UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-KSB/A

 

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

For the fiscal year ended September 30, 2007

o		Transition report under Section 13 or 15(d) of the Exchange Act.

For the transition period from                                          to                                         

IOWA RENEWABLE ENERGY, LLC

(Name of small business issuer in its charter)

Iowa		20-3386000
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1701 East 7th Street, Washington, Iowa (Address of principal executive offices)		52353 (Zip Code)

(319) 653-2890
(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Securities registered under Section 12(g) of the Exchange Act:

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes       o No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. þ

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

State issuer’s revenues for its most recent fiscal year. $16,443,440

As of December 1, 2007, the aggregate market value of the membership units held by non-affiliates (computed by reference to the most recent offering price of such membership units) was $23,581,000.

As of December 1, 2007, there were 26,331 membership units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-KSB its definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report.

Transitional Small Business Disclosure Format (Check one): o Yes       þ No

 

 

EXPLANATORY NOTE:

This Amendment No. 1 to the Annual Report on Form 10-KSB/A (“Amendment No. 1”) of Iowa Renewable Energy, LLC (the “Company”) for the fiscal year ended September 30, 2007, is being filed for the purpose of amending and restating Item 7 of the Company’s original Annual Report on Form 10-KSB (the “Annual Report”) due to the fact that the signature of the Company’s independent registered public accounting firm was inadvertently omitted from the audit report contained in the original Annual Report, even though the original audit report received by the Company had been properly signed by the Company’s independent registered public accounting firm.

In accordance with Rule 12b-15 under the Securities and Exchange Act of 1934, the complete text of the item amended by this Amendment No. 1 is set forth herein. The remainder of the Company’s original Annual Report on Form 10-KSB is unchanged. Pursuant to Rule 12b-15, this Amendment No. 1 includes new certifications by the Company’s principal executive officer and principal financial officer. This report speaks only as of the original filing date of the Company’s Annual Report on Form 10-KSB and has not been updated or modified to take into account any events occurring subsequent to the original filing date.

ITEM 7. FINANCIAL STATEMENTS.

     

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Members
Iowa Renewable Energy, LLC
Washington, Iowa

We have audited the balance sheets of Iowa Renewable Energy, LLC as of September 30, 2007 and 2006, and the related statements of operations, members’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Iowa Renewable Energy, LLC as of September 30, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has suffered losses from operations and has experienced significant increases in the input costs for their products. This has created liquidity issues and the Company is or, will likely be, in violation of its bank debt covenants and there is no assurance that such violations will be waived which together raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ McGladrey & Pullen, LLP

Davenport, Iowa

December 27, 2007

Iowa Renewable Energy, LLC

Balance Sheet
September 30, 2007 and 2006

		2007				2006
Assets
Current Assets:
Cash and cash equivalents		$	725,522			$	473,505
Margin deposit			1,337,860				—
Accounts receivable			5,614,315				—
Federal incentive receivable			822,228				—
Inventory			3,815,722				—
Prepaids and other assets			37,032				—
			12,352,679				473,505
Property and Equipment:
Land			420,000				420,000
Plant and processing equipment			41,464,111				—
Office building, furniture and fixtures			572,665				2,325
Equipment & vehicles			226,424				4,566
Construction in process			—				15,065,424
			42,683,200				15,492,315
Accumulated depreciation			(663,962	)			(1,460	)
			42,019,238				15,490,855
Other Assets:
Cash, restricted for construction of property and equipment			—				10,263,792
Financing costs, net			542,513				83,245
			542,513				10,347,037
		$	54,914,430			$	26,311,397
Liabilities and Members’ Equity
Current Liabilities:
Current maturities of long-term debt		$	33,342,558			$	40,000
Accounts payable and accrued expenses			1,374,711				10,345
Derivative financial instruments			510,247				—
Construction payable, including retainage 2007 $300,000; 2006 $737,500			300,000				4,119,524
Total current liabilities			35,527,516				4,169,869
Long-Term Debt			—				360,000
Commitments
Members’ Equity:
Member contributions, net of issuance costs, units outstanding 2007 26,331; 2006 25,231			23,165,422				22,615,422
Accumulated (deficit)			(3,778,508	)			(833,894	)
			19,386,914				21,781,528
		$	54,914,430			$	26,311,397

