UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549Form 10-Q(Mark one)R
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2009£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to __________Commission file number 000-53041SOUTHWEST IOWA RENEWABLE ENERGY, LLC(Exact name of registrant as specified in its charter)Iowa
20-2735046(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)10868 189th Street, Council Bluffs, Iowa 51503(Address of principal executive offices)(712) 366-0392(Registrant’s telephone number, including area code)__________________________________________________________________(Former name, former address and former fiscal year, of changed since last report)Indicate by check mark whether the registrant has (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.  Yes R    No £Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes £    No RIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer                                            £      Accelerated
filer £      Non-accelerated filer £      Smaller reporting company RIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £    No RAs of August 1, 2009, the issuer had 8,805 Series A Units, 3,334 Series B Units, and 1,000 Series C Units issued and outstanding.








TABLE OF CONTENTS





PART I—FINANCIAL INFORMATIONItem Number
Item Matter
Page NumberItem 1.
Financial Statements.
1Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
17Item 4T.
Controls and Procedures.
26PART II—OTHER INFORMATIONItem 1.
Legal Proceedings.
27Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
27Item 3.
Defaults Upon Senior Securities.
27Item 4.
Submission of Matters to a Vote of Security Holders.
27Item 5.
Other Information.
27Item 6.
Exhibits.
27Signatures
28Certifications
See Exhibits 31 and 32











PART I—FINANCIAL INFORMATION





Item 1.                                Unaudited Financial Statements.





SOUTHWEST IOWA RENEWABLE ENERGY, LLCCondensed Balance SheetsASSETS

June 30,
2009


September 30, 2008(Unaudited)


(Audited)Current AssetsCash and cash equivalents

$
6,163,611


$
6,557,394Restricted cash


-



3,289,949Accounts receivable


5,455,528



-Due from broker


947,436



-Inventory


7,493,972



-Derivative financial instruments


1,761,614



-Prepaid expenses and other


1,813,331



43,261Total current assets


23,635,492



9,890,604Property, Plant, and EquipmentLand


2,064,090



2,064,090Construction in progress


-



172,745,278Plant, Building and Equipment


197,168,101



-Office and Other Equipment


568,016



389,823Total Cost


199,800,207



175,199,191Accumulated Depreciation


(5,488,659
)


(37,249
)Net property and equipment


194,311,548



175,161,942Other AssetsFinancing costs, net of amortization of $1,284,070 and $497,672


2,376,924



3,088,821Total Assets

$
220,323,964


$
188,141,367Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.








1


SOUTHWEST IOWA RENEWABLE ENERGY, LLCCondensed Balance SheetsLIABILITIES AND MEMBERS’ EQUITY

June 30,
2009


September 30, 2008(Unaudited)


(Audited)Current LiabilitiesAccounts payable

$
5,377,567


$
6,260,253Retainage payable


1,316,555



7,158,896Accrued expenses


4,904,745



1,672,950Current maturities of notes payable


8,361,745



35,198,440Total current liabilities


19,960,612



50,290,539Long Term LiabilitiesNotes payable, less current maturities


137,572,295



63,893,467Other


825,000



900,000Total long term liabilities


138,397,295



64,793,467Commitments and ContingenciesMembers’ EquityMembers’ capital


76,474,111



76,474,111Accumulated (deficit)


(14,508,054
)


(3,416,750
)Total members’ equity


61,966,057



73,057,361Total Liabilities and Members’ Equity

$
220,323,964


$
188,141,367Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.











2


SOUTHWEST IOWA RENEWABLE ENERGY, LLCCONDENSED STATEMENTS OF OPERATIONSThree Months
Ended June 30, 2009


Three Months
Ended June 30, 2008


Nine Months
Ended June 30, 2009


Nine Months
Ended June 30, 2008(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)Revenues

$
42,512,277


$
---


$
54,437,932


$
---Cost of Goods Sold


43,682,895



---



58,023,329



---Gross Margin


(1,170,618
)


---



(4,104,164
)


---Selling, General, and Administrative Expenses


1,093,179



1,412,924



4,104,164



2,717,137Operating (Loss)


(2,263,797
)


(1,412,924
)


(7,689,561
)


(2,717,137
)Other Income (Expense)Realized and unrealized losses on derivative financial instruments


---



---



(656,973
)


---Interest income


19,997



19,189



85,377



124,415Grant revenue


-



95,937



49,252



136,513Interest expense


(2,164,360
)


---



(2,583,115
)


---Miscellaneous income


2,149



2,800



13,429



14,525Total


(1,927,930
)


117,926



(3,401,743
)


275,453Net Loss

$
(4,406,011
)

$
(1,294,998
)

$
(11,091,304
)

$
(2,441,684
)Weighted Average UnitsOutstanding—Basic & Diluted


13,139



13,139



13,139



13,139Net (loss) per unit –basic & diluted

$
(335.34
)

$
(98.56
)

$
(844.15
)

$
(185.83
)Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.





3


SOUTHWEST IOWA RENEWABLE ENERGY, LLCCondensed Statements of Cash FlowsNine Months Ended
June 30, 2009


Nine Months Ended
June 30, 2008(Unaudited)


(Unaudited)Cash Flows from Operating ActivitiesNet (loss)

$
(11,091,304
)

$
(2,441,684
)Adjustments to reconcile net (loss) to net cash (used in)operating activities:
Depreciation


5,451,410



12,928Amortization


309,713Other


745,993



---(Increase) decrease in current assets:
Accounts receivable


(5,455,528
)


---Inventories


(7,493,972
)


---Prepaid expenses and other


(560,737
)


52,043Derivative financial instruments


(1,761,614
)


---Due from broker


(947,436
)


---Increase (decrease) in current liabilities:Accounts and retainage payable


5,059,636



504,369Accrued expenses


1,575,795



11,686Net cash (used in) operating activities


(14,168,044
)


(1,860,658
)Cash Flows from Investing ActivitiesPurchase of property and equipment


(34,336,036
)


(82,015,361
)Decrease in cash for plant construction


-



15,638,542(Increase) in prepaid expenses and other


(1,209,333
)


---Decrease in restricted cash


3,289,949



---Net cash (used in) investing activities


(32,255,420
)


(66,376,819Cash Flows from Financing ActivitiesPayments for financing costs


(74,501
)


(785,648
)Proceeds from long term borrowings


46,119,182



72,721,316Payments on long term borrowings


(15,000
)


(1,299,91
)Net cash provided by financing activities


46,029,681



70,635,751Net increase (decrease) in cash and cash equivalents


(393,783
)


2,398,274Cash and Equivalents—Beginning of Period


6,557,394



1,742,940Cash and Equivalents—End of Period

$
6,163,611



4,141,214Supplemental Disclosures of Noncash InvestingAnd Financing ActivitiesConstruction in progress included in accounts and retainage payable

$
1,472,398


$
6,112,669Interest capitalized and included in long term debt and accruals

$
2,049,643


$
1,412,617Cash Paid for Interest

$
2,153,611


$
---


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











4


SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Notes to Financial Statements (unaudited)
June 30, 2009


Note 1:  Nature of Business




Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March, 2005 to construct and operate a 110 million gallon capacity ethanol plant.  Commencing in February, 2009, the Company began producing ethanol while
the start up and testing process continued.  For the months of April, May and June, the Company produced ethanol at an average of 81% of capacity.  The Company sells its ethanol, modified wet distiller’s grains with solubles, and corn syrup in the continental United States.  The Company sells its dried distiller’s grains with solubles in the continental United States, Mexico, and the Pacific Rim.




Note 2:  Summary of Significant Accounting Policies




Basis of presentation




The balance sheet as of September 30, 2008 was derived from the Company’s audited balance as of that date.  The accompanying financial statements as of and for the three and nine months ended June 30, 2009 and June 30, 2008 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods.  These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the year ended September 30, 2008 contained in the Company’s Annual Report on Form 10-K.  The results for the interim periods presented are not necessarily indicative of the results for the entire year.




Use of Estimates




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




Concentration of Credit Risk




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




Revenue Recognition




The Company generally sells ethanol and related products pursuant to marketing agreements.  Revenues are recognized when the marketing company (the “customer”) has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.   The Company’s products are
generally shipped FOB loading point.  For the first six months of production, ethanol sales were handled through the marketing agreement with Lansing Ethanol Services; with the conclusion of Lansing Ethanol Services agreement, effective August 19, 2009, ethanol sales will be handled through the marketing agreement with Bunge North America, Inc. (“Bunge”).  Syrup, distiller’s grains and solubles, and modified
wet distiller’s grains with solubles will be sold through the marketing agreement with Bunge, which sets the price based on the market price to third parties.  Marketing fees and commissions due to the marketers are paid separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of revenues.  Shipping and handling costs incurred by the Company for the sale of ethanol and co-products are included in cost of revenues.




Accounts Receivable




Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering customers’ financial
condition, credit history and current economic conditions.  Receivables are written off when deemed uncollectible.  Recoveries of receivables written off are recorded when received.




