                     |            |                                     |   |         |  
|Net Income (Loss)                                      |  | $                                   | (2,155,983 | )                                   | $ | 293,781 |  
|                                                       |  |                                     |            |                                     |   |         |  
|                                                       |  |                                     |            |                                     |   |         |  
|Weighted Average Units Outstanding - Basic and Diluted |  |                                     | 33,710     |                                     |   | 13,335  |  
|                                                       |  |                                     |            |                                     |   |         |  
|                                                       |  |                                     |            |                                     |   |         |  
|Net Income (Loss) Per Unit - Basic and Diluted         |  | $                                   | (63.96     | )                                   | $ | 22.03   |  
|                                                       |  |                                     |            |                                     |   |         |  

Notes to
Unaudited Condensed Financial Statements are an integral part of this
Statement.

4

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)
Condensed Statements of Operations

|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|------------------------------------------------------ |  | ---------------------------------- | ---------- | ---------------------------------- | - | ------------------------------------------------------- | - | - | ---------- | -
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|                                                       |  | Nine Months
 Ended
 July 31,
 2008 |            | Nine Months
 Ended
 July 31,
 2007 |   | From Inception
 (December 15,
 2005) to
 July 31,
 2008 |  
|                                                       |  |                                    |            |                                    |   |                                                         |  
|                                                       |  | (Unaudited)                        |            | (Unaudited)                        |   | (Unaudited)                                             |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Revenues                                               |  | $                                  |           |                                    | $ |                                                        |   | $ |           |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Operating Expenses                                     |  |                                    |            |                                    |   |                                                         |   |   |            |  
|General and administrative                             |  |                                    | 204,213    |                                    |   | 117,027                                                 |   |   | 467,442    |  
|Professional fees                                      |  |                                    | 434,001    |                                    |   | 104,872                                                 |   |   | 728,255    |  
|Impairment expense                                     |  |                                    | 5,920,000  |                                    |   |                                                        |   |   | 5,920,000  |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Total operating expenses                               |  |                                    | 6,558,214  |                                    |   | 221,899                                                 |   |   | 7,115,697  |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Operating Loss                                         |  |                                    | (6,558,214 | )                                  |   | (221,899                                                | ) |   | (7,115,697 | )
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Other Income                                           |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Interest income                                        |  |                                    | 514,890    |                                    |   | 388,480                                                 |   |   | 1,086,329  |  
|Other income                                           |  |                                    |           |                                    |   | 4,750                                                   |   |   | 13,024     |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Total other income                                     |  |                                    | 514,890    |                                    |   | 393,230                                                 |   |   | 1,099,353  |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Net Income (Loss)                                      |  | $                                  | (6,043,324 | )                                  | $ | 171,331                                                 |   | $ | (6,016,344 | )
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Weighted Average Units Outstanding - Basic and Diluted |  |                                    | 33,749     |                                    |   | 7,017                                                   |   |   | 15,709     |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  
|Net Income (Loss) Per Unit - Basic and Diluted         |  | $                                  | (179.07    | )                                  | $ | 24.42                                                   |   | $ | (382.99    | )
|                                                       |  |                                    |            |                                    |   |                                                         |   |   |            |  

Notes to
Unaudited Condensed Financial Statements are an integral part of this
Statement.

5

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Table of Contents

SOY ENERGY, LLC(A Development Stage
Company)
Condensed Statements of Cash Flows

|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|----------------------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | ----------------------------------- | - | -------------------------------------------------------- | - | - | ----------- | -
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|                                                                                          |  | Nine
 Months
 Ended
 July 31,
 2008 |            | Nine
 Months
 Ended
 July 31,
 2007 |   | From
 Inception
 (December 15,
 2005) to
 July 31,
 2008 |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |  
|                                                                                          |  | (Unaudited)                         |            | (Unaudited)                         |   | (Unaudited)                                              |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Cash Flows
 from Operating Activities                                                     |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Net income (loss)                                                                         |  | $                                   | (6,043,324 | )                                   | $ | 171,331                                                  |   | $ | (6,016,344  | )
|Adjustments to reconcile net income (loss) to net
cash 
provided by operating activities: |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Depreciation                                                                              |  |                                     | 1,330      |                                     |   | 476                                                      |   |   | 2,048       |  
|Impairment of long-lived assets                                                           |  |                                     | 5,920,000  |                                     |   |                                                         |   |   | 5,920,000   |  
|Write off of construction services related to
terminated agreement                        |  |                                     |           |                                     |   |                                                         |   |   | 50,000      |  
|Write off of loan commitment fees                                                         |  |                                     | 25,000     |                                     |   |                                                         |   |   | 25,000      |  
|Non-cash interest income                                                                  |  |                                     | (30,000    | )                                   |   |                                                         |   |   | (30,000     | )
|Changes in operating assets and
liabilities:                                              |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Accrued
 interest receivable                                                              |  |                                     | (16,684    | )                                   |   | (103,472                                                 | ) |   | (29,191     | )
|Prepaid
 expenses                                                                         |  |                                     | (39,341    | )                                   |   | (1,350                                                   | ) |   | (41,591     | )
|Accounts
 payable                                                                         |  |                                     | 303,560    |                                     |   | 8,037                                                    |   |   | 328,872     |  
|Accrued
 expenses                                                                         |  |                                     | 8,699      |                                     |   | 1,509                                                    |   |   | 10,407      |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Net cash provided by operating activities                                                 |  |                                     | 129,240    |                                     |   | 76,531                                                   |   |   | 219,201     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Cash Flows
 from Investing Activities                                                     |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Capital expenditures                                                                      |  |                                     | (2,330,397 | )                                   |   | (1,189,744                                               | ) |   | (10,588,448 | )
|Proceeds from disposal of property and
equipment                                          |  |                                     | 1,200,000  |                                     |   |                                                         |   |   | 1,200,000   |  
|Payments for design services deposit                                                      |  |                                     |           |                                     |   | (3,950,000                                               | ) |   | (5,450,000  | )
|Refund of design services deposit                                                         |  |                                     | 3,300,000  |                                     |   |                                                         |   |   | 3,300,000   |  
|Payments for construction deposit                                                         |  |                                     |           |                                     |   |                                                         |   |   | (2,500,000  | )
|Refund of construction deposit                                                            |  |                                     |           |                                     |   |                                                         |   |   | 2,450,000   |  
|Payments for certificates of deposit                                                      |  |                                     | (100,000   | )                                   |   |                                                         |   |   | (1,950,000  | )
|Proceeds from maturing certificates of
deposit                                            |  |                                     | 1,950,000  |                                     |   |                                                         |   |   | 1,950,000   |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Net cash provided by (used for) investing
activities                                      |  |                                     | 4,019,603  |                                     |   | (5,139,744                                               | ) |   | (11,588,448 | )
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Cash Flows
 from Financing Activities                                                     |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Payments on revolving notes payable                                                       |  |                                     |           |                                     |   | (1,201,000                                               | ) |   |            |  
|Loan commitment fees                                                                      |  |                                     |           |                                     |   | (25,000                                                  | ) |   | (25,000     | )
|Members contributed capital                                                              |  |                                     |           |                                     |   | 30,643,000                                               |   |   | 31,968,000  |  
|Payments for offering costs                                                               |  |                                     | (6,329     | )                                   |   | (134,264                                                 | ) |   | (186,428    | )
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Net cash (used for) provided by financing
activities                                      |  |                                     | (6,329     | )                                   |   | 29,282,736                                               |   |   | 31,756,572  |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Net
 Increase in Cash and Equivalents                                                     |  |                                     | 4,142,514  |                                     |   | 24,219,523                                               |   |   | 20,387,325  |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Cash and
 Equivalents at Beginning of Period                                              |  |                                     | 16,244,811 |                                     |   | 209,537                                                  |   |   |            |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Cash and
 Equivalents at End of Period                                                    |  | $                                   | 20,387,325 |                                     | $ | 24,429,060                                               |   | $ | 20,387,325  |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Supplemental
 Cash Flow Information                                                       |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Capitalized interest paid                                                                 |  | $                                   |           |                                     | $ | 133,556                                                  |   | $ | 133,556     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|                                                                                         
|Supplemental
 Schedule of Noncash Investing and Financing Activities                      |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Construction-in-progress included in accounts
payable                                     |  | $                                   | 101,131    |                                     | $ | 4,819,444                                                |   | $ | 101,131     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Construction-in-progress applied against design
services deposit                          |  | $                                   | 48,675     |                                     | $ | 500,493                                                  |   | $ | 963,675     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Offering costs included in accounts
payable                                               |  | $                                   |           |                                     | $ | 8,645                                                    |   | $ |            |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Design services deposit applied against accounts
payable to related
 party                |  | $                                   | 431,696    |                                     | $ |                                                         |   | $ | 431,696     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  
|Property and equipment returned for member
units                                          |  | $                                   | 750,000    |                                     | $ |                                                         |   | $ | 750,000     |  
|                                                                                          |  |                                     |            |                                     |   |                                                          |   |   |             |  

