Table ofContents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

**x****     ****Quarterly report pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934.**

 

**For the quarterly period ended March 31, 2010**

 

**OR**

 

**o****        ****Transition report pursuant toSection 13 or 15(d) of the Exchange Act of 1934.**

 

**For the transition period from           to          .  **

 

**CommissionFile Number: 000-53202**

** **

**HOMELAND ENERGY SOLUTIONS, LLC**

(Exact name ofregistrant as specified in its charter)

 

| **Iowa**                                                        | ** ** | **20-3919356**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | ** ** | (I.R.S. Employer Identification No.) |

 

**2779 Highway 24, Lawler, Iowa,****52154**

(Address ofprincipal executive offices)

 

**(563)238-5555**

(Registrant’stelephone number, including area code)

** **

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x Yes  o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  o Yes  o No

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 

| Large Accelerated  Filer o |   | Accelerated Filer o          |
|---------------------------------|--------|-----------------------------------|
|                            |   |                              |
| Non-Accelerated Filer o    |   | Smaller Reporting  Company x |

 

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

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: As of May 17, 2010, there were 91,445 units outstanding.

 

 

 

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Table of Contents

 

**INDEX**

 
| ** **                                          | **Page No.**                                                                                       |
|-----------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                |                                                                                                    |
| **PART I.    FINANCIAL INFORMATION** | **3**                                                                                                   |
| ** **                                          | ** **                                                                                              |
| ** **                                          | **Item  1. Financial Statements**                                                                       | **3** |
| ** **                                          | **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations** | **14** |
| ** **                                          | **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                 | **22** |
| ** **                                          | **Item 4T. Controls and Procedures**                                                                    | **23** |
| ** **                                          | ** **                                                                                              |
| **PART II. OTHER INFORMATION**                 | **23**                                                                                                  |
|                                                |                                                                                                    |
| ** **                                          | **Item  1. Legal Proceedings**                                                                          | **23** |
| ** **                                          | **Item  1A. Risk Factors**                                                                              | **23** |
| ** **                                          | **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                                | **23** |
| ** **                                          | **Item 3. Defaults Upon Senior Securities**                                                             | **23** |
| ** **                                          | **Item  4. (Removed and Reserved)**                                                                     | **23** |
| ** **                                          | **Item  5. Other Information**                                                                          | **23** |
| ** **                                          | **Item 6.  Exhibits**                                                                                   | **24** |
| ** **                                          |                                                                                                    |
| **SIGNATURES**                                      | **24**                                                                                                  |

 

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**PART I.     FINANCIALINFORMATION**

**Item1.  Financial Statements**

 

**HomelandEnergy Solutions, LLC**

 

**BalanceSheets**

**March 31,2010 and December 31, 2009**

 
| ** **                                                        | ** ** | **March 31, 2010** | ** **  | **December 31, 2009** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|-------------|----------------------------|------------|
| ** **                                                        | ** ** | **Unaudited**           | ** **  | ** **                 | ** ** |
| **ASSETS**                                                        |       |                    |        |                       |       |
|                                                              |       |                    |        |                       |       |
| CURRENT  ASSETS                                                   |       |                    |        |                       |       |
| Cash  and cash equivalents                                        |       | $                       | 8,288,003   |                       | $          | 832,040 |   |
| Accounts  Receivable                                              |       | 6,641,085               |        | 9,347,223                  |       |
| Inventory                                                         |       | 6,415,711               |        | 6,273,488                  |       |
| Due  from broker                                                  |       | —                  |        | 870,059                    |       |
| Derivative  instruments                                           |       | 1,234,285               |        | —                     |       |
| Prepaid  expenses                                                 |       | 1,666,391               |        | 1,889,834                  |       |
| Other  current assets                                             |       | 771,949                 |        | 599,134                    |       |
| Total  current assets                                             |       | 25,017,424              |        | 19,811,778                 |       |
|                                                              |       |                    |        |                       |       |
| PROPERTY  AND EQUIPMENT                                           |       |                    |        |                       |       |
| Land  and improvements                                            |       | 22,471,580              |        | 22,471,580                 |       |
| Buildings                                                         |       | 4,863,070               |        | 4,863,070                  |       |
| Equipment                                                         |       | 129,209,097             |        | 129,209,097                |       |
| Construction  in progress                                         |       | 1,452,346               |        | 1,230,695                  |       |
|                                                              |       | 157,996,093             |        | 157,774,442                |       |
| Less  accumulated depreciation                                    |       | 11,559,250              |        | 8,667,290                  |       |
| Total  property and equipment                                     |       | 146,436,843             |        | 149,107,152                |       |
|                                                              |       |                    |        |                       |       |
| OTHER  ASSETS                                                     |       |                    |        |                       |       |
| Loan  fees, net of amortization 2010 $450,536; 2009 $406,305      |       | 722,436                 |        | 766,667                    |       |
| Restricted  cash                                                  |       | 10,293,161              |        | 10,256,026                 |       |
| Utility  rights, net of amortization 2010 $243,357; 2009 $184,293 |       | 2,119,001               |        | 2,578,065                  |       |
| Total  other assets                                               |       | 13,134,598              |        | 13,600,758                 |       |
|                                                              |       |                    |        |                       |       |
| TOTAL  ASSETS                                                     |       | $                       | 184,588,865 |                       | $          | 182,519,688 |   |
| ** **                                                        | ** ** | ** **              | ** **  | ** **                 | ** ** |
| **LIABILITIES AND MEMBERS’ EQUITY**                          |       |                    |        |                       |       |
|                                                              |       |                    |        |                       |       |
| CURRENT  LIABILITIES                                              |       |                    |        |                       |       |
| Accounts  payable and accrued expenses                            |       | $                       | 2,742,285   |                       | $          | 5,619,270 |   |
| Derivative  instruments                                           |       | —                  |        | 238,125                    |       |
| Due  to Broker                                                    |       | 344,437                 |        | —                     |       |
| Current  maturities of long-term debt                             |       | 12,411,960              |        | 6,795,116                  |       |
| Total  current liabilities                                        |       | 15,498,682              |        | 12,652,511                 |       |
|                                                              |       |                    |        |                       |       |
| COMMITMENTS  AND CONTINGENCIES                                    |       |                    |        |                       |       |
|                                                              |       |                    |        |                       |       |
| LONG-TERM  DEBT, less current maturities                          |       | 55,410,855              |        | 62,263,911                 |       |
|                                                              |       |                    |        |                       |       |
| MEMBERS’  EQUITY                                             |       |                    |        |                       |       |
| Capital  units, less syndication and offering costs               |       | 89,572,744              |        | 89,572,744                 |       |
| Retained  earnings                                                |       | 24,106,584              |        | 18,030,522                 |       |
| Total  members’ equity                                       |       | 113,679,328             |        | 107,603,266                |       |
|                                                              |       |                    |        |                       |       |
| TOTAL  LIABILITIES AND MEMBERS’ EQUITY                       |       | $                       | 184,588,865 |                       | $          | 182,519,688 |   |

 

See Notes toUnaudited Financial Statements.

 

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**HomelandEnergy Solutions, LLC**

**Statementsof Operations (Unaudited)**

 
| ** **                                                                                                                 | ** ** | **Three Months**              | ** ** | **Three Months**              | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                 | ** ** | **Ended March 31, 2010** | ** ** | **Ended March 31, 2009** | ** ** |
|                                                                                                                       |       |                          |       |                          |       |
| REVENUE,  NET OF SHIPPING COSTS                                                                                            |       | $                             | 57,013,486 |                          | $          | — |   |
|                                                                                                                       |       |                          |       |                          |       |
| COSTS  OF GOODS SOLD                                                                                                       |       | 49,837,844                    |       | —                        |       |
|                                                                                                                       |       |                          |       |                          |       |
| GROSS  PROFIT                                                                                                              |       | 7,175,642                     |       | —                        |       |
|                                                                                                                       |       |                          |       |                          |       |
| SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES                                                                              |       | 467,321                       |       | 1,216,537                     |       |
|                                                                                                                       |       |                          |       |                          |       |
| OPERATING  INCOME (LOSS)                                                                                                   |       | 6,708,321                     |       | (1,216,537                    | )          |
|                                                                                                                       |       |                          |       |                          |       |
| OTHER  INCOME (EXPENSE)                                                                                                    |       |                          |       |                          |       |
| Interest  expense                                                                                                          |       | (698,991                      | )          | —                        |       |
| Interest  income                                                                                                           |       | 66,732                        |       | 77,557                        |       |
|                                                                                                                       |       | (632,259                      | )          | 77,557                        |       |
|                                                                                                                       |       |                          |       |                          |       |
| **Net income (loss)**                                                                                                      |       | $                             | 6,076,062  |                          | $          | (1,138,980 | ) |
|                                                                                                                       |       |                          |       |                          |       |
| Basic &  diluted net income (loss) per capital unit                                                               |       | $                             | 66.44      |                          | $          | (12.45 | ) |
|                                                                                                                       |       |                          |       |                          |       |
| Weighted  average number of units outstanding for the calculation of basic &  diluted net income per capital unit |       | 91,445                        |       | 91,445                        |       |

 

See Notes to UnauditedFinancial Statements.