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Operations
Years Ended September 30, 2007 and 2006

		2007				2006
Revenues:
Sales		$	14,770,787			$	—
Federal incentives			1,672,653				—
			16,443,440				—
Cost of sales			18,358,810				—
Gross (loss)			(1,915,370	)			—
Operating expenses:
Consulting fees			—				344,844
General and administrative			533,133				95,367
Equity based compensation			—				600,000
Depreciation			9,500				1,460
			542,633				1,041,671
(Loss) before other income (expense)			(2,458,003	)			(1,041,671	)
Other income (expense):
Interest income			229,859				320,738
Interest expense			(716,470	)			—
Net (loss)		$	(2,944,614	)		$	(720,933	)
Weighted average units outstanding			26,241				13,164
Net (loss) per unit — basic and diluted		$	(112.21	)		$	(54.77	)

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Changes in Members’ Equity (Deficit)
Years Ended September 30, 2007 and 2006

						Member				Accumulated				Total Members’
		Member Units				Contributions				Deficit				Equity (Deficit)
Balance, September 30, 2005			220			$	110,000			$	(112,961	)		$	(2,961	)
Member contributions, net of costs of $285,578			24,511				21,655,422				—				21,655,422
Issuance of units for consulting services			500				250,000				—				250,000
Equity based compensation			—				600,000				—				600,000
Net (loss)			—				—				(720,933	)			(720,933	)
Balance, September 30, 2006			25,231				22,615,422				(833,894	)			21,781,528
Exercise of unit options			1,100				550,000				—				550,000
Net (loss)			—				—				(2,944,614	)			(2,944,614	)
Balance, September 30, 2007			26,331			$	23,165,422			$	(3,778,508	)		$	19,386,914

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Statements of Cash Flows

Years Ended September 30, 2007 and 2006

		2007				2006
Cash Flows from Operating Activities:
Net (loss)		$	(2,944,614	)		$	(720,933	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation			662,502				1,460
Amortization			25,432				—
Units issued for consulting services			—				250,000
Equity based compensation			—				600,000
Unrealized loss on derivative financial instruments			510,247				—
Change in working capital components:
(Increase) in margin deposits			(1,337,860	)			—
(Increase) in accounts receivable			(6,436,543	)			—
(Increase) in inventory			(3,815,722	)			—
(Increase) in prepaids and other assets			(37,032	)			—
Increase in accounts payable and accrued expenses			1,364,366				(2,326	)
Net cash provided by (used in) operating activities			(12,009,224	)			128,201
Cash Flows from Investing Activities:
Purchase and construction of property and equipment			(30,942,594	)			(11,372,791	)
(Increase) decrease in cash restricted			10,263,792				(10,263,792	)
Net cash used in investing activities			(20,678,802	)			(21,636,583	)
Cash Flows from Financing Activities:
Issuance of membership units, an exercise of unit options			550,000				21,941,000
Payments for offering costs			—				(285,578	)
Payments for financing costs			(552,515	)			(83,245	)
Proceeds from short-term borrowings			—				1,052,146
Payment on short-term borrowings			—				(1,052,146	)
Proceeds from long-term borrowings			32,997,558				400,000
Payment on long-term borrowings			(55,000	)			—
Net cash provided by financing activities			32,940,043				21,972,177
Net increase in cash and cash equivalents			252,017				463,795
Cash and cash equivalents:
Beginning			473,505				9,710
Ending		$	725,522			$	473,505
Supplemental Disclosure of Cash Flow Information, Cash payments for interest, net of amount capitalized		$	443,754			$	—
Supplemental Disclosure of Noncash Operating and Financing Activities:
Construction in progress included in accounts payable		$	300,000			$	4,119,524
Amortized financing costs included in construction in process			67,815				—

See Notes to Financial Statements.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Note 1. Nature of Business, Basis of Presentation and Significant Accounting Policies

Nature of business:

Iowa Renewable Energy, LLC (the Company), located in Washington, Iowa, was formed in April 2005 to pool investors to build a biodiesel manufacturing plant with an annual capacity of 30 million gallons. The Company was in the development stage until July 2007, when it commenced operations.

