##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarter ended September 30, 2006

OR
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act.
 For the transition period from ___to ___
 Commission file number 000-51965
 WESTERN IOWA ENERGY, LLC
  Iowa
    
    41-2143913(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 1220 S. CENTER STREET, P.O. BOX 399
WALL LAKE, IOWA 51466
 (712) 664-2173
 þ o
 o þ
   o þ




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##### 



INDEX
 Page No.PART I.FINANCIAL INFORMATION
    
    
    3Item 1.Financial Statements
    
    
    3Item 2.Managements Discussion and Analysis or Plan of Operations
    
    
    17Item 3.Controls And Procedures
    
    
    26PART II.OTHER INFORMATION
    
    
    26Item 1.Legal Proceedings
    
    
    26Item 1A.Risk Factors
    
    
    26Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.Defaults Upon Senior Securities
    
    
    27Item 4.Submission of Matters to Security Holders
    
    
    27Item 5.Other Information
    
    
    28Item 6.Exhibits
    
    
    28SIGNATURES
    
    
    29
 2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WESTERN
IOWA ENERGY, LLC
 BALANCE
SHEET
September 30, 2006
 ASSETS
 CURRENT ASSETSCash and cash equivalents
    
    $
    1,463,277Margin deposits
    
    
    256,260Trade accounts receivable - related party
    
    
    4,256,063Incentive receivable
    
    
    1,183,042Inventory
    
    
    4,170,430Derivative instruments
    
    
    918,080Prepaid expenses
    
    
    35,184Total current assets
    
    
    12,282,336PROPERTY, PLANT AND EQUIPMENTLand and land improvements
    
    
    1,299,384Office building and equipment
    
    
    641,799Plant and process equipment
    
    
    21,804,727Construction in progress
    
    
    11,144,293Total, at cost
    
    
    34,890,203Less accumulated depreciation
    
    
    624,096Total property, plant and equipment
    
    
    34,266,107OTHER ASSETSLand options
    
    
    596Other investments
    
    
    2,000Loan origination fees, net of accumulated amortization of $9,728
    
    
    128,167Total other assets
    
    
    130,763TOTAL ASSETS
    
    $
    46,679,206
 3




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##### 



LIABILITIES AND MEMBERS EQUITY
 CURRENT LIABILITIESAccounts payable:Trade
    
    $
    2,578,670Related party
    
    
    156,763Construction - related party
    
    
    1,243,229Current portion of long-term debt
    
    
    3,149,373Accrued interest
    
    
    120,628Accrued wages
    
    
    30,535Accrued payroll taxes
    
    
    24,472Accrued expenses - related party
    
    
    232,340Total current liabilities
    
    
    7,536,010LONG-TERM LIABILITIESLong-term debt, less current portion above
    
    
    12,341,155Total liabilities
    
    
    19,877,165MEMBERS EQUITYContributed capital
    
    
    23,016,376Retained earnings
    
    
    3,785,665Total members equity
    
    
    26,802,041TOTAL LIABILITIES AND MEMBERS EQUITY
    
    $
    46,679,206
 
 4




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##### 



WESTERN
IOWA ENERGY, LLC
 STATEMENTS OF OPERATIONS
 Three Months
    
    
    Nine Months
    
    
    Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30, 2006
    
    
    September 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2005REVENUESRelated parties
    
    $
    14,378,525
    
    
    $
    14,867,487
    
    
    $
    
    
    
    $
    Incentive funds
    
    
    3,629,710
    
    
    
    3,774,333
    
    
    
    
    
    
    
    18,008,235
    
    
    
    18,641,820
    
    
    
    
    
    
    
    COST OF SALES
    
    
    13,227,358
    
    
    
    13,718,939
    
    
    
    
    
    
    
    Gross profit
    
    
    4,780,877
    
    
    
    4,922,881
    
    
    
    
    
    
    
    OPERATING EXPENSESOrganization costs
    
    
    
    
    
    
    
    
    
    
    87,961
    
    
    
    130,494Consulting and professional fees
    
    
    114,567
    
    
    
    204,270
    
    
    
    13,515
    
    
    
    48,789Office and administrative expenses
    
    
    602,373
    
    
    
    843,180
    
    
    
    19,246
    
    
    
    72,276Total operating expenses
    
    
    716,940
    
    
    