 

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**HomelandEnergy Solutions, LLC**

 

**Statementsof Cash Flows (Unaudited)**

 
| ** **                                                                                           | ** ** | **Three Months**         | ** ** | **Three Months**         | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                                                                           | ** ** | **Ended March 31,** | ** ** | **Ended March 31,** | ** ** |
| ** **                                                                                           | ** ** | **2010**                 | ** ** | **2009**                 | ** ** |
| ** **                                                                                           | ** ** | ** **               | ** ** | ** **               | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES                                                                |       |                     |       |                     |       |
| Net  income                                                                                          |       | $                        | 6,076,062  |                     | $          | (1,138,980 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                     |       |                     |       |
| Depreciation  and amortization                                                                       |       | 2,995,255                |       | 14,073                   |       |
| Unrealized  loss (gain) on risk management activities                                                |       | (1,472,410               | )          | 183,063                  |       |
| Asset  impairment                                                                                    |       | —                   |       | 480,875                  |       |
| Change  in working capital components:                                                               |       |                     |       |                     |       |
| Accounts  receivable                                                                                 |       | 2,706,138                |       | —                   |       |
| Inventory                                                                                            |       | (142,223                 | )          | (1,857,300               | )          |
| Due  to (from) broker                                                                                |       | 1,214,496                |       | (291,346                 | )          |
| Prepaid  expenses and other assets                                                                   |       | 50,628                   |       | (1,798,380               | )          |
| Accounts  payable and accrued expenses                                                               |       | (2,016,591               | )          | 1,518,992                |       |
| **Net cash provided by (used in) operating activities**                                              |       | 9,411,355                |       | (2,889,003               | )          |
|                                                                                                 |       |                     |       |                     |       |
| CASH  FLOWS FROM INVESTING ACTIVITIES                                                                |       |                     |       |                     |       |
| Refund  of utility rights                                                                            |       | 400,000                  |       | —                   |       |
| Payments  for equipment and construction in progress                                                 |       | (1,082,045               | )          | (9,484,824               | )          |
| Payments  for other assets                                                                           |       | —                   |       | (880,875                 | )          |
| **Net cash (used in) investing activities**                                                          |       | (682,045                 | )          | (10,365,699              | )          |
|                                                                                                 |       |                     |       |                     |       |
| CASH  FLOWS FROM FINANCING ACTIVITIES                                                                |       |                     |       |                     |       |
| Increase  in outstanding checks in excess of bank balance                                            |       | —                   |       | 213,034                  |       |
| (Increase)  in restricted cash                                                                       |       | (37,135                  | )          | (77,550                  | )          |
| Proceeds  from long-term borrowings                                                                  |       | —                   |       | 13,082,662               |       |
| Payments  on long-term borrowings                                                                    |       | (1,236,212               | )          | (5,000                   | )          |
| **Net cash provided by (used in) financing activities**                                              |       | (1,273,347               | )          | 13,213,146               |       |
|                                                                                                 |       |                     |       |                     |       |
| **Net increase (decrease) in cash**                                                                  |       | $                        | 7,455,963  |                     | $          | (41,556 | ) |
|                                                                                                 |       |                     |       |                     |       |
| CASH  AND CASH EQUIVALENTS                                                                           |       |                     |       |                     |       |
| Beginning                                                                                            |       | 832,040                  |       | 44,599                   |       |
| Ending                                                                                               |       | $                        | 8,288,003  |                     | $          | 3,043 |   |
|                                                                                                 |       |                     |       |                     |       |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                                                   |       |                     |       |                     |       |
| Cash  paid for interest                                                                              |       | $                        | 606,431    |                     | $          | 354,150 |   |
|                                                                                                 |       |                     |       |                     |       |
| SUPPLEMENTAL  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES                                 |       |                     |       |                     |       |
| Accounts  payable related to construction in progress                                                |       | $                        | —     |                     | $          | 7,956,793 |   |
| Retainage  payable related to construction in progress                                               |       | —                   |       | 6,061,418                |       |
| Interest  capitalized                                                                                |       | —                   |       | 354,150                  |       |
| Insurance  costs capitalized                                                                         |       | —                   |       | 71,273                   |       |
| Loan  fee amortization capitalized                                                                   |       | —                   |       | 44,231                   |       |

 

See Notes to UnauditedFinancial Statements.

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

**1.**              Natureof Business and Significant Accounting Policies

** **

Nature of business:  Homeland Energy Solutions, LLC (an IowaLimited Liability Company) is located near Lawler, Iowa and was organized topool investors for a 100 million gallon ethanol plant with distributionthroughout the United States.  Inaddition, the company produces and sells distillers dried grains as byproductsof ethanol production.  Site preparationwas completed and construction began in November 2007.  Prior to commencing operations on April 4,2009, the Company was a development stage entity with its efforts beingprincipally devoted to organizational activities and construction activities.

 

Significant Accounting Policies:

 

Basis of Presentation:  The accompanying unauditedcondensed financial statements have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted as permitted by such rules and regulations.  These financial statements and related notesshould be read in conjunction with the financial statements and notes theretoincluded in the company’s audited financial statements for the year ended December 31,2009, contained in the Company’s annual report on Form 10-K for 2009.  In the opinion of management, the interimcondensed financial statements reflect all adjustments considered necessary forfair presentation.  The adjustments madeto these statements consist only of normal recurring adjustments.

 

Accounting Estimates:  Management uses estimates andassumptions in preparing these financial statements in accordance with UnitedStates Generally Accepted Accounting Principles.  Those estimates and assumptions affect thereported amounts of assets and liabilities, the disclosure of contingent assetsand liabilities, and the reported revenues and expenses.  Actual results could differ from thoseestimates.

 

Revenue Recognition: Revenue from the sale of the Company’s products is recognized at thetime title to the goods and all risks of ownership transfer to thecustomers.  This generally occurs upon shipment, loading of the goods orwhen the customer picks up the goods. Interest income is recognized asearned.  Shipping costs incurred by theCompany in the sale of ethanol and distiller grains are not specificallyidentifiable and as a result, revenue from the sale of ethanol and distillergrains is recorded based on the net selling price reported to the Company fromthe marketer.

 

Inventories:  Inventories are generally valued at the lowerof cost (first-in, first-out) or market.  In the valuation of inventoriesand purchase and sale commitments, market is based on current replacementvalues except that it does not exceed net realizable values and is not lessthan net realizable values reduced by allowances for approximate normal profitmargin.

 

Long-Lived Assets:The Company reviews its property and equipment for impairment wheneverevents indicate that the carrying amount of the assets may not be recoverable.  Ifcircumstances require a long-lived asset be tested for possible impairment, theCompany first compares undiscounted cash flows expected to be generated by anasset to the carrying value of the asset. If the carrying value of thelong-lived asset is not recoverable on an undiscounted cash flow basis, animpairment is recognized to the extent that the carrying value exceeds its fairvalue. Fair value is determined through various valuation techniques includingdiscounted cash flow models, quoted market values and third-party independentappraisals, as considered necessary.

 

Derivative Instruments: The Company evaluates its contracts to determine whether thecontracts are derivative instruments. Certain contracts that literally meet the definition of a derivative maybe exempted from derivative accounting as normal purchases or normalsales.  Normal purchases and normal salesare contracts that provide for the purchase or sale of something other than afinancial instrument or derivative instrument that will be delivered inquantities expected to be used or sold over a reasonable period in the normalcourse of business.  Contracts that meetthe requirements of normal purchases or sales are documented as normal and exemptedfrom the accounting and reporting requirements of derivative accounting.

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

The Company enters into short-term cash, option andfutures contracts as a means of securing purchases of corn, natural gas andsales of ethanol for the plant and managing exposure to changes in commodityand energy prices.  All of the Company’sderivatives are designated as non-hedge derivatives for accounting purposes,with changes in fair value recognized in net income.  Although the contracts are economic hedges ofspecified risks, they are not designated as and accounted for as hedginginstruments.

 

As part of its trading activity, the Company usesfutures and option contracts through regulated commodity exchanges to manageits risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cashand futures contracts and options.

 

Realized and unrealized gains and losses related toderivative contracts related to corn and natural gas are included as acomponent of cost of goods sold and derivative contracts related to ethanol areincluded as a component of revenues in the accompanying financial statements.  The fair values of contracts entered throughcommodity exchanges are presented on the accompanying balance sheet asderivative instruments.

 

Intangible Assets:  Intangible assets consist ofloan fees and utility rights.  Utilityrights consist of payments to electric and natural gas companies forconstruction in aid of electric and gas lines to the facility but the Companyretains no ownership rights to the assets. The loan fees are amortized over the term of the loan and utility rightsare amortized over 15 years or the anticipated useful life utilizing thestraight-line method. The useful life was determined in part by the length ofservice agreements the Company has with the utility companies as well as normalusage of such infrastructure.

 

Restricted Cash:  The Company has a restriction on a specificaccount with a bank that is restricted in use for the repayment of long-termdebt.  The balance in this account hasbeen treated as a non-current asset due to this restriction.

 

Net Income (Loss) per Unit:  Basic and diluted net incomeper unit is computed by dividing net income by the weighted average number ofmembers’ units and members’ unit equivalents outstanding during the period.There were no member unit equivalents outstanding during the periods presented;accordingly, the Company’s basic and diluted net income (loss) per unit are thesame.

