Attached files
| file | filename |
|---|---|
| EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - Soy Energy, LLC | soy111454_ex32-1.htm |
| EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - Soy Energy, LLC | soy111454_ex31-2.htm |
| EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - Soy Energy, LLC | soy111454_ex31-1.htm |
| EX-32.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 - Soy Energy, LLC | soy111454_ex32-2.htm |
| EX-10.1 - FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT - Soy Energy, LLC | soy111454_ex10-1.htm |
|
|
|
UNITED STATES |
|
SECURITIES AND EXCHANGE COMMISSION |
|
|
|
Washington, D.C. 20549 |
|
|
|
|
|
FORM 10-Q |
|
|
|
|
|
|
x |
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. |
|
|
|
|
For the quarterly period ended January 31, 2011 |
|
|
|
|
|
OR |
|
|
|
|
|
o |
Transition report under Section 13 or 15(d) of the Exchange Act. |
|
|
|
|
For the transition period from _______ to _________ |
|
|
|
|
|
Commission file number 000-53112 |
|
|
|
|
|
|
|
|
|
|
|
SOY ENERGY, LLC |
|
|
(Exact name of small business issuer as specified in its charter) |
|
|
|
|
|
|
Iowa |
|
20-4026473 |
|
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.) |
|
|
||
|
4172 19TH STREET SW, MASON CITY, IA 50401 |
||
|
(Address of principal executive offices) |
||
|
|
||
|
(641) 421-7590 |
||
|
(Issuer’s telephone number) |
||
|
|
||
|
|
||
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.
x Yes o No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
Large accelerated filer o |
Accelerated filer |
o |
|
|
||
|
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company |
x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
State the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date: As of March 17, 2011, we had 33,018 units outstanding.
|
|
|
|
|
3 |
||
|
3 |
||
|
Management’s Discussion and Analysis of Financial Condition and Results of Operation |
10 |
|
|
19 |
||
|
19 |
||
|
19 |
||
|
19 |
||
|
19 |
||
|
19 |
||
|
20 |
||
|
20 |
||
|
20 |
||
|
20 |
||
|
21 |
2
|
|
|
|
FINANCIAL INFORMATION |
|
|
|
SOY ENERGY, LLC |
|
(A Development Stage Company) |
|
|
|
Condensed Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
ASSETS |
|
January 31, |
|
October 31, |
|
||
|
|
|
|
|
|
|
||
|
|
|
(Unaudited) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
5,507,994 |
|
$ |
6,352,955 |
|
|
Certificates of deposit |
|
|
514,781 |
|
|
— |
|
|
Accrued interest receivable |
|
|
12,754 |
|
|
3,993 |
|
|
Prepaid costs and other |
|
|
84,231 |
|
|
99,976 |
|
|
|
|
|
|
|
|
||
|
Total current assets |
|
|
6,119,760 |
|
|
6,456,924 |
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
|
|
|
|
|
|
|
Land and improvements |
|
|
502,176 |
|
|
502,176 |
|
|
Buildings |
|
|
3,272,616 |
|
|
3,272,616 |
|
|
Equipment |
|
|
6,242,987 |
|
|
6,242,987 |
|
|
Accumulated depreciation |
|
|
(6,441 |
) |
|
(5,954 |
) |
|
|
|
|
|
|
|
||
|
Total |
|
|
10,011,338 |
|
|
10,011,825 |
|
|
Construction-in-progress |
|
|
3,425,380 |
|
|
1,383,899 |
|
|
|
|
|
|
|
|
||
|
Net property, plant and equipment |
|
|
13,436,718 |
|
|
11,395,724 |
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Assets held for sale |
|
|
2,300,380 |
|
|
2,825,380 |
|
|
Escrow deposit |
|
|
6,680,336 |
|
|
6,677,482 |
|
|
Debt service reserve |
|
|
150,106 |
|
|
150,000 |
|
|
Debt issuance costs, net |
|
|
143,147 |
|
|
148,257 |
|
|
|
|
|
|
|
|
||
|
Total other assets |
|
|
9,273,969 |
|
|
9,801,119 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
28,830,447 |
|
$ |
27,653,767 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,445,131 |
|
$ |
96,224 |
|
|
Accrued expenses |
|
|
167,279 |
|
|
132,081 |
|
|
Current maturities of long-term debt |
|
|
116,402 |
|
|
— |
|
|
|
|
|
|
|
|
||
|
Total current liabilities |
|
|
1,728,812 |
|
|
228,305 |
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt, Net of Current Maturities |
|
|
5,934,272 |
|
|
6,050,048 |
|
|
|
|
|
|
|
|
|
|
|
Members’ Equity |
|
|
|
|
|
|
|
|
Member contributions, 33,018 units issued and outstanding |
|
|
31,031,572 |
|
|
31,031,572 |
|
|
Deficit accumulated during development stage |
|
|
(9,864,209 |
) |
|
(9,656,158 |
) |
|
|
|
|
|
|
|
||
|
Total members’ equity |
|
|
21,167,363 |
|
|
21,375,414 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Members’ Equity |
|
$ |
28,830,447 |
|
$ |
27,653,767 |
|
|
|
|
|
|
|
|
||
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
3
|
|
|
SOY ENERGY, LLC |
|
(A Development Stage Company) |
|
|
|
Condensed Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Three months |
|
Three months |
|
From Inception |
|
|||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
155,304 |
|
|
53,602 |
|
|
1,763,888 |
|
|
Professional fees |
|
|
76,897 |
|
|
126,057 |
|
|
1,943,744 |
|
|
Impairment expense |
|
|
— |
|
|
— |
|
|
7,553,488 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Total operating expenses |
|
|
232,201 |
|
|
179,659 |
|
|
11,261,120 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(232,201 |
) |
|
(179,659 |
) |
|
(11,261,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
19,734 |
|
|
13,139 |
|
|
1,405,845 |
|
|
Other income |
|
|
4,416 |
|
|
— |
|
|
19,477 |
|
|
Interest expense |
|
|
— |
|
|
— |
|
|
(28,411 |
) |
|
|
|
|
|
|
|
|
|
|
||
|
Total other income, net |
|
|
24,150 |
|
|
13,139 |
|
|
1,396,911 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(208,051 |
) |
$ |
(166,520 |
) |
$ |
(9,864,209 |
) |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Units Outstanding - Basic and Diluted |
|
|
33,018 |
|
|
33,018 |
|
|
24,155 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Unit - Basic and Diluted |
|
$ |
(6.30 |
) |
$ |
(5.04 |
) |
$ |
(408.37 |
) |
|
|
|
|
|
|
|
|
|
|
||
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
4
|
|
|
SOY ENERGY, LLC |
|
(A Development Stage Company) |
|
|
|
Condensed Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Three months |
|
Three months |
|
From Inception |
|
|||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|||
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(208,051 |
) |
$ |
(166,520 |
) |
$ |
(9,864,209 |
) |
|
Adjustments to reconcile net loss to net cash used for operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
487 |
|
|
444 |
|
|
8,184 |
|
|
Impairment of long-lived assets |
|
|
— |
|
|
— |
|
|
7,553,488 |
|
|
Write off of construction services related to terminated agreement |
|
|
— |
|
|
— |
|
|
50,000 |
|
|
Write off of debt issuance costs |
|
|
— |
|
|
— |
|
|
25,000 |
|
|
Non-cash interest income |
|
|
(2,960 |
) |
|
— |
|
|
(33,706 |
) |
|
Expenses financed with long-term debt |
|
|
— |
|
|
— |
|
|
50,048 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
(8,761 |
) |
|
1,322 |
|
|
(12,754 |
) |
|
Prepaid costs and other |
|
|
(107,752 |
) |
|
2,638 |
|
|
(112,728 |
) |
|
Accounts payable |
|
|
38,326 |
|
|