    1,047,450
    
    
    
    120,722
    
    
    
    251,559OTHER INCOME (EXPENSE)Interest and dividend income
    
    
    5,497
    
    
    
    44,997
    
    
    
    133,745
    
    
    
    226,492Interest expense
    
    
    (117,345
    )
    
    
    (117,530
    )
    
    
    (171
    )
    
    
    (493
    )Gain on sale of asset
    
    
    
    
    
    
    2,800
    
    
    
    
    
    
    
    Other income (expense)
    
    
    
    
    
    
    15,300
    
    
    
    (4,725
    )
    
    
    5,000Total other income
    
    
    (111,848
    )
    
    
    (54,433
    )
    
    
    128,849
    
    
    
    230,999NET INCOME (LOSS)
    
    $
    3,952,089
    
    
    $
    3,820,998
    
    
    $
    8,127
    
    
    $
    (20,560
    )BASIC AND DILUTED EARNINGS (LOSS) PER UNIT
    
    $
    152.89
    
    
    $
    149.36
    
    
    $
    0.32
    
    
    $
    (1.71)WEIGHTED AVERAGE UNITS
OUTSTANDING, BASIC
AND DILUTED
    
    
    25,849
    
    
    
    25,583
    
    
    
    25,447
    
    
    
    12,021
 
 5




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##### 



WESTERN
IOWA ENERGY, LLC
 STATEMENTS
OF CASH FLOWS
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2006
    
    
    September 30, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    3,820,998
    
    
    $
    (20,560)Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activitiesDepreciation and amortization
    
    
    634,692
    
    
    
    7,731Gain on sale of asset
    
    
    (2,800
    )
    
    
    Member units issued for services included in startup expenses
    
    
    
    
    
    
    38,000Effects of changes in operating assets and liabilitiesMargin deposits
    
    
    (256,260
    )
    
    
    Trade accounts receivable - related party
    
    
    (4,256,063
    )
    
    
    Incentive receivable
    
    
    (1,183,042
    )
    
    
    Inventory
    
    
    (4,170,430
    )
    
    
    Derivative instruments
    
    
    (918,080
    )
    
    
    Prepaid expenses
    
    
    (35,184
    )
    
    
    1,737Accounts payable
    
    
    2,735,171
    
    
    
    25Accrued interest
    
    
    120,628
    
    
    
    Accrued wages
    
    
    30,535
    
    
    
    Accrued payroll taxes
    
    
    23,433
    
    
    
    693Accrued expenses - related party
    
    
    232,340
    
    
    
    Net cash provided by (used in) operating activities
    
    
    (3,224,062
    )
    
    
    27,626CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    
    (15,750,402
    )
    
    
    (9,282,615
    )Proceeds from sale of asset
    
    
    33,600
    
    
    
    Purchase of land options
    
    
    
    
    
    
    (1,000
    )Purchase of capital stock of lenders
    
    
    
    
    
    
    (2,000
    )Net cash used in investing activities
    
    
    (15,716,802
    )
    
    
    (9,285,615
    )CASH FLOWS FROM FINANCING ACTIVITIESLoan origination fees
    
    
    (2,307
    )
    
    
    (135,589
    )Cost of raising capital
    
    
    
    
    
    
    (189,162
    )Proceeds from long-term debt
    
    
    16,990,528
    
    
    
    28,105Payments on long-term debt
    
    
    (1,519,775
    )
    
    
    (6,036
    )Capital contributions
    
    
    
    
    
    
    21,749,950Net cash provided by financing activities
    
    
    15,468,446
    
    
    
    21,447,268NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (3,472,418
    )
    
    
    12,189,279CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    4,935,695
    
    
    
    660,390CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,463,277
    
    
    $
    12,849,669
 
 6




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##### 





WESTERN IOWA ENERGY, LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
September 30, 2006




USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS




BASIS OF ACCOUNTING








REVENUE RECOGNITION




CASH AND CASH EQUIVALENTS




ACCOUNTS RECEIVABLE






DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES


7




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##### 





WESTERN IOWA ENERGY, LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
September 30, 2006