 

Risks and Uncertainties:  The Company has certain risksand uncertainties that it will experience during volatile market conditions,which can have a severe impact on operations. The Company’s revenues are derived from the sale and distribution ofethanol and distiller grains to customers primarily located in the UnitedStates. Corn for the production process is supplied to the plant primarily fromlocal agricultural producers and from purchases on the open market. Ethanolsales average approximately 85% of total revenues, while approximately 15% ofrevenues are generated from the sale of distiller grains and otherby-products.  Corn costs averageapproximately 80% of cost of goods sold.

 

The Company’s operating and financial performanceis largely driven by the prices at which we sell ethanol and the net expense ofcorn. The price of ethanol is influenced by factors such as supply and demand,weather, government policies and programs, and unleaded gasoline and thepetroleum markets, although since 2005 the prices of ethanol and gasoline begana divergence with ethanol selling, in general, for less than gasoline at thewholesale level. Excess ethanol supply in the market, in particular, putsdownward pressure on the price of ethanol. Our largest cost of production iscorn. The cost of corn is generally impacted by factors such as supply anddemand, weather, government policies and programs, and our risk managementprogram is used to protect against the price volatility of these commodities.

 

The current U.S. economic condition has reduced thenation’s demand for energy.  Thebankruptcy filing of several of the industry’s producers since 2008 hasresulted in great economic uncertainty about the viability of ethanol.  The ethanol boom of recent years has spurredovercapacity in the industry and production capacity is currently exceeding theRFS mandates.  As such, the Company mayneed to evaluate whether crush margins will be sufficient to operate the plantand generate enough debt service.  In theevent crush margins become negative for an extended period of time, the Companymay be required to reduce capacity or shut down the plant.  The 

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

Company will continue to evaluate crush margins ona regular basis.  Based on the Company’soperating plan and the borrowing capacity, management believes it has thecapital to meet its obligations throughout the next twelve month period.

 

**2.**              Inventory

** **

Inventoryconsisted of the following as of March 31, 2010 and December 31,2009.

 
| ** **      | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|-----------------|------------|-------------------------|------------|----------------------------|------------|
| Raw Materials   |       | $                       | 3,133,045  |                       | $          | 3,152,894 |   |
| Work in Process |       | 1,130,625               |       | 1,191,732                  |       |
| Finished Goods  |       | 2,152,041               |       | 1,928,862                  |       |
| Totals          |       | $                       | 6,415,711  |                       | $          | 6,273,488 |   |

 

**3.**              Debt

** **

MasterLoan Agreement with Home Federal Savings Bank

 

OnNovember 30, 2007, the Company entered into a Master Loan Agreement withHome Federal Savings Bank (“Home Federal”) establishing a senior creditfacility with Home Federal for the construction of a 100 million gallonper year natural gas powered dry mill ethanol plant.  In return, the Company executed a mortgage infavor of Home Federal creating a senior lien on the real estate and plant and asecurity interest in all personal property located on Company property.  The Master Loan Agreement provides for (i) aconstruction loan in an amount not to exceed $94,000,000 (of which up to$20,000,000 may be converted to a term revolving loan upon start-up ofoperations), and (ii)  a revolving line of credit loan in an amount not toexceed $6,000,000 (the foregoing collectively referred to as the “Loans”).

 

OnJuly 1, 2009 the Company converted the $94,000,000 construction loan withHome Federal Savings Bank into a $74,000,000 term loan and a $20,000,000 termrevolving loan under the terms of the Master Loan Agreement and supplementsthereto.  The Company made monthlypayments of accrued interest on the Term Loan from the date of conversion untilseven months later.  Beginning in theseventh month after conversion, or on February 1, 2010, equal monthlyprincipal payments in the amount of $616,667 plus accrued interest will bemade.  All unpaid principal and accruedinterest on the term loan will be due on the fifth anniversary of suchconversion.  The Company will have theright to convert up to 50% of the term loan into a Fixed Rate Loan with theconsent of Home Federal.  The Fixed RateLoan will bear interest at the five year LIBOR swap rate that is in effect onthe date of conversion plus 325 basis points, or another rate mutually agreedupon by Homeland Energy and Home Federal. If the Company elects this fixed rate option, the interest rate will notbe subject to any adjustments otherwise provided for in the Master LoanAgreement.  The remaining portion willbear interest at a rate equal to the LIBOR Rate plus 325 basis points.

 

TheCompany agreed to the terms of a $20,000,000 Term Revolving Loan which wasconverted on July 1, 2009 from the construction loan and has a maturitydate of five years from the conversation date or July 2014.  Interest on the Revolving Term Loan shallaccrue at a rate equal to the LIBOR Rate plus 325 basis points.  The Company will be required to make monthlypayments of interest until the maturity date of July 2014, on which datethe unpaid principal amount of the Revolving Term Loan will become due andpayable.

 

RevolvingLine of Credit Loan

 

Underthe terms of the Master Loan Agreement and the third supplement thereto, theCompany agreed to the terms of a Revolving Line of Credit Loan consisting of amaximum $6,000,000 revolving line of credit. The Revolving Line of Credit Loan became available on July 1, 2009when all conditions precedent to the Revolving Line of Credit Loan were met.The aggregate principal amount of the Revolving Line of Credit Loan may notexceed the lesser of $6,000,000 or the Borrowing Base.  The Borrowing Base means, at any time, thelesser of: (a) $6,000,000; or (b) the 

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

sumof (i) 75% of the eligible accounts receivable, plus (ii) 75% of theeligible inventory.  Interest on theRevolving Line of Credit Loan shall accrue at a rate equal to the LIBOR Rateplus 325 basis points.  The Company willbe required to make monthly payments of accrued interest until the RevolvingLine of Credit Loan expires on June 30, 2010, on which date the unpaidprincipal amount will become due and payable.

 

Ifthe Company fails to make a payment of principal or interest on any loan within10 days of the due date, there will be a late charge equal to 5% of theamount of the payment.  Balancesoutstanding on the term loan, term revolving loan and revolving line of creditas of March 31, 2010 and December 31, 2009  were $67,766,667, $0 and $0, and $69,000,000,$0 and $0, respectively. Amounts available on the term loan, term revolvingloan and revolving line of credit as of March 31, 2010 were $0,$20,000,000 and $6,000,000, respectively.

 

Covenantsand Susequent Event

 

Inaddition, during the term of the loans, the Company will be subject to certainfinancial covenants at various times calculated monthly, quarterly orannually.  Failure to comply with theprotective loan covenants or maintain the required financial ratios may causeacceleration of the outstanding principal balances on the loans and/or theimposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the significantfees, charges or penalties may restrict or limit the access to the capitalresources necessary to continue plant operations.  The Company made a $5,000,000 free cash flowpayment on the term loan on April 22, 2010, as part of the covenantcalculations.  This payment has beenclassified as a current liability as a result of the subsequent payment.

 

Uponan occurrence of an event of default or an event which will lead to thedefault, Home Federal may upon notice terminate its commitment to loan fundsand declare the entire unpaid principal balance of the loans, plus accruedinterest, immediately due and payable. Events of default include, but are not limited to, the failure to makepayments when due, insolvency, any material adverse change in the financialcondition or the breach of any of the covenants, representations or warrantiesthe Company has given in connection with the transaction.

 

**4.**              RelatedParty Transactions

** **

TheCompany purchased corn and materials from members of its Board of Directors whoown or manage elevators or are local producers of corn.  Purchases during the three months ended March 31,2010 and 2009 from these companies and individuals totaled approximately$6,308,000 and $421,000, respectively. Amounts due to these members was approximately $16,000 and $29,000 as ofMarch 31, 2010 and December 31,2009, respectively.

 

On December 15,2008, the Company entered into an agreement with Golden Grain Energy, LLC, amember of the Company, for management services. Pursuant to the Agreement, Homeland Energy and Golden Grain have agreedto share management services in an effort to reduce the costs of administrativeoverhead. Homeland Energy and Golden Grain have agreed to split thecompensation costs associated with each of the employees covered by theAgreement. For the three months ending March 31, 2010, the Companyincurred net costs of approximately $107,000 related to this agreement.  The cost for the same period of 2009 relatedto this agreement was approximately $122,000.

 

**5.**              Commitments,Contingencies and Agreements

** **

*Ethanol, Distiller’s grain, marketing agreements and major customers*

 

TheCompany has entered into a marketing agreement to sell all ethanol produced atthe plant to an unrelated party at a mutually agreed on price, less commissionand transportation charges.  As of March 31,2010, the Company has commitments to sell approximately 23,332,000 gallons atvarious fixed and basis price levels indexed against exchanges for deliverythrough September 2010. Should the Company not be able to meet delivery onthese gallons in the future the Company will be responsible for purchasinggallons in the open market.  The Companyhas not incurred any losses due to non-delivery of product and anticipates thatall contracts will be sufficient to cover costs in the future.