64,433 |
|
|
73,915 |
|
|
Accrued expenses |
|
|
35,198 |
|
|
1,655 |
|
|
167,279 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Net cash used for operating activities |
|
|
(253,513 |
) |
|
(96,028 |
) |
|
(2,095,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(76,667 |
) |
|
— |
|
|
(14,869,132 |
) |
|
Proceeds from disposal of property and equipment |
|
|
— |
|
|
— |
|
|
1,725,000 |
|
|
Proceeds from disposal of assets held for sale |
|
|
— |
|
|
4,951 |
|
|
5,818 |
|
|
Escrow deposits, net |
|
|
— |
|
|
— |
|
|
(8,000,000 |
) |
|
Payments for design services deposit |
|
|
— |
|
|
— |
|
|
(5,450,000 |
) |
|
Refund of design services deposit |
|
|
— |
|
|
— |
|
|
3,300,000 |
|
|
Payments for construction deposit |
|
|
— |
|
|
— |
|
|
(2,500,000 |
) |
|
Refund of construction deposit |
|
|
— |
|
|
— |
|
|
2,450,000 |
|
|
Payments for certificates of deposit |
|
|
(514,781 |
) |
|
— |
|
|
(2,464,781 |
) |
|
Proceeds from maturing certificates of deposit |
|
|
— |
|
|
— |
|
|
1,950,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Net cash (used for) provided by investing activities |
|
|
(591,448 |
) |
|
4,951 |
|
|
(23,853,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
Payments for debt issuance costs |
|
|
— |
|
|
— |
|
|
(175,000 |
) |
|
Funding debt service reserve |
|
|
— |
|
|
— |
|
|
(150,000 |
) |
|
Members’ contributed capital |
|
|
— |
|
|
— |
|
|
31,968,000 |
|
|
Payments for offering costs |
|
|
— |
|
|
— |
|
|
(186,428 |
) |
|
|
|
|
|
|
|
|
|
|
||
|
Net cash provided by financing activities |
|
|
— |
|
|
— |
|
|
31,456,572 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Equivalents |
|
|
(844,961 |
) |
|
(91,077 |
) |
|
5,507,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents at Beginning of Period |
|
|
6,352,955 |
|
|
19,826,065 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents at End of Period |
|
$ |
5,507,994 |
|
$ |
19,734,988 |
|
$ |
5,507,994 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest paid |
|
$ |
82,403 |
|
$ |
— |
|
$ |
215,959 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Interest expense paid |
|
$ |
— |
|
$ |
— |
|
$ |
26,667 |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
Construction-in-progress in accounts payable |
|
$ |
1,310,581 |
|
$ |
— |
|
$ |
1,371,216 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Assets held for sale reclassified to construction-in-progress |
|
$ |
525,000 |
|
$ |
— |
|
$ |
525,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Amortization of loan fees, discounts and prepaid expenses capitalized as construction-in-progress |
|
$ |
34,233 |
|
$ |
— |
|
$ |
34,233 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Prepaid costs reclassified to construction-in-progress |
|
$ |
95,000 |
|
$ |
— |
|
$ |
95,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Property and equipment financed with long-term debt |
|
$ |
— |
|
$ |
— |
|
$ |
6,000,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Assets held for sale reclassified to prepaid expenses |
|
$ |
— |
|
$ |
— |
|
$ |
95,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Long-term debt issued to pay operating expenses |
|
$ |
— |
|
$ |
— |
|
$ |
50,048 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Payment of construction-in-progress with escrow deposit |
|
$ |
— |
|
$ |
— |
|
$ |
1,323,264 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Construction-in-progress applied against design services deposit |
|
$ |
— |
|
$ |
— |
|
$ |
963,675 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Design services deposit applied against accounts payable to related party |
|
$ |
— |
|
$ |
— |
|
$ |
431,696 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Property and equipment returned for member units |
|
$ |
— |
|
$ |
— |
|
$ |
750,000 |
|
|
|
|
|
|
|
|
|
|
|
||
|
Property and equipment reclassified to assets held for sale |
|
$ |
— |
|
$ |
— |
|
$ |
3,557,061 |
|
|
|
|
|
|
|
|
|
|
|
||
Notes to Unaudited Financial Statements are an integral part of this Statement.
5
SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial
Statements
January 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2010, contained in the Company’s Form 10-K.
In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company’s financial position as of January 31, 2011 and the results of operation and cash flows for all periods present.
Nature of Business
Soy Energy, LLC, a development stage Iowa limited liability company, (the Company) was originally organized to develop, own and operate a 30 million gallon per year (MGY) production biodiesel facility between Cleghorn and Marcus, Iowa in Cherokee County. The Company was formed December 15, 2005 to have a perpetual life. As of January 31, 2011, the Company is in the development stage with its efforts being principally devoted to organizational activities and construction of improvements to the Mason City, Iowa plant, which will produce 30 MGY of biodiesel. The Company anticipates construction completion and commencement of operations in August 2011.
Accounting Estimates
Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property, plant, and equipment and related assumptions related to impairment testing and the carrying value of assets held for sale. In addition, the Company estimates that it has the necessary capital to finish the construction of improvements to get the plant operational. Actual results may differ from previously estimated amounts and such differences may be material to the financial statements.
Property, Plant and Equipment
Equipment is stated at cost and is depreciated over estimated service lives of related assets, five years, using the straight-line method of accounting. Property, plant and equipment undergoing development that is not in service is shown in the balance sheet as construction-in-progress and is not depreciated.
Ordinary maintenance and repairs are expensed as incurred. Cost of renewals and betterments are capitalized in appropriate property and equipment accounts and depreciated as discussed above.
The Company capitalizes construction costs as construction-in-progress until the assets are placed in service. The Company had construction-in-progress of approximately $3,425,000 and $1,384,000 as of January 31, 2011 and October 31, 2010, respectively, relating to the Mason City, Iowa plant improvements.
Construction-in-Progress
The Company continues to make payments for the construction of a 30 MGY plant. The Company anticipates the construction will cost approximately $9,303,000, including capitalized interest, insurance, and assets previously held for sale now utilized in the construction, with approximately $5,877,000 remaining at January 31, 2011. The Company capitalized interest of approximately $82,000, including amounts accrued, during the three months ended January 31, 2011.