6

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)

Notes to Unaudited Condensed Financial
Statements

July 31, 2008 and 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Soy Energy, LLC (a development stage Iowa limited liability company)
was organized to develop, own and operate a 30 million gallon per year (MGY)
production biodiesel facility between Cleghorn and Marcus, Iowa in Cherokee
County. The Company was formed December 15, 2005 to have a perpetual life.
As of July 31, 2008, Soy Energy is in the development stage with its
efforts being principally devoted to organizational, financing, and project
development activities. Construction began in June 2007 with completion
originally expected in the first calendar quarter of 2009. In November 2007,
the Company suspended construction on the project until debt financing can be
secured as described in Notes 2 and 4. In April 2008, the Companys members
voted to reduce the project from a 30 MGY to a 15 MGY production biodiesel
facility. The Company anticipates this change in the project to affect the
carrying value of certain construction-in-progress assets and construction
related amounts and originally estimated impairment to be approximately
$4,000,000 to $7,000,000. The Company has recorded an impairment charge of
approximately $1,920,000 and $5,920,000 for the three and nine months ended
July 31, 2008, respectively, which includes estimates related to being
able to use certain construction-in-progress assets. The Company will continue
to monitor and evaluate the usage of these long-lived assets to determine if
any additional impairment is warranted.

In the opinion
of management, the interim condensed financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for fair presentation of the Companys financial position as of
July 31, 2008 and the results of operations and cash flows for all periods
present.

Accounting Estimates

Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities, and reported revenues and expenses.
Significant estimates include long-lived asset impairment analysis, amounts
expended for construction-in-progress assets and construction related amounts
as significant changes are expected to take place on the project. The Company
noted that certain construction-in-progress assets and construction related
amounts were impaired and has recorded a charge of approximately $1,920,000 and
$5,920,000 for the three and nine months ended July 31, 2008,
respectively, based on current plans to allow the use of corn oil as the primary
feedstock and to reduce the plant size.

7

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements

July 31, 2008 and 2007

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Equipment is
depreciated over estimated service lives of related assets, five years,
using the straight-line method of accounting. Property, plant and equipment
undergoing development that is not in service is shown on the balance sheet as
construction-in-progress and is not depreciated. As the project has changed
significantly, the Company recognized an impairment charge on
construction-in-progress and other construction related amounts of
approximately $1,920,000 and $5,920,000 for the three and nine months ended July 31,
2008, respectively.

Ordinary maintenance and repairs are expensed as incurred. Cost of
renewals and betterments are capitalized in appropriate property and equipment
accounts and depreciated as discussed above.

Long-Lived Assets

The Company reviews property and equipment and other long-lived assets
for impairment in accordance with Statement of Financial Accounting Standards
No. 144 (SFAS No. 144), Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. Recoverability of these
assets is measured by comparison of its carrying amount to future undiscounted
cash flows the assets are expected to generate. In addition, the Company
compares the carrying value of assets to similar assets to aid determining the
fair value. If property and equipment and certain identifiable intangibles are
considered to be impaired, the impairment to be recognized equals the amount by
which the carrying value of the assets exceeds its fair value. As the project
changed significantly when the Company decided to change technologies to
allow for corn oil as the primary feedstock and to reduce the size of the
plant, all long-lived assets were reviewed for possible impairment. During the three months ended April 30, 2008, the Company estimated to have an impairment charge of
approximately $4,000,000 to $7,000,000 on construction-in-progress and other
construction related amounts and recorded an impairment charge of $4,000,000 at that time. The Company recorded an additional impairment charge of
approximately $1,920,000 for the three months ended
July 31, 2008, related to these long-lived assets.

8

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)

Notes to Unaudited Condensed Financial
Statements

July 31, 2008 and 2007

Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial Statements  an amendment of
ARB No. 51(Consolidated Financial Statements). SFAS 160 establishes accounting
and reporting standards for a noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. In addition, SFAS 160 requires certain
consolidation procedures for consistency with the requirements of SFAS 141,
Business Combinations. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008 with
earlier adoption prohibited. SFAS 160 must be adopted concurrently with the
effective date of SFAS 141(R). The Company is evaluating the effect, if any,
that the adoption of SFAS 160 will have on its results of operations, financial
position, and the related disclosures.

In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133. SFAS 161 applies to all derivative instruments and nonderivative
instruments that are designated and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS 133 and related hedged items accounted for under
SFAS 133. SFAS 161 requires entities to provide greater transparency through
additional disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under
SFAS 133 and its related interpretations, and how derivative instruments and
related hedged items affect an entitys financial position, results of
operations, and cash flows. SFAS 161 is effective as of the beginning of an
entitys first fiscal year that begins after November 15, 2008. The Company
currently plans to adopt SFAS 161 during its 2010 fiscal year.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles. This Statement identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States. This Statement is effective 60 days following
the SECs approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Company does not believe that
implementation of this standard will have a material effect on its consolidated
financial position, results of operations or cash flows.

9

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)

Notes to Unaudited Condensed Financial
Statements

July 31, 2008 and 2007

2. LIQUIDITY

The Company is a developmental stage company and has no operating
revenues. The Company does not currently produce biodiesel, as its project is
under development. In November 2007, the Company suspended construction of the
biodiesel plant while it worked to secure additional or new debt financing and
to consider changes to the Companys plant design including reducing the
size of the plant. The Companys current equity reserves will be sufficient
to fund operations for the next year if it does not resume construction of the
biodiesel plant. The Company does not plan on recommencing construction, at its
current planned size, until new project agreements and financing plans have been
signed. In order to resume construction, the Company will have to obtain
additional financing of approximately $21,835,000. The Company believes it will
obtain this financing. If, however, financing is not obtained, the Company may return a portion of the equity offering proceeds, which would be less than the original investment.

3. CONSTRUCTION-IN-PROGRESS

The Company anticipated the construction to originally cost
approximately $53,112,000 with approximately $41,286,000 remaining at
July 31, 2008. As the project was changed from a 30 MGY to a
15 MGY plant, remaining construction is now anticipated to cost
approximately $32,334,000. Due to the significant project changes, the Company
originally estimated impairment of approximately $4,000,000 to $7,000,000. The
Company has recorded an impairment charge of approximately $1,920,000 and
$5,920,000 for the three and nine months ended July 31, 2008,
respectively, related to construction-in-progress assets.

Amounts
included in construction-in-progress are as follows.

|                                             |  |                |           |                    |   |            | 
|-------------------------------------------- |  | -------------- | --------- | ------------------ | - | ---------- | 
|                                             |  | July 31,
 2008 |           | October 31,
 2007* |  
|                                             |  |                |           |                    |  
|Construction
 costs                          |  | $              | 4,588,851 |                    | $ | 10,944,264 | 
|Capitalized
 interest                        |  |                | 133,556   |                    |   | 133,556    | 
|Insurance
 and other costs                   |  |                | 18,037    |                    |   | 15,447     | 
|                                             |  |                |           |                    |   |            | 
|                                             |  | $              | 4,740,444 |                    | $ | 11,093,267 | 
|                                             |  |                |           |                    |   |            | 
|                                            
|* Derived
 from audited financial statements |  |                |           |                    |   |            | 

Construction costs in accounts payable include approximately $101,000
and $502,000 of retainage at July 31, 2008 and October 31, 2007,
respectively. The Company capitalized interest of approximately $134,000 since
inception through October 31, 2007 and none during the nine months ended
July 31, 2008.

10

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)

Notes to Unaudited Condensed Financial
Statements

July 31, 2008 and 2007

4. COMMITMENTS AND CONTINGENCIES

Construction Contracts

The original total cost of the project, including the construction and
start-up expenses of the biodiesel plant was expected to be approximately
$60,686,000 with approximately $53,112,000 for construction costs and
approximately $7,574,000 of start-up expenses and project costs. Due to the
project changing from a 30 MGY to a 15 MGY plant, construction is now
anticipated to cost approximately $53,803,000, with approximately $44,693,000
for construction costs, including a construction contingency of $1,646,000, and
approximately $7,464,000 of start up expenses and project costs. The Company
terminated the existing construction contracts when it decided to change
technologies to allow for corn oil as the primary feedstock and to reduce the
size of the plant. Upon termination of the construction contract with the
general contractor in July 2008, the Company received $4,500,000 in cash
consideration for the design services deposit and construction services paid in
excess of those earned to date by the general contractor plus estimated
interest on these excess deposits. As part of the termination agreement, the
Company redeemed at fair value the 750 units for approximately $750,000 initially invested by
the general contractor towards settlement of the construction contract. The
Company is in the process of signing agreements with a new construction
contractor.