Significant accounting policies:

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

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

Cash and cash equivalents: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts receivable — Accounts receivable are presented at face value, net of the allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on historical experience and current economic conditions. Management believes all receivables will be collected and, therefore, there is no allowance at September 30, 2007.

The Company’s policy is to charge simple interest on trade receivables past due balances; accrual of interest is discontinued when management believes collection is doubtful. Receivables are considered past due based upon payment terms set forth at the date of the related sale. The Company had no receivables accruing interest at September 30, 2007

Inventory: Inventory is valued at the lower of cost or market using the first-in, first out (FIFO) method. Inventory consists of the following as of September 30, 2007:

Raw material		$	469,649
Finished goods			3,346,073
		$	3,815,722

Organizational costs and startup costs: The Company expenses all organizational and startup costs as incurred.

Property and equipment: Property and equipment is stated at cost. Construction in progress is comprised of costs related to the construction of the biodiesel plant. Depreciation of such amounts commenced when the plant began operations. Depreciation is computed using the straight-line method over the following estimated useful lives:

		Years
Plant and process equipment			10-20
Office building			10-20
Office equipment			3-7
Other equipment			3-7

Iowa Renewable Energy, LLC

Notes to Financial Statements

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. As of September 30, 2007 the Company had capitalized $559,715 of interest and financing costs in construction in process, all of which were incurred in the year ended September 30, 2007.

Land: In August 2005, an entity owned by several equity members of the Company, entered into an option agreement to purchase approximately 28 acres of land for $15,000 per acre. A deposit of $1,000 was paid for this option. In February 2006, the Company exercised the option on approximately 28 acres for $15,000 per acre. The total paid for the land was $420,000. The $1,000 option deposit was applied to the purchase price. The purchase price is included in land on the September 30, 2007 balance sheet.

Offering costs: The Company classifies all costs directly related to raising capital as deferred offering costs until the capital is raised, at which point the costs were reclassified as an offset to equity as issuance costs. A total of $285,578 of offering costs were reclassified as an offset to equity for the year ended September 30, 2006.

Financing costs: Deferred financing costs associated with the construction and revolving loans and the $34,715,000 construction loan (Note 4) include expenditures directly related to securing debt financing. These costs are being amortized using the effective interest method over the 6-year term of the related debt agreement.

Derivative instruments: The Company has entered into derivative contracts to hedge its exposure to price risk related to forecasted soybean oil purchases and forecasted biodiesel sales. These derivative contracts are to be accounted for under Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Although the Company believes its derivative positions are economic hedges, none have been designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings. The Company recognized a net loss of $524,827 during the year ended September 30, 2007 which consisted of a realized loss of $14,580 and an unrealized losses of $510,247. There was no derivative activity in the year ended September 30, 2006.

Revenue recognition — Revenue from the production of biodiesel and related products is recorded upon transfer of the risks and rewards of ownership and delivery to customers. Interest income is recognized as earned.