6
SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial
Statements
January 31, 2011
Debt Issuance Costs
The Company had debt issuance costs of approximately $143,000 and $148,000 at January 31, 2011 and October 31, 2010, respectively. Accumulated amortization at January 31, 2011 and October 31, 2010 was approximately $6,900 and $1,700, respectively. The amortization expense related to the debt issuance costs for the fiscal year 2010 was approximately $1,700. The Company capitalized the amortization of debt issuance costs as part of the construction-in-progress during the three months ended January 31, 2011 of approximately $5,200.
Long-Lived Assets
The Company reviews its long-lived assets, such as property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company reviews assets held for sale at each reporting date to determine that the carrying value is equal or greater than the estimated net selling price.
Fair Value of Financial Instruments
The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statement on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
|
|
|
|
|
|
- |
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
|
|
|
|
|
|
- |
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
|
|
|
|
|
|
- |
Level 3 inputs are unobservable inputs for the asset or liability. |
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The Company believes the carrying value of cash and equivalents, escrow deposit, debt service reserve, accounts payable, and other working capital items approximate fair value due to the short maturity nature of these instruments. The Company believes the carrying amount of the long-term debt approximates the fair value due to terms of the debt approximating the current market interest rates.
7
SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial
Statements
January 31, 2011
2. LIQUIDITY
The Company is a developmental stage company and has no operating revenues. The Company has a biodiesel facility in Mason City, Iowa and is in the process of constructing improvements to the plant. The Company anticipates that operations will commence in August 2011 and believes current cash reserves will be sufficient to fund construction and fund all of operations through January 2012 without additional financing.
3. ASSETS HELD FOR SALE
The Company is actively working to sell the assets held for sale. These assets have been recorded at their estimated selling price, less estimated selling costs. The fair value of these assets was determined based on recent sales of similar equipment.
Amounts included in assets held for sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
October 31, |
|
||
|
|
|
|
|
|
|
||
|
Land |
|
$ |
250,262 |
|
$ |
250,262 |
|
|
Equipment |
|
|
2,050,118 |
|
|
2,575,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held for sale |
|
$ |
2,300,380 |
|
$ |
2,825,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Derived from audited financial statements. |
|
|
|
|
|
|
|
4. LONG-TERM DEBT
The Company has a term loan for $6,000,000 with a financial institution with a fixed rate of 5.0% until October 2016. The interest rate will then adjust to the greater of the five-year LIBOR swap rate plus 3.5% or 5.0%. The Company makes monthly interest only payments on the term loan until November 1, 2011, followed by 120 monthly principal and interest payments sufficient to fully amortize the principal balance at maturity in September 2021.
The Company has a non-interest bearing note with the same financial institution for $77,595 and will be due in full in September 2021. The carrying value of the loan is shown net of unamortized discount of $26,921 and $27,547 as of January 31, 2011 and October 31, 2010, respectively, and is calculated using a 5.0% market interest rate. The unamortized discount will be recognized in interest expense over the life of the loan.
The loans are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions, capital expenditures, and require minimum debt service coverage requirements. The Company negotiated a change to the loan agreements with the financial institution in March 2011 whereby a covenant calculation was clarified as well as certain defined terms.
Amounts included in long-term debt are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
October 31, |
|
||
|
|
|
|
|
|
|
||
|
Term loan |
|
$ |
6,000,000 |
|
$ |
6,000,000 |
|
|
Term loan |
|
|
50,674 |
|
|
50,048 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
6,050,674 |
|
$ |
6,050,048 |
|
|
Less current maturities |
|
|
116,402 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,934,272 |
|
$ |
6,050,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Derived from audited financial statements. |
|
|
|
|
|
|
|
8
SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial
Statements
January 31, 2011
The estimated maturities of long-term debt, net of unamortized discount, at January 31, 2011 are as follows:
|
|
|
|
|
|
|
2012 |
|
$ |
116,402 |
|
|
2013 |
|
|
480,402 |
|
|
2014 |
|
|
504,980 |
|
|
2015 |
|
|
530,816 |
|
|
2016 |
|
|
557,973 |
|
|
Thereafter |
|
|
3,860,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,050,674 |
|
|
|
|
|
|
|
5. COMMITMENTS AND CONTINGENCIES
Construction Agreement
On August 11, 2010, the Company entered into a construction agreement with an unrelated party (contractor) for the design and construction of modifications of the Mason City, Iowa biodiesel facility allowing for the use of multiple feedstocks. Substantial completion of the work shall be achieved no later than 270 days after the date of notice to proceed has been delivered. The notice to proceed was delivered on October 1, 2010, so the date of which substantial completion of the work to be achieved is July 1, 2011. If not completed within 45 days, August 15, 2011, after the scheduled substantial completion date, the contractor shall pay the Company $5,500 per day up to, but not exceeding, $350,000. The Guaranteed Maximum Price of the project is $8,350,000. The amount of the Guaranteed Maximum Price was deposited in to an escrow account, as disclosed above, to be drawn upon as work progresses. The Company may terminate the agreement with seven days notice upon written request without cause; however, the contractor is due any amounts incurred for work completed. The Company may terminate the agreement with cause with seven days notice whereby any unpaid work done by the contractor will only be paid to the extent the Company’s costs and expenses to complete the project are less than the unpaid balance of the Cost of the Work. If the costs and expenses to complete the project exceed the Cost of the Work the contractor shall pay the excess. The Company had incurred approximately $2,694,000 on this contract as of January 31, 2011, which is included in construction-in-progress.
Marketing Agreement
On August 12, 2010, the Company entered into a marketing agreement with an unrelated party whereby the marketer would sell and market all of the biodiesel produced by the Company. In the event that the Company is not producing biodiesel by July 15, 2011 either company shall have the option to terminate the agreement with 21 days written notice. The Company shall pay the marketer a fee. The agreement shall commence on the effective date, August 12, 2010, and has an initial term with options to renew for additional terms. If either party breaches the contract, the other party may terminate the agreement if the breach is not cured within 30 days of written notice. This agreement may also be terminated by mutual consent of both parties.
6. SUBSEQUENT EVENTS
On February 3, 2011, the Company entered into a development agreement with the City of Mason City, Iowa providing for the payment of semi-annual Tax Increments to the Company for 5 years, beginning December 1, 2012, on the construction of the existing facility and 8 years, beginning December 1, 2013, on the expansion of the existing facility totaling up to, but not to exceed, approximately $623,000. The agreement provides for a new water main extension to the development property estimated to cost approximately $120,000 of which 25% of the cost will be paid by the City of Mason City and the remaining 75% will be paid using funds held in the Holdback Escrow Account. Additionally, the Company has agreed to meet certain employment related hiring and retention requirements through December 31, 2021.
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended January 31, 2011. This discussion should be read in conjunction with the financial statements and notes and the information contained in our annual report on Form 10-K for the fiscal year ended October 31, 2010.