In May 2008, the Company signed a letter of intent with a general
contractor, an unrelated party, to construct a 15 MGY biodiesel facility
for approximately $33,530,000 which is contingent upon obtaining adequate financing,
and feedstock supplies. This amount includes infrastructure costs of
approximately $1,196,000 already incurred. The general contractor will provide
on-site technical assistance for one year from the start of operations and
feedstock procurement services. In addition, the general contractor will
provide ongoing technology and operational support services for $300,000 per
year. The letter of intent provides that the general contractor would complete
the plant by June 10, 2009 assuming the Company entered into a
construction agreement with the general contractor by April 2008 and paid
approximately $4,950,000 by June 10, 2008. The Company has not entered a
construction agreement and has not paid any amounts to this general contractor.

In August 2006, the Company entered into an agreement with an
unrelated party to construct a boiler system for approximately $3,173,000, of
which approximately $2,023,000 was incurred at July 31, 2008.

In October 2007, the Company entered into an agreement with an unrelated
party to construct an office building for approximately $382,000, of which
approximately $59,000 was incurred at July 31, 2008.

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Table of Contents

SOY ENERGY, LLC(A Development Stage Company)

Notes to Unaudited Condensed Financial
Statements

July 31, 2008 and 2007

Debt Placement Agent

In July 2008, the Company entered into an agreement with Piper Jaffray
to act as participating debt placement agent to structure and market senior
debt participations in a total amount of approximately $9,000,000. The Company
will pay a placement fee of 1.5% of the aggregate amount of senior debt
participations raised by Piper Jaffray at financial close. The agreement can be
terminated by either party with 30 days written notice. If the agreement
is terminated, the Company shall pay reasonable out-of-pocket expenses incurred
by Piper Jaffray.

Crude Corn Oil Purchase Agreements

In June 2008, the Company entered into an agreement with an unrelated
party to purchase 820,000 pounds of corn oil per month. The Company will pay a
flat fee per pound of corn oil supplied with additional quarterly payments
based on changes in the heating oil index price. The initial term of the
agreement is three years from the date of the first delivery of corn by the
unrelated party. After the initial term, the corn oil supply agreement will
automatically renew for consecutive one year terms, unless earlier terminated.

In August 2008, the Company entered into an agreement with an unrelated
party to purchase 500,000 pounds of corn oil per month. The Company will pay a
flat fee per pound of corn oil supplied with additional quarterly payments
based on changes in the heating oil index price. The initial term of the
agreement is three years from the date of the first delivery of corn by the
unrelated party. After the initial term, the corn oil supply agreement will
automatically renew for two consecutive one year terms, unless earlier
terminated.

5. RELATED PARTY TRANSACTIONS

In January 2006, the Company entered into an agreement with a related
party to serve as temporary project manager, providing organizational and
development services. Services totaling approximately $1,000 and $38,000 were
provided during the nine months ended July 31, 2008 and 2007,
respectively. The related party is an investor and serves on the Companys
board of directors.

In May 2006, the Company entered into a consulting agreement with a
related party to assist its temporary project manager. Services totaling
approximately $36,000 were provided during the nine months ended July 31,
2007. No costs were incurred under this agreement during the nine months ended
July 31, 2008. The related party is an investor and serves on the
Companys board of directors.

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Table of Contents

Item 2.  Managements
Discussion and Analysis of Financial Condition and Results of Operation

Forward Looking Statements

This report
contains forward-looking statements that involve future events, our future
performance and our expected future operations and actions. In some cases you
can identify forward-looking statements by the use of words such as may,
will, should, anticipate, believe, expect, plan,
future,
intend, could, estimate, predict, hope, potential,
continue, or
the negative of these terms or other similar expressions. These forward-looking
statements are only our predictions and involve numerous assumptions, risks and
uncertainties, including, but not limited to, those business risks and factors
described elsewhere in this report, in our other Securities and Exchange
Commission filings, as well as those listed below.

| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our lack of
 debt financing and USDA guarantee;                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                
| |  | Overcapacity
 within the biodiesel industry;                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                
| |  | Availability
 and costs of feedstock, particularly corn oil;                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 the price and market for biodiesel and glycerin;                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                
| |  | Our ability
 to market and our reliance on third parties to market our products;                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                
| |  | Actual
 biodiesel and glycerin production varying from expectations;                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 or elimination of governmental laws, tariffs, trade or other controls or
 enforcement practices such as national, state or local energy policy; federal
 biodiesel tax incentives; or environmental laws and regulations that apply to
 our plant operations and their enforcement;
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 the weather or general economic conditions impacting the availability and price
 of vegetable oils and animal fats;                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                
| |  | Total U.S.
 consumption of diesel;                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                
| |  | Weather
 changes, strikes, transportation or production problems causing supply
 interruptions or shortages affecting the availability and price of feedstock;                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 plant production capacity or technical difficulties in constructing or
 operating the plant;                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                
| |  | Costs of
 construction and equipment and possible increases in these costs;                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 our business strategy, capital improvements or development plans;                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                
| |  | Our proposed
 design-builder has limited experience in designing and constructing biodiesel
 plants;                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                
| |  | Lack of a
 definitive design-build agreement;                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes in
 interest rates or the availability of credit;                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                
| |  | Our ability
 to generate free cash flow to invest in our business and service our debt;                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                
| |  | Our
 potential liability resulting from future litigation;                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                
| |  | Our ability
 to hire and retain key employees and maintain labor relations;                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                
| |  | Changes and
 advances in biodiesel production technology;                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                
| |  | Competition
 from other alternative fuels; and                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                
| |  | Other
 factors described elsewhere in this report.                                                                                                                                                                                                                                             

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 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.

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Overview

Soy Energy,
LLC was organized as an Iowa limited liability company by filing articles of
organization with the Iowa Secretary of State on December 15, 2005. We are a
development stage company formed for the purpose of constructing, owning and
operating a 30 million gallon per year biodiesel plant for the sale of
biodiesel and its primary co-product, glycerin, in Marcus, Cherokee County,
Iowa. We recently changed our business plan, including a change in the
production capacity and technology provider for our biodiesel plant. Now we
anticipate constructing a biodiesel plant with a production capacity of 15
million gallons per year using technology provided by Best Energies, Inc.
(Best Energies). Best Energies is a Wisconsin based company focused on
developing essential technologies that add value to the biodiesel production
process. Currently, our principal place of business is located at P.O. Box 663,
222 N. Main St., Marcus, Iowa 51035.

When our
fiscal year ended October 31, 2007, we had total assets exceeding $10,000,000
and more than 500 unit holders; as a result, we were required to file a
registration statement on Form 10 to register our securities under the
Securities Exchange Act of 1934. Because our membership units are now
registered, we are subject to periodic reporting requirements. We must also
comply with the proxy and tender offer rules, and our directors, officers and
significant unit holders are now subject to additional reporting obligations.

Our original
business plan, including the original design of the biodiesel plant, was
estimated to cost $60,686,000 to complete. With the change in the production
technology of the plant and the reduction in the production capacity of the
plant, we currently anticipate the total project to cost approximately
$53,803,000, which includes the amounts previously paid to Bratney. The total
project cost includes approximately $32,334,000 in engineering and construction
costs we anticipate paying to Best Energies, approximately $9,159,000 in
engineering and construction costs to Bratney, our previous design-builder, less
impairment charges of approximately $5,920,000 through July 31, 2008; $3,200,000 for
the biomass boiler, and an additional $7,464,000 in other capital expenditures,
start-up costs, working capital and interest. We have budgeted $1,646,000 in
construction contingency to help offset any increases in our costs of
construction. The impairment charge relates to construction-in-process assets which we have paid Bratney for, but may not be able to sell or utilize under our new business plan.