5


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements





Note 2:  Summary of Significant Accounting Policies (Continued)




Derivative Financial Instruments




The Company enters into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn needs and forward corn purchase contracts.  The Company uses cash, futures and options contracts to hedge changes to the commodity prices of corn and ethanol.  All the derivative contracts are recognized
on the balance sheet at their fair value.  The Company does not enter into these derivative financial instruments for trading or speculative purposes, nor does it designate these contracts as hedges for accounting purposes, pursuant to the requirements of Statement of Financial Accounting Standards (“SFAS”), promulgated by the Financial Accounting Standards Board (“FASB”)
No. 133, Accounting for Derivative Instruments and Hedging Activities.  Accordingly, any realized or unrealized gain or loss related to these derivative instruments was recorded in the statement of operations as a component of non-operating income (expense) until the plant was operational.  The gains or losses are included in revenue if the contracts relate to ethanol and cost of goods sold if the contracts relate to corn.  During the nine months ended June 30, 2009, the Company
recorded a combined realized and unrealized gain of $3,682,437 as a component of cost of goods sold and a $(59,262) loss as a component of revenue. For the three months ended June 30, 2009, the company recorded a combined realized and unrealized gain of $2,158,013 as a component of cost of goods sold and a ($136,688) loss as a component of revenue.   In addition, the Company recorded a combined realized and unrealized loss of ($656,973) for the nine months ended June 30, 2009 as a component of
non-operating income.  There were no realized or unrealized gains or losses during the three or nine months ended June 30, 2008.  The derivative financial instruments asset of $1,761,614 consists of 3,170,000 bushels of corn and 580,000 gallons of ethanol at June 30, 2009.




Inventory




Inventory is stated at the lower of cost or market value using the first-in, first-out method.  Market value is based on current replacement values, except that it does not exceed net realizable values and it is not less than the net realizable values reduced by an allowance for normal profit margin.




Property and Equipment




Property and equipment are carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:




Buildings
40 YearsProcess Equipment
10 YearsOffice Equipment
3-7 Years




Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized.




Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.   An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group.  An
impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.  In accordance with Company policies, management has evaluated the plant for possible impairment based on projected future cash flows from operations.  Management has determined that its projected future cash flows from operations exceed the carrying value of the plant and that no impairment exists at June 30, 2009.




Income Taxes




The Company has elected to be treated as a partnership for federal and state income tax purposes and generally does not incur income taxes.  Instead, the Company’s earnings and losses are included in the income tax returns of the members.  Therefore, no provision or liability for federal or state income taxes has
been included in these financial statements.









6


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements





Note 2:  Summary of Significant Accounting Policies (Continued)




Net (loss) per unit




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




Fair value of financial instruments




The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses approximate fair value.  The carrying amount of long-term debt approximates fair value because the interest rates fluctuate with market rates.




Current accounting developments




In April 2009, the FASB issued FSP FAS 107−1 and APB 28−1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107−1 and APB 28−1”).  FSP
FAS 107−1 and APB 28−1 require disclosures about fair value of financial instruments in interim and annual financial statements.  FSP FAS 107−1 and APB 28−1 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 107−1 and APB 28−1 effective for the quarter ending June 30, 2009.  The adoption did not have an impact on the Company’s financial position or results of operations.




In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards CodificationTMand the Hierarchy of
Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.”Under the Statement, The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.
 This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  In the FASB’s view, the issuance of this Statement and the Codification will not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs 38–76.  The Company does not expect that the
adoption of this Statement will have a material impact on the Company’s financial statements.




In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”). This standard is intended to establish general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures
that an entity should make about events or transactions that occurred after the balance sheet date.  is effective for fiscal years and interim periods ended after June 15, 2009.  We adopted this standard effective June 15, 2009 and have evaluated any subsequent events through the date of this filing.  We do not believe there are any material subsequent events other than those disclosed which would require further disclosure.









7


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements





Note 3:  Inventory




Inventory is comprised of the following at:






June 30, 2009

September 30, 2008Raw materials - com
$
4,083,222
$
-Supplies and chemicals
$
1,250,590

-Work in process

1,202,230

-Finished goods

957,930

-Total
$
7,493,972
$
-






Note 4:                      Members’ Equity




The Company was formed on March 28, 2005 to have a perpetual life with no limit on the number of authorized units.  The Company was initially capitalized by an aggregate of $570,000 in exchange for 285 Series A membership units.  In December 2005, the Company issued an additional 360 Series A membership units in exchange
for $1,080,000.  In March 2006, the Company completed a private placement offering with one membership unit at $6,000 being at risk and the remaining investment held in escrow until closing of the offering.  The Company approved and issued 687 Series A and one Series B at risk membership units at $6,000 per unit for total proceeds of $4,128,000.  The offering was closed in November 2006 with the issuance of 7,313 Series A membership units, 3,333 Series B membership units and 1,000
Series C membership units for total proceeds of $69,876,000.




In May 2007, 25 Series A membership units were issued to a development group for its efforts to develop the project.  In addition, in May 2007, 135 Series A membership units were issued to a related party for its organizational services.




At June 30, 2009 and September 30, 2008 outstanding member units were:




A Units
8,805B Units
3,334C Units
1,000


The Series A, B and C unit holders all vote on certain matters with equal rights.  The Series C unit holders as a group have the right to elect one Board member.  The Series B unit holders as a group have the right to elect that number of Board members which bears the same proportion to the total number of Directors
in relation to Series B outstanding units to total outstanding units.  Series A unit holders as a group have the right to elect the remaining number of Directors not elected by the Series C and B unit holders.




On March 7, 2008, the Company obtained a bridge loan in the maximum principal amount of $36,000,000 (the “Bridge Loan”).  The Company entered into a Series C Unit Issuance Agreement (the “Series
C Agreement”) with ICM, Inc. (“ICM”) and a Series E Unit Issuance Agreement (the “Series E Agreement”, together with the Series C Agreement, the “Unit Issuance Agreements”) with Bunge N.A. Holdings, Inc., an affiliate of Bunge (“Holdings”)
in connection with ICM’s provision of the letter of credit (“LC”) and Holdings’ provision of the Collateral to support the Bridge Loan (see Note 5).  Under the Series C Agreement, the Company agreed to pay ICM a fee for its issuance of the LC equal to 6% per annum of the undrawn face amount of the LC.  In the event that the LC or the Collateral are drawn upon as discussed below or if Holdings or ICM makes
any payment to Commerce Bank, N.A. (the “Bridge Lender”) that reduces amounts owed by the Company under the Bridge Loan (each, a “Bridge Loan Payment”), the Unit Issuance Agreements provide that the Company will immediately reimburse Holdings and/or









8


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 4:                      Members’ Equity (Continued)




ICM, as applicable, for the amount of such Bridge Loan Payment by issuing Units to Holdings and ICM, as further described below.




Under the Series C Agreement, if ICM makes a Bridge Loan Payment, the Company will immediately issue Series C Units to ICM based on a Unit price that is equal to the lesser of $3,000 or one half (1/2) of the lowest purchase price paid by any party for a Unit who acquired (or who has entered into any agreement, instrument or document to
acquire) such Unit as part of any private placement after the date of the Series C Agreement but prior to the date of any Bridge Loan Payment made by ICM.  The Series C Agreement further provides that ICM will have the right to purchase its pro-rata share of any Units issued by the Company at any time after the date of the Series C Agreement.




Under the Series E Agreement, if Holdings makes a Bridge Loan Payment, the Company will immediately issue Series E Units to Holdings based on a Unit price that is equal to the lesser of $3,000 or one half (1/2) of the lowest purchase price paid by any party for a Unit who acquired (or who has entered into any agreement, instrument or document
to acquire) such Units as part of any private placement after the date of the Series E Agreement but prior to the date of any Bridge Loan Payment made by Holdings.  The Series E Agreement further provides that Holdings will have the right to purchase its pro-rata share of any Units issued by the Company at any time after the date of the Series E Agreement.




Holdings has agreed to extend a term loan to the Company in the approximate principal amount of $27,500,000, which will result in the reduction of the Bridge Loan in a corresponding amount (the “Bunge Term Loan”).  The Bunge Term Loan will be convertible
into Series U Units, at the option of Holdings, at the price of $3,000 per Unit.  The Series E Agreement was terminated.


Note 5:                      Construction, Revolving Loan/Credit Agreements, and Subsequent Event




AgStar




The Company is party to a Credit Agreement (the “Credit Agreement”) with AgStar Financial Services, PCA (“AgStar”) for $126,000,000 senior secured debt, consisting of a $111,000,000 construction
loan and a $15,000,000 revolving line of credit.  Borrowings under the construction loan include a variable interest rate based on LIBOR plus 3.65% for each advance under the Credit Agreement.  On August 1, the construction loan was segmented into two credit facilities, an amortizing term facility of $101,000,000 and a revolving term facility of $10,000,000.  The Company has elected to convert 50% of the term note into fixed rate loans at the lender’s bonds rate plus 3.25%,
which will be effective on September 1.  The portion of the term loan not fixed and the term revolving line of credit will accrue interest equal to LIBOR plus 3.45%.  The Credit Agreement requires the maintenance of certain financial and nonfinancial covenants.  Borrowings under the Credit Agreement are collateralized by substantially all of the Company’s assets.  The construction/revolving term credit facility requires monthly principal payments starting March 1,
2010.  The loan will be amortized over 114 months and will mature five years after the conversion date, August 1, 2014.  The revolving line of credit agreement matures December 18, 2009.  Borrowings are subject to borrowing base restrictions, and the Credit Agreement includes certain prepayment penalties.




