Filed by Bowne Pure Compliance

AVAILABLE INFORMATION

Our website address is www.centraliowaenergy.com. Our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are available, free of charge, on our website under the link “SEC Compliance,” as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this annual report on Form 10-KSB.

PART I

ITEM 1. Description of Business.

Business Development

Central Iowa Energy, LLC was formed as an Iowa limited liability company on March 31, 2005 for the purpose of developing, constructing, owning and operating a 30 million gallon per year biodiesel production plant and engaging in the production of biodiesel and crude glycerin near Newton, Iowa. References to “Central Iowa Energy,” “we,” “us,” “our” and the “Company” refer to the entity and business known as Central Iowa Energy, LLC. Since April 2007, we have been engaged in the production of biodiesel and its primary co-product, glycerin. Our revenues are derived primarily from the sale and distribution of our biodiesel throughout the United States.

On January 29, 2007, we filed a Form 10-SB registration statement with the Securities and Exchange Commission indicating that as of our fiscal year ended September 30, 2006, we had total assets exceeding $10 million and 500 or more unit holders. Because our membership units are now registered under the Securities and Exchange Act of 1934, we are subject to periodic reporting requirements. We must also comply with the proxy and tender offer rules and our directors, officers and significant unit holders are now subject to additional reporting obligations.

On April 5, 2007, we received a certificate of substantial completion for our biodiesel production plant from our design-builder, Renewable Energy Group, Inc. (“REG” or “REG, Inc.”) and commenced operations of the plant. After having our biodiesel tested to certify that our biodiesel meets the American Society of Testing and Materials (“ASTM”) standards, we sold our first shipment of biodiesel on April 20, 2007. On April 19, 2007 our vegetable oil pretreatment system was started up and on May 21, 2007 our animal fat pretreatment system was started up. On June 20, 2007, construction of our plant and pretreatment systems was 100% complete and we were issued a certificate of completion by REG. In November of 2007, our plant earned BQ-9000 Accreditation from the National Biodiesel Board and National Biodiesel Accreditation Committee. BQ-9000 is a voluntary quality assurance program which demonstrates that the quality control processes in place at a plant provide confidence that the biodiesel produced at the facility will consistently meet applicable ASTM specifications. Our plant has a nameplate production capacity of 30 million gallons of biodiesel per year. During the fourth quarter of our fiscal year ended September 30, 2007, we operated at approximately 97% of our nameplate capacity. As of December 2007, we are currently producing at approximately 72% of our nameplate capacity due to seasonal decreases in demand for biodiesel. We are currently producing biodiesel from both soybean oil and animal fats. We expect that approximately 65% of our December sales will be animal fat-based biodiesel blends. We will spend the next several months operating our biodiesel plant, producing biodiesel and glycerin, and marketing biodiesel and glycerin.

We entered into a management and operational services agreement with our design-builder, REG, on August 22, 2006 to provide management and marketing services for our facility. Pursuant to the terms of the agreement, REG provides us with: (1) a general manager; (2) an operations manager; (3) feed stock procurement; (4) chemical inputs procurement; (5) administrative services; (6) sales and marketing services; and (7) human resources support. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS — Plant Management, Feedstock Procurement and Marketing.”

We expect to fund our operations during the next 12 months using cash flow from our credit facilities and our continuing operations, and possibly through proceeds raised in one or more prospective private placement offerings of our membership units. On May 1, 2007, our $27,000,000 construction loan from F&M Bank — Iowa converted into two separate credit facilities. The first is a $22,000,000 term loan and the second is a $5,000,000 revolving term loan. We also obtained an additional $2,000,000 revolving line of credit from F&M Bank — Iowa on May 29, 2007 to be used for working capital and other short-term financing requirements relative to inventory, receivables, and risk management. On October 17, 2007, we executed amendments to our original loan agreements with F&M Bank — Iowa under which F&M Bank agreed to increase the amount of our original revolving line of credit loan from $2,000,000 to $4,500,000 for working capital purposes. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS — Liquidity and Capital Resources.”

If we determine that additional funds are necessary to operate our plant during the next 12 months, our board of directors may decide to attempt to raise additional capital through an issuance of our membership units through one or more private placements offerings. However, in such event, there is no guarantee that such an offering of our membership units would be successful in raising the desired capital. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - Liquidity and Capital Resources.”

We are subject to industry-wide factors that affect our operating and financial performance. These factors include, but are not limited to, the available supply and cost of soybean oil and animal fats from which our biodiesel and glycerin are produced; dependence on our biodiesel and glycerin marketer to market and distribute our products; the timely expansion of infrastructure in the biodiesel industry; the intensely competitive nature of the biodiesel industry; possible legislation at the federal, state and/or local level; changes in biodiesel tax incentives and the cost of complying with extensive environmental laws that regulate our industry.

Because we became operational in April 2007, we do not yet have comparable income, production and sales data for our fiscal year ended September 30, 2007. Accordingly, we do not provide a comparison of our financial results between reporting periods in this report.

General Demand

Biodiesel has received attention from consumers and policymakers in recent years for several reasons. Biodiesel is made from renewable sources and provides environmental benefits over petroleum-based diesel, including reduced emissions of carbon dioxide, carbon monoxide, particulate matter, and sulfur. In addition, a 1998 study by the U.S. Department of Energy and the U.S. Department of Agriculture found that biodiesel has a positive energy balance: for every 3.2 units of energy produced, only 1.0 unit of energy is consumed in the production process. Biodiesel mixes easily with diesel fuel at rates between 2% and 100%, and it improves the lubricity of petroleum-based diesel fuel at levels as low as 2%. The increased lubricity reduces the friction of petroleum-based diesel fuel and may result in longer equipment life and protection of fuel injectors.

However, the biodiesel industry is still relatively new and unknown especially when compared to the ethanol industry. According to the Energy Information Administration, the U.S. consumes approximately 140 billion gallons of gasoline and approximately 60 billion gallons of diesel fuel. In 2006, the Renewable Fuels Association reported that a record 4.9 billion gallons of ethanol were produced in the United States. However, the biodiesel industry produced only approximately 225 million gallons of biodiesel in 2006, constituting only a small part of the U.S. diesel fuel market and a fraction of the amount of 2006 ethanol production. The National Biodiesel Board estimates that as of September 7, 2007, national biodiesel production capacity totaled approximately 1.85 billion gallons per year. However, some plants are currently closed and some do not currently operate at full capacity. The National Biodiesel Board estimates that production capacity could increase by 1.37 billion gallons once the plants currently under construction or engaged in expansion begin production.

Several factors may lead to an increase in biodiesel demand. The EPA Ultra Low Sulfur Diesel Mandate seeks to reduce sulfur emissions through regulations that take effect over the next several years. Because low-sulfur diesel and ultra-low-sulfur diesel have lubricity problems, biodiesel may be an attractive alternative to satisfying the requirements of the mandate. However, EPA regulations are subject to change. If the mandate was cancelled or suspended, or if waiver of the mandate requirements were allowed, future biodiesel demand may be less than expected.