We
previously entered into a Phase 2 Agreement and an Agreement for
Pre-Construction Services with Renewable Energy Group, Inc. of Ames, Iowa (REG).
REG is a design-builder specializing in the design and construction of
biodiesel plants. However, after lengthy discussions, our board of directors
determined it was in the best interest of the company to change our
design-builder to Bratney. We paid REG $2,500,000 under our Phase 2 and
Pre-Construction Services Agreements. We requested that REG immediately refund
$2,200,000 and provide us an itemized list of performed services for the
remaining $300,000. We immediately received $2,200,000 and subsequently
received $250,000 back from REG. We paid $1,500,000 of the refunded amount to
Bratney Companies, as a deposit, under our Phase I Design Services Agreement.

In June
2007, we signed a design-build agreement with Bratney for the design and
construction of a 30 million gallon per year biodiesel facility. We agreed to a
guaranteed maximum price of $48,855,000 to construct the plant.

On
March 6, 2008, we gave notice to Bratney that we were terminating our
design-build agreement with them as management believed that the biodiesel
plant as designed would not be profitable to operate due to the high cost of
soybean oil and increasing costs of animal fats. Management decided to pursue a
different biodiesel plant design utilizing Best Energies technology in order to
reduce construction and future operating costs of our biodiesel plant. We paid
Bratney approximately $13,659,000 for design and construction related services
associated with the biodiesel plant. On July 25, 2008, we executed a
termination agreement which settled certain issues we had with Bratney
regarding the termination of the design-build agreement. In the termination
agreement, Bratney agreed to refund $4,500,000 of funds previously paid under
the design-build agreement and to provide certain documents and information
necessary for us to continue developing our project. We received the $4,500,000
refund from Bratney on July 25, 2008. Additionally, we executed a redemption agreement
with Bratney pursuant to which Bratney agreed to return its 750 membership
units for cash and a non-cash settlement of approximately $750,000 of
construction-in-progress as part of the termination agreement.

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Table of Contents

On
April 10, 2008, we held our annual member meeting. During our annual meeting,
the board presented a proposal to the members to pursue changes to our business
plan that our management believes will make our proposed biodiesel plant more competitive due
to current conditions in the biodiesel market. At the member meeting, our
members approved pursuing the use of Best Energies technology for the biodiesel
plant and reducing the initial production capacity of the biodiesel plant to 15
million gallons per year from 30 million gallons per year. We anticipate that
the proposed Best Energies design will allow us to expand the biodiesel
plant to a 25 million gallon per year capacity in the future. We believe that
the cost to construct the Best Energies biodiesel plant will be approximately
$32,334,000. We do not, however, have a definitive agreement with Best Energies, and the final agreement may not be reached or may be under less favorable terms.

In the
future, and after we have completed construction of the biodiesel plant, we are
considering constructing a soybean crushing facility. We anticipate the soybean
crushing facility to process 10.42 million bushels per year of soybeans into
10.4 million gallons per year of crude soybean oil to be used as feedstock for
the production of our biodiesel. We expect the soybean crushing facility to
cost approximately $35,000,000 which we anticipate funding through cash generated
from operations or a subsequent equity offering and debt financing. However, due to
the fact that we have changed our plant design to primarily utilize corn oil,
we may pursue a smaller soybean crushing facility or may abandon this plan
altogether.

In
addition, we anticipate using a high pressure pellet fired boiler system to
fuel our plant. We have signed a final proposal with R.W. Rice Co. to design
and construct a pellet fired boiler system for our plant at a price of
$3,172,540. We expect that the Cherokee County Solid Waste Commission will
supply us with the pellets necessary to fuel the boiler system. We have signed
an agreement with the Cherokee County Solid Waste Commission for the purchase
of pellets necessary to meet the energy needs of the plant.

We expect
that the biodiesel plant will process approximately 16 million gallons per year
of corn oil to produce approximately 15 million gallons of fuel-grade biodiesel
and 1.5 million gallons of glycerin per year. However, we anticipate our biodiesel plant will be able to use several
different types of feedstock including soybean oil and animal fats to produce
biodiesel.

From our
inception, and until July 31, 2008, we have incurred accumulated losses of
approximately $6,016,000 and we anticipate that accumulated losses will
continue to increase until the biodiesel plant is operational. Since we have
not yet become operational, we do not yet have comparable income, production or
sales data.

Liquidity and Capital Resources

We expect
to spend at least the next 12 months focused on three primary activities: (1)
project capitalization; (2) site development; and (3) plant construction and
start-up of operations. Assuming we can secure the debt financing we need to complete
capitalization of the project, we expect to have sufficient cash on hand to
cover all costs associated with construction of the project, including, but not
limited to, site development, utilities, construction and equipment
acquisition, staffing, office costs, audit, legal, compliance and staff
training. We estimate our total project costs will be approximately
$53,803,000.

15

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Table of Contents

Sources and
Uses of Funds

Below is a
table showing our estimated use of the funds in order to complete construction
of our biodiesel plant based on our revised plant design and technology. This
estimated use of funds may change as we continue to explore changes to our
business plan and plant design.

ESTIMATED USE OF FUNDS

|                                     |  |        |            |    
|------------------------------------ |  | ------ | ---------- | ---
|Use of Proceeds                      |  | Amount |           
|                                     |  |        |           
|Construction Costs                   |  |        |            |    
|Bratney
 Plant Costs(1)              |  | $      | 9,159,498  | (3)
|Best
 Energies Plant Costs(2)        |  |        | 32,333,429 |    
|Biomass
 Boiler                      |  |        | 3,200,000  |    
|Owners
Costs:                        |  |        |            |    
|Inventory 
 Oil & Fat Feedstocks    |  |        | 1,675,000  |    
|Inventory 
 Chemicals & Catalysts   |  |        | 200,000    |    
|Inventory  Biodiesel                |  |        | 2,534,000  |    
|Inventory-
 Spare Parts              |  |        | 400,000    |    
|Startup
 Costs                       |  |        | 300,000    |    
|Land                                 |  |        | 250,000    |    
|Administration
 Building Furnishings |  |        | 100,000    |    
|Rolling
 Stock and Shop Equipment    |  |        | 435,000    |    
|Organizational
 Costs                |  |        | 655,000    |    
|Capitalized
 Fees and Interest       |  |        | 915,000    |    
|Contingency(4)                       |  |        | 1,646,000  |    
|                                     |  |        |            |    
|TOTAL                                |  | $      | 53,802,927 |    

|    |                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We paid Bratney approximately $13,659,000 for services under the
 Bratney design-build agreement; however on July 25, 2008, we received a
 refund of $4,500,000 from Bratney.                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                              
|(2) | The LOI with Best Biodiesel states the estimated cost of the Best
 Energies Plant is $33,530,000; however, this estimate does not take into
 account dirt, foundation and dike work previously completed. We currently
 estimate the value of this previously completed work to be approximately
 $1,196,000.
|    |                                                                                                                                                                                                                                                                                                              
|(3) | We paid approximately $9,159,000 in engineering
and construction costs to Bratney and have now taken impairment charges of
$5,920,000 on that payment because of our uncertainty on being able
to utilize certain construction-in-process assets under our new business plan.                                
|    |                                                                                                                                                                                                                                                                                                              
|(4) | We anticipate items such as the fee to be paid to Piper Jaffray if it acts as our debt placement agent will come out of our contingency funds.                                                                                                                                                               

Set forth
below is an estimate of the sources of funding we will need to finance the
construction and start-up operations of the biodiesel facility. The information
set forth below includes an estimate of the debt financing we need to complete
capitalization of the project. We have not executed any definitive loan agreements
for the debt financing required to complete project capitalization. Our actual
sources of funds could vary due to a number of factors, including those
described in this report.

SOURCES OF FUNDS

|                                      |  |   |            |     |                   |        |  
|------------------------------------- |  | - | ---------- | --- | ----------------- | ------ | -
|Sources of Funds                      |  |   |            |     | Percent Of
 Total |       
|                                      |  |   |            |     |                  
|Unit
 Proceeds                        |  | $ | 30,668,000 | (1) |                   | 57.00  | %
|Seed Capital
 Proceeds                |  |   | 800,000    |     |                   | 1.49   | %
|Founding
 Member Proceeds             |  |   | 500,000    |     |                   | 0.93   | %
|Anticipated
 Best Energies In-Kind(2) |  |   | 5,000,000  |     |                   | 9.29   | %
|Economic
 Development Grant           |  |   | 400,000    |     |                   | 0.74   | %
|Term Debt
 Financing                  |  |   | 16,434,927 |     |                   | 30.55  | %
|                                      |  |   |            |     |                   |        |  
|Total Sources of Funds                |  | $ | 53,802,927 |     |                   | 100.00 | %

(1) This includes the $750,000 paid by Bratney for 750 membership units
in our registered offering. As part of our termination and redemption
agreements, Bratney returned its 750 membership units as part of its refund.