Forward Looking Statements
This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to, those business risks and factors described elsewhere in this report, in our other Securities and Exchange Commission filings, as well as those listed below.
|
|
|
|
|
|
• |
Overcapacity within the biodiesel industry; |
|
|
|
|
|
|
• |
Our ability to successfully install equipment to make the Mason City biodiesel production facility a multi-feedstock capable plant; |
|
|
|
|
|
|
• |
Our ability to effectively operate the Mason City biodiesel production facility and manage our business; |
|
|
|
|
|
|
• |
Changes in our business strategy, capital improvements or development plans; |
|
|
|
|
|
|
• |
Availability and costs of feedstock, particularly soy oil, animal fats and corn oil; |
|
|
|
|
|
|
• |
Changes in the price and market for biodiesel and glycerin; |
|
|
|
|
|
|
• |
Actual biodiesel and glycerin production varying from expectations; |
|
|
|
|
|
|
• |
Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices such as national, state or local energy policy; federal biodiesel tax incentives; or environmental laws and regulations that apply to the Mason City biodiesel production facility; |
|
|
|
|
|
|
• |
Changes in the weather or general economic conditions impacting the availability and price of vegetable oils and animal fats; |
|
|
|
|
|
|
• |
Total U.S. consumption of diesel; |
|
|
|
|
|
|
• |
Weather changes, strikes, transportation or production problems causing supply interruptions or shortages affecting the availability and price of feedstock; |
|
|
|
|
|
|
• |
Changes in plant production capacity or technical difficulties in operating the Mason City biodiesel production facility; |
|
|
|
|
|
|
• |
Changes in interest rates or the availability of credit; |
|
|
|
|
|
|
• |
Our ability to generate free cash flow to invest in our business; |
|
|
|
|
|
|
• |
Our potential liability resulting from future litigation; |
|
|
|
|
|
|
• |
General economic conditions; |
|
|
|
|
|
|
• |
Ability to sell assets held for sale at their carrying value minus selling costs; |
|
|
|
|
|
|
• |
Changes and advances in biodiesel production technology; |
|
|
|
|
|
|
• |
Restrictive covenants in our Loan Agreement; |
|
|
|
|
|
|
• |
Competition from other alternative fuels; and |
|
|
|
|
|
|
• |
Other factors described elsewhere in this report. |
10
We undertake no duty to update these forward looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements which speak only as of the date of this report. You should read this report completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward looking statements by these cautionary statements.
Overview
We are a development stage Iowa limited liability company with no prior operating history. We were organized as an Iowa limited liability company by filing articles of organization with the Iowa Secretary of State on December 15, 2005. We were in the process of developing a 15 million gallon per year biodiesel plant near Marcus, Iowa in Cherokee County. We originally planned to construct a 30 million gallon per year biodiesel plant, but due to changes in our business plan, our members voted to pursue construction of a smaller biodiesel plant.
When the economy went into a recession, management determined in October 2008 that building this smaller biodiesel plant was not likely feasible. Therefore, we then began exploring possibilities to use our assets to merge with or invest in a company that has already completed construction of a biodiesel plant, rather than constructing our own plant. Construction of the proposed 15 million gallon per year plant in Marcus, Iowa was approximately 10% complete when management determined completion of the construction was no longer feasible. Although we believe that we will be able to sell our long-lived assets at their current carrying value, we may not be able to sell them at a profit. If we do not sell these assets at the current carrying value or at all, it may result in a material loss to the financial statements of our company. Because we do not anticipate constructing the Marcus, Iowa plant, all funds we expended in our construction and plant development efforts were deemed a loss. From our inception to January 31, 2011, we have incurred accumulated losses of approximately $9,864,000.
On July 29, 2009, we entered into an Asset Purchase Agreement (“APA”) with Freedom Fuels, LLC, an Iowa limited liability company (“Freedom Fuels”), which was in Chapter 11 bankruptcy and owned a biodiesel plant in Mason City, Iowa (the “Mason City biodiesel production facility”). Pursuant to the APA, we would acquire substantially all of Freedom Fuels’ assets in exchange for $9,000,000 in cash, an agreement assigning to Freedom Fuels all of our right, title and interest in the debtor in possession loans and an agreement assigning to Freedom Fuels all of our right, title and interest in the dividend cash flow note of $2,000,000 issued by a to-be-created Freedom Fuels’ investor entity to us.
However, prior to closing on the APA with Freedom Fuels, it became clear that the financing needed to close on this transaction would not be able to be obtained. Freedom Fuels then transferred all of its assets to its bank and on February 2, 2010 the proceedings were converted from a Chapter 11 voluntary bankruptcy to a Chapter 7 involuntary bankruptcy.
On April 2, 2010, we entered into an Asset Purchase Agreement with OSM-REO FF, LLC, a Minnesota limited liability company (“OSM”). OSM was previously assigned certain assets related to the biodiesel production facility of Freedom Fuels. Under the Asset Purchase Agreement, we agreed to pay OSM $10,000,000 to acquire the biodiesel production facility and related assets (the “Transaction”). The assets were transferred to Soy Energy “as-is.” However, the purchase price may be reduced up to $250,000 for expenses incurred by Soy Energy to make certain specified repairs and such repairs are currently in process. The Asset Purchase Agreement provided that we would not assume liabilities of Freedom Fuels or OSM, with the exception of certain taxes, certain liabilities under contracts we assumed, and obligations under existing confidentiality agreements.
We and OSM made customary representations, warranties and covenants in the Asset Purchase Agreement. Among other conditions, the closing of the Transaction was conditioned upon a $6,000,000 loan to us from OSM to use to purchase the assets. The terms of the financing are described below. In addition, the Transaction was subject to approval by our unitholders before the closing on the Transaction and such unitholder approval was obtained at our annual member meeting on June 24, 2010.
11
On August 13, 2010, we entered into an Amendment to the Asset Purchase Agreement with OSM (the “Amendment”). The purpose of the Amendment was to modify the definition of Closing Deadline to extend such date to September 27, 2010.
On September 27, 2010, we entered into a Second Amendment to the Asset Purchase Agreement with OSM (the “Second Amendment”). The purpose of the Second Amendment was to modify the definition of Closing Deadline to extend such date to September 30, 2010.
We entered into a Construction and Design Agreement (the “Construction Agreement”) with Ball Industrial Services, LLC and Ball Construction Services, LLC (collectively, “Ball”) effective August 11, 2010. Under the Construction Agreement, Ball will provide design, engineering, procurement, testing, training, and construction services and labor, materials, supplies and equipment for modifications to the Mason City biodiesel production facility to allow it to produce biodiesel using multiple feedstocks.
Ball guaranteed that all of the work will be new (unless otherwise approved by us), of good quality, in conformance with the Construction Agreement and all legal requirements, and free of defects in materials and workmanship. For one year from substantial completion, Ball will correct any work that does not conform to the requirement of the Construction Agreement. If the biodiesel production facility fails to perform due to defective work, the one-year period will be extended one day for each day that the biodiesel production facility is not operating due to the defective work. The Construction Agreement states that Ball will not be liable to the Company for any special, punitive, incidental, indirect or consequential damages arising from the breach of any warranty.