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

TheCompany has entered into a marketing agreement to sell all distiller grainsproduced at the plant to an unrelated party at a mutually agreed on price, lesscommission and transportation charges. The initial term of the agreement is for one year beginning with thestart-up of production in April 2009. The agreement calls for automatic renewal for successive one-year termsunless 120-day prior written notice is given before the current term expires.As of March 31, 2010, the Company had approximately 19,000 tons ofdistiller grains commitments for delivery through December 2010 at variousfixed prices. Should the Company not be able to meet delivery on these tons inthe future, the Company will be responsible for fulfilling the commitment  in the open market.  The Company has not incurred any losses dueto non-delivery of product.

 

Approximate sales and marketing fees related to the agreements in placefor the three month period ending March 31, 2010 are as followsbelow.  There were no sales or marketingfees during  the three months ended March 31,2009.

 
| ** **                      | ** ** | **Three Months  ended March  31, 2010** | ** ** |
|---------------------------------|------------|-----------------------------------------|------------|
|                            |       |                                    |       |
| Sales ethanol                   |       | $                                       | 48,459,000 |   |
| Sales distiller grains          |       | 8,460,000                               |       |
|                            |       |                                    |       |
| Marketing fees ethanol          |       | 370,000                                 |       |
| Marketing fees distiller grains |       | 117,000                                 |       |
|                                 |            |                                         |            |  |

 
| ** **                         | ** ** | **As of March  31,2010** | ** ** |
|------------------------------------|------------|------------------------------------|------------|
| Amount due from ethanol marketer   |       | 5,275,000                          |       |
| Amount due from distiller marketer |       | 1,258,000                          |       |

 

At March 31, 2010, the Company had outstanding commitments forpurchases of approximately $21,632,000 of corn at various prices.

 

TheCompany has commitments for minimum purchases of various utilities such asnatural gas and electricity over the next 10 years which are anticipated toapproximate the following:

 
| 2010                           |   | $          | 3,950,000  |   |
|--------------------------------|--------|------------|------------|--------|
| 2011                           |   | 3,950,000  |       |
| 2012                           |   | 3,950,000  |       |
| 2013                           |   | 3,950,000  |       |
| 2014                           |   | 3,870,000  |       |
| Thereafter                     |   | 13,080,000 |       |
| Total  anticipated commitments |   | $          | 32,750,000 |   |

 

**6.**              LEASEOBLIGATIONS

** **

During fiscal year 2009 and 2010 the Company entered into leases forrail cars, rail moving equipment and loading equipment with original terms upto 5 years.  The Company is obligated topay costs of insurance, taxes, repairs and maintenance pursuant to terms of theleases.   Rent expense incurred for theoperating leases during the three  monthsended March 31, 2010, was approximately $404,000.  No rent expense was incurred for theoperating leases during the period ended March 31, 2009.

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 

At March 31, 2010 the Company had the following approximateminimum rental commitments under non-cancelable operating leases.

 
| 2010                     |   | $         | 1,833,850 |   |
|--------------------------|--------|-----------|-----------|--------|
| 2011                     |   | 1,802,000 |      |
| 2012                     |   | 451,100   |      |
| 2013                     |   | 117,500   |      |
| 2014                     |   | 117,500   |      |
| Thereafter               |   | 32,400    |      |
| Total  lease commitments |   | $         | 4,354,350 |   |

 

**7.**              DERIVATIVEINSTRUMENTS

** **

The Company’s activities expose it to a variety of market risks,including the effects of changes in commodity prices.  These financial exposures are monitored andmanaged by the Company as an integral part of its overall risk-managementprogram.  The Company’s risk managementprogram focuses on the unpredictability of financial and commodities marketsand seeks to reduce the potentially adverse effects that the volatility ofthese markets may have on its operating results.

 

To reduce price risk caused by market fluctuations, the Companygenerally follows a policy of using exchange traded futures and optionscontracts to reduce its net position of merchandisable agricultural commodityinventories and forward cash purchase and sales contracts and uses exchangetraded futures and options contracts to reduce price risk.  Exchange-traded futures contracts are valuedat market price.  Changes in market priceof exchange traded futures and options contracts related to corn and naturalgas are recorded in costs of goods sold and changes in market prices ofcontracts related to sale of ethanol, if applicable, are recorded in revenues.

 

The Company uses futures or options contracts to fix the purchase priceof anticipated volumes of corn to be purchased and processed in a futuremonth.    The Company’s plant will grind approximately 40million bushels of corn per year.  During the previous period andover the next 12 months, the Company has hedged and anticipates hedging between5% and 60% of its anticipated monthly grind.  At March 31, 2010,the Company has hedged portions of its anticipated monthly purchases for cornaveraging approximately 11% of its anticipated monthly grind over the nexttwelve months.

 

Unrealized gains and losses on non-exchange traded forward contractsare deemed “normal purchases or sales” under authoritative accounting guidanceand, as amended and, therefore, are not marked to market in the Company’sfinancial statements. The fair value of the Company’s open derivative positionsare summarized in the following table as of March 31, 2010 and December 31,2009.

 
| ** **                                          | ** ** | **Balance Sheet  Classification** | ** ** | **Asset Fair  Value** | ** ** | **Liability Fair  Value** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|---------------------------|------------|
| Derivatives  not designated as hedging instruments: |       |                              |       |                  |       |                      |       |
| Commodity  Contracts at 3/31/10                     |       | Derivative Instruments            |       | $                     | 1,234,285  |                      | $          | — |   |
|                                                |       |                              |       |                  |       |                      |       |
| Derivatives  not designated as hedging instruments: |       |                              |       |                  |       |                      |       |
| Commodity  Contracts at 12/31/09                    |       | Derivative  Instruments           |       | $                     |       | $                         | 238,125    |   |
|                                                     |            |                                   |            |                       |            |                           |            |  |  |

 

The following table represents the amount of realized gains (losses)and changes in fair value recognized in earnings on commodity contracts for thethree ending March 31, 2010:

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 
| ** **                                                                 | ** ** | **Income Statement  Classification** | ** ** | **Realized  Gain (Loss)** | ** ** | **Unrealized  Gain (Loss)** | ** ** | **Total Gain  (Loss)** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------------------------|------------|------------------------|------------|
| Derivatives  not designated as hedging instruments:                        |       |                                 |       |                      |       |                        |       |                   |       |
| ·   Commodity Contracts for the three months ended  3/31/10 |       | Cost of Goods Sold                   |       | $                         | 1,490,629  |                        | 1,234,285  |                   | 2,724,914  |   |
|                                                                       |       |                                 |       |                      |       |                        |       |                   |       |   |
| Derivatives  not designated as hedging instruments:                        |       |                                 |       |                      |       |                        |       |                   |       |   |
| Commodity  Contractss for the three months ended 3/31/09                   |       | Operating Expense                    |       | 193,347                   |       | (183,063                    | )          | 10,284                 |       |

 

**8.**              FAIRVALUE MEASUREMENTS

** **

Fair value is the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsat the measurement date.  In determiningfair value, the Company uses various methods including market, income and cost approaches.  Based on these approaches, the Company oftenutilizes certain assumptions that market participants would use in pricing theasset or liability, including assumptions about risk and/or the risks inherentin the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, orgenerally unobservable inputs.  TheCompany utilizes valuation techniques that maximize the use of observableinputs and minimize the use of unobservable inputs.  Based on the observability of the inputs usedin the valuation techniques, the Company is required to provide the followinginformation according to the fair value hierarchy.  The fair value hierarchy ranks the qualityand reliability of the information used to determine fair values.  Financial assets and liabilities carried atfair value will be classified and disclosed in one of the following threecategories:

 

Level 1: Valuations for assets and liabilities traded in active marketsfrom readily available pricing sources for market transactions involvingidentical assets or liabilities.

 

Level 2: Valuations for assets and liabilities traded in less activedealer or broker markets.  Valuations areobtained from third-party pricing services for identical or similar assets orliabilities.

 

Level 3: Valuations incorporate certain assumptions and projections indetermining the fair value assigned to such assets or liabilities.

 

A description of the valuation methodologies used for instrumentsmeasured at fair value, including the general classification of suchinstruments pursuant to the valuation hierarchy, is set forth below

 

Derivativefinancial instruments:  Commodity futures and exchange-tradedcommodity options contracts are reported at fair value utilizing Level 1inputs.  For these contracts, the Companyobtains fair value measurements from an independent pricing service.  The fair value measurements considerobservable data that may include dealer quotes and live trading levels from theCBOT and NYMEX markets.

 

The following table summarizes financial assets and financialliabilities measured at fair value on a recurring basis as of March 31,2010 and December 31, 2009, segregated by the level of the valuationinputs within the fair value hierarchy utilized to measure fair value:

 

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HOMELAND ENERGY SOLUTIONS, LLC

Notes to CondensedUnaudited Financial Statements

 

March 31,2010

 
| ** **                                                       | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                             |       |      |       |        |       |        |       |        |       |
| Current Asset, derivative financial instruments at  3/31/10      |       | 1,234,285 |       | 1,234,285   |       | —      |       | —      |       |
|                                                             |       |      |       |        |       |        |       |        |       |
| Current Liability, derivative financial  instruments at 12/31/09 |       | 238,125   |       | 238,125     |       | —      |       | —      |       |

 

Certain financial assets and financial liabilities are measured at fairvalue on a nonrecurring basis; that is, the instruments are not measured atfair value on an ongoing basis but are subject to fair value adjustments incertain circumstances, for example, when there is evidence of impairment.