(2) We anticipate Best Energies will contribute
this amount to the project, however, we have not entered into an agreement with
Best Energies for this contribution and we may never do so.

Project Capitalization

We raised
$1,300,000 of equity in our private placement offerings to fund our
development, organizational and offering expenses. This includes $500,000 we
raised in our founders offering and $800,000 we raised in our seed capital
offering. In our Iowa intrastate
offering, we raised $30,668,000 in equity. We anticipate offering Best Energies
5,000 units in exchange for a $5,000,000 reduction in the total cost to design
and build the plant. We anticipate issuing these units in an exempt private
placement to Best Energies after we execute a definitive design-build
agreement. In order to fully capitalize the project, we anticipate requiring
debt financing in the amount of approximately $16,435,000.

16

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On
June 7, 2007, we received a contingent loan commitment from AgStar Financial
Services agreeing to provide us with $33,486,540 in financing to capitalize the
biodiesel plant. The AgStar loan commitment was contingent on AgStar securing the
participating lenders required to fund the loan commitment and other to be
determined conditions required by AgStars legal counsel and conditions that
may be required by any participating lenders. Based on this contingent loan
commitment, we satisfied all of the requirements of our escrow agreement to
release the equity funds from escrow.

To
the date of filing this quarterly report, AgStar has not secured the
participating lenders to fund the debt financing we require for our biodiesel
plant and we do not anticipate that AgStar will do so. As a result of AgStars inability to fund its contingent loan
commitment, we are seeking additional or new financing sources to complete the
capitalization of our project. We anticipate that Farmers State Bank will be
the lead lender for our project. We are working with Farmers State Bank to
secure a USDA loan guarantee for our project which we believe will make our
project more attractive to lenders. We have not been approved for a USDA
guarantee for our loan and such a guarantee may not be provided.

Site
Acquisition and Development

We
purchased approximately 35 acres for our plant site near Marcus, Iowa in
Cherokee County. In August 2007, we commenced construction of our biodiesel
plant. In November 2007, we suspended all construction related activities on
our plant while we sought the debt financing we need to complete construction
of the plant. To date, we have completed approximately 10% of the construction
of our biodiesel plant.

Plant
Construction and Start-Up of Plant Operations

Plant
Construction Activity

As
of September 10, 2008, our plant was approximately 10% complete. We have
suspended construction of our biodiesel plant. We terminated our agreement with
Bratney and we are in the process of pursuing the use of Best Energies
technology and implementing the other changes to our business plan that were
approved by our members at our April 10, 2008 member meeting. Due to the
significant changes we made to our project, we expect to have impairment on the
carrying value of our constructed assets and construction-in-process. We have
estimated this impairment to be between $4,000,000 and $7,000,000. We have
recorded an impairment charge in the value of these assets of $5,920,000 as of
July 31, 2008. The following chart lists the status of various projects related
to construction of our plant:

|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Project                             |  | Status                                                                                                                                                                                                                                                                                                                                              
|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|Dirt and
 Site Work                 |  | Dirt work commenced on August 1, 2007. Dirt work was approximately
 98% complete on September 10, 2008. To date, the cost of performing the dirt
 and site work was approximately $822,000.                                                                                                                                                         
|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|Process
 Building & Boiler Building |  | The boiler building was 5% complete on September 10, 2008. None of
 the equipment for the process building or boiler building has been installed.
 We have completed dirt work for the process building but have not completed
 construction of the foundation. To date, the cost of the work on the process
 building was approximately $5,273,000.
|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|Storage
 Tanks                      |  | As of September 10,
 2008, the storage tank farm was approximately 3% complete. The rail tank car
 loading and unloading area was approximately 1% complete. We have completed
 the dirt work and completed construction of the dike. To date, the cost was
 approximately $1,239,000.                                                              
|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|Administration
 Office              |  | The administration
 office was approximately 15% complete on September 10, 2008. We have
 completed the dirt work for the administrative building and have completed
 construction of the foundation. To date, the cost of work on the
 administrative office was approximately $50,000.                                                            
|                                    |  |                                                                                                                                                                                                                                                                                                                                                     
|Truck
 Loading and Scale            |  | The truck loading,
 unloading and scaling area construction was approximately 4% complete on
 September 10, 2008. We have completed the dirt work for the truck loading and
 scale facilities.                                                                                                                                                      

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|                                        |  |                                                                                                                                                                
|--------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Utilities 
 Electrical and Natural Gas |  | The electrical wiring and control systems were approximately 0%
 complete as of September 10, 2008. We have brought electrical facilities to
 the project site.
|                                        |  |                                                                                                                                                                
|Utilities 
 Water                      |  | The water utility was approximately 0% complete as of September 10,
 2008. Rural water has been brought to the site for potable water.                         
|                                        |  |                                                                                                                                                                
|Railroad
 Siding                        |  | Rail construction was approximately 10% complete on September 10,
 2008. We have completed the dirt work on our railroad siding.                               

We
originally anticipated completing construction of the biodiesel plant in
October 2008. However, due to the suspension of construction, lack of debt
financing and the changes we have made to our business plan and plant design,
we are unsure as to when we will complete construction of the biodiesel plant,
if we complete construction at all.

Permitting
and Costs and Effects of Compliance with Environmental Laws

Stanley
Consultants, Inc. has assisted us in obtaining our required permits. We have or
in the process of obtaining all of the required air, water, construction and
other permits necessary to construct the plant and have either obtained or are
in the process of obtaining all the permits necessary to operate the plant. The
following chart lists the various permits for which we have applied:

|                                                                             |  |                                                                                                                                                             
|---------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Permit                                                                       |  | Status                                                                                                                                                      
|                                                                             |  |                                                                                                                                                             
|Spill,
 Prevention, Control and Countermeasures Plan                         |  | Stanley Consultants, Inc. is in the process of preparing this
 application. We anticipate receiving this permit before we commence operations
 at the plant.
|                                                                             |  |                                                                                                                                                             
|VOC
 Emissions from Equipment Leaks Permit- Construction                     |  | Stanley Consultants, Inc. is in the process of preparing this
 application. We anticipate receiving this permit before we commence
 operations at the plant.
|                                                                             |  |                                                                                                                                                             
|Boiler Permit
 1                                                             |  | We have applied for this permit. We anticipate receiving this permit
 before we commence using the boiler.                                                  
|                                                                             |  |                                                                                                                                                             
|Boiler
 Permit 2                                                             |  | We have applied for this permit. We anticipate receiving this permit
 before we commence using the boiler.                                                  
|                                                                             |  |                                                                                                                                                             
|NPDES Stormwater
 GeneralPermit  Construction                               |  | We received this permit in September 2006.                                                                                                                  
|                                                                             |  |                                                                                                                                                             
|NPDES
 Wastewater Discharge Permit                                           |  | We received this permit in
 November 2006.                                                                                                                  
|                                                                             |  |                                                                                                                                                             
|Superfund
 Amendments and Reauthorization Act (SARA) Section 313 Form R      |  | Stanley Consultants, Inc. is
 in the process of preparing this application. We anticipate receiving this
 permit before we commence operations at the plant.
|                                                                             |  |                                                                                                                                                             
|Resource
 Conservation and Recovery Act (RCRA) Hazardous Materials ID Number |  | Stanley Consultants, Inc. is
 in the process of preparing this application. We anticipate receiving this
 permit before we commence operations at the plant.

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Utilities
and Infrastructure

Electricity.
We will require a significant supply of electricity to operate our plant. We
anticipate that Mid - American Energy will supply us with our electricity needs,
but we have not entered into any agreement with Mid-American Energy.

Water.
We are currently considering connecting to a rural water supply or constructing
our own well, depending on the amount of water our plant requires. The
different technology and plant design options we are exploring will have an
effect on the amount of water our biodiesel plant requires.

PEF.
In June 2007, we entered into an agreement with the Cherokee County Solid Waste
Commission (CCSWC) to supply us with Process Engineered Fuel (PEF) pellets that
we anticipate using to fuel our biodiesel plant. We also anticipate
constructing a backup system to burn natural gas or other fuels in the event of
an interruption of our PEF pellet supply.

Natural
Gas. We anticipate having natural gas as the backup power supply for our
plant. We are in the process of exploring potential suppliers of the natural
gas backup. We anticipate that PEF will supply all of our biodiesel plants
energy needs, however, we expect that natural gas will be available should we
not be able secure sufficient PEF to operate the biodiesel plant.