Under the terms of the Credit Agreement, the Company may draw the lesser of $15,000,000 or 75 percent of eligible accounts receivable and eligible inventory, the borrowing base.  As part of the revolving line of credit, the Company may request letters of credit to be issued up to a maximum of $5,000,000 in the aggregate.  One
letter of credit is outstanding under this provision, in favor of MidAmerican Energy, in the amount of $3,300,000.




As of June 30, 2009, the outstanding balance under the Credit Agreement was approximately $110,281,000.  In addition to all other payments due under the Credit Agreement, the Company also agreed to pay, beginning at the end of the June 30, 2010 quarter, an amount equal to 65% of the Company’s Excess Cash Flow (as defined







9


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 5:                      Construction, Revolving Loan/Credit Agreements, and Subsequent Event (Continued)




in the Credit Agreement), up to a total of $4,000,000 per year, and $16,000,000 over the term of the Credit Agreement.




Effective August 1, 2009, in addition to compliance with the borrowing base, the Company is subject to working capital, tangible net worth, tangible owner’s equity and fixed charge coverage ratio covenants.




Bridge Loan




On March 7, 2008, the Company obtained the Bridge Loan, and on March 1, 2009, the Company extended the terms of the Bridge Loan for a period of eighteen months and the maximum principal amount was increased to $36,600,000.  The Bridge Loan debt is secured by the Collateral, described below.




Holdings pledged a money market account in the amount equal to 76% of the maximum principal amount of the Bridge Loan in favor of the Bridge Lender (the “Collateral”), and ICM caused its lender to issue a letter of credit in the amount equal to 24% of the maximum
principal amount of the Bridge Loan in favor of the Bridge Lender.  The ICM LC expires on September 17, 2010, and the Bridge Lender will only draw against the LC or Collateral to the extent that the Company defaults under the Bridge Loan or if the Company has not repaid the Bridge Loan in full by September 1, 2010.  In the event the Bridge Lender draws against the LC or the Collateral, the amounts drawn will be in proportion to Holdings’ affiliate’s (Bunge’s) and ICM’s
respective ownership of the Company’s Units which are not Series A—76% and 24%, respectively.  As the Company repays the principal of the Bridge Loan, the LC’s and the Collateral’s stated amounts will automatically be reduced in the same proportion.  As of June 30, 2009, there was an outstanding principal and interest balance of approximately $35,499,807 under the Bridge Loan.




In connection with the Bridge Loan, the Company entered into the Unit Issuance Agreements, which govern the Company’s repayment of Holdings and/or ICM, as the case may be, in the event the LC or the Collateral is drawn upon (see Note 4).  Bunge’s portion of the Bridge Loan will be replaced by a subordinated
term loan (see Note 6).









10


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 6:                      Notes Payable




Notes payable consists of the following as of June 30, 2009 and September 30, 2008:




June 30,
2009


September
30, 2008$200,000 Note payable to Iowa Department Economic Development (“IDED”) a non-interest bearing obligation having monthly payments of $1,667 due through the maturity date of March 2012 on the non-forgivable portion. (A)

$
153,333

$
168,333Bridge Loan bearing interest at LIBOR plus 1.50% with a floor of 3.00 % (3.00% at June 30, 2009) through maturity on September 1, 2010 secured by a letter of credit and a money market account as described in Note 5.


35,499,807


34,761,857Construction loan payable to AgStar bearing interest at LIBOR plus 3.65% (4.03% at June 30, 2009). See maturity discussed in Note 5.


104,795,336


64,161,717Revolving line of credit payable to AgStar bearing interest at LIBOR plus 3.45% (3.83% at June 30, 2009), maturing December 18, 2009.


5,485,564


-145,934,040


99,091,907Less current maturities


(8,361,745


137,572,295







(A) The IDED debt is comprised of two components under the Master Contract (the “Master Contract”) between the Company and the IDED.  A $100,000 loan is non interest-bearing and due in monthly payments of $1,667 beginning April 2007, with a final payment
of $1,667 due March 2012; and a $100,000 forgivable loan.  Both notes under the Master Contract are collateralized by substantially all of the Company’s assets and subordinate to the Credit Agreement.  The $100,000 forgivable loan may be forgiven upon IDED’s confirmation of the creation and retention of qualifying jobs under the Master Contract.  If the Company does not meet the requirements of the Master Contract, the note is due on an agreed upon payment schedule.




Holdings has agreed to extend the Bunge Term Loan to the Company, due in five years, repayment of which is subordinated to the Credit Agreement.  Extension of the Bunge Term Loan, in the approximate principal amount of $27,500,000, will result in reduction of the Bridge Loan in a corresponding amount.  The Bunge Term
Loan is convertible into Series U Units, at the option of Holdings, at the price of $3,000 per Unit.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  Principal and interest may be paid only after payment in full of all amounts due under the Credit Agreement.

In addition, the Company has entered into a Revolving Credit Note with Holdings, with a two-year maturity, providing for the extension of a maximum of $10,000,000 in revolving credit (the “Bunge Revolving Credit Note”). Holdings has a commitment, subject to certain
conditions, to advance up to $3,750,000 at the Company's request under the Bunge Revolving Credit Note; amounts in excess of $3,750,000 may be advanced by Bunge in its discretion.  The Company is required to draw the maximum amount available under the Credit Agreement to pay any outstanding advances under the Revolving Credit Note.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  While repayment of the Bunge Revolving Credit Note is subordinated to the Credit




11


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 6:                    Notes Payable (Continued)




Agreement, the Company may make payments on the Bunge Revolving Credit Note so long as the Company is in compliance with its borrowing base covenant and there is not a payment default under the Credit Agreement.




Note 7:  Fair Value Measurement




Effective October 1, 2008, the Company adopted FASB Statement No. 157, Fair Value Measurements(“SFAS No. 157”), which provides a framework for measuring fair value under generally accepted accounting principles.  SFAS
No. 157 applies to all financial instruments that are being measured and reported on a fair value basis.  There were no material financial impacts to the Company’s adoption of SFAS No. 157.




As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  Based on
these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market-corroborated, or generally unobservable inputs.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  Based on the observation
of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:




Level 1 -      Valuations for assets and liabilities traded in active markets from readily available pricing sources for


market transactions involving identical assets or liabilities.





Level 2 -      Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are


obtained from third-party pricing services for identical or similar assets or liabilities.





Level 3-       Valuations incorporate certain assumptions and projections in determining the fair value assigned to


such assets or liabilities.







These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.




The following table summarizes financial liabilities measured at fair value on a recurring basis as of June 30, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:




Derivative financial statements.  Commodity futures contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider
observable data that may include dealer quotes and live trading levels from the CME market.  Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services.




Total


Level 1


Level 2


Level 3Derivative financial instrumentsCorn

$
1,868,463


$
1,868,463


$
---


$
---Ethanol


(106,848
)


(106,848
)


---



---$
1,761,615


$
1,761,615


$
---


$
---







12


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 8:                       Related Party Transactions




In September, 2006, the Company entered into a design-build agreement with ICM, a related party and a member of the Company, for a lump-sum contract price of $118,000,000 (the “ICM Contract”).  Under the ICM Contract, the Company was required to make
a down payment of 10% of the original contract price of $2,000,000, which was paid at the delivery of the letter of intent, an additional $2,000,000 was paid in November, 2006 when the Company broke escrow and the remaining $7,800,000 of the 10% was paid in January, 2007.  Monthly applications are submitted for work performed, subject to retainage.  As of June 30, 2009 and 2008, the Company incurred approximately $147,559,825 and $118,052,000of
construction in progress, respectively, under the ICM Contract.   A total of $1,250,000 is included in retainage payable as of June 30, 2009.




The Company entered into an agreement in October, 2006 with Bunge, a related party and a member of the Company, to purchase all of the distiller’s grains with solubles (“DGS”) produced by the plant (the “DGS
Agreement”).  Bunge agreed to pay a sales price less transportation costs, rail lease charge and a fixed rate marketing fee for the DGS produced.  The DGS Agreement commenced when the Company began producing DGS and continues for ten years, when it will automatically renew for successive three-year terms unless a 180-day written notice is given of either party’s election not to renew before the expiration of the initial term or the then-current renewal term.  The
Company is required to pay a minimum annual marketing fee of $150,000.  Beginning on the third anniversary of the effective date of the DGS Agreement and thereafter, the annual minimum amount and the purchase price may be adjusted.  Either party may terminate the agreement as provided in the DGS Agreement.   The Company has incurred $240,558 and $297,777 of marketing expenses during the three and nine months ended June 30, 2009 and there were no expenses incurred for the three
and nine months ended June 30, 2008.