In August 2005, the Energy Policy Act of 2005 was signed into law. The law contains the Renewable Fuels Standard (RFS), which mandates that 7.5 billion gallons of renewable fuels, including biodiesel, be used annually by 2012. The RFS may result in an increased demand for biodiesel. However, 2004 ethanol production was over 3 billion gallons and 2005 ethanol production was over 4 billion gallons. In 2006, ethanol production increased to approximately 5 billion gallons per year. As a result, the mandates of the RFS may be met entirely by ethanol and thus have little, if any, impact on the biodiesel industry.

During the fourth quarter of the fiscal year ended September 30, 2007, our plant operated at approximately 97% capacity. As of December 2007, we are currently operating at 72% of our nameplate capacity due to seasonal declines in the demand for biodiesel. Historically, the demand for biodiesel follows a seasonal trend and demand decreases in colder months. We believe that we will operate at approximately 60% capacity during the first quarter of the 2008 fiscal year due to decreased biodiesel demand. If we continue to operate at less than full capacity, this would have a negative impact on our revenues.

Principal Products and Markets

Our 30 million gallon per year biodiesel production plant is located near Newton, Iowa, in Jasper County. The principal products we produce are biodiesel and its primary co-product, glycerin.

Biodiesel

According to the National Biodiesel Board, biodiesel is a high-lubricity, clean-burning alternative fuel produced from domestic, renewable resources and is primarily used in compression ignition (diesel) engines. Biodiesel can also be used as home heating oil. Biodiesel is comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats. A chemical process called transesterification removes the free fatty acids from the base oil and creates the desired esters. Transesterification is the reaction of vegetable oil or animal fat with an alcohol, such as methanol or ethanol, in the presence of a catalyst. The process yields four products: mono-alkyl ester (biodiesel), glycerin, feed quality fat, and methanol, a gas which can be recycled and used again in the process. Biodiesel can then be used in neat (pure) form, or blended with petroleum-based diesel.

Biodiesel that is in neat (pure) form is typically designated in the marketplace as B100. The 100 indicates that the fuel is 100% biodiesel. Biodiesel is frequently blended with petroleum-based diesel. When biodiesel is blended, it is typically identified in the marketplace according to the percentage of biodiesel in the blend. For instance, B20 indicates that 20% of the fuel is biodiesel and 80% is petroleum-based diesel.

Biodiesel’s physical and chemical properties, as they relate to operations of diesel engines, are similar to petroleum-based diesel fuel. As a result, B20 biodiesel may be used in most standard diesel engines without making any engine modifications. Biodiesel demonstrates greater lubricating properties, referred to as lubricity, than petroleum-based diesel. This could lead to less engine wear in the long-run as biodiesel creates less friction in engine components than petroleum-based diesel. Biodiesel also demonstrates greater solvent properties. With higher percentage blends of biodiesel, this could lead to break downs in certain rubber engine components such as seals. The solvent properties of biodiesel also can cause accumulated deposits from petroleum-based diesel in fuel systems to break down. This could lead to clogged fuel filters in the short-term. Fuel filters should be checked more frequently when first using biodiesel blends. These problems are less prevalent in blends that utilize lower concentrations of biodiesel.

The feedstock cost of vegetable oils or animal fats is the largest single component of biodiesel production costs. We primarily use soybean oil and animal fat to produce our biodiesel. Volatile soybean oil prices have put pressure on the biodiesel industry as the price of soybean oil continues to increase. The United States Department of Agriculture’s (“USDA”) November 2007 Oil Crops Outlook report reports that the average October 2007 soybean oil price jumped to 38.1 cents per pound, which is up approximately 54% from one year ago and is the highest average price since May 1984. However, according to the USDA’s National Weekly Ag Energy Round-Up report, crude soybean oil in Iowa for the week of December 7, 2007 was even higher, ranging from 42.9 to 44.4 cents per pound. Furthermore, it forecasted that these extraordinarily high soybean oil prices will persist through the 2007-2008 marketing season, with a predicted price range of 37.5 to 41.5 cents per pound. Because it takes more than seven pounds of soybean oil to make a gallon of biodiesel, such large increases in soybean oil costs significantly reduce the potential profit margin on each gallon of biodiesel produced from soybean oil and sold.

Additionally, the USDA reported in its July 2007 Oil Crops Outlook report that actual soybean acres planted were only 64.1 million acres, the lowest soybean acreage since 1995. This decrease was at least partly due to the increase in the number of acres of corn that were planted for 2007 as compared to 2006. The jump in 2007 corn acres was at least partly attributable to rising corn prices supported by the rapidly growing ethanol industry. Although the number of soybean acres has decreased, demand for soybean oil for biodiesel production is expected to increase. The USDA projects that soybean oil usage for biodiesel for 2007-2008 will be 4 billion pounds. That is up almost 40% from estimated soybean oil usage for biodiesel in 2006-2007 of 2.85 billion pounds. Accordingly, if the number of soybean acres planted in 2008 stays the same as or decreases below 2007 soybean acre levels, increasing competition for soybean oil may drive soybean oil prices even higher. If this occurs, it will increase our feedstock costs and will have a negative impact on our profits.

Primary Co-product — Glycerin

Glycerin is the primary co-product of the biodiesel production process and equals approximately 10% of the quantity of biodiesel produced. Glycerin possesses a unique combination of physical and chemical properties that are used in a large variety of products. It is highly stable under typical storage conditions, compatible with a wide variety of other chemicals and comparatively non-toxic. Glycerin is an ingredient or processing aid in cosmetics, toiletries, personal care, pharmaceuticals and food products. In addition, new uses for glycerin are frequently being discovered and developed due to its versatility. Many of these uses, however, require refined glycerin or pharmaceutical grade glycerin. Our plant only produces crude glycerin and does not have the capability to refine glycerin. Also, glycerin produced from the production of animal fat-based biodiesel cannot be used in pharmaceutical products.

According to the September 2006 issue of Biodiesel Magazine, annual consumption of glycerin in the United States from 2003 to 2005 ranged between 400 million and 450 million pounds and the biodiesel industry is expected to produce an estimated 1.4 billion pounds of glycerin between 2006 and 2015. It is estimated that every million gallons of biodiesel produced adds approximately another one hundred thousand gallons of crude glycerin into the market. As biodiesel production has increased, the glycerin market has become increasingly saturated, resulting in significant declines in the price of glycerin. In 2006, glycerin prices dropped dramatically, with crude glycerin prices hovering around 2 cents per pound or less. Some smaller plants were even forced to essentially give away glycerin and some have had to pay to dispose of their glycerin. According to the Jacobsen Publishing Company’s Biodiesel Bulletin, some biodiesel producers were even paying 3 to 4 cents per pound to dispose of crude glycerin. However, as of September 2007, the Biodiesel Magazine reported that there has recently been a steady, gradual increase in glycerin prices and further reported that REG, our biodiesel and glycerin marketer, was receiving between 6 and 10 cents per pound for unrefined glycerin. We are currently selling our glycerin for 10 to 15 cents per pound.