Rail.
The Canadian National Railroad provides rail service near the site of our
biodiesel plant. We are currently in the process of establishing rail service
directly to our plant in order to ship biodiesel to our customers. As of
September 10, 2008, rail construction was approximately 10% complete. We
anticipate we will enter into an agreement with the Canadian National Railroad
for rail service, but we have not currently entered into any such agreement.

Feedstock
Procurement

We
anticipate that the Best Energies technology would allow us to use corn oil as
the primary feedstock for the biodiesel plant and expect to pursue the use of
corn oil as the primary feedstock for our biodiesel production process. One
source of corn oil that can be used in the biodiesel production process is from
distillers grains produced by ethanol plants. We anticipate that we can procure
corn oil to be used in the biodiesel production process for prices that are
much lower than the current price of soybean oil. We anticipate that production
of biodiesel will require approximately 7.7 pounds of corn oil to produce one
gallon of biodiesel. Depending on the price at which we can secure corn oil,
this may allow our biodiesel plant to produce biodiesel less expensively than
biodiesel produced from soybean oil.

On June 24,
2008, we entered into a Crude Oil Purchase Agreement with Little Sioux Corn
Processors, LLLP (LSCP), effective as of June 19, 2008. Under the Agreement,
we agreed to purchase from LSCP 820,000 pounds of corn oil produced by LSCP per
month. Pursuant to the LSCP corn oil supply agreement, we agreed to pay a flat
fee per pound of corn oil supplied with additional quarterly payments based
changes in the heating oil index price. The initial term of the LSCP corn oil
supply agreement is three years from the date of the first delivery of corn oil
by LSCP. After the initial term, the corn oil supply agreement will automatically
renew for consecutive one year terms, unless it is earlier terminated. If we
fail to provide a date of first delivery prior to June 30, 2010, LSCP may
terminate the Agreement at its sole discretion.

On August
15, 2008, we entered into an agreement with Siouxland Ethanol, LLC (Siouxland
Ethanol), in which we agreed to purchase 500,000 pounds of corn oil produced
by Siouxland Ethanol per month. Pursuant to the Siouxland Ethanol corn oil
supply agreement, we agreed to pay a flat fee per pound of corn oil supplied
with additional quarterly payments based on changes in the heating oil index
price. The initial term of the Siouxland Ethanol corn oil supply agreement is
three years from the date of the first delivery of corn oil by Siouxland Ethanol.
After the initial term, the corn oil supply agreement will automatically renew
for consecutive one year terms, unless it is earlier terminated. If we fail to
provide a date of first delivery prior to December 31, 2009, Siouxland Ethanol
may terminate the Agreement at its sole discretion.

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Although
there are a large and growing number of ethanol plants, not all of them produce
and market corn oil. Ethanol producers may choose not to install the equipment
necessary to separate the corn oil, because this would require a significant
capital expenditure by the ethanol plant. Further, because other biodiesel
producers are considering using corn oil as the feedstock for their biodiesel
production process, the price of corn oil may increase significantly, which
could eliminate any advantage to using corn oil.

Trends
and Uncertainties Impacting the Biodiesel Industry and Our Future Operations

If we are
able to build the plant and begin operations, we will be 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
feedstock from which our biodiesel and glycerin will be processed; dependence
on our biodiesel marketer and glycerin marketer to market and distribute our
products; the competitive nature of the biodiesel industry; possible
legislation at the federal, state and/or local level; changes in federal tax
incentives; and the cost of complying with extensive environmental laws that regulate
our industry.

We
anticipate our revenues will consist of sales of biodiesel and glycerin. We
expect biodiesel sales to constitute the bulk of our future revenues. Although
the price of diesel fuel has increased over the last several years and
continues to rise, diesel fuel prices per gallon remain at levels below or
equal to the price of biodiesel. 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 the value of our units. Further, due to the increase in the supply of
biodiesel from the number of new biodiesel plants scheduled to begin production
and the expansion of current plants, we do not expect current biodiesel prices
to be sustainable in the long term and the industry will need to continue to
grow demand to offset the increased supply brought to the market place by
additional production.

We also
expect to benefit from federal and state biodiesel supports and tax incentives.
Changes to these supports or incentives could significantly impact demand for
biodiesel. The most significant of these are the Volumetric Ethanol Excise Tax
Credit (VEETC) and the Renewable Fuels Standard (RFS). The VEETC created a
tax credit of $1.00 per gallon for biodiesel made from virgin oils derived from
agricultural products and animal fats and a tax credit of $0.50 per gallon for
biodiesel made from non-virgin agricultural products and animal fats. VEETC was
designed to streamline the use of biodiesel and encourage petroleum blenders to
blend biodiesel. VEETC is scheduled to expire on December 31, 2008, and it may
not be extended. The RFS requires refiners to use 9 billion gallons of
renewable fuels in 2008, increasing to 36 billion gallons by 2022. Further, the
RFS contains 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 1 billion gallons by 2012. However, the mandates of the
RFS are expected to largely be met by ethanol and thus will likely have a much
smaller impact on the biodiesel industry. These programs may be abandoned or
repealed which could affect our ability to capitalize our project and operate
profitably should we complete construction of our proposed plant.

On May 22,
2008, the United States Congress voted to override the Presidents veto of the
Food and Energy Conservation Act of 2008 (the Farm Bill). The Farm Bill
reauthorizes the CCC Bioenergy Program which was created to promote sustained
increases in bioenergy production and related industrial agricultural
commodities, as well as to help improve the environment through the production
and use of cleaner burning fuels. Under the program, the USDA makes payments
through the Commodity Credit Corporation to eligible producers to encourage
increased purchases of eligible commodities for the purpose of expanding
production of bioenergy and supporting new production capacity. The Farm Bill
authorized $300 million in mandatory funding for the program over the 5 year
duration of the Farm Bill and authorizes an additional $25 million in funding
each year from fiscal year 2009 through fiscal year 2012, subject to Congress
annual appropriations process. Ethanol produced from corn will not qualify
under the program. Final rules under the CCC Bioenergy Program, however, have not yet been implemented.

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Biodiesel
production continues to grow as additional plants become operational. In 2005,
approximately 75 million gallons of biodiesel were produced in the United
States, a three fold increase from 2004 biodiesel production according to the
National Biodiesel Board. Further, in 2006 biodiesel production increased to
250 million gallons, a further significant increase from 2005. The National
Biodiesel Board estimates that in 2007, biodiesel production reached 450
million gallons. In January 2008, the most recently reported data, the National Biodiesel Board estimated there were 171 active plants with an annual
production capacity of 2.24 billion gallons annually, with another 57 plants
and 3 expansions in construction. The biodiesel industry is becoming more
competitive nationally as a result of the substantial construction and
expansion that is occurring in the industry. We believe this increase in
biodiesel supply as well as high soybean oil prices have forced some biodiesel
producers to cut back production or cease production altogether. The
combination of additional supply and stagnant or reduced demand may damage our
ability to secure the debt financing we require and hurt our ability to generate
revenue and maintain positive cash flows should our biodiesel plant become
operational.

The subprime
mortgage lending crisis has contributed to a generally unfavorable credit
environment. We can offer no assurances or guarantees that we will be able to
obtain debt financing to fully capitalize this project. If we are unable to
obtain debt financing, or if the debt financing is at unfavorable terms, our
project will fail which will decrease or eliminate the value of our units. If we
fail, we may dissolve the Company, in which case, the assets of the Company will
be distributed according to the terms of our operating agreement, which may result in our unit holders not receiving any portion of our assets when the Company is dissolved.

Quarterly
Financial Results

At July 31,
2008, we had total assets of approximately $25,456,000 consisting primarily of
cash and equivalents, other accounts receivables, land and construction in
progress. At July 31, 2008, we had liabilities of approximately
$440,000 consisting of our accounts payable and other accrued expenses. Total
members equity at July 31, 2008, was approximately $25,015,000. Since our
inception, we have generated no revenue from operations. For the nine months
ended July 31, 2008, we have a net loss of $6,043,000 primarily due to an
impairment charge of $5,920,000 recorded through July 31, 2008.

Based on
our business plan and current construction cost estimates, we believe the total
project will cost approximately $53,803,000. Our capitalization plan consists
of a combination of equity we raised in our seed capital and general offerings,
anticipated debt, and government grants. We anticipate that the cost of our
project may increase as we make changes to the design of our plant and the
technology we use for the plant.