PROPERTY, PLANT, AND EQUIPMENT






YearsLand improvements
    
    
    20-40Office building
    
    
    5-40Office equipment
    
    
    5-20Plant and process equipment
    
    
    10-40






8




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##### 



WESTERN IOWA ENERGY, LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
September 30, 2006
  LOAN ORIGINATION FEES
  OTHER INVESTMENTS
  OTHER INCOME
  INCOME TAXES
  EARNINGS PER UNIT
  COST OF SALES
  SHIPPING AND HANDLING COSTS
  9




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##### 



WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 1  INCENTIVE PAYMENTS AND RECEIVABLE
   NOTE 2  INVENTORY
   Raw material
    
    $
    1,286,724Work in progress
    
    
    1,186,740Finished goods
    
    
    1,696,966Total
    
    $
    4,170,430
 NOTE 3    LAND OPTION
  NOTE 4    LONG-TERM DEBT AND FINANCING
  Notes payable to Farm Credit Services of America and CoBank  see details below.
    
    $
    14,350,528Note payable to the Iowa Department of Economic Development  see details below.
    
    
    400,000Note payable to Glidden Rural Electric Cooperative  see details below.
    
    
    740,000Total
    
    
    15,490,528Less current portion
    
    
    3,149,373Long-term portion
    
    $
    12,341,155
 10




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##### 



WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 4  LONG-TERM DEBT AND FINANCING
  2007
    
    $
    3,149,3732008
    
    
    1,912,2222009
    
    
    1,926,6782010
    
    
    1,930,0892011
    
    
    1,625,351Thereafter
    
    
    4,946,815Total
    
    $
    15,490,528
    11




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##### 



WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 4  LONG-TERM DEBT AND FINANCING
  NOTE 5  MEMBERS EQUITY
      NOTE 6  CONCENTRATION OF CREDIT RISK
  12




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##### 



WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 7  CASH FLOW DISCLOSURES
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Cash paid for interest, net of capitalized interest of
$507,016 for the nine months ended September 30, 2006
    
    $
    
    
    
    $
    493
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2005Units issued for land purchase
    
    $
    
    
    
    $
    76,950Units issued for services included in costs of capital
    
    $
    
    
    
    $
    8,550Units issued in exchange for reduction in construction payable
    
    $
    500,000
    
    
    $
    Construction in progress in accounts payable
    
    $
    1,243,229
    
    
    $
    536,277
 NOTE 8  RELATED PARTY TRANSACTIONS
     13




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WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 9  COMMITMENTS AND CONTINGENCIES
    
    
    $14,000 per month in pre-production fees for the General Manager and $11,000 for the
Operations Manager beginning three months prior to the estimated start up date for
production and ceasing after payment of the fees for the month in which product is produced
for sale.
    
    Management fees equal to one and one-third cents per gallon of biodiesel produced.
    
    Feed stock procurement fees equal to one-tenth of a cent per pound of feed stock
procured for production.
    
    Chemical input procurement fee equal to one-fifth of a cent per gallon of biodiesel produced.
    
    Biodiesel marketing fees equal to one cent per each gallon of biodiesel sold.
    
    Glycerin and fatty acids fee equal to one-fifth cent per gallon of biodiesel sold.
    
    A yearly net income bonus equal to six percent of the Companys adjusted net
income. Adjusted net income is defined as the Companys net income for the fiscal year
before any deduction or allowance for income taxes, determined in accordance with generally
accepted accounting principles. Net income is also adjusted to exclude the following: the
receipt of government payments under bioenergy and related programs, gains or losses
realized on the sale or disposition of capital assets and any reduction for the income
bonus paid or accrued to REG, Inc. as part of the agreement. The cost of soybean oil
purchased during the year and used in the production of bio-diesel is a component in
calculating net income. The fluctuation between the market price and the contract price
prior to delivery of soybean oil on a contract does not affect the calculation of the
income bonus to REG, Inc.
  14




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##### 



WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
 NOTE 10  LEASE COMMITMENTS
  2007
    
    $
    35,6272008
    
    
    35,6272009
    
    
    35,6272010
    
    
    35,6272011
    
    
    26,720Total
    
    $
    169,228
  NOTE 11  RETIREMENT AND SAVINGS PLAN
  NOTE 12  FAIR VALUE OF FINANCIAL INSTRUMENTS
  15




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Item 2. Managements Discussion and Analysis or Plan of Operations
 Forward Looking Statements
  