Federal incentive payments and receivables: Revenue from federal incentive programs is recorded when the Company has sold blended biodiesel and satisfied the reporting requirements under the applicable program. When it is uncertain that the Company will receive full allocation and payment due under the federal incentive program, it derives an estimate of the incentive revenue for the relevant period based on various factors including the most recently used payment factor applied to the program. The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Cost of sales — The primary components of cost of sales from the production of biodiesel products are, raw materials (soybean oil, hydrochloric acid, methanol, sodium methylate, and chemicals), energy (natural gas and electricity), and labor. Cost of sales detail for the year ended September 30, 2007 is as follows:

Cost of Revenue/Sales		Dollars				Percentage
Input costs (soy oil, chemicals, etc.)		$	15,809,583				86.11	%
Plant wages and salaries			398,868				2.17
Utilities and waste disposal			318,185				1.73
Fees-marketing, sales, procurement			300,891				1.64
Loss on derivative financial instruments			524,827				2.86
Depreciation			653,002				3.56
Maint., supplies and other expenses			353,454				1.93
Total cost of revenue/sales		$	18,358,810				100.00	%

The negative margin in 2007 was in part due to our Marketer and sole customer not reacting to the changing price structure of raw materials fast enough and committing to long-term remarketing contracts for biodiesel without hedging the raw materials costs. These factors were significant components of the negative margin.

Shipping and handling costs — Shipping and handling costs are expensed as incurred and are included in the cost of sales.

Income taxes: The Company is organized as a limited liability company which is accounted for like a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, the Company’s earnings and losses are included in the income tax returns of its members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.

(Loss) per unit: Loss per unit has been computed on the basis of the weighted average number of units outstanding during each period presented. Units under the directors’ unit option plan prior to issuance were not included in the computation because their inclusion would have been antidilutive.

Fair value of financial instruments: The estimated fair value of financial instruments was determined by reference to various market data and other valuation techniques as appropriate. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short maturity of these financial instruments. The carrying value of the debt also approximates fair value as the interest rate reprices when market interest rates change. The fair values of the derivate instruments are based on quoted prices in active exchange-traded or over-the-counter markets.

Unit options: The Company adopted a Unit Option agreement in February 2006 under which options to acquire 1,200 membership units of the Company were granted to the directors at $500 per unit. The Company accounted for stock option grants using the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. $600,000 of equity based compensation was reflected in operations for the year ended September 30, 2006 for the difference between the fair market value of the stock at the grant date and the underlying exercise price.

The Company applied the disclosure only provisions of SFAS 123, Accounting for Stock-Based Compensation, (FAS 123). SFAS 123 required the disclosure of the pro forma impact on net loss and loss per share if the value of the options were calculated at fair value. SFAS 123 permitted private companies to calculate the fair value of stock options using the minimum value method while public companies were required to use a fair value model. The Company used the minimum value method to calculate the fair value using the following assumptions: Dividend rate 0%, risk free interest rate 4.5% and expected lives of eight months. 1,100 of the options were exercised in November 2006 with 100 expiring unexercised.

Iowa Renewable Energy, LLC

Notes to Financial Statements

The following table illustrates the effect on net loss and loss per unit had the Company applied the fair value recognition method of SFAS 123 for the year ended September 30, 2006.

Net Loss:
As reported		$	(720,933	)
Deduct additional stock-based compensation expense determined under the minimum value based method for all awards			(17,456	)
Pro forma		$	(738,389	)
Loss per unit:
As reported		$	(54.77	)
Pro forma			(56.09	)

In December 2004, FASB published Statement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”). FAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement. The Statement was effective for the Company on October 1, 2006. The Company adopted the provisions of FAS 123(R) using a modified prospective application. Under that approach, FAS 123(R) applies to new awards issued after September 30, 2006 or existing awards that are subsequently modified.

Note 2. Major Customer and Related Party

Iowa Renewable Energy LLC entered into a marketing agreement with Renewable Energy Group (REG), where REG makes efforts to market and sell all of the biodiesel produced. Sales to REG for the year ended September 30, 2007 were approximately $14.8 million. Related accounts receivable from REG as of September 30, 2007 were approximately $5.6 million.

Iowa Renewable Energy LLC also entered into procurement and management agreements with R.E.G to supply IRE with feedstocks and chemicals necessary for production and manage operations.

These marketing, procurement and management agreements will expire on July 31, 2010; however, the agreement will renew annually unless terminated by either party upon one year’s prior written notice. Total management fees expensed under the agreement for the year ended September 30, 2007 and 2006 were $300,891 and none, respectively.