In October, 2006, the Company entered into an agreement with a company in which Bunge holds a membership interest, AGRI-Bunge, LLC (“AB”), to procure all grain required for the Company’s ethanol plant.  The Company agreed to pay an agency fee mutually
agreed to by both parties for corn delivered by truck or rail, with a minimum annual fee. On December 15, 2008, this agreement was temporarily suspended and replaced with a grain supply agreement between the parties.  The revised agreement has a term of ten years and automatically renews for successive three-year terms unless a 180-day written notice is given by either party.  The Company agreed to pay an annual minimum fee of $675,000 under the revised agreement.  Expenses for the
three and nine months ended June 30, 2009 were $281,732 and $347,732, respectively; $87,403 of this amount is included in accrued expenses at June 30, 2009. There were no fees incurred for the three and nine months ended June 30, 2008.




On January 30, 2008, the Company and Bunge entered into a Support Services Agreement (the “Support Services Agreement”), under which Bunge agreed to provide engineering support to the project, provide reports to AgStar and assist the Company with requests by the
lender’s agent.  The Company paid, in addition to Bunge’s out of pocket expenses, an hourly fee of $95 for such services.  The Support Services Agreement terminated on December 31, 2008; however the Company is still incurring expenses on a month to month basis.  Expenses for the three and nine months ended June 30, 2009 were $17,924 and $38,924.  There were no fees incurred for the three and nine months ended June 30, 2008.




In December, 2008, the Company and Bunge entered into other various agreements. Under a Lease Agreement (the “Lease Agreement”), the Company has leased from Bunge a grain elevator located in Council Bluffs, Iowa, for approximately $67,000 per month.  Expenses
for the three and nine month period ended June 30, 2009 were $170,139 and $403,473.  There were no expenses incurred for the three and nine months ended June 30, 2008. In connection with the Lease Agreement, the Company entered into a grain purchase agreement, under which the Company agreed to purchase the grain inventory at the grain elevator and the grain inventory located in the Company’s on-site storage facility.  The Company purchased approximately 1,900,000 bushels of corn at an
approximate market value of $6,980,000.









13


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 8:                       Related Party Transactions (Continued)




Under an Ethanol Purchase Agreement (the “Ethanol Purchase Agreement”), the Company has agreed to sell Bunge all of the ethanol produced at the ethanol plant, and Bunge has agreed to purchase the same, up to the ethanol plant’s nameplate capacity of 110,000,000
gallons a year.  The Company will pay Bunge a per-gallon fee for ethanol sold by Bunge, subject to a minimum annual fee of $750,000 and adjusted according to specified indexes after three years.  The initial term of the agreement, which will commence on or about August 19, 2009, is three years and it will automatically renew for successive three-year terms unless one party provides the other with notice of their election to terminate 180 days prior to the end of the term.  The Company
has not incurred any expenses relating to this agreement as of June 30, 2009.




Under a Risk Management Services Agreement effective January 1, 2009, Bunge has agreed to provide the Company with assistance in managing its commodity price risks for a quarterly fee of $75,000.  The agreement has an initial term of three years and will automatically renew for successive three year terms, unless one party provides
the other notice of their election to terminate 180 days prior to the end of the term.  Expenses for the three and nine months ended June 30, 2009 were $75,000 and $150,000, respectively.  There were no expenses incurred for the three and nine months ended June 30, 2008.




As of June 30, 2009, the Company has several corn cash contracts with AB, amounting to approximately 4,307,663 bushels, for a commitment of $17,049,255 and several basis contracts representing approximately 3,170,000 bushels of corn.  The contracts mature on various dates through December, 2010.




In June, 2007, the Company entered into an operating lease agreement with Bunge for the lease of 320 ethanol tank cars and 300 distiller’s grain cars.  The  lease  began in January 2009, continues  for  a  term  of  ten  years,  and  terminates  upon  the
termination  of the final car lease.  The lease calls for monthly payments of approximately $450,000.  Expenses for the three and nine months ended June 30, 2009 were $1,324,552 and $2,361,552, respectively.    There were no expenses incurred for the three and nine months ended June 30, 2008.

In March, 2009, the Company entered into an agreement with Bunge to provide an interim President / CEO.  The agreement provides for reimbursement in the annual amount of $150,000 plus monthly expenses.   Expenses for the three and nine months ended June 30, 2009 were approximately $41,625 and $45,425, respectively,
and $13,875 is included in accrued expenses.  There were no expenses incurred for the three and nine months ended June 30, 2008.

In connection with obtaining the Bridge Loan, the Company entered into the Unit Issuance Agreements, as described above in Note 4.

Holdings has agreed to extend the Bunge Term Loan to the Company, due in five years, repayment of which is subordinated to the Credit Agreement.  Extension of the Bunge Term Loan, in the approximate principal amount of $27,500,000, will result in reduction of the Bridge Loan in a corresponding amount.  The Bunge Term
Loan is convertible into Series U Units, at the option of Holdings, at the price of $3,000 per Unit.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  Principal and interest may be paid only after payment in full under the Credit Agreement.

In addition, the Company entered into the Bunge Revolving Credit Note with Bunge, with a two-year maturity, providing for the extension of a maximum of $10,000,000 in revolving credit.  Bunge has a commitment subject to certain conditions, to advance up to $3,750,000 at the Company's request under the Bunge Revolving Credit Note;
amounts in excess of $3,750,000 may be advanced by Holdings in its discretion.  The Company is required to draw the maximum amount available under the Credit Agreement to pay any outstanding advances under the Revolving Credit Note.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  While repayment of the Bunge Revolving Credit Note is subordinated to the Credit Agreement, the Company may make payments on the Bunge Revolving Credit Note so long as the Company
is in compliance with its borrowing base covenant and there is not a payment default under the Credit Agreement.







14


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 8:                 Related Party Transactions (Continued)




Also, the Company and ICM agreed to modify the Series C Unit Issuance Agreement to provide ICM the option to convert any amount due under the Bridge Loan which ICM is required to pay into subordinated debt, on the same terms and conditions as the Bunge Term Loan.




Note 9:                 Commitments




In November, 2006, the Company entered into an agreement with an unrelated party for marketing, selling and distributing all of the ethanol produced by the Company.  The Company will pay a fee mutually agreed to by both parties for each gallon of ethanol sold.  The Company gave notice that the contract will be terminated
in August, 2009. There are no penalties involved with terminating this agreement.  As of June 30, 2009, the amounts due under this agreement total $74,137.




The Company has entered into a steam contract with an unrelated party under which the vendor agreed to provide the steam required by the Company, up to 475,000 pounds per hour. The Company agreed to pay a net energy rate for all steam provided under the contract and a monthly demand charge. The net energy rate is set for the first three
years then adjusted each year beginning on the third anniversary date.  The steam contract will remain in effect for ten years from January 1, 2009.  Expenses for the three and nine months ended June 30, 2009 were $7,961 and $1,210,394, respectively.  There were no expenses incurred for the three and nine months ended June 30, 2008.




In April, 2008 the Company entered into a Firm Throughput Service Agreement with a natural gas supplier, an unrelated party, under which the vendor agreed to provide the gas required by the Company, up to 900 Dth per day. The Company agreed to pay the maximum reservation and commodity rates as provided under the vendor’s FERC Gas
Tariff as revised from time to time, as well as other additional charges. The agreement specifies an in-service date of October 1, 2008, and the term of the agreement is seven years.  Expenses for the three and nine months ended June 30, 2009 were none and $55,000, respectively.   There were no expenses incurred for the three and six months ended June 30, 2008.




In March, 2008, the Company entered into the Unit Issuance Agreements, pursuant to which the Company agreed to pay Bunge (with Bunge’s rights subsequently assigned to Holdings) and ICM each a fee for the issuances of their respective (the original letter of credit issued by Bunge was converted to posting of the Collateral by Holdings
in March 2009) LCs equal to 6% per annum of the undrawn face amount of their respective LCs for a total annual amount of approximately $2,160,000.  For the three and nine months ended June 30, 2009, the Company recorded $552,000 and $1,656,000, respectively,for interest costs related to the Unit Issuance Agreements.  No payments have been made under these agreements as of June 30, 2009.  For the three and nine months ended
June 30, 2008, the Company capitalized $552,000 and $696,000, respectively, for interest costs related to the Unit Issuance Agreements.




In January, 2007, the Company entered into an agreement with Iowa Interstate Railroad, LTD to provide the transportation of the Company’s commodities from Council Bluffs, Iowa to an agreed upon customer location.   The agreement commences on the date that the contract is approved by the Surface Transportation Board,
then it continues for five years and will automatically renew for additional one year periods unless cancelled by either party.   The Company agreed to pay a mutually agreed upon rate per car.  Expenses for the three and nine month ended June 30, 2009 were approximately $371,452 and $455,542, respectively, and approximately $131,990 was included in accounts payable.  There were no expenses for the three and nine months ended June 30, 2008.