 

The Company considers the carrying amount of significant classes offinancial instruments on the balance sheets including cash, accountsreceivable, due from broker, restricted cash, other assets, accounts payable,accrued liabilities and variable rate long-term debt to be reasonable estimatesof fair value either due to their length of maturity or the existence ofvariable interest rates underlying such financial instruments that approximateprevailing market rates at March 31, 2010.

 

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**Item2.    Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

**CAUTIONARY STATEMENTS REGARDINGFORWARD-LOOKING STATEMENTS**

 

This report containsforward-looking statements that involve future events, our future performanceand our expected future operations and actions. In some cases, you can identify forward-looking statements by the use ofwords such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”“future,” “intend,” “could,” “will,” “hope,” “predict,” “target,” “potential,” or “continue” orthe negative of these terms or other similar expressions.

 

These forward-lookingstatements are only our predictions and involve numerous assumptions, risks anduncertainties, including, but not limited to those listed below and thosebusiness risks and factors described elsewhere in this report and our otherfilings with the Securities and Exchange Commission.

 

·                  Our ability to satisfy thefinancial covenants contained in our credit agreements with our senior lender;

·                  Our ability to operate theethanol plant profitably and maintain a positive spread between the price atwhich we sell our products and our raw materials costs;

·                  Our ability to generate freecash flow to invest in our business and service our debt;

·                  Volatility of corn, naturalgas, ethanol, unleaded gasoline, distillers grains and other commodities pricesand availability;

·                  Changes in general economicconditions or the occurrence of certain events causing an economic impact inthe agriculture, oil or automobile industries;

·                  Changes in interest rates orthe lack of credit availability;

·                  Changes in our businessstrategy, capital improvements or development plans;

·                  Limitations and restrictionscontained in the instruments and agreements governing our indebtedness;

·                  The results of our hedgingtransactions and other risk management strategies;

·                  Our inelastic demand for andthe availability of corn, as it is the only available feedstock for our plant;

·                  Changes in the environmentalregulations or in our ability to comply with the environmental regulations thatapply to our plant site and our operations;

·                  The effects of mergers,bankruptcies or consolidations in the ethanol industry;

·                  Changes in federal and/orstate laws including the Renewable Fuels Standard and VEETC, or the eliminationof any federal and/or state ethanol tax incentives;

·                  Overcapacity within theethanol industry;

·                  Changes in plant productioncapacity or technical difficulties in operating the plant;

·                  Changes and advances inethanol production technology that may make it more difficult for us to competewith other ethanol plants utilizing such technology;

·                  Our ability to retain key employeesand maintain labor relations;

·                  The development ofinfrastructure related to the sale and distribution of ethanol; and

·                  Competition in the ethanolindustry and from alternative fuel additives.

 

Ouractual results or actions could and likely will differ materially from thoseanticipated in the forward-looking statements for many reasons, including butnot limited to the reasons described in this report.  We are not under any duty to update theforward-looking statements contained in this report.  We cannot guarantee future results, levels ofactivity, performance or achievements. We caution you not to put undue reliance on any forward-lookingstatements, which speak only as of the date of this report.  You should read this report and the documentsthat we reference in this report completely and with the understanding that ouractual future results may be materially different from what we currentlyexpect.  We qualify all of ourforward-looking statements by these cautionary statements.

 

**AvailableInformation**

 

Information aboutus is also available at our website at*www.homelandenergysolutions.com*, under “Investor Relations — SECFilings,” which includes links to reports we have filed with the Securities andExchange Commission. The contents of our website are not incorporated byreference in this Quarterly Report on Form 10-Q.

 

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**Overview**

 

Homeland EnergySolutions, LLC (referred to herein as “we,” “us,” the “Company,” “Homeland” or “HomelandEnergy”) is an Iowa limited liability company.  Homeland was formed on December 7, 2005for the purpose of pooling investors for the development, construction andoperation of a 100 million gallon per year ethanol plant located near Lawler,Iowa.   We began producing ethanol anddistillers grains at the plant in April 2009.  The ethanol plant is currently operating at arate in excess of its nameplate capacity of 100 million gallons.

 

Priorto April 2009, we installed the infrastructure necessary to support plantoperations and began operations.  We alsoobtained the permits required to construct and operate the plant. The totalproject cost was approximately $176,000,000, which included construction of ourethanol plant and start-up of operations. We financed the construction and start-up of the ethanol plant with acombination of equity and debt.  Wecurrently employ 42 employees.

 

Ourrevenues are derived primarily from the sale of our ethanol and distillersgrains.  We market and sell our productsprimarily in the continental United States through third party marketers.  We have an Ethanol Marketing Agreement with GreenPlains Trade Group LLC (“GPTG”), which is the ethanol marketing anddistribution subsidiary of Green Plains Renewable Energy, LLC (“GPRE”).  We have also entered into a Distillers GrainsMarketing Agreement with CHS, Inc. (“CHS”), wherein CHS purchases thedistillers grains produced at our plant and sells them to its customers.

 

Therehave been a number of recent developments in legislation that impacts theethanol industry.  One such developmentconcerns the federal Renewable Fuels Standard (RFS).  The ethanol industry is benefited by the RFSwhich requires that a certain amount of renewable fuels must be used in theUnited States each year.  In February 2010,the EPA issued new regulations governing the RFS.  These new regulations have been calledRFS2.  The most controversial part ofRFS2 involves what is commonly referred to as the lifecycle analysis of greenhousegas emissions.  Specifically, the EPAadopted rules to determine which renewable fuels provided sufficientreductions in greenhouse gases, compared to conventional gasoline, to qualifyunder the RFS program.  RFS2 establishesa tiered approach, where regular renewable fuels are required to accomplish a20% greenhouse gas reduction compared to gasoline, advanced biofuels andbiomass-based biodiesel must accomplish a 50% reduction in greenhouse gases,and cellulosic biofuels must accomplish a 60% reduction in greenhousegases.  Any fuels that fail to meet thisstandard cannot be used by fuel blenders to satisfy their obligations under theRFS program.  The scientific method ofcalculating these greenhouse gas reductions has been a contentious issue.  Many in the ethanol industry were concernedthat corn based ethanol would not meet the 20% greenhouse gas reductionrequirement based on certain parts of the environmental impact model that manyin the ethanol industry believed was scientifically suspect.  However, RFS2 as adopted by the EPA providesthat corn-based ethanol from modern ethanol production processes does meet thedefinition of a renewable fuel under the RFS program.  Our ethanol plant was grandfathered into theRFS due to the fact that it was constructed prior to the effective date of thelifecycle greenhouse gas requirement and is not required to prove compliancewith the lifecycle greenhouse gas reductions. Further, certain provisions of RFS2 as adopted may disproportionatelybenefit ethanol produced from sugarcane. This could make sugarcane based ethanol, which is primarily produced inBrazil, more competitive in the United States ethanol market.  If this were to occur, it could reduce demandfor the ethanol that we produce.

 

Inaddition to RFS2 which included greenhouse gas reduction requirements, in 2009,California passed a Low Carbon Fuels Standard (LCFS).  The California LCFS requires that renewablefuels used in California must accomplish certain reductions in greenhouse gaseswhich is measured using a lifecycle analysis, similar to RFS2.  Management believes that this lifecycleanalysis is based on unsound scientific principles that unfairly disadvantagescorn based ethanol.  Management believesthat these new regulations will preclude corn based ethanol from being used in California.  California represents a significant ethanoldemand market.  If we are unable tosupply ethanol to California, it could significantly reduce demand for theethanol we produce.  Several lawsuitshave been filed challenging the California LCFS.

 

Ethanolproduction in the United States is benefited by various tax incentives.  The most significant of these tax incentivesis the federal Volumetric Ethanol Excise Tax Credit (VEETC).  VEETC provides a volumetric ethanol excisetax credit of 4.5 cents per gallon of ethanol blended with gasoline at a rateof 10%.  VEETC is

 

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scheduledto expire on December 31, 2010.  Ifthis tax credit is not renewed, it likely would have a negative impact on theprice of ethanol and demand for ethanol in the marketplace.  On December 31, 2009, the biodieselblenders’ credit was allowed to expire. Recently, Congress passed legislation to reinstate the biodiesel blenders’credit until December 31, 2010. However, the bills passed by the House and Senate must be reconciled andthe final bill must be signed by the President before the tax credit will bereinstated.  If the VEETC that benefitsthe ethanol industry is allowed to expire, it could negatively impact demandfor ethanol and may harm our financial condition.

 

Sincethe ethanol plant became operational in April 2009, we do not havecomparable income, production and sales data for the three months ended March 31,2009.  Accordingly, we do not provide afull comparison of our financial results between reporting periods in thisreport.  If you undertake your owncomparison, it is important that you keep this in mind.