Note 3. Members’ Equity

The Company was formed on April 14, 2005 to have a perpetual life. The Company has one class of membership unit with each unit representing a pro rata ownership interest in the Company’s capital, profits, losses and distributions. Income and losses are allocated to all members in proportion to units held.

The Company was initially capitalized by 12 members of the original board of directors, contributing an aggregate of $240,000 for 480 units. The Company was further capitalized by 78 members contributing an aggregate of $2,440,000 in exchange for 4,880 units. These units were issued pursuant to a private placement memorandum, limited to Iowa residents in which the Company offered a maximum of 6,000 units at a cost of $500 per unit for a maximum offering of $3,000,000, with all funds collected being considered at-risk capital. Each investor was required to purchase a minimum of 50 units for $25,000, with the option to purchase additional units in increments of one unit for $500 thereafter up to a maximum purchase by a single investor of 100 units for $50,000.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Additionally, a total of 500 units were issued to the members of an entity related to the Company through common ownership in exchange for project development services provided pursuant to a consulting agreement. The private placement memorandum for the seed round offering was closed on November 30, 2005.

In April 2006, the Company issued an Iowa registered offering of membership units. The intrastate offering was set for a minimum of 17,595 membership units up to a maximum of 25,095 units for sale at $1,000 per unit, for a minimum offering amount of $17,595,000 and a maximum offering amount of $25,095,000. The minimum purchase requirements were 25 units for a minimum investment of $25,000. The Company began the intrastate offering on April 17, 2006 which was completed on May 1, 2006. A total of 19,371 membership units were issued to 508 members amounting to $19,371,000 of gross proceeds.

In November 2006 the directors exercised 1,100 units at $500 per unit. 100 units were unexercised and expired. In accordance with the Loan agreement, referenced in Note 4 below, the options funds were used for construction contract obligations prior to the initial draw on the loan in December 2006.

Note 4. Long-Term Debt and Subsequent Event

Long-term debt consists of the following as of September 30, 2007:

Note payable to Marshall Bank Group for construction loan (A)		$	32,997,558
Note payable to the Iowa Department of Economic Development (B)			345,000
		$	33,342,558

Due to the liquidity issues addressed in Note 8, the debt has been classified as current.

(A)		On October 26, 2006, the Company entered into a $34,715,000 construction-term loan agreement which will used to complete the biodiesel project. The loan consists of two phases: a “construction phase” where the Company will make periodic requests for fund advances to meet construction obligations and at the completion of construction, but in no event later than February 2008, the loan will convert to a “senior debt instrument.” The note bears interest at prime plus .75% (8.50% as of September 30, 2007).
		In connection with this loan, the interest rate will be established and a number of reserves will be established in accordance with Article IV of the loan agreement which is summarized below:

Interest rate: Within 15 days of Conversion Date, the Company shall provide written notice to the lender of a selection of one of the following interest rate options:

Floating rate option: The term “phase interest rate” shall be a variable interest rate equal to the national prime rate as of its effective date as reported in the Money Rates column of The Wall Street Journal plus one quarter of one percent (0.25%) per annum.

Fixed rate option: The term “phase interest rate” shall be a fixed rate per annum equal to three percent (3.00%) over the five (5) year rate identified on the LIBOR/swap Curve as published by Bloomberg Market Data L.P.

Interest shall be calculated by multiplying the actual number of days elapsed in the period for which interest is being calculated and based on a 360-day year.

A floating rate will apply for all periods a fixed rate is not in effect.

Interest reserve: A sum in the amount of $1,571,062 shall be unfunded and reserved for the payment of interest owed on the loan. All advances made pursuant to the loan document shall include, but not be limited to, an advance from the unfunded interest reserve to pay interest then due on the loan. Upon completion of the construction phase, all unused funds in the interest reserve shall be advanced and deposited in the debt service reserve.