In August, 2008, the Company entered into an agreement with an unrelated party which establishes terms governing the Company’s purchase of natural gas.  The agreement commenced in August, 2008 and has a term of two years.  The Company has paid $2,601,377 and $3,042,377, respectively, for the three and nine months
ended June 30, 2009.  There were no expenses for the three or nine months ended June 30, 2008.









15


Southwest Iowa Southwest Iowa Renewable Energy, LLC

Notes to Unaudited Financial Statements







Note 9:                       Commitments (Continued)




The Company leases certain equipment, vehicles, and operating facilities under non-cancellable operating leases that expire on various dates through 2017.  The future minimum lease payments required under these leases are approximately $5,200,000 in 2009, $6,300,000 in 2010, $6,300,000 in 2011, $6,300,000 in 2012, and $32,500,000
thereafter.  Rent expense related to operating leases for the three and nine months ended June 30, 2009 was $1,583,117 and $2,983,117, respectively.   Rent expense related to operating leases for the three and nine months ended June 30, 2008 were $25,000 and $75,000, respectively.










16


Item 2.     Management's Discussion and Analysis or Plan 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,” “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.  Our actual results or actions may differ materially from these forward-looking
statements for many reasons, including the following factors:





·
Overcapacity in the ethanol industry;


·
Fluctuations in the price and market for ethanol and distillers grains;


·
Availability and costs of products and raw materials, particularly corn, steam and natural gas;


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


·
Technical difficulties in final commissioning of the plant;


·
Changes in the environmental regulations that apply to our plant site and operations;


·
Our ability to hire and retain key employees for the operation of the plant;


·
Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agricultural, oil or automobile industries;


·
Changes in the weather and economic conditions impacting the availability and price of corn and natural gas;


·
Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives);


·
Changes and advances in ethanol production technology, and competition from alternative fuel additives;


·
Lack of transport, storage and blending infrastructure preventing ethanol from reaching high demand markets;


·
Changes in interest rates and lending conditions; and


·
Results of our hedging strategies.





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





Overview, Status and Recent Developments





Southwest Iowa Renewable Energy, LLC (“we,” “us,” or the “Company”) is an Iowa limited liability company formed
to construct and operate a 110 million gallon per year dry mill corn-based ethanol plant near Council Bluffs, Iowa (the “Facility”).  We expect the Facility to process approximately 39.3 million bushels of corn per year into 110 million gallons of denatured fuel grade ethanol, 300,000 tons of distillers’ dry grains with soluble and 50,000 tons of wet distillers grains with soluble.  The fuel grade ethanol is
sold in markets throughout the United States and distillers grains sold in markets throughout the United States and internationally.  The Facility became operational on March 1, 2009 and we began commissioning the Facility in April, 2009.  In June 2009, Cindy Patterson voluntarily resigned her employment with us as Chief Financial Officer and she was replaced by Karen Kroymann as Controller.





Results of Operations





The following table shows the unaudited results of operations, stated as a percentage of revenue.  Because we did not begin operating the plant until mid-February 2009, we do not have comparable data for the nine months




17


ended June 30, 2008.  We do, however, have a comparison for the three months ended March 31, 2009 to the three months ended June 30, 2009.





Three Months Ended June 30, 2009 (1)
(Unaudited)

Three Months Ended March 31, 2009
(Unaudited)Amounts

% of
Revenues
Gallons(2)

Amounts

% of
Revenues

Gallons(2)Income Statement DataRevenues
$
42,512,277

100%
$
1.89

$
11,925,655

100%

$
1.75Cost of Goods Sold

43,682,895

103%

1.94


14,340,434

120%Gross Margin

(1,170,618)

(3%)

(0.05)


(2,414,779)

(20%)


(0.35)Selling, General and
Administrative Expenses

1,093,179

3%

0.05


1,299,356

11%


0.19Other (Expense)

(2,142,214)

(4%)

(0.10)


(654,030)

(5%)


(0.10)Net Loss
$
(4,406,011)

(10%)
$
(0.20)

$
(4,368,165)

(37%)

$
(0.64)




(1)
Because we did not begin operations of the plant until mid-February and we were operating at a reduced capacity of approximately 81% during this period, the losses that we incurred are not indicative of any losses or profits that we might achieve when the plant is running at full capacity(2)
Includes ethanol and distiller’s grains converted to gallons.




Revenues




Our revenue from operations is derived from two primary sources: sales of ethanol and distiller’s grains.  During the quarter ended June 30, 2009, we earned approximately 81.6% of our revenue from the sale of ethanol and 18.1% of our revenue from the sale of distiller’s grains.  We sold 10.9 million gallons
of ethanol at an average price of $1.51 a gallon and sold 82,500 tons of dried distiller’s grains at an average price of $118 a ton through June 30, 2009.




Cost of Goods Sold




Our cost of goods sold as a percentage of our revenues was 103% for the three months ended June 30, 2009.  Our two primary costs of producing ethanol and distiller’s grains are corn and energy, with steam expected to be our primary energy source and to a lesser extent, natural gas.  Corn prices remained relatively
steady during the quarter ended June 30, 2009.  Our average price of corn was approximately $3.95 per bushel and our average energy cost was $3.89 per MMbtu.  Because we did not operate at 100% capacity during the period, our fixed costs per gallon of production were higher than they are anticipated to be in the future.




Operating Expense




Our operating expenses as a percentage of revenues were 3% for the three month period ended June 30, 2009.  Operating expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs.  Our selling, general and administrative expenses for the three month period
ended June 30, 2009 were $1,093,179, as compared to $1,412,924 for the three month period ended June 30, 2008.  The decrease in selling, general, and administrative expenses from 2008 to 2009 is due to a decrease in legal expenses and the commencement of operations.  We expect our operating expenses to remain steady throughout the remainder of the 2009 fiscal year.




Other (Expense)




Our other expenses for the three month period ended June 30, 2009 were approximately 5% of our revenues.  The majority of this expense is a result of expensing interest as compared to the capitalization of our construction loan interest in our project costs in prior periods when in the development stage.




18


Net (Loss)




Our net loss from operations for the three months ended June 30, 2009 was approximately 10% of our revenues.  Our net loss for the three month period ended June 30, 2009 was primarily the result of negative margins, fixed costs and interest expense.




Liquidity and Capital Resources




We have a $126,000,000 credit agreement (as amended, the “Credit Agreement”) with AgStar Financial Services, PCA (“AgStar”), as agent for a syndicate group of lenders (the “Lenders”),
[and a $36,600,000 bridge loan (the “Bridge Loan”) with Commerce Bank, N.A. (the “Bridge Lender”).]  As part of the Bridge Loan arrangements, we entered into certain agreements with our key equity holders and operational partners, ICM, Inc. (“ICM”) and Bunge North America,
Inc. (“Bunge”).  The Bridge Loan matures on September 1, 2010, and in connection with it, we have made the following arrangements: (i) Bunge N.A. Holdings, Inc. (“Holdings”), as successor to Bunge, has pledged a money market account to secure the repayment of a portion of the Bridge Loan, (ii) ICM caused its lender to issue a letter of credit in favor
of the Bridge Lender to secure the repayment of a portion of the Bridge Loan, (iii) we entered into a Series C Unit Issuance Agreement with ICM under which, among other things, we agreed to issue Series C Units to ICM for any Bridge Loan payments made by ICM, and (iv) we entered into a Series E Unit Issuance Agreement with Bunge, now succeeded by Holdings, under which, among other things, we agreed to issue Series E Units to Holdings for any Bridge Loan payments made by Holdings (the “Series
E Agreement”).




Holdings has agreed to extend a term loan to us in the approximate principal amount of $27,500,000, which will result in the reduction of the Bridge Loan in a corresponding amount (the “Bunge Term Loan”).  The Bunge Term Loan will be convertible into
Series U Units at the option of Holdings at the price of $3,000 per Unit, and the Series E Agreement was terminated.  If not paid at maturity, the remaining balance of the Bridge Loan may be converted into Series C Units by ICM or, at ICM’s election, may be converted into a term loan with terms and conditions similar to the Bunge Term Loan.

As of June 30, 2009, we have drawn approximately $110,281,000 under our Credit Agreement, and had approximately $35,499,807 of principal and interest outstanding under the Bridge Loan.  In addition to our equity and debt financing, we have earned interest, rent, grant and other income of  approximately $22,146 and
$148,058 for the three and nine month periods ending June 30, 2009, respectively.  In addition to all other payments due under the Credit Agreement, we also agreed to pay, beginning at the end of the June 30, 2010 fiscal quarter, an amount equal to 65% of our Excess Cash Flow (as defined in the Credit Agreement), up to a total of $4,000,000 per year, and $16,000,000 over the term of the Credit Agreement.  Effective August 1, 2009, in addition to compliance with the borrowing base, we are subject
to working capital, tangible net worth, tangible owner’s equity and fixed charge coverage ratio covenants under the Credit Agreement.

As of June 30, 2009, we have approximately $6.2 million available under our construction loan.  Under our $15 million revolving line of credit, we have borrowed $5.5 million as of June 30, 2009, with an additional $2.6 million available at June 30, 2009. A letter of credit issued in favor of our steam provider, MidAmerican
Energy, in the amount of $3.3 million reduces the availability under our revolving line of credit.  We are also relying on receipt of our accounts receivable to help fund operations.