On September 23, 2010, we entered into an amendment to the Construction and Design Agreement with Ball. The purpose of this amendment was to extend the time the Company had to close on its proposed purchase of the Mason City biodiesel production plant, without the Construction Agreement terminating, to October 1, 2010.
On April 2, 2010, we entered into a Loan Agreement with OSM (the “Loan Agreement”). Subject to the terms of the Loan Agreement, OSM agreed to lend us $6,000,000 to be used to acquire the Mason City biodiesel production facility. The initial interest rate is 5%. In October 2016, the interest rate will adjust to the 5-year LIBOR/swap rate plus 3.5%, with a floor of 5%. During the first year of the loan, we will be required to only pay interest on outstanding amounts. Beginning in November 2011, we will make principal and interest payments amortized over a ten-year period, with maturity of the note in 2021.
On September 30, 2010, we entered into an Amended and Restated Loan Agreement with OSM. The purpose of amending and restating the Loan Agreement was to address certain items related to closing on the loan and to address additional details related to the Construction Agreement and our anticipated biodiesel production facility modifications to make it multi-feedstock capable.
On September 30, 2010 we closed on the Transaction. We gave Ball notice on October 1, 2010 to proceed with the construction and installation of front end equipment to make the Mason City biodiesel production facility multi-feedstock capable. As of January 31, 2011, there was approximately $3,491,000 in construction-in-progress.
On March 18, 2011, we entered into a first amendment to the loan agreements with OSM, whereby certain defined terms related to a covenant calculation were clarified.
To date, we have not generated any revenues and we do not anticipate generating any revenues until we complete the modifications at the Mason City biodiesel production facility and begin operations. Since we have not commenced any operations, we do not yet have comparable income, production or sales data.
12
Liquidity and Capital Resources
We expect to spend the next 12 months (i) installing equipment on the Mason City biodiesel production facility to make it multi-feedstock capable; and (ii) beginning our operations of the Mason City biodiesel production facility. We do not anticipate raising additional equity capital in the next 12 months. However, in the event our equity reserves and debt are not adequate to recommence and continue operations of the Mason City biodiesel production facility, we may be forced to do so. We also plan to use approximately $8,350,000 of our equity reserves to install the front end equipment on the Mason City biodiesel production facility so that it will be multi-feedstock capable. As of January 31, 2011 there is approximately $3,491,000 in construction-in-progress towards this equipment installation. Should we be unsuccessful in our operation of the Mason City biodiesel production facility, our project may fail and we may be dissolved. If we are dissolved, our assets will be distributed pursuant to our operating agreement.
Currently, progress on the construction at the Mason City biodiesel production facility includes the pouring of the footings for the addition and the pouring of the containment dike. Two field tanks have been erected and are being constructed. We estimate approximately 37% of the work is complete as of February 28, 2011. We estimate we will begin production in August 2011.
On February 3, 2011, we entered into a development agreement with the City of Mason City, Iowa this agreement provides for the payment of semi-annual tax increments to us for 5 years, beginning December 1, 2012, related to the initial construction of the Mason City biodiesel production facility and 8 years, beginning December 1, 2013, based on the equipment installation at the Mason City biodiesel production facility, totaling up to, but not to exceed, approximately $623,000. The agreement provides for a new water main extension to our site estimated to cost approximately $120,000, of which 25% of the cost will be paid by the City of Mason City and the remaining 75% will be paid using funds held in our Holdback Escrow Account. Additionally under the development agreement, we have agreed to meet certain employment requirements related to hiring and retention through December 31, 2021.
We anticipate the success of our operation of the Mason City biodiesel production facility will be dependent upon several factors. First, we will be dependent upon Ball to successfully install the front end equipment on the Mason City biodiesel production facility, so that we can effectively utilize a variety of feedstocks, and, specifically, corn oil. We may have difficulties getting the additional equipment to operate smoothly with the current plant technology. Then we will need to be able to find an adequate and cost-effective supply of corn oil to use to produce our biodiesel. We anticipate that we will be able to obtain corn oil largely from local ethanol plants. However, this will require us to enter into agreements with such ethanol plants and we may be unable to enter into the necessary number of agreements or such agreements may be on terms unfavorable to us. Additionally, ethanol plants that are presently producing corn oil as a by-product may cease such production in the future as a result of patent infringement litigation related to the corn oil technology many ethanol plants are currently using. We may decide to enter into joint ventures with ethanol plants to encourage them to install corn oil equipment on their plants, but this means we will also assume some of the risk.
Finally, we will be dependent upon our marketer to sell our biodiesel at profitable prices. On August 12, 2010, we entered into a biodiesel marketing agreement with RPMG (“Marketing Agreement”). Pursuant to the terms of the Marketing Agreement, we agreed that RPMG will market all of the biodiesel we may produce at the Mason City biodiesel production facility during the term of the Marketing Agreement, subject to our right to enter into tolling arrangements that will not be subject to the Marketing Agreement. If we have not commenced operations at the Mason City biodiesel production facility on or before July 15, 2011, then either party may terminate the Marketing Agreement upon twenty-one (21) days written notice to the other party.
RPMG will be responsible for and shall bear the risk of loss of all biodiesel marketed for us from the time the biodiesel crosses the loading flange at the Mason City biodiesel facility and the common carrier or customer accepts for loading the biodiesel at the Mason City biodiesel facility in either a railcar, tank truck or other transport vehicle.
13
Site Acquisition and Development
We purchased approximately 35 acres for our plant site near Marcus, Iowa in Cherokee County. In August 2007, we commenced construction of our 30 million gallon per year biodiesel plant. In November 2007, we suspended all construction related activities on our plant while we sought the debt financing we needed to complete construction of the plant. On April 10, 2008 our members approved reducing the initial production capacity of the biodiesel plant to 15 million gallons per year from 30 million gallons per year. Upon completing approximately 10% of the construction of our biodiesel plant in October 2008, management determined that it would not likely be feasible to complete construction of the biodiesel plant due to current economic conditions. We may be unable to sell the Marcus site and the construction completed at a profit, or at all. Due to the significant changes we made to our project, we recorded an impairment charge during our quarter ended October 31, 2008 in the value of constructed and construction in process assets of approximately $6,923,000, a portion of which is from the site we purchased. Additionally, as we have not sold the assets being held, we recorded an additional impairment charge of approximately $631,000 during the fiscal year ended October 31, 2010. We feel the Marcus site is an attractive site for development and we are actively looking for a buyer for the Marcus site. We have made some contacts with potential buyers.
In connection with our purchase of the Mason City biodiesel production facility, we purchased approximately forty-five acres upon which the biodiesel production facility sits. Mason City is in north central Iowa. The site was a portion of the purchase price under the Asset Purchase Agreement with OSM.