While crude glycerin prices remain low, the Biodiesel Magazine reported that as of September 2007 refined glycerin was receiving approximately 30 to 40 cents per pound. This has prompted some of our competitors, such as Cargill Inc. and Archer Daniels Midland Co. (ADM) to expand their glycerin refining capacities. In Iowa Falls, Iowa, Cargill, Inc. has built a 30 million pound per year glycerin refinery near its 37.5 million gallon per year biodiesel production plant. These biodiesel producers may therefore have a competitive advantage over plants like ours that do not have glycerin refining capabilities.

REG currently markets the glycerin produced at our plant pursuant to our management and operational services agreement. However, as biodiesel production continues to grow, glycerin production will also increase, which may limit our ability to market our glycerin co-product. Low glycerin prices may also limit our ability to generate revenues through the sale of our primary co-product. This may negatively affect the profitability of our business.

Biodiesel Markets

Biodiesel is primarily used as fuel for compression ignition (diesel) engines. It is produced using renewable resources and provides environmental advantages over petroleum-based diesel fuel, such as reduced vehicle emissions. Our ability to market our biodiesel is heavily dependent upon the price of petroleum-based diesel fuel as compared to the price of biodiesel, in addition to the availability of economic incentives to produce and use biodiesel.

Wholesale Market / Biodiesel Marketers

The wholesale market involves selling biodiesel directly to fuel blenders or through biodiesel marketers. Fuel blenders purchase neat (B100) biodiesel from biodiesel production plants, mix it with petroleum diesel fuel according to specifications, and deliver a final product to retailers. There are few wholesale biodiesel marketers in the United States. Two examples are World Energy of Chelsea, Massachusetts and Renewable Energy Group, Inc. (“REG”) of Ames, Iowa, our manager, marketer and design-builder. These companies use their existing marketing relationships to market the biodiesel of individual plants to end users for a fee. The predecessor of REG was West Central Cooperative. West Central Cooperative combined all of its biodiesel-related products and services under REG. We have entered into an agreement with REG to market the biodiesel we produce at our facility. See “Distribution of Principal Products” and “Dependence on One or More Major Customers” below.

Retail Market

The retail market consists of biodiesel distribution primarily through fueling stations to transport trucks and jobbers, which are individuals that buy products from manufacturers and sell them to retailers, for the purpose of supplying farmers, maritime customers and home heating oil users. Retail level distributors include oil companies, independent station owners, marinas and railroad operators. The biodiesel retail market is still in its very early stages as compared to other types of fuel. The present marketing and transportation network must expand significantly in order for our company to effectively market our biodiesel to retail users. Areas requiring expansion include, but are not limited to:

	•		additional rail capacity;

	•		additional storage facilities for biodiesel;

	•		increases in truck fleets capable of transporting biodiesel within localized markets;

	•		expansion in refining and blending facilities to handle biodiesel; and

	•		growth in service stations equipped to handle biodiesel fuels.

With increased governmental support of renewable fuels and greater consumer awareness of renewable fuels, we anticipate that the availability of biodiesel may increase in the future. However, substantial investments required for these infrastructure changes and expansions may not be made or they may not occur on a timely basis. Any delay or failure in making the changes to or expansion of infrastructure could hurt the demand or prices for our products, impede our delivery of products, impose additional costs on us or otherwise have a material adverse effect on our results of operations or financial position. Our business is dependent on the continuing availability of infrastructure and any infrastructure disruptions could have a material adverse effect on our business.

Government/Public Sector

The government has increased its use of biodiesel since the implementation of the Energy Policy Act (EPACT) of 1992, amended in 1998, which authorized federal, state and public agencies to use biodiesel to meet the alternative fuel vehicle requirements of EPACT. Although it is possible that individual plants could sell directly to various government entities, it is unlikely our plant could successfully market our biodiesel through such channels. Government entities have very long sales cycles based on the intricacies of their decision making and budgetary processes.

Distribution of Principal Products

We entered into a management and operational services agreement with Renewable Energy Group, Inc. (“REG”) on August 22, 2006 to provide management and marketing services for our facility. Pursuant to the terms of the agreement, REG provides us with: (1) a general manager; (2) an operations manager; (3) feed stock procurement; (4) chemical inputs procurement; (5) administrative services; (6) sales and marketing services; and (7) human resources support. This agreement will continue for an initial term of three years from the end of the first month in which we commenced production, which was April 2007. Thereafter, the agreement will automatically renew for successive one year terms unless either party provides 12 months written notice of termination to the other party.

Sales and Marketing

Under our management and operational services agreement, REG must utilize its best efforts to market all biodiesel, glycerin and fatty acids produced at our plant at established prices. With respect to such services, REG agrees to provide:

	•		Market analysis of biodiesel supply and demand;

	•		Market access to REG’s developed biodiesel distribution channels;

	•		Analysis and audit of biodiesel customers, including for creditworthiness, and bulk transportation providers;

	•		Marketing specialists and sales representatives to attain and establish sales opportunities and relationships for our products;

	•		Arrangements for transportation, logistics, and scheduling of biodiesel shipments;

	•		Arrangements for leased tankers for rail shipments, where advantageous;

	•		Oversight and reconciliation of shipments, invoicing and payments on a weekly basis; and

	•		Provide invoicing and accounts receivable management for biodiesel shipments.

Pursuant to our management and operational services agreement, for the fiscal year September 30, 2007, we incurred service fees of $735,974. The amount payable as of September 30, 2007 was approximately $365,125.

Our products can be delivered by truck or rail. Our property is located northeast of Newton, Iowa and is situated approximately 4.75 miles north of U.S. Interstate 80. Rail service is also available near our site by the Iowa Interstate Railroad (IAIR). We installed track to establish rail service directly to the plant so that we are able to ship biodiesel to our customers. We have entered into an industrial track agreement with the IAIR for the use, operation, and maintenance of track to serve the plant. Under such agreement, we will bear the cost and expense of maintenance of the railroad track extending from the point of switch and ending at our plant.

Sources and Availability of Raw Materials

Supply

The cost of feedstock is the largest single component of the cost of biodiesel production, accounting for 70% to 90% of the overall cost of producing biodiesel. As a result, increased prices for feedstock greatly impact the biodiesel industry. Our plant utilizes soybean oil and animal fats to produce biodiesel. Depending upon market conditions, we anticipate that our biodiesel plant will process approximately 160 million pounds (21.8 million gallons) of soybean oil and 70 million pounds (10 million gallons) of animal fats per year as the feedstock for its production process.

Soybean oil is one of the most abundant feedstocks available in the United States. The twenty-year average price for soybean oil is approximately 21 cents per pound. However, soybean oil prices have been extremely volatile and have recently increased significantly. The United States Department of Agriculture’s (“USDA”) November 2007 Oil Crops Outlook report provides that the average October 2007 soybean oil price jumped to 38.1 cents per pound, which is up approximately 54% from one year ago and is the highest average price since 1984. However, according to the USDA’s National Weekly Ag Energy Round-Up report, crude soybean oil in Iowa for the week of December 7, 2007 was even higher, ranging from 42.9 to 44.4 cents per pound. Furthermore, it forecasted that these extraordinarily high soybean oil prices will persist through the 2007-2008 marketing season, with a predicted price range of 37.5 to 41.5 cents per pound. Because it takes more than seven pounds of soybean oil to make a gallon of biodiesel, such large increases in soybean oil costs significantly reduce the potential profit margin on each gallon of biodiesel produced and sold. Any increase in the price of soybean oil will negatively impact our ability to generate revenues and profits.