    
    Competition with other manufacturers in the biodiesel industry;
    
    Overcapacity within the biodiesel industry;
    
    Decrease in the demand for biodiesel;
    
    Actual biodiesel and glycerin production varying from expectations;
    
    Availability and cost of products and raw materials, particularly soybean oil;
    
    Changes in the price and market for biodiesel and its co-products;
    
    Our ability to market and our reliance on third parties to market our products;
    
    Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement
practices such as:
 -
    national, state or local energy policy;-
    federal biodiesel tax incentives;-
    legislation establishing a renewable fuel standard or other legislation mandating the use
of biodiesel; or-
    environmental laws and regulations that apply to our plant operations and their
enforcement;
 
    
    Total U.S. consumption of diesel fuel;
    
    Fluctuations in petroleum prices;
    
    Changes in plant production capacity or technical difficulties in operating the plant;
    
    Changes in our business strategy, capital improvements or development plans;
    
    Results of our hedging strategies;
    
    Changes in interest rates or the availability of credit;
    
    Our ability to generate free cash flow to invest in our business and service our debt;
    
    Our liability resulting from litigation;
    
    Our ability to retain key employees and maintain labor relations;
    
    Changes and advances in biodiesel production technology;
 16




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##### 




    
    Competition from alternative fuels and alternative fuel additives; and
    
    Other factors described elsewhere in this report.
  Overview
       Plan of Operations for the Next 12 Months
  17




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##### 



Plant Operations
   
    
    General Manager and Operations Manager Pre-Production Fee. $14,000 per month
for the General Managers services and $11,000 per month for the Operations Managers
services during pre-production. West Central did not provide us with an Operations
Manager during pre-production and we paid no fees for an Operations Manager during
pre-production.
    
    General Manager and Operations Manager. We will pay $0.0133 per gallon of
biodiesel produced per month from the plant during the month for which the fee is
computed.
    
    Feedstocks Procurement Fee. We will pay 1/10 of $0.01 per pound of feedstock
procured payable monthly.
    
    Chemical Procurement Fee. We will pay 1/5 of $0.01 per gallon of biodiesel produced payable monthly.
    
    Biodiesel Marketing Fees. We will pay $0.01 for each gallon of biodiesel marketed.
    
    Glycerin and Fatty Acids Marketing Fee. We will pay 1/5 of $0.01 for each
gallon of biodiesel marketed as a glycerin and fatty acids marketing fee.
    
    Net Income Bonus. We will pay a yearly income bonus equal to 6% of our net
income as defined in the agreement.
  18




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##### 



Completion of Construction
   Procurement of Inputs and Marketing of Finished Product
  Feedstocks Procurement
 19




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##### 




    
    Provide analysis and audit of feedstock suppliers;
    
    Purchase feedstocks at competitive prices meeting specifications and in adequate
quantities to fill the production schedule of our plant;
    
    Review on a monthly basis the average prices we pay for feedstocks, including
comparisons to industry averages;
    
    Provide us with the specifications for feedstocks being required of suppliers;
    
    Negotiate for discounts where obtainable on feedstocks;
    
    Arrange for transportation, logistics, and scheduling of feedstock deliveries; and
    
    Provide analysis and audit of bulk transportation providers.
 Chemical Inputs Procurement
 
    
    Perform due diligence requirements for investigation of suppliers of the chemical inputs;
    
    Provide analysis and audit of chemical suppliers;
    
    Provide us with the specifications for chemical inputs being required of suppliers;
    
    Purchase chemical inputs at competitive prices meeting specifications for use in our plant;
    
    Review on a monthly basis the average prices we paid for chemical inputs,
including comparisons to industry averages;
    
    Negotiate for discounts where obtainable on chemicals;
    
    Procure adequate chemical inputs to meet our production schedules;
    
    Provide analysis and audit of bulk transportation suppliers; and
    
    Arrange for transportation, logistics, and scheduling services for chemical
input deliveries by suppliers.
 Sales and Marketing
 
    
    Market analysis of biodiesel supply and demand;
    
    Market access to REG developed biodiesel distribution channels;
    
    Analysis and audit of biodiesel customers including for creditworthiness;
    
    Marketing specialists and sales representatives to attain and establish sales
opportunities and relationships for our products;
    
    Arrangements for transportation, logistics, and scheduling of biodiesel shipments;
    