Trends and Uncertainties Impacting the Biodiesel Industry and Our Future Operations
We will be subject to industry-wide factors that affect our anticipated operation of the Mason City biodiesel production facility and financial performance. These factors include, but are not limited to, the available supply and cost of feedstock from which biodiesel and glycerin will be processed; dependence on RPMG and a glycerin marketer (if we decide to use a glycerin marketer) to market and distribute our products; the competitive nature of the biodiesel industry; possible legislation at the federal, state and/or local level; changes in federal tax incentives; and the cost of complying with extensive environmental laws that regulate the biodiesel industry.
We anticipate our revenues will consist of sales of biodiesel and glycerin from the Mason City biodiesel production facility. We expect biodiesel sales to constitute the bulk of our revenues. Although the price of diesel fuel has increased over the last several years, diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel. In addition, other more cost-efficient domestic alternative fuels may be developed and displace biodiesel as an environmentally-friendly alternative. If diesel prices do not continue to increase or a new fuel is developed to compete with biodiesel, it may be difficult to market biodiesel, which could result in the loss of some or all of the value of our units. Further, many biodiesel production facilities have ceased production due to lack of demand for biodiesel, and the industry will need to continue to grow demand to offset the increased supply brought to the market place if and when these facilities re-start production in the future.
We expect to benefit from federal and state biodiesel supports and tax incentives, however, these benefits may be subject to the applicability of such supports and tax incentives to our operation of the Mason City biodiesel production facility. Biodiesel has generally been more expensive to produce than petroleum-based diesel and, as a result, the biodiesel industry depends on such incentives to be competitive. Changes to these supports or incentives could significantly impact demand for biodiesel.
Biodiesel production grew as additional plants become operational, until 2009 when production reduced. In 2006 biodiesel production was approximately 250 million gallons. The National Biodiesel Board estimates that in 2008, biodiesel production reached 700 million gallons. Estimates for 2009 biodiesel production however, were approximately 545 million gallons. According to Reuters, 2010 production decreased by 20%, posting only fifty percent (50%) of the 2008 biodiesel output. This reduction was likely largely related to the recession and the related credit crisis. We believe this increase in biodiesel supply, reduction in demand, and the loss of the biodiesel tax credit (until it was reinstated at the end of 2010 for 2011 and made retroactive for 2010) have forced some biodiesel producers to cut back production or cease production altogether. The combination of additional supply and stagnant or reduced demand may damage our ability to generate revenue and maintain positive cash flows should we reach the point where we begin operating the Mason City biodiesel production facility.
14
Renewable Fuels Standard
The Energy Policy Act of 2005 created the Renewable Fuel Standard (RFS) which required refiners to use 7.5 billion gallons of renewable fuels by 2012. The Energy Independence and Security Act of 2007 (EISA) expanded 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 (RFS2). The RFS2 requires that 600 million gallons of renewable fuel used in 2009 must come from advanced biofuels other than corn-based ethanol, such as ethanol derived from cellulose, sugar or crop residue and biomass-based diesel (which includes biodiesel and renewable diesel), increasing to 21 billion gallons in 2022. The RFS2 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 one billion gallons by 2012. However, in November 2008, the EPA announced that the RFS2 program in 2009 would continue to be applicable to producers and importers of gasoline only. This meant that the 500 million gallons of biomass-based diesel required by the RFS2 did not have to be blended into U.S. fuel supplies in 2009. This is due to the fact that the regulatory structure of the original RFS program did not provide a mechanism for implementing the EISA requirement for the use of 500 million gallons of biomass-based diesel. On February 3, 2010 the EPA issued final rules under RFS2. The final rules addressed this issue by combining the 2010 biomass-based diesel requirement of 0.65 billion gallons with the 2009 biomass-based diesel requirement of 0.5 billion gallons to require that obligated parties meet a combined 2009/2010 requirement of 1.15 billion gallons by the end of the 2010 compliance year. We anticipate that there will again be a roll-over of some of the 2010 requirement into 2011 and also that some of the cellulosic requirements that cannot be achieved due to lack of technology may be allowed to be filled by biodiesel. Thus, we anticipate that biodiesel requirements under the 2011 RFS2 may exceed the previously set 800 million gallon requirement for 2011. According to The Biodiesel Magazine website, cellulosic biofuel and biomass-based diesel consumed beyond the 2011 minimum thresholds will be credited towards the advanced biofuel and total renewable fuel volume requirements.
Part of RFS2 required that advanced biofuels reduce life cycle greenhouse gas emissions by 50% relative to gasoline sold or distributed in transportation. In May 2009, the EPA proposed rules that took into account indirect land use changes when calculating greenhouse gas emissions. Based on the EPA’s preliminary findings, soy-based biodiesel was found to reduce greenhouse gas emissions by only 22%, which would disqualify it from counting towards the RFS2. Biodiesel from animal fat was found to reduce greenhouse gas emissions by approximately 80%. The EPA did not measure biodiesel produced from corn oil. However, when the EPA issued its final determinations under the RFS2, it found that soy oil complies with the 50% greenhouse gas emission reduction requirements.
The RFS2 program gained additional certainty when on December 21, 2010, a lawsuit challenging the RFS2 regulations was dismissed. We anticipate that the RFS2 may increase demand for biodiesel in the long-term, as it sets a minimum usage requirement for biodiesel and other types of biomass-based diesel. However, there can be no assurances that demand for biodiesel will be increased by the RFS2. As of March 7, 2011, the Biodiesel Magazine website estimated that national biodiesel production capacity was approximately 2.84 billion gallons per year, which already exceeds the 2012 biodiesel and biomass-based diesel use mandate contained in the EISA. 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 the expanded RFS2 will be primarily satisfied by ethanol, including both corn-based and other types of ethanol. The amount of corn-based ethanol that may be used to satisfy the RFS2 requirements is capped at 15 million gallons starting in 2015 and, accordingly, other types of ethanol, including cellulose-based ethanol, will likely be used to satisfy any requirements over and above the 15 million gallon corn-based ethanol cap. Because the biodiesel tax credit was only recently reinstated and extended, we are still not certain if these measures in conjunction with each other will be enough to re-stimulate the biodiesel market.
Biodiesel Tax Credit
The American Jobs Creation Act of 2004 originally created the biodiesel blender’s excise tax credit under the Volumetric Ethanol Excise Tax Credit (“VEETC”). Known as the biodiesel tax credit, it provided a tax credit of $1.00 per gallon for biodiesel. The biodiesel credit may be claimed in both taxable and nontaxable markets, including exempt fleet fuel programs and off-road diesel markets. The desired effect of the biodiesel tax credit was 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. The biodiesel tax credit also streamlined 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. The biodiesel credit expired on December 31, 2009. Only in December 2010 was the biodiesel tax credit reinstated retroactively for 2010 and extended through December 31, 2011. Due to the recent nature of this change, it remains uncertain whether a one year extension of the biodiesel tax credit will be sufficient to stimulate demand for biodiesel. Moreover, we will not benefit from the retroactive application of the biodiesel tax credit in 2010, because we did not operate during 2010.