The charts below shows U.S. soybean oil prices over the past ten years and for each month in the 2006-2007 marketing year:


U.S. Soybean Oil Prices for Past Ten Years
Marketing Year	Price (cents)
1997/98		25.80
1998/99		19.90
1999/00		15.60
2000/01		14.15
2001/02		16.46
2002/03		22.04
2003/04		29.07
2004/05		23.01
2005/06		23.41
2006/07		31.02
2007/08		37.5-41.5	⁽¹⁾


U.S. Soybean Oil Prices
for 2006-2007
Marketing Year
Month	Price (cents)
October		24.80
November		27.64
December		27.63
January		28.00
February		28.94
March		29.74
April		31.06
May		32.90
June		34.01
July		35.74
August		34.87
September		36.89
October		38.10	⁽¹⁾


(1)		Preliminary Price

Data provided by USDA, Oil Crops Outlook Report, November 14, 2007

In addition, increased biodiesel production is likely to have an effect on the cost of soybean oil. Increased competition with other biodiesel plants for soybean oil may result in increased prices for soybean oil. Additionally, in its July 2007 Oil Crops Outlook report, the USDA reported that 64.1 million soybean acres were planted, the lowest soybean acreage since 1995. This decrease is likely at least partly due to the increase in the number of acres of corn that were planted in 2007 as compared to 2006. The jump in 2007 corn acres was at least partly attributable to rising corn prices supported by the rapidly growing ethanol industry. Although the number of soybean acres has decreased, demand for soybean oil for biodiesel production is expected to increase. The USDA projects that soybean oil usage for biodiesel for 2007-2008 will be 4 billion pounds, which is up almost 40% from estimated soybean oil usage for biodiesel in 2006-2007 of 2.85 billion pounds. Accordingly, if the number of soybean acres planted in 2008 stays the same as or decreases from 2007 soybean acre levels, competition for soybean oil may drive soybean oil prices even higher. If we are unable to obtain satisfactory amounts or competitive pricing for our feedstock supply, our ability to operate profitably may be impaired.

Our plant is also capable of utilizing animal fats to produce biodiesel and, like soybean oil, animal fat prices have also increased. Although prices for animal fats are not currently as high as prices for soybean oil, animal fat prices are nonetheless higher than their historical average. In a November 14, 2007 report, the USDA predicted that lard and edible tallow will cost approximately 28 cents and 27 cents per pound, respectively, in 2006-2007,which is up from 22 cents and 19 cents per pound, respectively, in 2005. Moreover, the USDA predicted lard and edible tallow prices will continue to increase in 2007-2008 to 35 cents to 39 cents per pound for lard and 34 cents to 38 cents per pound for edible tallow.

The charts below shows U.S. lard and edible tallow prices over the past ten years and for each month in the 2006-2007 marketing year:


Lard & Edible Tallow Prices for Past Ten Years
			Edible Tallow
Marketing Year	Lard (cents)		(cents)
1997/98		19.46		20.69
1998/99		14.66		15.14
1999/00		13.64		13.21
2000/01		14.61		13.43
2001/02		13.55		13.87
2002/03		18.13		17.80
2003/04		26.13		22.37
2004/05		21.80		18.48
2005/06		21.74		18.16
2006/07		28.43		27.32
2007/08⁽¹⁾		34.5-38.5		33.5-37.5


Lard & Edible Tallow Prices for 2006-2007
Marketing Year
			Edible Tallow
Month	Lard (cents)		(cents)
October		23.55		19.86
November		20.78		21.78
December		22.58		23.23
January		23.00		23.91
February		23.82		23.25
March		30.75		24.34
April		27.71		26.22
May		28.60		30.19
June		32.64		34.50
July		36.00		35.00
August		35.77		32.85
September		36.00		32.69
October⁽¹⁾		35.09		33.98


(1)		Preliminary Prices

Data provided by USDA, Oil Crops Outlook Report, November 14, 2007

In the event we cannot obtain adequate supplies of feedstock at affordable costs for sustained periods of time, then we may be forced to shut down the plant temporarily or permanently. Shut downs and increased feedstock prices may reduce our revenues from operations which could decrease or eliminate the value of our units.

In addition, because biodiesel has different cold flow properties depending on the type of feedstock used in its manufacture, cold flow also becomes a primary factor in determining the type of feedstock to use. “Cold flow” refers to a fuel’s ability to flow easily at colder temperatures and is an important consideration in producing and blending biodiesel for use in colder climates. The pour point for a fuel is the temperature at which the flow of the fuel stops. Therefore, a lower pour point temperature means the fuel is more flowable in colder temperatures. The following table represents the pour points for different types of fuels:


Type of Fuel	Pour Point
Soy-based Biodiesel (B100)		30ºF
Tallow-based Biodiesel (B100)		61ºF
No. 2 Petro Diesel (B0)		-30ºF
B2 Soy Blend with No. 2 Diesel		-25ºF

To provide biodiesel with an acceptable pour point in cold weather, we will need to blend our biodiesel with petroleum-based diesel. Generally, biodiesel that is used in blends of 2% to 20% will provide an acceptable pour point for the Iowa market. We expect that REG, Inc., our marketer, will sell our biodiesel throughout the nation. Cold flow additives can also be used seasonally to provide a higher level of cold weather protection, similar to the current practice with conventional diesel fuel. Demand for our biodiesel may diminish in colder climates and during the colder months as a result of cold flow concerns. We are currently producing biodiesel from both soybean oil and animal fats. We expect that approximately 65% of our December biodiesel sales will be animal fat-based biodiesel blends.

The production of biodiesel at our plant also requires methanol. Chile, which is one of the world’s largest producers of methanol, has been denied access to adequate supplies of natural gas, a key component of methanol production, due to a dispute with Argentina, which is a major supplier of Chile’s natural gas. This has led to a decrease in the supply of methanol and has resulted in significant increases in the price of methanol. We have not experienced any difficulties in obtaining adequate supplies of methanol at this time. However, any inability to acquire sufficient amounts of methanol to produce biodiesel or the persistence of the current high methanol prices, or any further increase in the price of methanol, could reduce our ability to produce biodiesel and operate profitably.

Hedging

Due to fluctuations in the price and supply of feedstock, we utilize forward contracting and hedging strategies to manage our commodity risk exposure and optimize finished product pricing and supply. Hedging means protecting the price at which we buy feedstock and the price at which we will sell our products in the future. It is a way to attempt to reduce the risk caused by price fluctuations. The effectiveness of such hedging activities is dependent upon, among other things, the cost of feedstock and our ability to sell sufficient amounts of biodiesel. Although we attempt to link hedging activities to sales plans and pricing activities, such hedging activities can themselves result in costs because price movements in feedstock contracts are highly volatile and are influenced by many factors that are beyond our control. We may incur such costs and they may be significant. The market for soybean oil trades 18 months into the future. The animal grease market has no futures trade. However, there is a quoting system through the USDA that provides for price discovery for animal grease. There is not enough volume of biodiesel produced to currently justify a futures market. As such, there is no spot biodiesel price, making current price discovery limited. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS — Commodity Price Risk Protection.”