In addition, we have entered into a revolving credit note with Holdings having a two-year, providing for the extension of a maximum of $10,000,000 in revolving credit (the “Bunge Revolving Credit Note”). Holdings committed, subject to certain conditions, to advance
up to $3,750,000 at our request under the Bunge Revolving Credit Note, and amounts in excess of $3,750,000 may be advanced by Bunge in its discretion.  We are required to draw the maximum amount available under the Credit Agreement to pay any outstanding advances under the Revolving Credit Note.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.]

Because oil demand has decreased and ethanol prices have remained flat, we believe operating margins will be break-even to slightly positive over the next two to three quarters.  We anticipate margins will remain under pressure for the foreseeable future, as the current economics of ethanol force a reduction in product supply as
more independent plants are forced to close.  We believe that our earnings before interest, taxes, depreciation and amortization could be negative for the fiscal year ending September, 2009.  In addition, cash flow from operations may not allow us to make our principal payments under the Credit Agreement which are scheduled to commence March 1, 2010. In that event, we would request AgStar to delay the initial principal payment.  If our principal payments are not delayed, we will
be dependent upon our lines of credit to make these payments.  We may use our


19


line of credit to hedge corn, natural gas and ethanol.  The volatility in the commodities markets recently has resulted in wide swings in margins for ethanol production.




Primary Working Capital Needs




Cash (used in) operations for the nine month periods ended June 30, 2009 and 2008 was (14,168,044) and (1,860,658), respectively.  Cash has been used primarily to fund operational start-up expenses and for pre-operational and administrative expenses prior to commencing operations in March, 2009.  For the nine month
periods ending June 30, 2009 and 2008, net cash used in investing activities was (32,255,420) and (66,376,819), respectively, primarily related to the final construction and start-up of our plant.  For the nine month periods ending June 30, 2009 and 2008, cash provided by financing activities was $46,029,681 and $70,635,751, respectively.  This cash was generated through loan proceeds.




Through June 30, 2009, we have incurred approximately $147,559,825 for construction services under our construction contract with ICM (“ICM Contract”), leaving $550,000 of future commitment and approximately $1,250,000 of retainage, which we expect to pay in the
remainder of fiscal year 2009.  During the next quarter, we estimate that we will require approximately $33,000,000 per quarter for our primary input of corn and $4,500,000 for our energy sources of steam and natural gas.  We currently have approximately $2,600,000 available under our line of credit to hedge commodity price fluctuations; in addition, we have up to $10,000,000 in revolving credit available under the Bunge Revolving Credit Note to support our working capital needs.  We
cannot estimate the availability of funds for hedging in the future.




Trends and Uncertainties Impacting Ethanol Industry and Our Future Operations




Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distiller’s grains. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors
that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distiller’s grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn feedstock through adjustments in prices charged
for ethanol.  We continue to monitor corn and ethanol prices and their effect on our longer-term profitability.




The price of corn has been volatile during the last two years. Since December, 2008, the Chicago Mercantile Exchange (“CME”) near-month corn price has dropped $1.00 per bushel. As of July 13, 2009, the CME near-month corn price for July, 2009 was $3.12 per bushel.  We
believe the decrease in corn prices was primarily due to lower export and feeding demand plus a normalization of the speculative trend of the spring and fall 2008 markets. Increasing corn prices would negatively affect our costs of production. However, we also believe that higher corn prices may, depending on the prices of alternative crops, encourage farmers to plant more acres of corn in the coming years and possibly divert land in the Conservation Reserve Program to corn production. We believe an increase
in land devoted to corn production could reduce the price of corn to some extent in the future.




The United States Department of Agriculture (“USDA”) has increased the forecast of the amount of corn to be used for ethanol production during the current marketing year by 100 million bushels, to a total of 3.7 billion. The forecast is 674 million bushels more
than used in that category last year.  The USDA cited record ethanol use in December, 2008, continuing recovery in the production of gasoline blends with ethanol, and more favorable blender margins as reasons for the increase. In its July 10, 2009 update, the USDA also increased the projection of U.S. corn exports for the current marketing year by 40 million bushels, to 1.79 billion bushels.  This projection is 260 million bushels less than the projection of last fall, 696 million less than the
record exports of 2007-08, and represents the smallest exports in six years.




The USDA report for crop year 2008 (the period of September, 2008 through August, 2009) has projected the season-average farm price of corn at $4.00 to $4.40 per bushel.  This compares with the 2007/08 record of $4.20 per bushel.  We feel that there will continue to be volatility in the corn market.




In the past, ethanol prices have tended to track the wholesale price of gasoline. Ethanol prices can vary from state to state at any given time. For the past two years, according to ProExporter, the average U.S. ethanol price was $2.10 per gallon.  For the same time period, the average U.S. wholesale gasoline price was $2.34
per gallon.  During




20


the first six months of 2009, the average U.S. ethanol price was $1.60 per gallon. For the same time period, U.S. wholesale gasoline prices have averaged $1.66 per gallon, or approximately $.06 per gallon above ethanol prices.




The Renewable Fuels Standard




The Energy Improvement & Extension Act of 2008 (the “2008 Act”) included cellulosic ethanol supports applicable to corn-based ethanol and bolsters those
contained in the Energy Independence and Security Act of 2007.  Theses supports have impacted the ethanol industry by enhancing both the production and use of ethanol.  The 2008 Act modified the provisions of the Energy Policy Act of 2005 that created a renewable fuels standard, known as the RFS.  The RFS is a national program that imposes requirements with respect to the amount of renewable fuel which is produced and used in the United States.  The RFS applies to refineries,
blenders, distributors and importers, but does not restrict the geographic areas in which renewable fuels may be used.  This should allow refiners, blenders, distributors and importers to use renewable fuel blends in those areas where it is most cost effective.  The RFS requires that 10.5 billion gallons of corn-based ethanol be sold or dispensed in 2009, increasing to 15 billion gallons by 2022.  We believe the RFS program increases the market for renewable fuels, such as ethanol,
as a substitute for petroleum-based fuels.  We cannot assure that this program’s mandates will continue in the future.  We believe that any reversal in federal policy could have a profound impact on the ethanol industry.




Market Risks




We are exposed to market risk from changes in commodity prices and, to the extent we have working capital available, we engage in hedging transactions which involve risks that could harm our business.  Exposure to commodity price risk results from our dependence on corn, and to the extent our steam source is not available, natural
gas, in the ethanol production process.  We seek to minimize the risks from fluctuations in the price of corn through the use of hedging instruments when working capital is available.  The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell sufficient products to use all of the commodities for which we have futures contracts. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may
leave us vulnerable to high prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which corn prices increase. We do not designate these contracts as hedges for accounting purposes




In the event we do not have sufficient working capital to enter into hedging strategies to manage our risks, we may be forced to purchase our corn and market our ethanol at spot prices and as a result, we could be further exposed to market volatility and risk.




We expect the annual impact on our results of operations due to a $1.00 per bushel fluctuation in market prices for corn to be approximately $28,500,000, or $0.26 per gallon, assuming our plant operated at 100% name plate capacity (production of 110,000,000 gallons of ethanol annually). This assumes no increase in the price of ethanol
and assumes a relative increase in the price of distiller’s grains.




We have a significant amount of debt, and our existing debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that limit distributions and impose restrictions on the operation of our business.The use
of debt financing makes it more difficult for us to operate because we must make principal and interest payments on the indebtedness and abide by covenants contained in our debt financing agreements. The level of our debt may have important implications on our operations, including, among other things: (i) limiting our ability to obtain additional debt or equity financing; (ii) making us vulnerable to increases in prevailing interest rates; (iii) placing us at a competitive disadvantage because
we may be substantially more leveraged than some of our competitors; (iv) subjecting all or substantially all of our assets to liens, which means that there may be no assets left for members in the event of a liquidation; and (v) limiting our ability to make business and operational decisions regarding our business, including, among other things, limiting our ability to pay dividends to our unit holders, make capital improvements, sell or purchase assets or engage in transactions we deem to be appropriate
and in our best interest.




Competition




We believe that the competition in the ethanol market may increase in the near term as the ethanol plants recently sold by VeraSun Energy Corporation as part of its bankruptcy proceedings return to production.  The Valero Energy Corporation recently purchased seven of these idle plants.  In
addition, AgStar purchased six of the plants in a recent auction and is actively pursuing the sale of the remaining plants that it has not already sold.  As




21


these plants come on line, we believe that ethanol prices will remain low through the end of 2009.   In addition, several of our competitors including certain subsidiaries of Pacific Ethanol, Inc. and Aventine Renewable Energy Holdings, Inc. have filed to reorganize under federal bankruptcy laws as a result of margin pressure,
inadequate liquidity and other considerations.




Summary of Critical Accounting Policies and Estimates




Note 1 to our unaudited condensed financial statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions.  Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment.  We
used our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the carrying value of our assets and liabilities.  We believe that of our significant accounting policies, the following are noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations.