Sources of Funds

In December
2005, we sold a total of 1,500 units to our founding members at a price of
$333.33 per unit and received aggregate proceeds of $500,000. In addition, in
April 2006 we issued 1,600 units to our seed capital members at a price of $500
per unit and received aggregate proceeds of $800,000. We sold 30,668 units at a
price of $1,000 per unit in our Iowa registered offering and received aggregate
proceeds of $30,668,000. We broke escrow on our Iowa registered offering in
June 2007. We incurred costs of raising capital of approximately $186,000
related to the equity proceeds raised. These costs primarily consisted of legal
fees, professional fees and printing costs. We executed a redemption agreement
with Bratney pursuant to which Bratney agreed to return its 750 membership
units.

We
determined the offering price for our founding members, seed capital and
general offering units based upon the capitalization requirements necessary to
fund our development, organization and financing activities as a
development-stage company. We did not rely upon any independent valuation, book
value or other valuation criteria in determining the founding member, seed
capital and general offering sales price per unit.

Debt Financing

Based on
our current estimate of the total project cost and the equity we raised in our
seed capital and general offerings, and the anticipated $5,000,000 in-kind
contribution we expect Best Energies to make, we expect to require debt
financing in the amount of $16,435,000 to fully capitalize the project.

During May
2006, we obtained loans with Farmers State Bank in Marcus, Iowa, totaling
$1,999,000, a portion of which we used to pay REG under our pre-construction
services agreement. Upon termination of our relationship with REG, we received
a refund of a portion of the funds paid to REG under our Phase 2 and
pre-construction services agreement. We paid Bratney $1,500,000 under our Phase
I Design Services Agreement and we paid an additional deposit in June 2007 of
$3,950,000. When we broke escrow on our Iowa registered intrastate offering in
June 2007, we repaid the entire amount of our loans with Farmers State Bank.

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On June 7,
2007, we received a contingent loan commitment from AgStar Financial Services
agreeing to provide us with $33,486,540 in financing to capitalize the biodiesel
plant. The AgStar loan commitment was contingent on AgStar securing the
participating lenders required to fund the loan commitment and other to be determined
conditions required by AgStars legal counsel and conditions that may be
required by any participating lenders. Based on this contingent loan
commitment, we satisfied all of the requirements of our escrow agreement to
release the equity funds from escrow.

To the date
of filing this quarterly report, AgStar has not secured
the participating lenders to fund the debt financing we require for our
biodiesel plant and we do not anticipate they will be able to do so. As a result of AgStars inability to fund its contigent loan
commitment, we are continuing to seek additional or new financing sources to
complete the capitalization of our project.

We hope to
attract the senior bank loan from a major bank, with participating loans from
other banks. We expect the senior loan will be a construction loan secured by
all of our property, including receivables and inventories. We currently
anticipate that Farmers State Bank will be our lead lender. Farmers State Bank
has been assisting us in securing a USDA loan guarantee that we anticipate will
make our project more attractive to lenders. Based on our knowledge of similar
loans made in the industry and preliminary discussions with potential lenders,
we anticipate that we will pay near prime rate on this loan, plus annual fees
for maintenance and observation of the loan by the lender, however, we may not
be able to obtain debt financing or adequate debt financing may not be
available on the terms we currently anticipate. If we are unable to obtain
senior debt financing in an amount necessary to fully capitalize the project,
we may have to seek subordinated debt financing which could require us to issue
warrants. The issuance of warrants could reduce the value of our units and if we are not successful in capitalizing the project it will fail.

In July 2008,
we entered into an agreement with Piper Jaffray to act as our debt placement
agent to structure and market senior debt participations in a total amount of
approximately $9,000,000. In exchange for these services, we will pay Piper
Jaffray 1.5% of the aggregate amount of senior debt participations raised by Piper Jaffray at financial close.

Grants and Government Programs

Currently,
there are limited numbers of grants, loans and forgivable loan programs
available to biodiesel producers. We anticipate applying for those programs
that are available. Although we may apply under several programs simultaneously
and may be awarded grants or other benefits from more than one program, it must
be noted that some combinations of programs are mutually exclusive. Under some
state and federal programs, awards are not made to applicants in cases where
construction of the project has started prior to the award date. These
applications may not result in awards of grants or loans. In addition, even if
a grant or loan is awarded, if we do not meet the conditions or criteria of the
grant or loan we will not receive the grant funds.

We received
a 15 year, 75% tax abatement on our property from Cherokee County which was
approved unanimously by the Cherokee County Board of Supervisors at their April
18, 2006 meeting. In addition, we were approved for or expect to apply for the
following grants:

Enterprise
Zone Program  We were awarded financial assistance through the Iowa Department
of Economic Enterprise Zone Program. Enterprise Zones are designed to stimulate
economic development in economically distressed areas of Iowa. To be eligible
for the program, a business must make a minimum qualifying investment of
$500,000 over a three-year period and must create at least ten full-time jobs
over a three year period. The business must provide full-time employees
standard medical and dental insurance and pay an average starting salary which
is equal to or greater than 90% of the average county or regional wage,
whichever is lower. We anticipate we will receive approximately $5,270,000 in
state and local tax incentives under the program.

USDA
Business and Industry Guaranteed Loan Program  The purpose of the Business
and Industry Guaranteed Loan Program is to provide a loan guarantee for
companies that are seeking to engage in certain business activities, including
reducing reliance on non-renewable energy resources. The B&I Loan Guarantee
can be used to guarantee the repayment of between 60% and 80% of qualifying
loans depending on the amount of funds borrowed. There is an annual fee for the
loan guarantee that is paid to the USDA based on a percentage of the
outstanding principal balance of the loan. This percentage is set annually by
the USDA. The guaranteed loan can be used for construction of the proposed
biodiesel plant. We are working with Farmers State Bank to complete our
application for the B&I Loan Guarantee but we have not yet been approved
for the USDA loan guarantee.

VAAPFAP
 We were approved for participation in the Iowa Value-Added Agricultural
Products and Processes Financial Assistance Program (VAAPFAP) administered by
the Iowa Department of Economic Development (IDED). VAAPFAP provides
financial assistance to new or existing companies that utilize the states
agricultural commodities to create new, innovative products or to produce
renewable fuels. Funds awarded under the program may be used for payments made
or expenses incurred for business planning and consulting services. We received a $300,000, zero interest loan, and a $100,000
forgivable loan from the IDED. To date, we have not drawn any funds on these
VAAPFAP loans.

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IDED-Iowa
High Quality Job Creation Program  We were approved for participation in
the Iowa High Quality Job Creation Program provided we maintain certain
requirements of the program. Our award includes approximately $4,537,000 in
investment tax credits and approximately $733,000 in construction sales tax
refund. The amount of tax incentives and assistance provided under the program
is based on the number of high quality jobs created and the amount of our
qualifying investment.

We are only
eligible to receive these benefits if we meet certain requirements. We
anticipate that we will be required to satisfy four of the following eight
requirements: (i) offer a pension or profit-sharing plan to all full-time
employees; (ii) participation in one of several specified industries, which
includes value-added agricultural products; (iii) provide at least 80% of the
cost of a standard medical and dental insurance plan for all full-time
employees; (iv) make child care services available to employees; (v) invest no
less than 1% of pretax profits in research and development in Iowa; (vi) invest
no less than 1% of pretax profits in worker training and skills enhancement;
(vii) maintain an active productivity and safety improvement program; or (viii)
purchase and occupy a facility that includes at least one vacant building which
is at least 20,000 square feet. The Department of Economic Development may
waive the above requirements when good cause is shown. If, at any time, we fail
to meet the requirements for participation in the program, we may have to repay
to the local taxing authority and the Iowa Department of Revenue and Finance
the total value for any incentives received.

Value
Added Producer Grant (VAPG)  We anticipate that we will apply for the
United States Department of Agricultures VAPG grant. VAPG grant funds may be
used for planning activities or for working capital for marketing value-added
agricultural products and for farm-based renewable energy. Grant funds may not
be used for architectural, engineering or design work of our physical facility.
We will only be eligible for grant funds if greater than 50% of our members are
deemed agricultural producers. In other words, greater than 50% of our
members must produce the agricultural product to which value will be added due
to our project. We have not yet applied for nor been approved to receive any
financial assistance under VAPG, and we may not qualify for VAPG or we may not
receive any particular level of financial assistance, if any, under the
program.

Renewable
Energy and Energy Efficiency Program  The Farm Security and Rural
Investment Act of 2002 (the Farm Bill) established the Renewable Energy Systems
and Energy Efficiency Improvements Program under Title IX, Section 9006. This
program was created to provide financial assistance to agricultural producers
and rural small businesses for the purpose of purchasing and installing
renewable energy systems and energy efficiency improvements in rural areas. The
program offers both grants and guaranteed loans for eligible projects. We anticipate
applying for grant funds under the Renewable Energy and Energy Efficiency
Program, however, we may not qualify for the program or we may not receive any
benefits under the program.