Pretreatment Costs

Crude soybean oil and all animal fats need to be pretreated before being processed into biodiesel. Pretreatment takes crude soybean oil and any animal fat or grease, removes the impurities and prepares the feedstock to go through the biodiesel production process. Some feedstock needs more treatment than others. For example, virgin soybean oil can be easier and cheaper to pretreat than turkey fat, and turkey fat can be easier and cheaper to pretreat than beef tallow. The cost of the process is driven by the structure of the feedstock and the impurities in the feedstock.

For soybean oil, the pretreatment process results in refined and bleached (RB) oil. The price differential between RB oil and crude soy oil is ordinarily 5 cents per pound. Our processing plant has pretreatment capabilities allowing us to utilize crude vegetable oil and many types of fat or grease as feedstock in our facility. This added flexibility allows us to choose the feedstock that will produce biodiesel in the most cost-effective manner possible.

Management and Operational Services Agreement — Feedstock and Chemical Inputs Procurement

We entered into a management and operational services agreement with Renewable Energy Group, Inc. (“REG”) on August 22, 2006 to provide management and marketing services for our facility. Pursuant to the terms of the agreement, REG is procuring the feedstock and chemical inputs necessary to produce biodiesel at our plant. The inability of REG to obtain adequate feedstock for our facility could have significant negative impacts on our ability to produce biodiesel and on our revenues.

Feedstock Procurement.

REG is responsible for arranging for the purchase and procurement of soybean oil and other types of feedstock as may be needed for the production of biodiesel at our facility. With respect to such services, REG will also:

	•		Provide analysis and audit of feedstock suppliers;

	•		Purchase feedstock at competitive prices meeting specifications and in quantities adequate to satisfy the production schedule of our plant;

	•		Negotiate for discounts on feedstock, where obtainable;

	•		Arrange for transportation, logistics, and scheduling of feedstock deliveries; and

	•		Provide analysis and audit of bulk transportation providers.

Chemical Inputs Procurement

REG is responsible for purchasing chemical inputs necessary for the production of biodiesel at our plant. With respect to such services, REG will also:

	•		Perform due diligence requirements for investigation of suppliers of the chemical inputs;

	•		Provide analysis and audit of chemical suppliers and bulk transportation suppliers;

	•		Purchase chemical inputs at competitive prices meeting specifications for use in our plant;

	•		Negotiate for discounts on the purchase of chemical inputs, where obtainable;

	•		Procure adequate chemical inputs to meet our production schedules; and

	•		Arrange for transportation, logistics, and scheduling services for chemical input deliveries by suppliers.

We entered into several soybean oil purchase contracts during 2007 for anticipated production needs. The balance of the purchase contracts as of our fiscal year ended September 30, 2007 was for approximately 37,000,000 pounds of soybean oil for delivery through December 31, 2007. Currently, as of December 5, 2007, we have soybean oil purchase contracts for approximately 26,700,000 pounds of soybean oil for delivery through March 31, 2008.

Utilities & Infrastructure

Our biodiesel plant requires a significant and uninterrupted supply of electricity, natural gas and water to operate. We entered into agreements with providers of these utilities as follows:

Electricity. Our plant requires a significant supply of electricity to operate our plant. In May 2006 we contracted with Interstate Power and Light Company, a wholly-owned subsidiary of Alliant Energy Corporation, to install a new primary electric service at our facility, including an overhead metering location, transformers, cabling, and switchgear, for a cost of $163,472. We also entered into a separate agreement with Interstate Power and Light Company to supply our electricity needs for a term of one year.

Water. Our plant requires approximately 120 gallons of water per minute. We entered into an agreement with Central Iowa Water Association in June 2006 to supply our water needs at a minimum of 50,000 gallons per month. The fee to connect to the Association’s existing water distribution system was $4,000 and we pay a minimum price of $246.91 per 50,000 gallons per month.

Natural Gas. Our plant requires a significant supply of natural gas to operate. We estimate that our plant requires approximately 1,750,320 therms of natural gas per year. On May 30, 2006, we entered into an agreement with Aquila, Inc. to be our exclusive natural gas distributor. The term of this agreement commenced January 1, 2007 and will continue until December 31, 2012.

On August 29, 2007, we entered into a Natural Gas Transportation Service Agreement with Aquila, Inc. d/b/a Aquila Networks under which Aquila, Inc. agreed to transport and deliver natural gas supplies obtained by the Company for operation of our biodiesel plant. In exchange for Aquila, Inc.’s services, we agreed to pay Aquila, Inc. $150 per month for administration costs related to transportation services, the applicable sales tariff basic monthly charge, a capacity charge as set forth in the applicable sales tariff schedule, and a delivery charge for all volumes of natural gas received as set forth in the applicable sales tariff rate schedule. We will also be obligated to pay for fixed gas costs assigned to us under the applicable sales tariff rate and any charges that Aquila, Inc. incurs from a pipeline on behalf of the Company. The agreement will be in effect for an initial term of one year from the date of commencement of services and will continue thereafter from year to year until canceled by either party with notice.

Sewer. Pursuant to a private redevelopment agreement dated November 21, 2006, Jasper County agreed to construct sewer improvements for our biodiesel project site. The agreement authorizes the County to finance these improvements through the issuance of bonds or notes. In return for these improvements, we were required to construct a thirty million gallon per year biodiesel plant requiring a total investment of at least $38,000,000 and to create at least twenty new full-time jobs at our plant and maintain such jobs until June 30, 2015. Also, we were required to enter into an assessment agreement with Jasper County to establish a minimum actual value of our property and related improvements for purposes of the calculation and assessment of our real property taxes.

New Products and Services

After commencing operations, we have not introduced any new products or services during the fiscal year ended September 30, 2007.

Government Regulation and Federal Biodiesel Supports

Federal Biodiesel Supports

The biodiesel industry is dependent on economic incentives to produce biodiesel, including federal biodiesel supports. The Energy Policy Act of 2005 and the American Jobs Creation Act have established the groundwork for biodiesel market development. This legislation may lead to increased demand for biodiesel in the United States over the next 10 years.

Renewable Fuels Standard

The most recent biodiesel supports are contained in the Energy Policy Act of 2005. Most notably, the Act creates a 7.5 billion gallon Renewable Fuels Standard (RFS). The RFS requires refiners to use 4.7 billion gallons of renewable fuels in 2007, 5.4 billion in 2008, and increasing to 7.5 billion gallons by 2012.