Revenue Recognition




We sell ethanol and related products pursuant to marketing agreements.   Revenues are recognized when the marketing company (the “customer”) has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.   Our products are generally shipped FOB loading
point.   Until August 18, 2009, ethanol sales will be handled through the marketing agreement with Lansing Ethanol Services; with the conclusion of Lansing Ethanol Services agreement, ethanol sales will be handled through a marketing agreement with Bunge.  Syrup, distiller’s grains and solubles, and modified wet distiller’s grains with solubles will be sold through the marketing agreement with Bunge, which sets the price based on the market price to third parties.  Marketing
fees and commissions due to the marketers are paid separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of revenues.  Shipping and handling costs incurred by us for the sale of ethanol and co-products are included in cost of revenues.




Derivative Financial Instruments




When we have sufficient working capital available, we enter into derivative contracts to hedge our exposure to price risk related to forecasted corn needs and forward corn purchase contracts.  We use cash, futures and options contracts to hedge changes to the commodity prices of corn and ethanol.  All the derivative
contracts are recognized on the balance sheet at their fair value.  We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes, pursuant to the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and
Hedging Activities.”  Accordingly, any realized or unrealized gain or loss related to these derivative instruments was recorded in the statement of operations as a component of non-operating income expense until the plant was operational.  The gains or losses are included in revenue if the contracts relate to ethanol and cost of revenue if the contracts relate to corn. During the nine months ended June 30, 2009, we recorded a combined realized and unrealized gain of $3,682,437
as a component of cost of goods sold and a ($59,262) loss as a component of revenue. For the three months ended June 30, 2009, we recorded a combined realized and unrealized gain of $2,158,013 as a component of cost of goods sold and a ($136,688) loss as a component of revenue.   In addition, we recorded a combined realized and unrealized loss of ($656,973) for the nine months ended June 30, 2009 as a component of non-operating income.  There were no realized or unrealized gains or losses
during the three or nine months ended June 30, 2008.  The derivative financial instruments asset of $1,761,614 consists of 3,170,000 bushels of corn and 580,000 gallons of ethanol at June 30, 2009.




Inventory




Inventory is stated at the lower of cost or market value using the first-in, first-out method.  Market value is based on current replacement values, except that it does not exceed net realizable values and it is not less than the net realizable values reduced by an allowance for normal profit margin.




Property and Equipment




Property and equipment are carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:




Buildings
40 YearsProcess Equipment
10 YearsOffice Equipment
3-7 Years


Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized.




22


Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.   An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group.  An
impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.  In accordance with our policies, management has evaluated the plants for possible impairment based on projected future cash flows from operations.  Management has determined that its projected future cash flows from operations exceed the carrying value of the plant and that no impairment existed at June 30, 2009.




New Accounting Pronouncements




In April 2009, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 107−1 and APB 28−1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP
FAS 107−1 and APB 28−1”).  FSP FAS 107−1 and APB 28−1 require disclosures about fair value of financial instruments in interim and annual financial statements.  FSP FAS 107−1 and APB 28−1 is effective for periods ending after June 15, 2009.  We adopted FSP FAS 107−1 and APB 28−1 effective for the quarter ending June 30, 2009.  The adoption did not have an impact on our financial position or results of operations.




In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards CodificationTMand the Hierarchy of
Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.”Under the Statement, The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.
 This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  In the FASB’s view, the issuance of this Statement and the Codification will not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition,” paragraphs 38–76.  We do not expect that the adoption of
this Statement will have a material impact on our consolidated financial statements.




In May 2009, the FASB issued SFAS No. 165, “Subsequent Events: (“SFAS No. 165”). This standard is intended to establish general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures
that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS No. 165 is effective for fiscal years and interim periods ended after June 15, 2009.  We adopted this standard effective June 15, 2009 and have evaluated any subsequent events through the date of this filing.  We do not believe there are any material subsequent events other than those disclosed which would require further disclosure.




Off-Balance Sheet Arrangements




Our off-balance sheet arrangements consist of operating leases.  We lease certain equipment, vehicles, and operating facilities under non-cancellable operating leases that expire on various dates through 2017.  The future minimum lease payments required under these leases are approximately $5,200,000 in 2009, $6,300,000
in 2010, $6,300,000 in 2011, $6,300,000 in 2012, and $32,500,000 thereafter.  Rent expense related to operating leases for the three and nine months ended June 30, 2009 was $1,583,117 and $2,983,117, respectively.   Rent expense related to operating leases for the three and nine months ended June 30, 2008 were $25,000 and $75,000, respectively.




Relationships and Related Party Transactions
 
 On November 1, 2006, in consideration of its agreement to invest $20,004,000 in the Company, Bunge purchased the only Series B Units of the Company under an arrangement whereby the Company would (i) enter into
 
 23
 
 various agreements with Bunge or its affiliates discussed below for management, marketing and other services to the Company, and (ii) have the right to elect a number of Series B Directors which are proportionate to the number of Series B Units owned by Bunge, as compared to all Units.  Under the Company’s Operating Agreement,
the Company may not, without Bunge’s approval (i) issue additional Series B Units, (ii) create any additional Series of Units with rights which are superior to the Series B Units, (iii) modify the Operating Agreement to adversely impact the rights of Series B Unit holders, (iv) change the Company’s status from one which is managed by managers, or change back to manager management in the event the status is changed to member management, (v) repurchase or redeem any Series B Units, (vi) cause the Company
to take any action which would cause a bankruptcy, or (vii) approve a transfer of Units allowing the transferee to hold more than 17% of the Company’s Units or to a transferee which is a direct competitor of Bunge.
 
 Under the Series E Agreement, if Bunge makes a Bridge Loan Payment, the Company will immediately issue Series E Units to Bunge based on a Unit price that is equal to the lesser of $3,000 or one half (1/2) of the lowest purchase price paid by any party for a Unit who acquired (or who has entered into any agreement, instrument or document
to acquire) such Unit as part of any offering of Units after the date of the Series E Agreement but prior to the date of any Bridge Loan Payment made by Bunge.  The Series E Agreement further provides that Bunge will have the right to purchase its pro rata share of any Units issued by the Company at any time after the date of the Series E Agreement.  Bunge has indicated it plans to purchase units sufficient to maintain ownership at its current percentage of outstanding units.
 
 To the extent that the Company issues Series E Units to Bunge pursuant to the Series E Agreement, the Company’s Operating Agreement provides (i) that Bunge, as a Series E Member, is entitled to elect one additional director (to the extent that Bunge owns between 21% and 29% of the total Units issued and outstanding) two additional
directors (to the extent that Bunge owns between 30% and 39% of the total Units issued and outstanding) or three additional directors (to the extent that Bunge owns 40% or more of the total Units issued and outstanding); and (ii) that the Company may not, without Bunge’s approval (a) issue additional Series E Units, (b) create any additional Series of Units with rights which are superior to the Series E Units, (c) modify the Operating Agreement to adversely impact the rights of Series E Unit holders, (d)
change the Company’s status from one which is managed by managers, or vice versa, (e) repurchase or redeem any Series E Units, (f) cause the Company to take any action which would cause a bankruptcy, or (g) approve a transfer of Units allowing the transferee to hold more than 15% of the Company’s Units or to a transferee which is a direct competitor of Bunge.
  Holdings has agreed to extend the Bunge Term Loan to the Company, due in five years, repayment of which is subordinated to the Credit Agreement.  Extension of the Bunge Term Loan, in the approximate principal amount of $27,500,000, will result in reduction of the Bridge Loan in a corresponding amount.  The Bunge Term
Loan is convertible into Series U Units, at the option of Holdings, at the price of $3,000 per Unit.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  Principal and interest may be paid only after payment in full under the Credit Agreement.
  In addition, the Company entered into the Bunge Revolving Credit Note with Bunge, with a two-year maturity, providing for the extension of a maximum of $10,000,000 in revolving credit.  Bunge has a commitment subject to certain conditions, to advance up to $3,750,000 at the Company's request under the Bunge Revolving Credit Note;
amounts in excess of $3,750,000 may be advanced by Holdings in its discretion.  The Company is required to draw the maximum amount available under the Credit Agreement to pay any outstanding advances under the Revolving Credit Note.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  While repayment of the Bunge Revolving Credit Note is subordinated to the Credit Agreement, the Company may make payments on the Bunge Revolving Credit Note so long as the Company
is in compliance with its borrowing base covenant and there is not a payment default under the Credit Agreement.
 The Company and Bunge entered into the DG Agreement on October 13, 2006.  The DG Agreement provides that Bunge will purchase all of the Distillers Grains produced by us over a term of 10 years, beginning when we commence production of Distillers Grains, with automatic renewals for three-year terms unless a party provides six
months’ notice.  Bunge will pay us for the Distillers Grains, but retain amounts for transportation costs, rail lease charges and marketing fees.  We have agreed to pay a minimum annual marketing fee to Bunge in the amount of $150,000.  After the third year of the DG Agreement, the parties may make adjustments to the prices.
   24
 
 The Company and Bunge entered into an Agreement on October 13, 2006 respecting the use of Bunge’s grain elevator in Council Bluffs, Iowa (the “Elevator Agreement”).  The Elevator Agreement does not require the payment by the Company of any moneys
and otherwise did not involve the payment of any consideration by either party; rather, it imposes restrictions on the use and possible disposition by Bunge of its grain elevator located in Council Bluffs, Iowa, including a right of first refusal in favor of the Company.  The parties entered into the Elevator Agreement as part of their overall arrangement under which Bunge initially agreed to invest in the Company.
 