 

**Resultsof Operations for the Three Months Ended March 31, 2010 and 2009**

 

Thefollowing table shows the results of our operations and the percentage ofrevenues, cost of goods sold, operating expenses and other items to totalrevenues in our statement of operations for the three months ended March 31,2010 and 2009.  Because we did not beginoperating the plant until April 2009, we do not have comparable operatingdata for the three months ended March 31, 2009.

 
| ** **                                    | ** ** | **Three Months Ended  March 31,****2010********(Unaudited)** | ** ** | **Three Months Ended  March 31,****2009  (Unaudited)** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Amount**                                                        | ** ** | **%**                                                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| **Income Statement Data**                     | ** ** | ** **                                                        | ** ** | ** **                                                  |       | ** ** |   | ** ** |   |
| Revenues                                      |       | $                                                                 | 57,013,486 |                                                        | 100.0      |   | $ | — |   | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Cost  of Goods Sold                           |       | $                                                                 | 49,837,844 |                                                        | 87.4       |   | $ | — |   | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Gross  Profit                                 |       | $                                                                 | 7,175,642  |                                                        | 12.6       |   | $ | — |   | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Selling,  General and Administrative Expenses |       | $                                                                 | 467,321    |                                                        | 0.8        |   | $ | 1,216,537 |   | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Operating  Income (Loss)                      |       | $                                                                 | 6,708,321  |                                                        | 11.8       |   | $ | (1,216,537 | ) | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Other  Income (Expense)                       |       | $                                                                 | (632,259   | )                                                           | (1.1       | ) | $ | 77,557 |   | — |   |
|                                          |       |                                                              |       |                                                        |       |   |   |   |   |
| Net  Income (Loss)                            |       | $                                                                 | 6,076,062  |                                                        | 10.7       |   | $ | (1,138,980 | ) | — |   |

 

***Revenues***

 

Theplant was substantially completed and we commenced production of ethanol anddistillers grains for sale in April 2009. As a result, we did not have any revenue during the first quarter of2009 to compare with the revenue we generated during the first quarter of2010.  Of the revenue that we generatedduring the first quarter of 2010, approximately 85% was realized from the saleof ethanol and approximately 15% was realized from the sale of distillersgrains.  The sale of ethanol and distillersgrains is our only source of revenue. Our revenue is presented in our financial statements, net of theshipping costs that are incurred in transporting our ethanol and distillersgrains to the end customer.  Theseshipping charges are deducted by our ethanol and distillers grains marketersfrom the amounts realized on the sale of our ethanol and distillers grains.

 

Duringthe first quarter of 2010, we experienced a decreasing trend in the price wereceived for our ethanol.  Ethanol pricespeaked in November 2009 and have been decreasing since that time.  Management attributes this decreasing trendin ethanol prices with increased production of ethanol and steady demand.  Management believes that demand for ethanolis being affected by what is known as the blending wall.  The blending wall is a theoretical limitwhere more ethanol cannot be blended into the national gasoline pool.  Currently, ethanol is blended withconventional gasoline for use in standard (non-flex fuel) vehicles to create ablend which is 10% ethanol and 90% gasoline. Estimates indicate that approximately 135 billion gallons of gasolineare sold in the United States each year. Assuming that all gasoline in the United States is blended at a rate of10% ethanol and 90% gasoline, the

 

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maximumdemand for ethanol is 13.5 billion gallons per year.  This theoretical limit acts as a cap onethanol demand which can negatively impact ethanol prices.  If ethanol supply continues to expand withouta corresponding increase in ethanol demand, management anticipates furtherdecreases in ethanol prices.

 

Managementanticipates that ethanol prices will be relatively stable during for the restof our 2010 fiscal year unless the EPA approves an increase in the amount ofethanol that can be blended with gasoline for use in standard (non-flex fuel)vehicles.  The EPA is consideringallowing a blend of 15% ethanol and 85% gasoline (called E15) for use instandard vehicles.  The EPA has delayedmaking a decision on E15 until sometime in 2010.  If the EPA allows a 15% ethanol blend, it mayresult in increased ethanol demand which could positively impact ethanolprices.  However, the EPA may restrictwhat vehicles can use E15 which may lead to gasoline retailers refusing tocarry E15.  Further, the EPA may mandatelabeling requirements for the E15 blend which may be unattractive to gasolineconsumers and may result in decreased ethanol demand.  Automobile manufacturers and environmentalgroups are lobbying against higher percentage ethanol blends.  In addition, we expect some seasonality ofdemand for ethanol that coincides with increased gasoline demand during thesummer driving season which may have a positive impact on ethanol prices.

 

Duringthe first quarter of 2010, we also experienced a decreasing trend in the pricewe received for our distillers grains. Management attributes this decreasing price trend in distillers grainswith decreased export demand for distillers grains along with increased supplyof distillers grains and concerns about the quality of distillers grains.  Vomitoxin was a significant concern relatedto corn harvested in the fall of 2009 due to the very wet conditions and lateharvest.  Vomitoxin from corn used in theethanol production process remains in the distillers grains which are theco-product of the ethanol production process. If the corn that is used to produce ethanol contains high levels ofvomitoxin, it can affect the quality of the distillers grains that are producedand affect the price of distillers grains. Management anticipates that distillers grains prices will decrease in July andAugust and will start to recover after that time.  These changes are in part related to typicalannual price changes in the corn and soybean markets.  After the end of the first quarter of 2010,distillers grains prices increased. Management attributes this increase in prices to increased distillers grainsdemand from China.  Managementanticipates continued growth in export distillers grains demand whichmanagement believes will have a positive impact on distillers grains prices.

 

Theethanol plant continues to produce ethanol and distillers grains at a rate thatis in excess of our nameplate production capacity of 100 million gallons peryear.  Management continues to fine tunethe operation of the ethanol plant in an effort to increase the amount ofethanol and distillers grains that we can produce.

 

***Cost of GoodsSold***

 

Ourtwo primary costs of producing ethanol and distillers grains are corn costs andnatural gas costs.   Our cost of goodssold was approximately 87% of our total revenues for the first quarter of 2010.During the first quarter of 2010, we experienced a decreasing trend in ourcosts per bushel of corn.  Managementattributes this decreasing trend in corn costs with increased corn productionestimates and increased corn carryover. Management anticipates that corn prices will be steady for the rest ofour 2010 fiscal year with the typical increase in corn prices until July andthen decreasing prices thereafter. However, management believes that unfavorable weather conditions orincreased global demand could result in significant increases in corn prices ina relatively short period of time.

 

Duringthe first quarter of 2010, we experienced natural gas prices that were somewhatvolatile.  We continued to experiencehigher natural gas prices earlier in the first quarter of 2010 as a result ofpremium pricing during the winter months. This premium pricing is related to higher natural gas demand related toheating needs.  Management anticipatesthat the average natural gas prices will be relatively steady during theremaining quarters of our 2010 fiscal year although there likely will be somevolatility in the market.  However,natural gas prices could increase if economic conditions continue to improveprompting increases in natural gas demand.

 

Duringthe first quarter of 2010, we experienced an approximately $1.5 millionrealized gain and an unrealized gain of approximately $1.2 million related toour corn and natural gas derivative instruments.  For accounting purposes, we recognize thegains that result from changes in the value of our derivative instruments incost of goods sold as the changes occur. Our plant is expected to grind approximately 40 million bushels of cornper year.  We anticipate entering intorisk management positions with respect to approximately 10 to 15% of our annualcorn needs.  As of March 31, 2010,we had risk management positions in place for approximately 11% of our corn

 

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needsfor the next 12 months.  In addition, weanticipate entering into derivative instrument positions with respect toapproximately 2% of our annual natural gas needs.  As of March 31, 2010, we had riskmanagement positions in place for approximately 2% of our natural gas needs forthe remaining quarters of our 2010 fiscal year.

 

***Selling, Generaland Administrative Expenses***

 

Weexperienced a significant decrease in selling, general and admnistrativeexpenses during the first quarter of 2010 compared to the first quarter of2009.  During the first quarter of 2009,we recorded an asset impairment related to a change order during constructionof the plant to change the design from one large thermal oxidizer stack to twosmaller thermal oxidizer stacks.  In addition,our selling, general and admnistrative expenses were lower for the firstquarter of 2010 compared to the first quarter of 2009 due to the fact that allof our wages and benefits were included in selling, general and admnistrativeexpenses during the first quarter of 2009. Once we became operational, all of our wages and benefits attributableto our production staff are included in our cost of goods sold and only ouradministrative employees’ wages and benefits are included in our selling,general and admnistrative expenses.

 

***Other Income(Expense)***

 

Weexperienced an increase in other expense for the first quarter of 2010 comparedto the first quarter of 2009.  We hadless interest income during the first quarter of 2010 compared to the firstquarter of 2009 as a result of a decrease in the market interest rate.  In addition, we experienced a significantamount of interest expense during the first quarter of 2010 as a result of ouroutstanding Home Federal loans.  We didnot have any interest expense during the first quarter of 2009 because we werecapitalizing the interest on our loans until the ethanol plant becameoperational.

 

**Changes in Financial Conditionfor the Three Months Ended March 31, 2010**

 

We experienced anincrease in our current assets as of March 31, 2010 compared to December 31,2009.  This increase was primarily due toa significant increase in the amount of cash we had on hand.  We experienced an increase in the amount ofcash we had on hand at March 31, 2010 compared to December 31, 2009as a result of the continued profitable operation of the ethanol plant.  In addition, we experienced a significantdecrease in the value of our accounts receivable at March 31, 2010compared to December 31, 2009 due to a decrease in the market price ofethanol.