On April 10, 2007 the EPA published final rules implementing the RFS program. The RFS program final rules were effective as of September 1, 2007. The new regulation proposes that 4.02% of all the fuel sold or dispensed to United States motorists in 2007 be renewable fuel. Pursuant to the final rules, the EPA will calculate and publish the annual RFS in the Federal Register by November 30^th for the following year. The RFS must be attained by refiners, blenders, and importers (collectively known as “obligated parties”). Compliance with the RFS program will be shown through the acquisition of unique Renewable Identification Numbers (RINs). RINs are assigned by the producer to every batch of renewable fuel produced to show that a certain volume of renewable fuel was produced. Each obligated party is required to meet their own Renewable Volume Obligation. Obligated parties must produce or acquire sufficient RINs to demonstrate achievement of their Renewable Volume Obligation. The EPA has assigned “equivalence values” to each type of renewable energy fuel in order to determine compliance with the RFS.

Each RIN may only be counted once toward an obligated party’s Renewable Volume Obligation and must be used either in the calendar year in which the RINs were generated, or in the following calendar year. At least 80% of the Renewable Volume Obligation for a given calendar year must come from RINs generated that year. An obligated party may purchase RINs from third parties if it fails to produce the adequate RINs in the calendar year to meet its Renewable Volume Obligation. If the obligated party fails to satisfy is Renewable Volume Obligation in a calendar year, the obligated party may carry the deficit forward for one year. Such deficit will be added to the party’s obligation for the subsequent year.

The RFS system will be enforced through a system of registration, recordkeeping and reporting requirements for obligated parties, renewable producers (RIN generators), as well as any party that procures or trades RINs, either as part of their renewable purchases or separately. Any person who violates any prohibition or requirement of the RFS program may be subject to civil penalties for each day of each violation. For example, under the final rule, a failure to acquire sufficient RINs to meet a party’s renewable fuels obligation would constitute a separate day of violation for each day the violation occurred during the annual averaging period. The enforcement provisions are necessary to ensure the RFS program goals are not compromised by illegal conduct in the creation and transfer of RINs.

The 2007 proposed equivalence values used ethanol as the base-line measurement (such that one gallon of ethanol is equivalent to one credit towards RFS compliance) and assign biodiesel an equivalence value of 1.5 (so that for each gallon of biodiesel used, the obligated party will receive one and one-half gallons credit towards its RFS compliance).

The increasing annual renewable fuels standards under the Energy Policy Act of 2005 may lead to an increase in U.S. demand for biodiesel in the long-term. However, the mandates of the RFS are expected to largely be met by ethanol and thus may have a much smaller impact on the biodiesel industry. The 2006 RFS was 4 billion gallons of renewable fuels, while the ethanol industry alone produced nearly 5 billion gallons of ethanol in 2006. By contrast, the National Biodiesel Board reported that only approximately 225 million gallons of biodiesel were produced in the United States in 2006. The RFS for 2007 is currently set at 4.7 billion gallons and the EPA recently announced that the RFS for 2008 will be 5.4 billion gallons. Current ethanol and biodiesel production capacity combined is approximately 9.12 billion gallons, according to the Renewable Fuels Association and National Biodiesel Board. While some ethanol and biodiesel production facilities produce less than their nameplate production capacity of biofuels, the total production capacity is significantly higher than the RFS for both 2007 and 2008. Furthermore, since the renewable fuels industry is expanding rapidly in both biodiesel and ethanol production capacity, there is no assurance that additional production of renewable fuels will not continually outstrip any additional demand for biodiesel that might be created by the RFS. If the RFS does not significantly increase demand compared to increases in supply, the RFS will not likely lead to an increase in biodiesel demand or the price at which we can sell our biodiesel. If the current high costs for feedstock such as soybean oil and animal fat continue to persist, we will be required to increase the sale price of our biodiesel in order to be profitable. In such a case, however, there are no assurances that we would be able to sell our biodiesel at such increased prices.

Energy Independence and Security Act of 2007

On December 19, 2007, President Bush signed into law the Energy Independence and Security Act of 2007, H.R. 6, which expands the existing RFS to require the use of 9 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons of renewable fuel by 2022. Only a portion of the renewable fuel used to satisfy the expanded RFS may come from conventional corn-based ethanol. The act requires that 600 million gallons of renewable fuel used in 2009 must come from advanced biofuels, such as ethanol derived from cellulose, sugar, or crop residue and biomass-based diesel, increasing to 21 billion gallons in 2022. The act further includes a requirement that 500 million gallons of biodiesel and biomass-based diesel fuel be blended into the national diesel pool in 2009, gradually increasing to 1 billion gallons by 2012. We anticipate that this act may increase demand for biodiesel, as it sets a minimum usage requirement for biodiesel and other types of biomass-based diesel. However, there can be no assurance that demand for biodiesel will be increased by this act. As of September 2007, the National Biodiesel Board estimated that national biodiesel production capacity was approximately 1.85 billion gallons per year, which already exceeds the 2012 biodiesel and biomass-based diesel use mandate contained in this act. Accordingly, there is no assurance that additional production of biodiesel and biomass-based diesel will not continually outstrip any additional demand for biodiesel that might be created by this new law. We also anticipate that most of the renewable fuel used to satisfy the expanded RFS created by this act will be primarily satisfied by corn-based ethanol and other types of ethanol, including cellulose-based ethanol.

Small Agri-Biodiesel Producer Tax Credit

The Energy Policy Act of 2005 also provides for a tax subsidy for small agri-biodiesel producers with total annual production capacities of 60 million gallons or less. The subsidy is applicable to the first 15 million gallons of biodiesel produced annually and is available through December 31, 2010. The subsidy is equivalent to a 10 cent credit per gallon of biodiesel produced annually and the maximum annual subsidy per biodiesel producer is $1.5 million. This tax credit may foster additional growth and increase competition among biodiesel producers whose plant capacity does not exceed 60 million gallons per year. Because Central Iowa Energy is organized as a limited liability company, this credit passes through to its members and may be used as a credit against their federal income tax liability, subject to various limitations.

Biodiesel Tax Credits

The American Jobs Creation Act of 2004 originally created the biodiesel blenders’ excise tax credit known as the Volumetric Ethanol Excise Tax Credit (VEETC). VEETC provides a tax credit of $1.00 per gallon for agri-biodiesel, which is biodiesel derived solely from virgin vegetable oils and animal fats that are blended with petroleum biodiesel. This includes esters derived from crude vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambo, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds. VEETC also provides a tax credit of 50 cents per gallon for non agri-biodiesel blended with petroleum diesel, which is biodiesel made from non-virgin or recycled vegetable oil and animal fats. VEETC may be claimed in both taxable and nontaxable markets, including exempt fleet fuel programs and off-road diesel markets. The desired effect of VEETC is to streamline the use of biodiesel and encourage petroleum blenders to blend biodiesel as far upstream as possible, which will allow more biodiesel to be used in the marketplace. VEETC also streamlines the tax refund system for below-the-rack blenders to allow a tax refund of the biodiesel tax credit on each gallon of biodiesel blended with diesel (dyed or undyed) to be paid within 20 days of blending. Below-the-rack blenders are those blenders that market fuel that is for ground transportation engines and is not in the bulk transfer system.