 On December 15, 2008, the Company and Bunge entered into a Lease Agreement (the “Lease”) respecting Bunge's grain elevator in Council Bluffs.  Under the Lease, the Company has leased from Bunge the grain elevator, for approximately $800,000 per year.  The
Lease provides customary terms and has an initial one-year term, which will be renewed for successive one-year terms upon the parties’ agreement to so extend the term.
 
 The Company and a company in which Bunge holds a membership interest, AGRI-Bunge, LLC, (“AB”) entered into the Agency Agreement on October 13, 2006, as amended December 15, 2008.  Under the Agency Agreement, we agreed to pay an agency fee to AB for corn
delivered, subject to an annual minimum fee of $225,000, for AB’s service of procuring all grain requirements for our plant.  The Agency Agreement will commence when we first require corn, presently projected to be in the fourth quarter of 2008, and will then continue for 10 years with automatic renewals for three year periods unless a party provides notice to not renew within six months of the then-current
term.  After three years from the commencement of the Agency Agreement, the annual minimum payment may be adjusted.
 
 The Company and AB entered into the Supply Agreement on December 15, 2008.  Under the Supply Agreement, AB has agreed to provide us with all of the corn we need to operate our ethanol plant, and we have agreed to only purchase corn from AB.  AB will provide grain originators who will work at the Facility for purposes
of fulfilling its obligations under the Supply Agreement.  The Company will pay AB a per-bushel fee for corn procured by AB for the Company under the Supply Agreement, subject to a minimum annual fee of $675,000 and adjustments according to specified indexes after three years.  The term of the Supply Agreement is ten years, subject to earlier termination upon specified events.  The Supply Agreement suspends the operation of the Agency Agreement.  In the event we obtain
a grain dealer’s license, subject to certain procedures specified in the Supply Agreement, then the operation of the Supply Agreement will terminate and the Agency Agreement will be reinstated.
 
 As of June 30, 2009, the Company has several corn cash contracts with AB, amounting to approximately 4,307,663 bushels, for a commitment of $17,049,255 and several basis contracts representing approximately 3,170,000 bushels of corn.  The contracts mature on various dates through December, 2010.
 On January 30, 2008, the Company and Bunge entered into a Support Services Agreement (the “Services Agreement”), under which Bunge agreed to provide engineering support on the project, provide reports to Lender and assist the Company with requests by the Agent.  The
Company will pay, in addition to Bunge’s out of pocket expenses, an hourly fee of $95 for such services.  The Services Agreement terminates upon the earlier of completion of the ethanol plant or December 31, 2008.  Bunge may terminate the Services Agreement at any time, and the Company may terminate under specified circumstances.
 
 On June 25, 2007, we entered into the Railcar Agreement with Bunge for the sub-lease of 320 ethanol cars and 300 DDGS cars which will be used in the delivery and marketing of ethanol and DDGS.  We will be responsible for all maintenance and mileage charges as well as the monthly lease expense and certain railcar modification
expenses.  Under the Railcar Agreement, we will lease railcars for terms lasting 120 months and continuing on a month to month basis thereafter.  The Railcar Agreement will terminate upon the expiration of all railcar leases.
 
 On December 15, 2008, the Company and Bunge entered into the Ethanol Agreement, under which the Company has agreed to sell Bunge all of the ethanol produced at the Plant, and Bunge has agreed to purchase the same, up to the Plant’s nameplate capacity of 110,000,000 gallons a year.  The Company will pay Bunge a per-gallon
fee for ethanol sold by Bunge for the Company under the Ethanol Agreement, subject to a minimum annual fee of $750,000 and adjustments according to specified indexes after three years.  The initial term of the Ethanol Agreement, which will commence upon the termination of that Ethanol Merchandising Agreement between the
 
 
 25
 
 Company and Lansing Ethanol Services, LLC, is three years and it will automatically renew for successive three-year terms unless one party provides the other notice of their election to terminate 180 days prior to the end of the term.
 
 On December 15, 2008, the Company and Bunge entered into a Risk Management Services Agreement (“Risk Management Agreement”).  Under the Risk Management Agreement, Bunge has agreed to provide the Company with assistance in managing its commodity price
risks for a quarterly fee of $75,000.  The Risk Management Agreement has an initial term of three years and will automatically renew for successive three year terms, unless one party provides the other notice of their election to terminate 180 days prior to the end of the term.
 
 On November 1, 2006, in consideration of its agreement to invest $6,000,000 in the Company, ICM became the sole Series C Member of the Company.  As part of ICM’s agreement to invest in the Company’s Series C Units, the Company’s Operating Agreement provides that it will not, without ICM’s approval (i) issue
additional Series C Units, (ii) create any additional Series of Units with rights senior to the Series C Units, (iii) modify the Operating Agreement to adversely impact the rights of Series C Unit holders, or (iv) repurchase or redeem any Series C Units.  Additionally, ICM, as the sole Series C Unit owner, is afforded the right to elect one Series C Director to the Board so long as ICM remains a Series C Member.  Greg Krissek was elected as the Series C Director by ICM on November 1, 2006.  The
Company and ICM agreed to modify the Series C Unit Issuance Agreement to provide ICM the option to convert any amount due under the Bridge Loan which ICM is required to pay into subordinated debt, on the same terms and conditions as the Bunge Term Loan.

In March, 2009, the Company entered into an agreement with Bunge to provide an interim President / CEO.  The agreement provides for reimbursement in the annual amount of $150,000 plus monthly expenses.   Expenses for the three and nine months ended June 30, 2009 were approximately $41,625 and $45,425, respectively,
and $13,875 is included in accrued expenses.  There were no expenses incurred for the three and nine months ended June 30, 2008.
 On June 26, 2009, the Company executed an Amended and Restated Railcar Lease Agreement (“Railcar Agreement”) with Bunge for the lease of 325 ethanol cars and 300 hopper cars which will be used for the delivery and marketing of the Company’s ethanol
and distiller’s dried grains with solubles (“DDGS”). The Company will be responsible for all maintenance and mileage charges as well as the monthly lease expense and certain railcar modification expenses.  Under the Railcar Agreement, the Company will lease railcars for terms lasting 120 months and continuing on a month to month basis thereafter. The Railcar Agreement will terminate upon the expiration of all railcar
leases.  The Railcar Agreement reflects changes as a result of Bunge’s purchase and sale/leaseback of railcars from a new railcar equipment lessor other than contemplated in the 2007 Railcar Sublease Agreement (the “Railcar Sublease Agreement”) between the Company and Bunge.   The Railcar Agreement provides that the Company is a lessee rather than a sublessee as under the Railcar Sublease Agreement and
that Bunge is the lessor rather than the lessee as under the Railcar Sublease Agreement.
 
 The Company does not presently have any policies finalized and adopted by the Board governing the review or approval of related party transactions.




Item 4(T).  Controls and Procedures.




Our management, including our President (our principal executive officer), James Lay, along with our Controller (principal financial officer), Karen Kroymann, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rule 15d-15 under the under the Securities Exchange Act of 1934), as of June 30, 2009.  Based upon this review and evaluation, these officers believe that our disclosure controls and procedures are presently effective in ensuring that material information related to us is recorded, processed, summarized and reported for the quarterly period ending June 30, 2009.




Changes in Internal Control Over Financial Reporting




Our management has evaluated, with the participation of our President, any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this Quarterly Report on Form 10-Q. There was no change in our internal control
over financial reporting identified in that evaluation that occurred during the fiscal period covered by this








26





Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




PART II





Item 1.  Legal Proceedings.





None.





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





None.





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.




3(i)
Articles of Organization, as filed with the Iowa Secretary of State on March 28, 2005 (incorporated by reference to Exhibit 3(i) of Registration Statement on Form 10 filed by Registrant on January 28, 2008).


3(ii)
Second Amended and Restated Operating Agreement dated March 7, 2008 (incorporated by reference to Exhibit 4(i) of Amendment No. 1 to Registration Statement on Form 10 filed by Registrant on March 21, 2008).


10.1
Amended and Restated Railcar Sublease Agreement with Bunge North America, Inc. dated March 25, 2009 (portions of this agreement have been omitted pursuant to a request for confidential treatment).








31.1
Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.


31.2
Rule 15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.


32.1
Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.


32.2
Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.





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SIGNATURES





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




SOUTHWEST IOWA RENEWABLE ENERGY, LLCDate:  August 14, 2009
By:
/s/ James LayJames LayInterim President and Chief Executive Officer


Date:  August 14, 2009
By:
/s/ Karen KroymannKaren KroymannController and Principal Financial Officer








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