    Where advantageous, arrange for leased tankers for rail shipments;
    
    Analyze and audit bulk transportation providers;
    
    Oversee reconciliation of shipments, invoicing and payments on a weekly basis; and
    
    Provide invoicing and accounts receivable management for biodiesel shipments.
   20




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##### 



Administration and Employees
  Trends and Uncertainties Impacting the Biodiesel Industry and Our Future Operations
      21




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##### 




    
    additional rail capacity and rail cars;
    
    additional storage facilities for biodiesel;
    
    increases in truck fleets capable of transporting biodiesel within localized markets;
    
    expansion in refining and blending facilities to handle biodiesel; and
    
    growth in service stations equipped to handle biodiesel fuels.
  Critical Accounting Estimates
  Off-balance Sheet Arrangements
  Liquidity and Capital Resources
  Use of Capital
   22




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##### 



Sources of Funds
  Debt Financing
    Issuance of Additional Units
  23




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##### 



Grants and Government Programs
  
    
    Authority to receive a property tax abatement from the City of Wall Lake at
85% of the tax on the property without the abatement for 15 years followed by
an abatement at 75% of the tax on the property with the abatement for 5 years.
    
    An investment tax credit equal to $2,990,400 (this Iowa tax
credit will be
passed through to unit holders and carried forward for up to 7 years by them
until depleted);
    
    Funding for training new employees through a supplemental new jobs
withholding credit equal to one and one-half percent (1.5%) of the gross wages
of the new jobs created by the project; and
    
    A refund of one hundred percent (100%) of the sales, service and use taxes
paid to contractors and subcontractors during the construction phase of the
project (excluding local option sales taxes on intangible property, furniture
and furnishings).
   Research and Development
  Costs and Effects of Compliance with Environmental Laws
   24




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##### 



Item 3. Controls And Procedures
    
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  Any operational disruption in our facility could result in a reduction of our sales volumes and
could cause us to incur substantial losses.
  25




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##### 



Growth in the sale and distribution of biodiesel is dependent on the changes to and expansion of
related infrastructure which may not occur on a timely basis, if at all, and our operations could
be adversely affected by infrastructure disruptions.
  
    
    additional rail capacity and rail cars;
    
    additional storage facilities for biodiesel;
    
    increases in truck fleets capable of transporting biodiesel within localized markets;
    
    expansion in refining and blending facilities to handle biodiesel; and
    
    growth in service stations equipped to handle biodiesel fuels.
  Loss of favorable tax benefits for biodiesel production could hinder our ability to operate at a
profit and reduce the value of your investment in us.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to Security Holders.
  26




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##### 



Name and PrincipalOccupation
    
    Term Expires
    
    Votes ForWarren Bush
    
    
    2008
    
    
    
    11,436Marla Conley
    
    
    2006
    
    
    
    6,438Jeff Cranston
    
    
    2006
    
    
    
    8,514John Geake
    
    
    2009
    
    
    
    11,726Bill Horan
    
    
    2009
    
    
    
    13,700Denny Mauser
    
    
    2008
    
    
    
    12,969Jim Meyer
    
    
    2006
    
    
    
    9,119Nile Ramsbottom
    
    
    2007
    
    
    
    16,075Kevin Ross
    
    
    2008
    
    
    
    9,147Wayne Seaman
    
    
    2007
    
    
    
    15,857
    
 Item 5. Other Information.
  
 Item 6.Exhibits.
  Exhibit No.
    
    Exhibit10.1
    
    Rural Development Loan Agreement between Glidden Rural Electric Cooperative and Western Iowa Energy.31.1
    
    Certificate Pursuant to 17 CFR 240.13(a)-14(a)31.2
    
    Certificate Pursuant to 17 CFR 240.13(a)-14(a)32.1
    
    Certificate Pursuant to 18 U.S.C. Section 135032.2
    
    Certificate Pursuant to 18 U.S.C. Section 1350
 27




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##### 



SIGNATURES
  WESTERN IOWA ENERGY, LLCDate: 11/14/06
    /s/ William J. HoranWilliam J. HoranPresident and Chief Executive Officer

(Principal Executive Officer)Date: 11/14/06
    /s/ Denny MauserDenny MauserTreasurer

(Principal Financial and Accounting Officer) 28