In addition to VEETC, the Energy Policy Act of 2005 created incentives for alternative fuel refueling stations. The provision permits taxpayers to claim a 30% credit (up to $30,000) for the cost of installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer, or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel that is at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen, and any mixture of diesel fuel containing at least 20% biodiesel. The provision is effective for property placed in service after December 31, 2005 and before January 1, 2010. While it is unclear how this credit will affect the demand for biodiesel in the short-term, it may help raise consumer awareness of alternative sources of fuel and could positively impact future demand for biodiesel.

VEETC was originally set to expire in 2006, but was extended through December 31, 2008 by the Energy Policy Act of 2005. Legislation has been introduced in Congress that may extend the provisions of the VEETC. However, we cannot assure you that this legislation will be adopted

The Clean Air Act Amendment

Environmental laws such as the Clean Air Act Amendments that are aimed at lowering fuel emissions may also promote biodiesel consumption. The Clean Air Act Amendments of 1990 required the EPA to regulate air emissions from a variety of sources. In a 2001 rule, the EPA provided for the decrease of emissions from vehicles using on-road diesel by requiring the reduction in the sulfur content of diesel fuel from 500 parts per million (ppm) to a significantly lower 15 ppm commencing in June 2006, and 10 ppm by 2011.

Reducing the sulfur content of petroleum-based diesel leads to a decrease in lubricity of the fuel, which may adversely impact motor engines. On the other hand, even though biodiesel contains virtually no sulfur (and therefore does not emit sulfur dioxide), biodiesel is able to supply lubricity, which makes biodiesel an attractive blending stock.

State Legislation

Several states are currently researching and considering legislation to increase the amount of biodiesel used and produced in their states. However, Minnesota is the first and only state to mandate biodiesel use. The legislation, which became effective in September 2005, requires that all diesel fuel sold in the state contain a minimum of 2% biodiesel. The 2% soy biodiesel blend has nearly the same cold flow properties as No. 2 petroleum diesel, which allows it to be used in Minnesota’s colder climate much the same as petroleum diesel throughout the year.

Other states, including Iowa, have enacted legislation to encourage (but not require) biodiesel production and use. Several states provide tax incentives and grants for biodiesel-related studies and biodiesel production, blending, and use. In addition, several governors have issued executive orders directing state agencies to use biodiesel blends to fuel their fleets.

On May 30, 2006, the Governor of Iowa signed HF 2754 and HF 2759, two renewable fuels bills passed by the Iowa House and Senate during the 2006 legislative session. The purpose of the bills is to expand and fund consumer access to biodiesel and ethanol blended fuels through a RFS and a series of retail tax credits. HF 2759 provides retailers with an opportunity for cost sharing grants and provides funding for some of the programs contained in HF 2754. The incentives contained in HF 2754 include the following:

	•		An Iowa RFS starting at 10% in 2009 and increasing to 25% by 2019;

	•		A retail tax credit for biodiesel blends of 3 cents per gallon for retailers whose diesel sales include 50% or greater biodiesel blends; and

	•		An expanded infrastructure program designed to help retailers and wholesalers offset the cost of bringing E85 and biodiesel blends to customers.

While this legislation does not specifically require increased use of biodiesel, we anticipate that it will significantly encourage renewable fuels usage in Iowa, which may include increased biodiesel consumption in Iowa.

Effect of Government Regulation

The biodiesel industry and our business depend upon continuation of the state and federal biodiesel supports discussed above. These incentives have supported a market for biodiesel that might disappear without the incentives. Alternatively, the incentives may be continued at lower levels than at which they currently exist. The elimination or reduction of such state and federal biodiesel supports would make it more costly for us to produce our biodiesel and would increase our net loss and negatively impact our future financial performance.

Furthermore, environmental regulations that may affect our company change frequently. It is possible that the government could adopt more stringent federal or state environmental rules or regulations, which could increase our operating costs and expenses. The government could also adopt federal or state environmental rules or regulations that may have an adverse effect on the use of biodiesel. Furthermore, the Occupational Safety and Health Administration (OSHA) will govern our plant operations. OSHA regulations may change such that the costs of the operation of the plant may increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions affecting our operations, cash flows and financial performance. These adverse effects could decrease or eliminate the value of our units.

Competition

We operate in a very competitive environment. Because biodiesel is a relatively uniform commodity, competition in the marketplace is predominately based on variables other than the product itself, such as price, consistent quality and, to a lesser extent, delivery service. Accordingly, the uniform nature of the product limits the competitive advantage that may be gained based upon unique or improved product features.

We compete with large, multi-product companies and other biodiesel plants with varying capacities. We face competition for capital, labor, management, feedstock and other resources. Some of our competitors have greater resources than we currently have or will have in the future. Some of our competitors have soy-crushing facilities and are not reliant upon third parties for their feedstock supply. Most biodiesel plants are not equipped to process raw materials, such as soybeans, into feedstock, such as soybean oil. Cargill, Inc., Archer Daniels Midland Co., and Bunge have significant crush capabilities throughout North America. Also, increasing feedstock costs have spurred additional development of crush facilities throughout the country. Such vertical integration provides these plants with greater control over their feedstock supplies, thereby providing them with a competitive advantage over plants like ours that do not have soy-crushing capabilities, especially as prices and competition for soybean oil and other feedstocks have increased.

According to the United States Department of Agriculture (USDA), the 2006 soybean crop yielded approximately 3.2 billion bushels of soybeans. Iowa accounted for more than 500 million bushels of the 2006 national soybean production. The United States Department of Agriculture (USDA) reported on September 12, 2007 that in 2007-2008, U.S. corn production is estimated to increase 24%, and as a result, soybean production is expected to decrease 18%. If fewer soybeans are produced in any given year, we could face significant competition from other biodiesel producers for soybean soil, since a decrease in the soybean crop would likely lead to a comparable decrease in the supply of soybean oil. An increase in competition for soybean oil may also increase soybean oil costs. The United States Department of Agriculture’s (“USDA”) November 2007 Oil Crops Outlook report states that the average October 2007 soybean oil price jumped to 38.1 cents per pound, which is up approximately 54% from one year ago and is the highest average price since May 1984. However, according to the USDA’s National Weekly Ag Energy Round-Up report, crude soybean oil in Iowa for the week of December 7, 2007 was even higher, ranging from 42.9 to 44.4 cents per pound. Any further increase in soybean oil costs, or the persistence of the currently high prices, may adversely impact our ability to generate a profit.

In 2006, approximately 225 million gallons of biodiesel were produced in the United States. As of September 2007, the National Biodiesel Board reported that there were 165 operating biodiesel plants in the United States with a total annual production capacity of 1.85 billion gallons. Four of these plants were undergoing expansions to increase their annual production capacity. Another 80 plants were reported to be in the planning stages or under construction as of September 2007. The additional combined capacity of these plants under construction or expansion is estimated at 1.37 billion gallons per year. Biodiesel plants are currently operating in 45 states. We anticipate that as additional biodiesel plants are constructed and brought on line, the supply of biodiesel will increase. The absence of increased demand may cause prices for biodiesel to decrease. We may not be able to compete successfully or such competition may reduce our ability to generate the profits necessary to operate our plant.