15
Commodity Credit Corporation Bioenergy Program
The Farm, Nutrition and Bioenergy Act of 2008 reauthorized the Commodity Credit Corporation, or CCC, Bioenergy Program. The program provides $55.0 million in funding in both 2009 and 2010, $85.0 million in funding in 2011 and $105.0 million in funding in 2012 for producers of advanced biofuels derived from renewable biomass, including biodiesel, other than corn kernel. Biodiesel producers must apply for this credit and will be paid based on the quantity and duration of advanced biofuels production and on net nonrenewable energy content of the advanced biofuel. Funding to a single eligible producer may be limited to ensure equitable distribution of funding. Producers with production capacity of less than 150 million gallons will be eligible for 95% of the funds provided under the program.
State Legislation
Several states, including Iowa, are currently researching and considering legislation to increase the amount of biodiesel used and produced in their states. Minnesota was the first state to mandate biodiesel use. The Minnesota legislation, which became effective in September 2005, required that all diesel fuel sold in the state contain a minimum of 2% biodiesel. In 2008, Minnesota passed additional legislation to increase biodiesel content of diesel fuel sold in the state from 2% to 20%, which is the highest in the nation, by 2015. In 2009, Minnesota increased its biodiesel blend requirements to mandate all diesel fuel contain a minimum of 5% biodiesel, however; the state has occasionally had to suspend this requirement during winter months, due to cold flow concerns. Similarly, in July 2008, Massachusetts signed a law that requires all home heating oil and diesel fuel in the state to consist of 2% biodiesel by 2010 and 5% biodiesel by 2013. However, the Massachusetts Department of Energy Resources will be entitled to delay those requirements if it determines that fuels are not available to meet these requirements.
Originally passed in May 2006, and updated in 2009, Iowa passed legislation that creates a renewable fuels standard (IRFS) that requires 10% of the fuel used in Iowa to be from renewable sources by 2009 and increasing the renewable fuel standard to 25% by 2021. While this does not require biodiesel use, it may significantly increase renewable fuels use in Iowa, which may include increased biodiesel use in Iowa. The Iowa legislation includes tax credits to help retailers meet this requirement.
For example, Iowa provides for an incentive of three cents per gallon of biodiesel sold for retailers who sell at least 50% biodiesel blends. This incentive, known as the Biodiesel Blended Fuel Tax Credit, is also expected to support biodiesel sales and production. This incentive is set to expire in 2012.
In addition, in 2009, Iowa passed the Ethanol Promotion Tax Credit, which began in 2009 and ends after calendar year 2020. The incentive each site is eligible for will be directly tied to the IRFS schedule with amounts to be paid only for “pure” ethanol gallons (E100). The law allows “pure” biodiesel gallons (B-100) to count toward achieving the threshold schedule. However, biodiesel gallons are not eligible for these credits; as they are covered by the Biodiesel Blended Fuel Tax Credit. The schedule is based on E-100 plus B-100 divided by total gasoline gallons. The amount of the credit will be determined each year using:
|
|
|
|
|
|
o |
6.5 cents per gallon of E100 if retailer meets the biofuel standard threshold percentage |
|
|
|
|
|
|
o |
4.5 cents per gallon of E100 if retailer is within 1-2% of threshold percentage |
|
|
|
|
|
|
o |
2.5 cents per gallon of E100 if retailer is within 3-4% of threshold percentage |
|
|
|
|
|
|
o |
0 cents if more than 4% below the threshold percentage |
|
|
|
|
|
|
We anticipate this program may also support biodiesel demand and growth in our industry. |
|
Other states 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.
16
Future Legislation
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) governs 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 adverse effects on our operations, cash flows and financial performance. These adverse effects could decrease or eliminate the value of our units.
Quarterly Financial Results
At January 31, 2011, we had total assets of approximately $28,896,000 consisting primarily of cash and equivalents, property, plant and equipment, assets held for sale and escrow deposits. At January 31, 2011, we had current liabilities of approximately $1,794,000 consisting of our accounts payable, current maturities of long-term debt, and other accrued expenses. Total members’ equity at January 31, 2011 was approximately $21,167,000. Since our inception, we have generated no revenue from operations. For the three months ended January 31, 2011, we had a net loss of approximately $208,000.
Sources of Funds
In December 2005, we sold a total of 1,500 units to our founding members at a price of $333.33 per unit and received aggregate proceeds of $500,000. In addition, in April 2006 we issued 1,600 units to our seed capital members at a price of $500 per unit and received aggregate proceeds of $800,000. We sold 30,668 units at a price of $1,000 per unit in our Iowa registered offering and received aggregate proceeds of $30,668,000. We broke escrow on our Iowa registered offering in June 2007. We incurred costs of raising capital of approximately $186,000 related to the equity proceeds raised. These costs primarily consisted of legal fees, professional fees and printing costs. In July 2008, we executed a redemption agreement with Bratney pursuant to which Bratney agreed to return its 750 membership units.
We determined the offering price for our founding members, seed capital and general offering units based upon the capitalization requirements necessary to fund our development, organization and financing activities as a development-stage company with plans to construct and operate a biodiesel plant. We did not rely upon any independent valuation, book value or other valuation criteria in determining the founding member, seed capital or general offering sales prices per unit.
Debt Financing
On April 2, 2010, we entered into a Loan Agreement with OSM. Subject to the terms of the Loan Agreement, OSM agreed to lend us $6,000,000 to be used to acquire the Mason City biodiesel production facility. The initial interest rate is 5%. In October 2016, the interest rate will adjust to the 5-year LIBOR/swap rate plus 3.5%, with a floor of 5%. During the first year of the loan, we will be required to only pay interest on outstanding amounts. Beginning in November 2011, we will make principal and interest payments amortized over a ten-year period, with maturity of the note in 2021.
The Loan Agreement requires us to adhere to various covenants which restrict our operating flexibility. The Loan Agreement restricts our ability to make distributions to our members, to further pledge our assets for other financing that we might require, and to make payments on subordinated debt we acquire. In addition, the Loan Agreement requires us to maintain certain financial ratios and to obtain OSM’s permission before taking certain actions affecting our business and material contracts.
At closing, we executed a mortgage and security agreement in favor of OSM creating a first lien on all of the assets we acquire under the Asset Purchase Agreement and the proceeds from those assets. As a result, we must obtain OSM’s permission to sell these assets, which could limit our operating flexibility.