Iowa Renewable Energy, LLC

Notes to Financial Statements

Debt service reserve: Commencing one month following the conversion date, the Company shall make monthly deposits to a debt service reserve until such time as the balance equals $1,319,265. Monthly deposits shall consist of not less than one-third of all available monthly projected EBITDA.

Capital improvements reserve: Commencing one month after the conversion date, the Company shall make deposits into a custodial account held by the Lender. The fund will be used to fund capital improvements. During the term of the loan, the capital improvements reserve must be maintained at $125,000.

Sinking fund: Commencing one month after the conversion date, one-third of all monthly projected EBITDA shall be applied to reduce loan principal. At the point the outstanding principal loan balance is reduced to $20,182,750 no additional sinking fund deposits will be required.

(B)

The Company has a $300,000 loan agreement and a $100,000 forgivable loan agreement with the Iowa Department of Economic Development. The $300,000 loan is noninterest-bearing and due in monthly payments of $5,000 beginning December 2006 for a term of 60 months with a balance as of September 30, 2007 of $245,000. Borrowings under this agreement are collateralized by substantially all of the Company’s assets and will be subordinate to the $34,715,000 of financial institution debt. The $100,000 loan is forgivable upon the completion of 36 months of the 60 month term.

Current maturities of long-term debt assuming that the construction loan is converted to a senior debt instrument in January 2008 are as follows:

Year ending September 30:
2008		$	1,635,000
2009			2,579,000
2010			2,782,000
2011			3,000,000
2012			3,181,000
Thereafter			20,166,000
		$	33,343,000

The $100,000 loan will be forgiven if the Company complies with certain employment and production criteria defined in the agreement. In the event of noncompliance or default, the loan will be repaid over a two-year period starting with the date of noncompliance, including interest at 6%.

Note 5. Lease Commitments

The Company leases a copier under a long-term operating lease that will expire in December 2010. The lease originally called for monthly payments of $187 plus applicable taxes. In September 2007 the existing copier was upgraded to copy, fax, scan and network printer and the lease increased to $275 per month plus applicable taxes. Beginning January, 2007 the Company began paying office lease expense at a rate of $450 per month. The office lease was month-to-month and was terminated at the end of May 2007 when the administrative office moved to the plant site. In July, the Company started leasing a forklift on a month-to-month basis for $901 per month.

Years ending September 30:
2007		$	7,073
2008			14,112
2009			14,112
2010			3,300
		$	38,597

Iowa Renewable Energy, LLC

Notes to Financial Statements

Minimum lease payments under these operating leases for future years are as follows:

Note 6. Related Party Transactions

On August 13, 2005, the Company entered into a consulting agreement with an entity related through common ownership for assistance with project development services. The contract ran through the earlier of August 1, 2006 or 30 days after financial close. The contract provided a fee of $75,000 to be paid in monthly installments of $12,500 and 500 membership units. The consulting fees under this agreement were $312,500 during the year ended September 30, 2007. No additional consulting fees were required under the agreement in the year ended September 30, 2007.

On May 2, 2006, the Company entered into an agreement with REG, for construction of the biodiesel plant for $39,445,500 due in monthly progress payments. Including change orders, the contract now totals approximately $40,665,000. The agreement provides for a 5% retainage to be withheld from each invoice. The retainage is carried in a construction payable account. At September 30, 2007 a balance of $300,000 is recorded in construction payable. The Company has made payments totaling approximately $40.3 million to the contractor as of September 30, 2007. The total remaining commitments are expected to be paid in 2007.

On August 25, 2006, the Company entered into a Management and Operational Services Agreement with REG. Under the agreement REG will place the general and operations managers, acquire feed stocks and basic chemicals necessary for the operation of the facility, perform the administrative, sales and marketing functions for the Company. A per gallon fee for the services will be based upon the number of gallons of biodiesel sold during the first six months of production and the number of gallons of biodiesel produced after that. In addition the agreement provides for the payment of a yearly bonus based on the Company’s net income. The agreement has an initial ter