 

We experienced adecrease in the total value of our property and equipment at March 31,2010 compared to December 31, 2009 as a result of an increase in theaccumulated depreciation of our buildings and equipment.

 

We experienced anincrease in our current liabilities at March 31, 2010 compared to December 31,2009.  At March 31, 2010, we hadless outstanding accounts payable compared to December 31, 2009 as aresult of timing issues related to payments we made for our raw materials andto our service providers.  In addition,we experienced an increase in the current portion of our long-term debt at March 31,2010 compared to December 31, 2009 as a result of the fact that wecommenced making principal payments on our long-term loan in February 2010.  As a result, the current amount of ourlong-term debt at December 31, 2009 only included 11 months of principalpayments on our long-term loan.  As of March 31,2010, we included 12 months of principal payments in the current portion of ourlong-term debt.  In addition, the currentportion of our long-term debt includes a $5 million free cash flow payment thatwe paid after the end of the first quarter of 2010.  The total amount of our long-term debt waslower at March 31, 2010 compared to December 31, 2009 as a result ofour continuing debt service payments.

 

**Liquidityand Capital Resources**

 

Our primary sources of liquidity are cash from ouroperations, our $20,000,000 term revolving loan and our $6,000,000 line ofcredit.  These credit facilities aredescribed in greater detail below under “Short-Term and Long-Term Debt Sources.”  As of March 31, 2010, we had $26 millionavailable pursuant to the revolving loan and revolving line of credit and wehad approximately $8.3 million in cash and equivalents.  Following the end of the first quarter of2010, we made a $5 million free cash flow payment to our primary lender usingcash we had on hand.  Based on financialforecasts performed by our management, we anticipate that we will havesufficient cash

 

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fromour current credit facilities and cash from our operations to continue tooperate the ethanol plant at capacity for the next 12 months.  We do not anticipate seeking additionalequity or debt financing in the next 12 months. However, should we experience unfavorable operating conditions in thefuture, we may have to secure additional debt or equity financing for workingcapital or other purposes.

 

The followingtable shows cash flows for the three months ended March 31, 2010 and 2009:

 
| ** **                                           | ** ** | **Three Months Ended March 31** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                           | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| Net  cash provided by (used in) operating activities |       | $                                    | 9,411,355  |   | $ | (2,889,003 | ) |
| Net  cash (used in) investing activities             |       | $                                    | (682,045   | ) | $ | (10,443,249 | ) |
| Net  cash provided by (used in) financing activities |       | $                                    | (1,273,347 | ) | $ | 13,290,696 |   |

 

Operating Cash Flows.  We generated significantly more cash from ouroperating activities during the first quarter of 2010 compared to the firstquarter of 2009 because our plant was operational during the 2010 period.  We commenced operations at the ethanol plantin early April 2009.  Since we werepreparing to commence operating the ethanol plant at the end of the firstquarter of 2009, we experienced increases in our inventory and prepaid expenseswhich had a negative impact on our cash flow from our operating activities.

 

Investing Cash Flows.  We used significantly less cash for investingactivities during the first quarter of 2010 compared to the first quarter of2009.  We used a significant amount ofcash during the first quarter of 2009 for equipment purchases and constructionin progress payments as we were completing the construction of our ethanol plantat that time.

 

Financing CashFlows.  Our financing activities provided cash duringthe first quarter of 2009 due to approximately $13 million that we receivedfrom our Home Federal loans which we used to pay costs associated with theconstruction of our ethanol plant.  Bycomparison, during the first quarter of 2010, we used cash for our financingactivities in making payments on our Home Federal term loan.  We did not receive any proceeds from ourloans during the first quarter of 2010.

 

***Short-Term and Long-Term Debt Sources***

 

MasterLoan Agreement with Home Federal Savings Bank

 

On November 30, 2007, we entered into a Master Loan Agreement withHome Federal Savings Bank (“Home Federal”) establishing a senior creditfacility with Home Federal.  In return,we executed a mortgage in favor of Home Federal creating a senior lien onsubstantially all of our assets.  TheMaster Loan Agreement provides for a (i) $74 million term loan; (ii) $20million term revolving loan; and (iii) $6 million revolving line ofcredit.

 

*TermLoan*

 

The original principal amount of the term loan was $74,000,000.  We made monthly payments of accrued intereston the term loan until February 1, 2010. On February 1, 2010, we began making equal monthly principalpayments in the amount of $616,667 plus accrued interest. All unpaid principaland accrued interest on the term loan will be due on July 1, 2014. We havethe right to convert up to 50% of the term loan into a fixed rate loan with theconsent of Home Federal. The fixed rate loan will bear interest at the fiveyear London Interbank Offered Rate (LIBOR) swap rate that is in effect on thedate of conversion plus 325 basis points, or another rate mutually agreed uponbetween us and Home Federal. If we elect this fixed rate option, the interestrate will not be subject to any adjustments otherwise provided for in theMaster Loan Agreement. The remaining portion of the term loan will bearinterest at a rate equal to the LIBOR plus 325 basis points.  As of March 31, 2010, the principal balanceof the Home Federal term loan was approximately $67,767,000.  As of March 31, 2010, interest on theterm loan accrued at an annual rate of 3.478%.

 

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*TermRevolving Loan*

 

In addition to the term loan, we have a $20,000,000 term revolving loanwhich has a maturity date of July 1, 2014. Interest on the term revolvingloan accrues at a rate equal to the LIBOR plus 325 basis points. We arerequired to make monthly payments of interest until the maturity date of theterm revolving loan, on which date the unpaid principal amount of the termrevolving loan becomes due.  As of March 31,2010, we had no outstanding borrowing and $20,000,000 available to be drawn onthe term revolving loan.

 

*RevolvingLine of Credit*

 

Under the terms of the Master Loan Agreement, we agreed to the terms ofa revolving line of credit. The revolving line of credit became available on July 1,2009.  The aggregate principal amount ofthe revolving line of credit may not exceed the lesser of: (a) $6,000,000;or (b) the sum of (i) 75% of certain eligible accounts receivable,plus (ii) 75% of certain eligible inventory.  Interest on the revolving line of creditaccrues at a rate equal to the LIBOR plus 325 basis points. We are required tomake monthly payments of accrued interest until the revolving line of creditexpires, on which date the unpaid principal amount becomes due and payable. Therevolving line of credit expires on June 30, 2010.  As of March 31, 2010, we had nooutstanding borrowing and $6,000,000 available to be drawn on the revolvingline of credit.

 

If we fail to make a payment of principal or interest on any loanwithin 10 days of the due date, there will be a late charge equal to 5% of theamount of the payment.

 

Covenants

 

In connection with the Master Loan Agreement, we are required to complywith certain debt covenants and financial ratios.  As of March 31, 2010, we were in compliancewith all of our debt covenants and financial ratios.  We are required to maintain a debt servicereserve account of $10,000,000 for use by Home Federal for repayment of theloans.   Should Home Federal apply any ofthe funds in this account, we are required to replenish the account to$10,000,000.  We had in excess of$10,000,000 in our debt service reserve account as of March 31, 2010.  Once we achieve and maintain tangible networth of 65%, based on audited financial statements, and are in compliance withall other covenants, the debt service fund will be released to us and we willno longer be required to replenish the account. However, should our tangible net worth fall below 65% at any time in thefuture, we would again be required to replenish the debt service fund.  Tangible net worth is calculated as theexcess total assets, including the debt reserve account, (with certainexclusions, such as intangible assets) over total liabilities (exceptsubordinated debt if applicable).  It isdifficult to predict when and if we will achieve tangible net worth of 65%,however, we had tangible net worth of approximately 60% or approximately$110,838,000 as of March 31, 2010.

 

In addition, we are subject to certain financial covenants at varioustimes calculated monthly, quarterly or annually.  We are required to have working capital of atleast $12,000,000 as of May 1, 2010 and annually thereafter.  Our tangible net worth requirement was$90,000,000 as of December 31, 2009, and increases by $5,000,000 annuallyuntil we are required to meet $105,000,000 by December 31, 2012, andannually thereafter.  Managementanticipates that we will be in compliance with all of our debt covenants andfinancial ratios for the next 12 months.

 

Failure to comply with the loan covenants or maintain the requiredfinancial ratios may cause acceleration of the outstanding principal balanceson the loans and/or the imposition of fees, charges or penalties.  Any acceleration of the debt financing orimposition of the significant fees, charges or penalties may restrict or limitour access to the capital resources necessary to continue plantoperations.  Should we default on any ofour obligations pursuant to the Home Federal loans, Home Federal may terminateits commitment to provide us funds and declare the entire unpaid principalbalance of the loans, plus accrued interest, immediately due and payable.  Events of default include, the failure tomake payments when due, our insolvency, any material adverse change in ourfinancial condition or the breach of any of the covenants, representations orwarranties we have in connection with the transaction.

 

We are required by the Master Loan Agreement to make an additionalpayment each year equal to 100% of our excess cash flow as that term is definedin the Master Loan Agreement.  Thisexcess cash flow payment is capped at $5,000,000 each year.  Following the end of the first quarter of2010, we made an excess cash flow

 

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paymentof $5,000,000 to Home Federal.  As aresult, we will make no further excess cash flow payments during our 2010fiscal year.  We are only required tomake the excess cash flow payment until our tangible net worth is equal to orgreater than 65% of our total assets.