17
The Loan Agreement provides that certain actions will constitute defaults, which would allow OSM to terminate its commitment to loan the funds, or if already advanced, to demand immediate repayment of the entire loan amount and foreclose its security interest in our property. Defaults include the following events:
|
|
|
|
|
|
• |
our failure to make the required principal and interest payments; |
|
|
|
|
|
|
• |
if any representation or warranty made by us proves to be materially misleading or untrue; |
|
|
|
|
|
|
• |
our failure to comply with the terms of the Loan Agreement; |
|
|
|
|
|
|
• |
the destruction of the Mason City biodiesel production facility; |
|
|
|
|
|
|
• |
cessation of making certain improvements to the biodiesel plant required by OSM; |
|
|
|
|
|
|
• |
our failure to comply with certain requirements of governmental bodies; |
|
|
|
|
|
|
• |
if we have unsatisfied judgments against us that exceed $150,000 for 30 days or more; |
|
|
|
|
|
|
• |
if we file for bankruptcy or cease to exist as a legal entity; |
|
|
|
|
|
|
• |
if we fail to comply with all covenants; |
|
|
|
|
|
|
• |
if we are unable to pay our debts when due; |
|
|
|
|
|
|
• |
if we are in default under a material contract or lose a permit or material contract necessary for our business; |
|
|
|
|
|
|
• |
if we are in default under any agreement with OSM; or |
|
|
|
|
|
|
• |
if we are in default with respect to any other indebtedness. |
On September 30, 2010, we entered into an Amended and Restated Loan Agreement with OSM. The purpose of amending and restating the Loan Agreement was to address certain items related to closing on the loan and to address additional details related to the Construction and Design Agreement and our anticipated biodiesel production facility modifications to make it multi-feedstock capable.
On March 18, 2011, we entered into a first amendment to the loan agreements with OSM, whereby certain defined terms related to a covenant calculation were clarified.
Grants and Government Programs
Currently, there are limited numbers of grants, loans and forgivable loan programs available to biodiesel producers. We are uncertain what grants, loans and forgivable loan programs, if any, will be available to us in the event we begin operations at the Mason City biodiesel production facility. Some combinations of programs are mutually exclusive.
Critical Accounting Estimates
Management
uses various estimates and assumptions in preparing our financial statements in
accordance with generally accepted accounting principles. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Accounting estimates that are the most important to the presentation
of our results of operations and financial condition, and which require the
greatest use of judgment by management, are designated as our critical
accounting estimates. We have the following critical accounting estimates:
We review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. Impairment testing for assets
requires various estimates and assumptions, including an allocation of cash
flows to those assets and, if required, an estimate of the fair value of those
assets. We review assets held for sale at each reporting date to determine that
the carrying value is equal to or greater than the estimated net selling price.
The carrying value of assets held for sale is based on the ability to sell or utilize
these assets. Our estimates are based upon assumptions believed to be
reasonable, but which are inherently uncertain and unpredictable. These
valuations require the use of management’s assumptions, which do not reflect
unanticipated events and circumstances that may occur.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
18
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is not required to provide the information required by this item because it is a smaller reporting company.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (the principal executive officer) Charles Sand, along with our Chief Financial Officer (the principal financial officer) Dallas Thompson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of January 31, 2011. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred during the period ended January 31, 2011 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently subject to any material legal proceeding or claims. Management does not believe that there are currently any material unasserted claims against us.
The Company is not required to provide the information required by this item because it is a smaller reporting company.
19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any membership units during the three months ended January 31, 2011. None of our membership units were purchased by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Exchange Act) of the Company during the three months ended January 31, 2011.
ESTIMATED USE OF PROCEEDS
|
|
|
|
|
|
|
Use of Proceeds |
|
Amount |
|
|
|
|
|
|
|
|
|
Equity Proceeds Raised |
|
$ |
31,782,000 |
(1) |
|
Estimated Proceeds Used in Development and Construction of biodiesel facility in Marcus, Iowa. |
|
|
(8,593,000 |
)(2) |
|
Estimated Proceeds Used in Development and Purchase of biodiesel facility in Mason City, Iowa. |
|
|
(7,254,000 |
) |
|
Proceeds used to purchase the Mason City biodiesel production facility |
|
|
(4,000,000 |
)(3) |
|
Estimated Proceeds Used in Construction of Improvements at Mason City biodiesel production facility |
|
|
(1,323,000 |
) |
|
Proceeds required to complete related improvements on the Mason City biodiesel production facility |
|
|
(6,677,000 |
) |
|
Interest income earned on cash and equivalents |
|
|
1,406,000 |
|
|
Estimated proceeds remaining for start-up of Mason City plant and related expenditures (does not include debt financing from OSM) |
|
$ |
5,341,000 |
(4) |
|
|
|
|
|
|
(1) This amount is our total equity proceeds less the redemption agreement for 750 units we executed with Bratney and our offering costs of approximately $186,000. The primary offering costs we incurred in raising capital included legal fees, accounting fees, printing and distribution costs, and meeting costs.
(2) We believe these amounts represent the proceeds we used as of January 31, 2011 on construction, building and facilities, purchase of machinery and equipment and purchases of real estate related to our attempt to construct a biodiesel facility in Marcus, Iowa.
(3) This figure does not include the $6,077,595 we obtained from OSM under the Loan Agreement, or the $375,000 paid to New Equity under the Settlement and Termination Agreement.
(4) This number is our current cash and equivalents, less: our accounts payable; and accrued expenses. It does not include amounts owed for improvements to the Mason City biodiesel production facility, as those will be paid by the escrow deposit. If we sell some of the assets we have held for sale, then this will increase the proceeds remaining to invest in the Mason City biodiesel production facility. Additionally, this figure does not include the $6,077,595 in debt financing that we obtained from OSM pursuant to the Loan Agreement, or the $375,000 paid to New Equity under the Settlement and Termination Agreement.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
None.
|
|
|
|
(a) |
The following exhibits are filed as part of this report. Exhibits previously filed are incorporated by reference, as noted. |
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Method of |
|
|
|
|
|
|
|
10.1 |
|
First Amendment to Amended and Restated Loan Agreement between OSM-REO FF, LLC and Soy Energy, LLC dated March 18, 2011. |
|
* |
|
|
|
|
|
|
|
31.1 |
|
Certificate pursuant to 17 CFR 240 13a-14(a) |
|
* |
|
|
|
|
|
|
|
31.2 |
|
Certificate pursuant to 17 CFR 240 13a-14(a) |
|
* |
|
|
|
|
|
|
|
32.1 |
|
Certificate pursuant to 18 U.S.C. Section 1350 |
|
* |
|
|
|
|
|
|
|
32.2 |
|
Certificate pursuant to 18 U.S.C. Section 1350 |
|
* |
|
|
|
|
|
|
|
(*) |
|
Filed herewith. |
|
|
20
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
SOY ENERGY, LLC |
|
||
|
|
|
|
||
|
Date March 22, 2011 |
/s/ Charles Sand |
|
||
|
|
|
|
|
|
|
|
Charles Sand |
|
||
|
|
President and Chief Executive Officer |
|
||
|
|
(Principal Executive Officer) |
|
||
|
|
|
|
||
|
Date: March 22, 2011 |
/s/ Dallas Thompson |
|
||
|
|
|
|
|
|
|
|
Dallas Thompson |
|
||
|
|
Treasurer and Chief Financial Officer |
|
||
|
|
|
|
||
|
|
|
|
||
21