We expect that additional biodiesel producers will enter the market if the demand for biodiesel increases. When new producers enter the market, they will increase the supply of biodiesel in the market. If biodiesel demand does not keep pace with additional supply, the sale price of biodiesel may decrease and we may not be able to operate our plant profitably. Biodiesel supply may already exceed demand for biodiesel.

We currently compete with other plants with much larger production capacity than ours. Large plants with which we compete include the 85 million gallon per year Archer Daniels Midland Co (ADM) canola-based plant in Velva, North Dakota, the 86 million gallon per year Green Earth Fuels multi-feedstock plant in Houston, Texas, the 100 million gallon per year multi-feedstock Imperium Grays Harbor plant in Grays Harbor, Washington which became operational in August 2007, and the 80 million gallon per year soy-based biodiesel plant owned by Louis Dreyfus Agricultural Industries, LLC in Claypool, Indiana which commenced operations in August 2007.

In addition, we face a competitive challenge from biodiesel plants owned and operated by the companies that supply our inputs. Cargill, Inc. and Archer Daniels Midland Co. (ADM) are large suppliers of soybean oil, both of which own and operate their own biodiesel plants in the Midwest. Cargill, Inc. owns a 37.5 million gallon plant in Iowa Falls, Iowa. ADM has constructed an 85 million gallon plant in Velva, North Dakota which processes canola oil into biodiesel.

Furthermore, we must compete with Renewable Energy Group, Inc. (“REG”), the entity that is currently serving as our manager and product marketer and previously served as our design-builder. REG owns a plant located in Ralston, Iowa which produces biodiesel primarily from feedstock produced at its soybean crushing facility and has an annual production capacity of 12 million gallons. REG’s Ralston facility was previously owned by West Central Cooperative; however, West Central Cooperative combined all of its biodiesel-related products and services with REG. REG is also in the process of constructing two 60 million gallon per year biodiesel plants that it will own and operate, one which will be located in Emporia, Kansas and another which is located near New Orleans, Louisiana. Accordingly, we will be in direct competition with REG for the acquisition of inputs and the sale of our products. We entered into a management and operational services agreement with REG on August 22, 2006. See “MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS — Plant Management, Feedstock Procurement and Marketing” for more information. Under this agreement, REG provides us with (1) a general manager; (2) an operations manager; (3) feedstock procurement; (4) chemical inputs procurement; (5) administrative services; (6) sales and marketing services; and (7) human resources support. Accordingly, REG is both a direct competitor and an entity on which we are highly dependent for the production and sale of all of our biodiesel. See “Dependence on One or a Few Major Customers.” Furthermore, our management and operational services agreement with REG does not prevent REG from providing marketing and sales services for our competitors.

There are currently 13 other active biodiesel plants in Iowa. The first is REG’s Ralston, Iowa facility discussed above. A second biodiesel producer in Iowa is Ag Processing Inc. (AGP) in Sergeant Bluff. This facility produces biodiesel from refined bleached and deodorized soybean oil produced at its solvent extraction processing plant in Eagle Grove, Iowa. AGP has completed an expansion of its plant, increasing its production capacity from 7 to 12 million gallons per year. The company has previously announced plans for another plant expansion that would increase its production capacity to approximately 30 million gallons per year.

A third biodiesel production facility in Iowa is Soy Solutions of Iowa, LLC located in Milford, Iowa. This is a “stand-alone” facility that purchases soybean oil from the market. The facility has capacity to produce approximately 2 million gallons of biodiesel annually, and utilizes virgin soybean oil as its sole feedstock.

A fourth biodiesel production facility in Iowa is Western Iowa Energy, LLC located in Wall Lake, Iowa. This facility has capacity to produce 30 million gallons of biodiesel annually and utilizes both soybean oil and animal fats as its feedstock. This biodiesel plant was constructed by REG and is currently managed by REG.

A fifth biodiesel production facility in Iowa is operated by Cargill Inc. located in Iowa Falls. Cargill’s facility has an annual production capacity of 37.5 million gallons. Cargill uses soybean oil as its primary feedstock and is located adjacent to its soybean crush facility.

The sixth biodiesel production facility in Iowa is owned by Clinton County BioEnergy, L.L.C. located in Clinton, Iowa. This facility has capacity to produce 10 million gallons of biodiesel annually and uses soybean oil as its primary feedstock.

A seventh biodiesel production facility is Tri-City Energy, LLC located in Keokuk, Iowa. The facility has capacity to produce 5 million gallons of biodiesel annually and uses soybean oil as its primary feedstock.

The eighth operating biodiesel production facility is Western Dubuque Biodiesel, LLC, which is located near Farley, Iowa. Western Dubuque Biodiesel has the capacity to produce 30 million gallons of biodiesel per year. This biodiesel plant was constructed by REG and is currently managed by REG. This plant is not capable of pretreating animal fats like our plant.

The ninth operating biodiesel production facility in Iowa is Freedom Fuels, LLC near Mason City, Iowa. The facility has capacity to produce 30 million gallons of biodiesel per year.

The tenth operating biodiesel production facility is Iowa Renewable Energy, LLC in Washington, Iowa. The facility has capacity to produce 30 million gallons of biodiesel per year, from either vegetable oil or animal fat. This biodiesel plant was constructed by REG and is currently managed by REG.

The eleventh and twelfth plants are operated by Sioux Biochemical, Inc. and Riksch Biofuels L.L.C. Sioux Biochemical, located in Sioux Center, Iowa, is capable of producing 1.5 million gallons of biodiesel each year and Riksch Biofuels, located in Crawfordsville, Iowa, is capable of producing 10 million gallons of biodiesel each year.

Finally, a thirteenth plant, East Fork Biodiesel, LLC, finished construction on its 60 million gallon per year plant in Algona, Iowa, currently making it the largest biodiesel producer in Iowa. However, this plant is not currently operating. This biodiesel plant was constructed by REG and is currently managed by REG.

In addition, at least two other companies have proposed plants in Iowa. Maple River Energy, LLC has a 5 million gallon per year facility under construction. Finally, Soy Energy, LLC was constructing a 30 million gallon per year biodiesel plant in Marcus, Iowa, but has suspended plant construction at this time.

Because of current adver


PART I			3

ITEM 1. DESCRIPTION OF BUSINESS			3

ITEM 1A. RISK FACTORS			26

ITEM 2. DESCRIPTION OF PROPERTY			37

ITEM 3. LEGAL PROCEEDINGS			38

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			38

PART II			38

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES			38

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION			40

ITEM 7. FINANCIAL STATEMENTS			59

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			72

ITEM 8A. CONTROLS AND PROCEDURES			72

ITEM 8B. OTHER INFORMATION			72

PART III			72

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT			72

ITEM 10. EXECUTIVE COMPENSATION			72

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			72

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE			72

ITEM 13. EXHIBITS			73

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			74

SIGNATURES			75

Exhibit 10.21
Exhibit 10.22
Exhibit 10.23
Exhibit 10.24
Exhibit 10.25
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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