 

*Grants and Government Programs*

 

In addition to our equityand debt financing, we have applied for and received various grants.  In May 2006 we received a grant from theIowa Corn Promotion Board in the amount of $25,000 for the preparation of ourfeasibility study and legal fees during our equity drive.

 

On December 19,2007, the Iowa Department of Economic Development approved us for a package ofbenefits, including a grant of $240,000 for the construction of a turning laneoff of Iowa Highway 24 to the plant as well as a package of tax benefits underthe High Quality Jobs Program from the State of Iowa. Such tax benefits includea refund of sales, service and use taxes paid to contractors during theconstruction phase, an investment tax credit of up to $10,000,000 for qualifiedexpenditures directly related to the new jobs created, and a property taxexemption for a portion of the value added by improvements we made to ourproperty directly related to new jobs created by the plant (estimated at$10,350,000).  In order to receive thesebenefits, we are required to meet certain requirements by 2012, such as thecreation of 40 full-time employee positions meeting certain minimum wage andbenefit criteria.  These 40 positionsmust be maintained for at least two years following their creation. Currently,we have 42 employees and hope to maintain the minimum job requirement until2012.

 

On September 16,2009, we received notice that we had satisfied the conditions for disbursingthe sales, service and use tax refund and the investment tax credit.  The Department of Economic Developmentagreement contains certain requirements that we are required to meet through2012.  In the event that we fail to meetor maintain any one of the requirements of the High Quality Jobs CreationProgram or Funding Agreement, we are subject to repayment of all or a portionof the incentives and assistance received based on specific provisions of the agreement.  The agreement provides that IDED may elect tohave us repay a portion of the benefits received, on a pro rata basis, based onthe number of jobs attained compared to the number of jobs pledged.  We have maintained all of the requirements tobe met to date and have not incurred any liability for repayment of theincentives and assistance received.

 

We received preliminaryapproval for a loan guarantee of 60% of a potential $40,000,000 loan throughHome Federal Savings Bank from the United States Department of Agriculture (“USDA”)under the Rural Energy Program based on some unique efficiencies at ourplant.  However, we were required to meetcertain conditions prior to the receipt of the loan guarantee which we have notyet been able to meet. We recently received an extension from the USDA of itscommitment until November 2010. However, if we do not meet those conditions by November 2010, wemay not receive the guarantee.

 

In June 2009, wewere awarded a $300,000 working capital grant from the USDA pursuant to theValue-Added Producer Grant (“VAPG”) program. Pursuant to the program, the USDA can provide up to 50% of the eligibleproject amount, which in our case was $625,000. We are required to utilize the funds, as well as the $325,000 in matchingfunds, for corn, yeast, enzymes and processing chemical purchases.

 

*Grantsand Government Programs for Coal Gasification*

 

We applied to the IowaPower Fund for approximately $8,000,000 in funds to help finance theconstruction of a coal gasification energy center.  However, our application was rejected and wewill not receive any funds from the Iowa Power Fund at this time.

 

We were awarded twounsecured loan agreements from the Iowa Department of EconomicDevelopment.  The forgivable loan wassubject to installation of coal gasification technology.  We repaid the interest free and forgivableloans in full on April 23, 2009 because we did not fulfill the coalgasification requirement of the IDED agreement.

 

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**Application of CriticalAccounting Estimates and Significant Accounting Policies**

 

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

 

Weevaluate our contracts to determine whether the contracts are derivativeinstruments.  Certain contracts thatliterally meet the definition of a derivative may be exempted from derivativeaccounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for thepurchase or sale of something other than a financial instrument or derivativeinstrument that will be delivered in quantities expected to be used or soldover a reasonable period in the normal course of business.  Contracts that meet the requirements of normalpurchases or sales are documented as normal and exempted from the accountingand reporting requirements of derivative accounting.

 

We enter into short-term cash, option and futurescontracts as a means of securing purchases of corn, natural gas and sales ofethanol for the plant and managing exposure to changes in commodity and energyprices.  All of our derivatives aredesignated as non-hedge derivatives, with changes in fair value recognized innet income.  Although the contracts areeconomic hedges of specified risks, they are not designated as and accountedfor as hedging instruments.

 

As part of our trading activity, we use futures andoption contracts through regulated commodity exchanges to manage our riskrelated to pricing of inventories.  Toreduce that risk, we generally take positions using cash and futures contractsand options.

 

Realized and unrealized gains and losses related toderivative contracts related to corn and natural gas are included as acomponent of cost of goods sold and derivative contracts related to ethanol areincluded as a component of revenues in the accompanying financialstatements.  The fair values of contractsentered through commodity exchanges are presented on the accompanying balancesheet as derivative instruments.

 

Revenuefrom the sale of our products is recognized at the time title to the goods andall risks of ownership transfer to the customers.  This generally occursupon shipment, loading of the goods or when the customer picks up the goods.Interest income is recognized as earned. Shipping costs incurred in the sale of ethanol and distillers grains arenot specifically identifiable and as a result, revenue from the sale of ethanoland distillers grains is recorded based on the net selling price reported to usfrom the marketer.

 

Weconsider the carrying amount of significant classes of financial instruments onthe balance sheets including cash, accounts receivable, due from broker,restricted cash, other assets, accounts payable, accrued liabilities andvariable rate long-term debt to be reasonable estimates of fair value eitherdue to their length of maturity or the existence of variable interest ratesunderlying such financial instruments that approximate prevailing market ratesat March 31, 2010.

 

We review ourproperty and equipment for impairment whenever events indicate that thecarrying amount of the assets may not be recoverable.  Ifcircumstances require a long-lived asset be tested for possible impairment, wefirst compare undiscounted cash flows expected to be generated by an asset tothe carrying value of the asset. If the carrying value of the long-lived assetis not recoverable on an undiscounted cash flow basis, an impairment isrecognized to the extent that the carrying value exceeds its fair value. Fairvalue is determined through various valuation techniques including discountedcash flow models, quoted market values and third-party independent appraisals,as considered necessary.

 

**Off-BalanceSheet Arrangements**

 

We donot have any off-balance sheet arrangements.

 

**Item 3.  Quantitativeand Qualitative Disclosures about Market Risk.**

 

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

 

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**Item 4T.  Controls and Procedures.**

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in the reports that we file or submit pursuant to theSecurities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms, and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow for timely decisionsregarding required disclosures.

 

Our management, includingour President and Chief Executive Officer (the principal executive officer),Walter Wendland, along with our Chief Financial Officer, (the principalfinancial officer), Jeffrey Grober, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures as of March 31,2010.  Based on this review andevaluation, these officers believe that our disclosure controls and proceduresare effective in ensuring that material information related to us is recorded,processed, summarized and reported within the time periods required by theforms and rules of the Securities and Exchange Commission.

 

For the fiscal quarterended March 31, 2010, there has been no change in our internal controlover financial reporting that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

**PART II.             OTHER INFORMATION**

 

**Item 1.  LegalProceedings**

 

From time to timein the ordinary course of business, Homeland Energy Solutions, LLC may be namedas a defendant in legal proceedings related to various issues, includingwithout limitation, workers’ compensation claims, tort claims, or contractualdisputes.  We are not currently involvedin any material legal proceedings.

 

**Item1A.  Risk Factors.**

 

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

 

**Item 2.  UnregisteredSales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item 3.  DefaultsUpon Senior Securities**

 

None.

 

**Item 4.  (Removedand Reserved)**

 

**Item 5.  OtherInformation**

 

None.

 

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**Item 6.    Exhibits**

 

(a)           Thefollowing exhibits are filed as part of, or are incorporated by reference into,this report:

 
| **Exhibit  No.** | ** ** | **Exhibit**                                          | ** ** | **Filed  Herewith** | ** ** | **Incorporated  by Reference** |
|------------------|------------|------------------------------------------------------|------------|---------------------|------------|--------------------------------|
| 31.1             |       | Certificate Pursuant to  17 CFR 240.13a-14(a)        |       | X                   |       |                           |
|             |       |                                                 |       |                |       |                           |
| 31.2             |       | Certificate Pursuant to  17 CFR 240.13a-14(a)        |       | X                   |       |                           |
|             |       |                                                 |       |                |       |                           |
| 32.1             |       | Certificate Pursuant to  18 U.S.C. Section 1350 |       | X                   |       |                           |
|             |       |                                                 |       |                |       |                           |
| 32.2             |       | Certificate Pursuant to  18 U.S.C. Section 1350 |       | X                   |       |                           |

 

**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |               | HOMELAND ENERGY  SOLUTIONS, LLC                                       |
|--------|--------------------|-----------------------------------------------------------------------|
|   |               |                                                                  |
|   |               |                                                                  |
| Date:  | May 17,  2010 |                                                                  | /s/  Walter W. Wendland |
|   |               | Walter W. Wendland                                                    |
|   |               | Chief  Executive Officer and President (Principal Executive Officer)  |
|   |               |                                                                  |
|   |               |                                                                  |
| Date:  | May 17,  2010 |                                                                  | /s/  Jeffrey S. Grober |
|   |               | Jeffrey S. Grober                                                     |
|   |               | Chief  Financial Officer (Principal Financial and Accounting Officer) |

 

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