Iowa
Rail and Revolving Loan and Grant Program (RRLGP)  The Railroad Revolving
Loan and Grant program provides assistance to improve rail facilities that will
spur economic development and job growth and provide assistance to railroads
for the preservation and improvement of the rail transportation system. The program
can provide assistance as either loans or grants. Industries, railroads, local
governments or economic development agencies may apply for financial assistance
for projects such as:

| |   |                                                             
| | - | ------------------------------------------------------------
| |  | building
 rail spurs to a new or expanding development;     
| |   |                                                             
| |  | building or
 rebuilding sidings to accommodate growth;      
| |   |                                                             
| |  | purchasing
 or rehabilitating existing rail infrastructure; 
| |   |                                                             
| |  | rehabilitating
 existing rail lines to increase capacity; or
| |   |                                                             
| |  | other rail
 related development.                            

We will work in conjunction with the Siouxland Metropolitan Planning
Council located in Sioux City, Iowa to apply for benefits under this program.
Although we anticipate that we will be eligible for benefits under the program,
we have not applied for nor been approved to receive any such benefits at this
time. We may not qualify for the program or receive any particular level of
benefits, if any, under the program.

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Research
and Development

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

Employees

We
currently have two full-time employees and no part-time employees. We
anticipate that once the plant is operational, we will have 19 full-time
employees and no part-time employees.

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 carrying value of certain property and equipment included in
significant estimates is based on the availability to utilize previously
constructed assets as well as amounts in progress.

Off-Balance
Sheet Arrangements

We do not
have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative
Disclosures about Market Risks

The
Company is not required to provide the information required by this item
because it is a smaller reporting company.

Item
4T. Controls and Procedures

Our
management, including our Chief Executive Officer (the principal executive
officer), along with our Chief Financial Officer (the principal financial
officer), have reviewed and evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended) as of July 31, 2008. Based upon
this review and evaluation, these officers have concluded that our disclosure
controls and procedures were not effective due to the material weaknesses
discussed below.

Due to the
current operations and size of the Company, there is a lack of segregation of
duties in certain functions. In addition, there were adjustments to our
financial statements and other factors during the course of the annual audit
which impacted our closing process. To address these weaknesses, the Company
performed additional analysis and other post-closing procedures to ensure that
our financial statements are prepared in accordance with generally accepted accounting
principles. Accordingly, our executive officers and management believe that the
financial statements included in this report present fairly in all material
respects our financial condition, results of operations and cash flows for the
periods presented. The Company is in the process of strengthening internal
controls including enhancing our internal control systems and procedures to
assure that these weaknesses are corrected and remediated.

Our
management, including our principal executive officer and principal financial
officer, have reviewed and evaluated any changes in our internal control over
financial reporting that occurred as of July 31, 2008 and there has been no
change, other than in regard to the material weakness discussed above, that has materially affected or is reasonably likely to materially
affect our internal control over financial reporting.

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Table of Contents

PART II. OTHER INFORMATION

Item
1. Legal Proceedings

From time
to time in the ordinary course of business, we may be named as a defendant in
legal proceedings related to various issues, including without limitation,
workers compensation claims, tort claims, or contractual disputes. We are not
currently subject to any material legal proceeding or claims. Management does
not believe that there are currently any material unasserted claims against us.

Item
1A. Risk Factors.

Risk
factors are discussed in our registration statement on Form 10 and any
amendments. The risks described in our registration statement on Form 10 are
not the only risks facing us. The following Risk Factors are provided to
supplement and update the Risk Factors previously disclosed in our registration
statement on Form 10. The Risk Factors set forth below should be read in
conjunction with the considerations set forth above in MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION and the risk factors
set forth in our registration statement on Form 10.

Our auditors identified a material weakness in our disclosure and
internal controls and procedures which may negatively affect our financial
condition.

Due to the
current operations and size of the Company, there is a lack of segregation of
duties in certain functions. In addition, there were adjustments to our
financial statements and other factors during the course of the audit which
impacted our closing process. To address these weaknesses, we have performed
additional analysis and other post-closing procedures to ensure that our
financial statements are prepared in accordance with generally accepted
accounting principles. These issues relating to our controls and procedures may
have a negative affect on our ability to operate the Company and may negatively
affect our financial condition.

Item
2. Unregistered Sales of Equity Securities and Use of Proceeds

In December
2005, we issued 1,500 of our membership units to our eight founding members at
a price of $333.33 per unit, for total founding member proceeds of $500,000. In
the spring of 2006, we sold 1,600 of our membership units to our seed capital
investors at a price of $500 per unit and received aggregate proceeds of
$800,000. We claimed exemption from federal registration with respect to our
unit sales in both our founding member and seed capital offerings due to the
application of Section 3(a)(11) of the Securities Act of 1933 (regarding
intrastate offerings). We also claimed exemptions from registration in the
state of Iowa pursuant to the private placement and accredited investor
exemptions of the Iowa Uniform Securities Act. We only sold our units in these
offerings to accredited investors who represented that they were residents of
the state of Iowa.

Commencing
in December 2006, we conducted a registered offering in the state of Iowa, but
were exempt from federal registration of the securities under Section 3(a)(11)
of the Securities Act of 1933. We registered a minimum of 25,000 units and a
maximum of 39,000 units at an offering price of $1,000 per unit. The offering
commenced on December 1, 2006 in the state of Iowa and closed on December 1,
2007. We sold 30,668 units at a price of $1,000 per unit. From our unit sales
we received total aggregate proceeds of $30,668,000. We incurred approximately
$186,000 of offering costs that offset equity proceeds raised as of October 31,
2007. The primary costs we incurred in raising capital included legal fees, accounting
fees, printing and distribution costs, and meeting costs. Additionally, we
executed a redemption agreement with Bratney pursuant to which Bratney agreed
to return its 750 membership units for cash and a non-cash settlement of
approximately $750,000 of construction-in-progress as part of the termination
agreement.

We were
able to rely on Section 3(a)(11) for the seed capital offering, founders
offering, and Iowa registered offering, because we sold units only to residents
of the State of Iowa and the recipients of securities in each transaction
represented their intention to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof,
and appropriate legends were affixed to unit certificates and instruments
issued in such transactions. We gave each investor information about us and
gave them opportunities to ask questions regarding the terms and conditions of
the offering. Our directors and officers sold the units on a best efforts basis
and received no compensation for services related to the offer and sale.

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When our
fiscal year ended October 31, 2007, we had total assets exceeding $10,000,000
and more than 500 unit holders; as a result, we were required to file a registration
statement on Form 10 to register our securities under the Securities Exchange Act of 1934.  On February 28, 2008 we filed a Form 10 to register our
securities
under the Securities Exchange Act of 1934. Our registration statement on Form
10 became effective on May 28, 2008. Our SEC file number is 000-53112.

Item
3. Defaults Upon Senior Securities

None.

Item
4. Submission of Matters to a Vote of Security Holders

None.

Item
5. Other Information

None.

Item 6. Exhibits

| |     |                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------
| | (a) | The
 following exhibits are filed as part of this report. Exhibits previously
 filed are incorporated by reference, as noted.

| |             |  |                                               
| | ----------- |  | ----------------------------------------------
| | Exhibit No. |  | Exhibit                                       
| |             |  |                                               
| | 31.1        |  | Certificate
 Pursuant to 17 CFR 240.13a-14(a).
| |             |  |                                               
| | 31.2        |  | Certificate
 Pursuant to 17 CFR 240.13a-14(a).
| |             |  |                                               
| | 32.1        |  | Certificate
 Pursuant to 18 U.S.C. § 1350.    
| |             |  |                                               
| | 32.2        |  | Certificate
 Pursuant to 18 U.S.C. § 1350.    

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SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|      |                     |  |                                                                                   
|----- | ------------------- |  | ----------------------------------------------------------------------------------
|      |                     |  | SOY ENERGY, LLC                                                                   
|      |                     |  |                                                                                   
|Date  | September
 15, 2008 |  | /s/ Charles
 Sand                                                                 
|      |                     |  |                                                                                   
|      |                     |  | Charles Sand
 President and Chief Executive Officer
 (Principal Executive Officer)
|      |                     |  |                                                                                   
|Date: | September
 15, 2008 |  | /s/ Dallas
 Thompson                                                              
|      |                     |  |                                                                                   
|      |                     |  | Dallas
 Thompson
 Treasurer and Chief Financial Officer                           

27

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